Want to feel like a million bucks? Get yourself a 401(k). In a new Small Business 401(k) service, Bank of America has partnered with Merrill Edge to offer small business owners a simple retirement solution. In this post, we discuss the necessity of a retirement plan, the basics of a 401(k) and help you decide whether this path is right for you.
Bank of America’s 401(k): The Right Plan For Your Small Business?
Why building a retirement plan is so hard
As we talked about earlier, many small business owners are underprepared for retirement. In part, this means that financial institutions have not quite met the particular retirement needs of small business owners and their employees. As a result, only 14 percent of small business employers offer a retirement plan to their employees, according to a report by the U.S. Government Accountability Office. Small business owners face a number of challenges to implementing retirement plans, including “administrative costs, contribution requirements, and eligibility based on employee tenure and compensation, among others,” says the report. In other words, building a retirement plan is a complicated, expensive and often disheartening process.
401(k) plans are the most common type of defined contribution plan, reports CNN Money. The plan is fairly straightforward. Employees contribute however much they want to an individual account—this is usually a percentage of their salary. A 401(k) is a smart investment, as the income enters the account pre-tax, so employees have more of their money working for them. The employer will then invest the funds into the account, on behalf of the employee. Plans will usually offer a menu of possible investments, and employees can choose where they want their money to go. Some employers offer to match contributions, such as contributing 50 cents for every dollar the employee invests.
Bank of America 401(k) Pros
First and foremost, you save a lot of trouble with a package deal. The Bank of America 401(k) plan offers an affordable plan, as it is tailored to businesses with less than $250,000 in 401(k) plan assets. As Merrill Edge and Bank of America are both big businesses, you would have access to wide-scale resources. For example, you can set up your plan with the help of seasoned professionals and 401(k) experts. The plan can also save you a great deal of administrative and set-up costs, in part because everything is implemented online. You can also keep track of your 401(k) plan’s performance with daily reports.
To better understand the Bank of America’s 401(k) practices, lets look at its own history with 401(k) plans. In the past, the Bank of America 401(k) has provided a great investment menu at a low cost, according to Brightscope, a financial information company that provides retirement plan ratings and investment analytics.
Bank of America 401(k) Cons
The Brightscope rating for Bank of America’s 401(k) plan suggests that this plan may have a lower than average performance, when compared to other plans. Brightscope writes, “For the average 401k participant, the 14 point difference between this plan’s BrightScope Rating (72) and the top rated plan (86) could equate to 8 additional years of work and up to $61,600 in lost retirement savings.” These are significant numbers, which mean that other options may be better. Also, while big bank convenience may sound nice, Bank of America has ranked low in customer service—coming in last among large retail banks.
Whether or not you opt for Bank of America’s 401(k) program, keep looking into retirement funds for you and your employees. Providing a strong retirement plan can help you attract and keep talented employees, and preparing for your own retirement readies you for the future.
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