As a physician operating a small practice, it’s important to provide your employees with the benefits they deserve. One of the most desirable benefits is a sound retirement plan.
The ADP 401k plan is a well-known option, in part because it’s one of the largest providers offered by a national leader in payroll and retirement services.
But is it the right plan for you?
Perhaps you’re ready to create a new retirement plan for your employees. Maybe you’re looking to change from the plan you currently have.
ADP retirement services are an option worth considering, yet they certainly get mixed reviews.
Today we’re taking a hard look at the ADP 401k plan.
Keep reading to learn everything you need to know before deciding if the ADP 401k plan is right for your practice and employees.
Table of Contents
Who is ADP?
Automatic Data Processing (ADP) has been providing employers with retirement plans and other services for over twenty years.
As one of the biggest providers in the country, they work with over 700,000 businesses of all sizes. Their clients range from small businesses with one employee to large corporations with over a thousand employees on the payroll. However, ADP specializes in working with businesses that have between 1–49 employees.
ADP provides payroll, tax filings, insurance, and a variety of other administrative services. When it comes to their 401k offerings, employers have several plans to choose from.
ADP is considered a “bundled” 401k provider in that they handle all major aspects of a 401k plan: asset custody, record-keeping, and administration. “Unbundled” 401k plans do not offer administrative services — you have to hire a TPA (third party administration) to provide those services.
A TPA is important in that they can often detect problems or issues with the plan itself. With an unbundled plan, the TPA is an objective third party – an outside source. In the case of ADP, which provides the administrative services directly, there is no need to hire an outside TPA.
ADP gets high ratings as a retirement plan provider by companies that use their combined services, such as 401k plans and payroll. This is because the ADP payroll system is easy to integrate with the ADP record-keeping system for 401k plans.
When companies use ADP for both payroll and 401k management, there is no need for manual data entry by administrative staff. And that’s because the combination of the two ADP products makes it extremely easy to set up retirement plans.
Related: What Physicians Need to Know about 457b Deferred Compensation Plans
What Can I Expect With an ADP 401k Plan?
ADP 401k plans offer a variety of investment options. Members of the plan can create a range of balanced portfolios and have the opportunity to choose from a variety of mutual funds.
When choosing mutual funds, some 401k plans only allow you to invest in their own proprietary funds.
ADP does not have any proprietary fund requirements. Participants can choose from a range of different funds from T. Rowe Price, Vanguard, and other fund managers.
There are many types of portfolios, plan features, and investments employees can choose from with an ADP 401k plan.
ADP also makes it easy to set up retirement plans and accounts with new employees. They promote automatic enrollment, so rather than opting in, employees have to opt-out. This helps to encourage employees to participate in the plan available to them.
In addition, ADP offers some easy benefits to employees enrolled in their plan. Employees can roll over old retirement accounts into their new ADP account. They can also take loans against their 401k account balance. ADP gives employees up to five years to repay their loans (with a minimum requirement of a $500 loan).
How Much Does it Cost?
ADP is rather transparent about its direct fees.
It is easy to understand their:
- Base record-keeping fee
- 5500 preparation fee
- Trustee fee
These fees are all reported clearly in their 404a-5 participant fee disclosure forms, plan statements, and 5500 forms.
However, when it comes to revenue sharing fees, they are not as upfront.
Why does this matter? Because revenue sharing fees can be the same as the direct fees, meaning that the total of your fees for having the plan may be double what you may think.
Revenue sharing payments are based on a percentage of the plan’s assets. As assets grow, so do the revenue sharing fees. And they can grow quickly. The bigger your plan design grows, and the more assets you have, the more fees you’ll have to pay.
How Much Support Do They Provide?
ADP provides fiduciary support by serving as both the plan administrator and record-keeper. Here’s what that means:
A fiduciary is defined as a “trustee”. Fiduciary support can be defined as “involving trust, especially with regard to the relationship between a trustee and a beneficiary.” ADP provides this support in compliance with federal law. This ensures that the 401k plan is being managed properly and that beneficiaries are benefiting.
As the administrator and record-keeper, ADP provides documents related to the plan and prepares IRS Form 5500 for tax filings. They offer extra options for additional fees, such as fund performance monitoring and investment advice. These advisory services help employees enrolled in the plan to decide where and how to invest their money.
ADP 401k: Pros
Every 401k plan has its share of pros and cons. When it comes to the ADP plan, there a quite a few things that both plan sponsors and employees like about it.
1. ADP offers a variety of plans
This allows business owners to choose the plan that’s best suited for their needs.
2. ADP provides online plan management
They also offer an online portal that makes it easy for plan participants to manage their plans.
Plan sponsors can use the portal to monitor participation rates, view contribution rates, and see plan allocations. Employees can use it to monitor their account balances. It also allows them to change contributions and make allocations to different funds. The portal is easy to access both online and through the ADP app.
3. ADP offers 401K education and support
Another perk for plan sponsors is that the ADP 401k plan provides support. An ADP team can educate your employees, help you to manage your plan, and make sure you are in compliance at all times.
ADP 401k: Cons
As to be expected with any 401k, the ADP plan has quite a few negative reviews as well.
Here are the things that most people find troubling about the ADP 401k:
1. ADP encourages payroll integration — even if you don’t need it
This makes adding retirement plans and accounts extremely easy. Yet many people don’t want or need ADP for payroll and find this to be a bit of a hassle. If you already have the ADP payroll system, you may like it. If you don’t use ADP for payroll, you may not.
2. ADP doesn’t offer third party assistance
Another thing that some people don’t like about ADP is that they don’t use a traditional TPA (third party administrator). They do their own administration, so rather than having an outside source that you can go to for assistance, you’ll only deal with reps from ADP.
3. The ADP 401k doesn’t have set pricing
Price is also a drawback for many employers considering the ADP 401k plan. It is not the cheapest solution available — especially for physicians with small practices that have only a few employees. ADP fees tend to be a bit higher than those of their competitors.
Unfortunately, there is no pricing on the ADP website. You’ll need to take the time to contact them to receive a quote. This is because the plans are customized. There is no one set price for every business — different businesses get different quotes.
If you need advisory and management services, ADP will charge you even more. Those additional fees can add up quickly, so make sure you’re well aware of them before deciding to go with an ADP plan.
4. There is a lack of disclosure with ADP fees
Perhaps the biggest drawback of all is in how they disclose their fees. They have no legal obligation to disclose the cost of fees in their 408b-2 form — they only disclose the percentage paid. Not having full disclosure of the fee amount makes it a bit more difficult to assess those fees and know if they’re reasonable or not.
The concept of “reasonableness” is a key component when it comes to fiduciary responsibility. Many people get a bad taste from the fact that ADP doesn’t make these fees as clear as they could be.
So What Do Real Users Have to Say About ADP?
As we said above, the reviews on ADP are mixed …
According to BestCompany.com, Dean Gekas DDS from Maryland writes:
“Salesperson pitched low cost and easy integration with our retirement plan (simple IRA). Once service began, I had to repeatedly call and receive my contracted fee for payrolls run. They never honored our price and continually overcharged while extracting funds from the company checking account. Bottom line, salespeople procure business then you get inundated with calls, emails, etc. to purchase more services. THAT is their business model. STAY AWAY!!”
James T Anest from CO writes the following:
“Dependable company and great website to work with. BUT for a small business they will fee you [to] death. I wanted to stay with them, but you couldn’t get any help re[garding] fees. No callbacks. My gains wiped out by fees with their 401K.”
Brittany Cleva from TX writes:
“One of the best things about ADP is the mobile app. This allows for the employee to have pay stubs and W2s right at their fingertips! We can also put links to health insurance apps and 401k sites on the dashboard so that we aren’t constantly requesting new ID cards, etc.”
Uncommon Golden Oriole says:
“We started with ADP when we bought our company they came in with lots of promises and when we started everything was screwed up they pulled 401(k) from our employees paychecks even though we had not set 401(k) up yet this was in February and went on till June we finally found out not from them but from the IRS sending our employees letters claiming they hadn’t paid their loan…”
This person posted the following review on Trustpilot:
“I would give ADP 3-4 stars. Sometimes ADP is on top of things; other times, they don’t explain things well or do things the correct way when making changes. Everyone that I talk to is nice and polite even if mistakes are made.”
Another Trustpilot user writes:
“We have only had a couple of hiccups after 8 years. Would recommend them.”
BrightScope, a website dedicated to helping people make better investment decisions, has this to say:
“ADP TotalSource Retirement Savings Plan is a defined contribution plan with a profit-sharing component and 401k feature. This plan has a BrightScope Rating of 63. This plan is in the top 35% of plans for Salary Deferral and Total Plan Cost. ADP TotalSource Retirement Savings Plan currently has over 228,000 active participants and over $4.5B in plan assets.”
Want to protect your income in case of emergencies? Learn about Disability Insurance for Physicians.
To sum things up, many employers like the ADP 401k plan, especially those that use ADP services for payroll. The smooth integration of payroll and retirement accounts is great. But if you’re not already using ADP for payroll, the 401k plan might not be the best option for you.
On the other hand, lots of small businesses are dissatisfied with the way ADP manages their 401k. Customers complain of poor customer service, higher fees than other funds, and other issues when dealing with ADP reps.
Before deciding on a 401k plan for your employees, do your research. Let us know. We can help.
Get quotes from a few different sources and compare prices and fees. The more you know before you pick a plan, the better off you and your employees’ retirement savings accounts will be.
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