Paychex 401k Review: Is It Your Best Option?

Paychex 401k Review: Is It Your Best Option?

Paychex, Inc. is a retirement service, human resource, benefits, and payroll outsourcing company. Most of its services, including the Paychex 401k plan, are tailored towards small to medium-sized businesses. The company also has a brokerage option, where it acts as an intermediary between buyers and sellers of financial securities.

Founded in 1971 by B. Thomas Golisano, Paychex Flex is currently headquartered in Rochester, New York. The company acquired the Lessor Group in 2018. With over 14,300 employees, the Paychex generates annual revenue of $3.38 billion.

Paychex Flex Leadership Team

Martin Mucci – President & Chief Executive Officer

Efrain Rivera – Senior Vice President, Chief Financial Officer, & Treasurer

Frank Fiorille – Vice President, Risk Compliance, & Data Analytics

John B. Gibson, Jr. – Senior Vice President of Services

Maureen J. Lally – Vice President & Chief Marketing Officer

Paychex 401k Plan Overview

Here are the highlights of Paychex’s 401k Plan.

Setup and Plan Administration

Paychex functions as a primary facilitator throughout the plan setup. It also works as a third-party administrator (TPA) for the retirement plans. To make retirement savings plan maintenance easier, Paychex helps create and manage plan documents, conducts quarterly compliance testing, check & enrolls participants, and processes employee loans. It even prepares your Form 5500 for the IRS.

In addition, the company lets you choose the trading platform and investment options while facilitating pre and post-tax employee contributions.

Usability

The website, paychex.com, lets you access all the plan information, including the plan investments, the number of participants, plan equity, etc.

Employees can log in to access the account dashboard and use Paychex retirement services such as and check their account balance, manage their contributions and investments, and find information on other investment options. There’s also an app (Google Play and App Store) that employees can use. The app is designed to provide a smooth employee experience and facilitate them with their individual 401k plans.

Range of Features

The company offers full fiduciary support by letting you work with GuidedChoice or GuidedSavings, to meet the ERISA 3(38) fiduciary requirements. Paychex also serves as a recordkeeper.

Besides the recordkeeping services, you can also use Paychex as your payroll processor and integrate your services, which will streamline your administrative tasks. You can draw loans against your 401k savings, with Paychex facilitating the loan process.

Additional features include fidelity bond coverage, investment advisory, investment management, and ADP strategic plan services for help choosing better investment options and to monitor fund performance. The plan’s Roth feature helps business owners to streamline the retirement strategy. It also has an automatic enrollment feature that increases plan participation.

You can also integrate ADP’s payroll services for a more managed system that eliminates manual data entry during the setup of your retirement plan. It can also help streamline future administrative tasks.

Portfolio Analysis

The company provides thousands of investment options, including target-date funds, model portfolios, and broker rosters from Edward Jones, Merrill Lynch, Ameriprise, and Morgan Stanley.

You can also invest in cost-sharing options among clients and participants.

Customer Service

Paychex provides multi-platform support through a mobile app, live chat, and email. However, until you provide the company with your information, the representatives will not disclose any pricing details. Since there is not much information available online, the representatives will try to set up one-on-one meetings with you.

Paychex provides 24/7 customer support to everyone. You can call 1-833-299-0168 to contact service reps who can connect you to finance or retirement experts if needed. If you want to start a new plan, you can call the sales number at 1-833-729-8200.

Fees, Costs & Expenses

According to Paychex, they don’t retain any form of revenue-sharing payments. All participants pay the same investment fees, and the options are diverse and unbiased. The quarterly statements provide a full breakdown of all associated fees. However, they’re not shown on the website beforehand.

The plan fees are also not available on the site. You’ll need to call the company and get a quote, specific to your business and plan goals. Plans do involve a setup fee, monthly service fee, investment management fee, and a plan termination fee.

Paychex 401k Review

Paychex has an established 401k plan. Still, there are positives and negatives to it. Here are the most noteworthy pros and cons of Paychex’s 401k plan.

Paychex 401k Pros

The following are some points that set Paychex apart as a brokerage company:

  • Paychex has a BrightScope Rating of 73, which is only slightly below the average in its peer group.
  • The company comes in the top 15% for Total Plan Cost.
  • The company’s payroll integration service helps streamline clients’ payroll processing.
  • You can manage your plan from anywhere as long as you have internet access.
  • Paychex has partnered with several third-party financial advisors who help you make better investment decisions.
  • There is a lot of investment flexibility and the company takes complete care of your investment requirements.

Paychex’s selling point is its integrated service. It is extremely helpful to small and medium-sized businesses.

Paychex 401k Cons

The following are some reasons why Paychex may not be a suitable first choice for a brokerage company:

  • Paychex has a rating of 2/5 on Consumer Affairs.
  • The company isn’t as transparent with its plan fees, rate of return on investments, and brokerage fees.
  • While the company claims to have thousands of investment options, it doesn’t provide any information on those options on their website. You need to call them and ask for a quote first.
  • The integrated and other extra services usually cost more than other providers.

While the combined costs may be greater than what other providers charge, the all-in-one package makes the entire 401k process more convenient, easier to manage, and more efficient.

What is Paychex Best Known for?

With over 650,000 businesses using the company’s services, Paychex is best known for providing all-encompassing integrated retirement planning services to small and medium-sized businesses.

Paychex is best for:

  • Beginner Investors
  • Small to Medium-Sized Businesses
  • Integrated Services
  • Customizable Plan Services

Paychex’s services are tailored specifically towards small and medium-sized businesses, helping them streamline their processes, deliver employee benefits, and advise on investments.

Other Brokerage Firm Alternatives

You can compare Paychex with the following competitors to get a better idea of the quality of their service.

  1. ADP: Founded in 1949 by Henry Taub, the company is currently headquartered in Roseland, New Jersey. ADP specializes in providing retirement, human resources, payroll, benefits administration, and tax services. The company is one of the few with AAA credit ratings from Moody’s, as well as, Standard & Poor’s. ADP generates annual revenue of $14.175 billion.
  2. Alliance Data: Specializing in several loyalty marketing, benefits, and savings-based services, Alliance has expanded over the years. It was founded in 1996 and is currently headquartered in Columbus, Ohio. In 2017, the company made $7.71 billion in revenue.
  3. Broadridge: Broadridge is a spin-off of ADP and was founded in 2007. It focuses on providing financial technology and is the primary provider of brokerage services for ADP. The company is currently headquartered in Lake Success, New York and has innovated in areas like shareholder communications solutions and virtual annual meetings. Broadridge made $4.32 billion in revenue in 2018 and is ranked at number 592 on the Fortune 1000.

Compared to its competitors, Paychex provides more integrated services. The services are designed and optimized to improve employee engagement and help make retirement planning easier.

Paychex 401k vs Student Loan Benefits

Despite better 401k plans, almost 49% of millennials have started to prefer student loan benefits over 401k contributions. To adjust to this change in preference, the following acts were passed.

Retirement Parity for Student Loans Act

This bill was passed in 2018 and allows employer-sponsored 401k retirement plans to make matching contributions for their employees’ student loan payments. The loan payments are considered salary reduction contributions to the retirement plan.

Employer Participation & Repayment Act

This bill was passed in 2019 and allows employers to make tax-free contributions for the student loans of their employees. Employers can contribute up to $5,250 tax-free which is bound to provide relief to their employees. These contributions can be made to the employee or directly to the lender.

One of the leaders in this category is FutureFuel.io. They offer student loan assistance as a benefit to employers like Salesforce and Transamerica. FutureFuel enables employees to manage all their student debt in one dashboard. They’ll also get real-time notifications of employer contributions.

Is the Paychex 401k Plan Right for You?

While Paychex’s services are commendable, they don’t do a very good job of providing full information on their process, fees, and features. It’s almost as if you’re forced to call them, give them your information, explain your goals, and only then can you learn everything about the plan.

This makes it hard to move forward with the Paychex 401k since you can’t compare it with plans from alternative providers. All in all, it’s better to learn more about other 401k plans from various providers before making a decision.