PEO-Sponsored 401(k) Plans: What's Included and How to Choose

On its own, a small or medium-sized business  does not have much purchasing power in the employee-benefits marketplace. These businesses can, however, gain access to top-tier retirement savings programs for their employees that’s cost effective by working with a PEO. For PEO-sponsored plans, the PEO handles many of the administration and compliance requirements for the plan.

Top employees expect to receive high-quality benefit packages, and 401(k)s are especially popular because of their tax advantages. PEO-sponsored 401(k) plans are exceptionally attractive and help you recruit the talented workforce you need to drive your business’s success. A retirement plan can also help enhance employee retention, which cuts down on expensive turnover, and keep motivation levels high.

This article provides an overview of what benefits and services a PEO-sponsored 401(k) plan includes and guidance on what to consider when choosing if PEO is the right fit for your business.

Understanding PEO-Sponsored 401(k) Plans: The Basics

Businesses can work with a PEO to get comprehensive HR solutions. The PEO becomes the employer of record for its clients' employees for certain purposes like payroll tax. A PEO can provide a business with access to employee benefits and handles some of the responsibility for administering them and can do this in a cost-efficient way.

Businesses  who sponsor their own 401(k) are typically known as a single-employer plan.  The business is responsible for choosing a 401(k) provider. It must also administer the plan and ensure that it stays compliant with ERISA and other laws and regulations.

In contrast, a PEO can sponsor a multiple-employer 401(k) plan “MEP.” The PEO sponsors the plan and offers access to its client companies, who can become participating businesses under the MEP. MEPs can help client companies alleviate plan-related administrative burdens and potential risks.

A PEO-sponsored 401(k) plan can be one part of a broader benefits package, which might include, in addition to retirement plans, high-quality health, dental, vision and life insurance. The PEO also can provide access to benefits that small businesses might not offer on their own, such as adoption assistance, educational benefits, dependent care, and pet insurance, all of which can help your company stand out when competing for employees.

Core Components of PEO-Sponsored 401(k) Benefits

The essential components of PEO-sponsored 401(k) benefits include:

Investment options and portfolio management

Individual employees have different investment goals for their retirement savings and varying tolerance for risk. They appreciate 401(k) plans that give them choices. A PEO-sponsored 401(k) plan typically provides a diversified investment menu, which may include a suite of target-date funds.  With a PEO-sponsored 401(k) plan, employees can select the options that best meet their needs.

Target-date funds, are a collection of mutual funds designed to automatically reallocate for investors based on their expected retirement date.   They simplify the process by using a single mutual fund that adjusts the asset mix over time as employees approach their anticipated retirement dates. 

Employer contributions and matching programs

A popular feature of 401(k) plans is the employer match, where the business contributes money based on employee contributions to the 401(k) plan. For example, an employer might match an employee's contribution to the plan dollar-for-dollar until they have contributed 3% of their salary.  Any contributions the employee makes above 3% of salary are not matched.  

There are many possible variations for matching, but the programs enable the business to contribute toward the employee’s retirement under the tax-advantaged status of a 401(k) plan.

A 401(k) plan can also have a profit-sharing component, where the employer makes contributions to employees’ 401(k) accounts, even if employees don't contribute anything.

Annual contribution limits are 100% of salary or an amount specified by the IRS or plan document, whichever is lower.

Administrative services and plan management

Benefits administration and managing 401(k) plans can be a time-consuming headache for SMBs. PEOs take on much of the work for PEO-sponsored plans. Their services may include:

• Comprehensive plan administration and record-keeping.
• Participant account management and online platforms.
• Automatic enrollment and escalation features.

Fiduciary Responsibility and Compliance 

A PEO also lightens the load for SMBs by taking on the responsibility of being a named co-fiduciary for a PEO-sponsored plan. Retirement plans are heavily regulated, and PEOs help businesses mitigate their risk by providing 401(k) compliance support.

Their responsibilities and services may also include:

• Regulatory and compliance oversight, including investment option monitoring
• Plan audits
• Documentation management
• 5500 Audits and Filings

Participant Education and Support Services

PEOs and their retirement providers may provide other services to help employees make the most of the retirement benefits, such as:

• Educational resources, including financial planning
• Retirement planning tools
• One-on-one counseling and financial wellness programs
• Communication strategies to boost participation rates
• Distribution rules
• Withdrawal guidance

Key Factors in Choosing the Right PEO-sponsored 401(k) Plan

We know employees appreciate employer sponsored benefits. It’s up to you, as the employer, to choose if you want to offer it to your employees. Let's look at what you should take into account when choosing 401(k) benefits.

Plan design considerations

Consider aspects of the plan’s design such as:

• Customized plans vs. standardized offerings
• Vesting schedules and eligibility requirements
• Loan provisions and hardship withdrawal options

Cost efficiency and fee structures

Can your business afford to extend this benefit? Take these factors into consideration:

• Understanding plan costs and fee transparency
• Comparing administrative fees across 401(k) vendors
• Evaluating cost per participant and service value

Service quality and support

Will the experience be a positive one for the business and employees, or will it be a hassle? Consider things such as:

• Provider reputation
• Client service standards
• Technology platforms
• User experience
• Ongoing support
• Plan optimization

The Benefits of Working with TriNet

A TriNet-sponsored 401(k) plan can be a valuable benefit to employees while alleviating time-consuming retirement plan administration to SMB owners and managers. It’s also cost-effective, with fees that are usually lower than the industry average*.

A TriNet-sponsored 401(k) plan gives your employees choices from multiple fund companies, including both actively and passively managed funds. TriNet supports employers with compliance testing, automated contributions, investment monitoring, and distribution processing. Both employees and employers appreciate TriNet’s robust technology and responsive customer service.

TriNet-sponsored 401(k) plan is just one of the many benefits you can get access to. In addition, TriNet’ PEO solution offers comprehensive HR support for businesses that need help with HR tasks. Contact us today to find out more about how TriNet can help your business succeed.

*As compared to the 401(k) Averages Book, which provides 401(k) plan average cost information compiled from a variety of sources.