Frequently Asked Questions

There is a one-off setup fee of $499 and then a fixed monthly fee based on the number of employees in your company. For plans with less than 100 employees, the fixed monthly fee is $120 + $4/employee with $5/month charged to the employee.

This includes plan design, on-going administration, investment management services and custody of assets. There are no hidden extras, period.

Our pricing for companies with more than 100 employees still follows this flat-fee structure, but there are a few more options. Please contact us for a custom quote.

No, this is built into the fixed monthly fee detailed above. We don’t charge a fee based on the size of assets invested in the plan because these can significantly erode investment performance.

No, we don’t charge any additional fees. Typical low fee 401(k) plans tend to push costs onto employees, deducting a quarterly percentage-fee from their accounts. These fees eat into their investment returns, and when compounded over their lifetime can reduce the size of each employees’ retirement funds by $100,000¹, even with conservative estimates.

All trading costs are included in our fixed monthly fee, and no additional trading commissions are charged.

Employees will incur a very low management fee for the funds they own. This fee is charged directly by the fund provider, not OctaveWealth. One of the main reasons we recommend investing with passive index funds is that they have a much lower management fee than alternative investment vehicles, typically averaging less than 0.10% for an OctaveWealth portfolio.

OctaveWealth also does not pass on the fee charged by custodians for securely holding the assets.

To make plans look cheaper, many competitors lower employer-fees and push costs onto employees, charging an asset-based percentage fee. As these fees compound over time, they can reduce the size of employees’ retirement funds by up to $100,000¹.

Our employer fee is a one-off setup fee and a per-employee monthly administration fee.

Our employee fees, or lack thereof, is where we are different. We don’t charge employee fees for two reasons:

1. The point of setting up a 401(k) is to help employees save for retirement, and these fees and significantly effect returns

2. Recent advances in computer power and automation mean we can provide a world class investment management service for a very low cost.
   Many other plans will push asset based fees, a custodial fee and trading costs onto employees, and whilst individually these may look small, when combined and compounded over their lifetime, they can be significant.

This doesn’t even take into account the providers who push high-fee mutual funds into their plan, which charge a 0.5-2% management fee.

Our monthly fee is charged upfront on the first of the month. For plans starting mid-month, the first month is pro-rated.

Costs for running a 401(k) are typically tax deductible, but please refer to your tax advisor.

If your businesses has between 1 and 100 employees, and you are setting up a new plan, you may be eligible to claim a tax credit of up to $500 for the first three years of your plan.

You can claim 50% of the costs associated with plan set up, administration, and employee education, upto the $500 limit.

For more details, see [here] 1.

We protect your employees assets by doing the following:

1. Designate you as trustee: When setting up your plan, we designate you as trustee. This means OctaveWealth does not have the authority to make any decisions for the plan without your instruction. It is your job to accept funds, manage them prudently, and distribute them to beneficiaries – our systems help you do this.
2. Third party custodian: Your plan assets are held in an account at a third party custodian. This account is held in your name, and OctaveWealth only has the right to issue trading instructions against it, not to withdraw any funds. You are the only one who can deposit to or withdraw from your account.
3. SIPC Insurance: Your brokerage account is protected by SIPC insurance. This insurance covers up to $500,000 in securities (and $250,000 in cash) for your plan account, and is designed to protect you against a failure at the custodian.
4. Extended SIPC Coverage: Our brokerage partner has obtained additional SIPC insurance covering $150 million across all of its clients.
5. Everything is held in street name: OctaveWealth will only make available SIPC covered securities registered in street name at the [Depository Trust Company] 2. That means the securities purchased for your employees’ accounts are held separately from other OctaveWealth assets, assets of other clients of the custodian, and are fully insured as described above.
6. Agency-only business: Our brokerage partner segregates its brokerage and market-making businesses. This means your plan assets are not exposed to any risk from proprietary trading activity.
7. Segregation: Our custodian segregates customer assets from its own, protecting you in the event of a default or bankruptcy.
8. Only easily marketable securities: Our brokerage holds no material positions in over-the-counter securities, and holds no positions in CDOs (Credit Default Options), MBS (Mortgage Backed Securities) or CBS (Credit Based Swaps). These were the securities at the center of the financial crisis, and carry a high degree of risk because they are relatively illiquid so can be difficult to sell without drastically impacting their price.

The assets for your company’s plan are securely held by our custodian in a single account in the Plan’s name. This account is insured by the Securities Investor Protection Corporation (SIPC) up to $500,000 in total value per account, with a $250,000 insurance limit on cash. As with all securities firms, this coverage provides protection against failure of a broker-dealer, not against loss of market value of securities.

The funds we make available to participants are considered a security. Cash is defined as funds not invested in a fund or other security. Please see below for two examples of how SIPC insurance works.

• The plan account has a total of $450,000 in securities and $10,000 in cash. SIPC insurance fully covers both the value of the securities, as well as all of the cash.

• The plan account has a total of $300,000 in securities and $300,000 in cash. SIPC insurance covers the entire equity balance of $300,000, but only $250,000 of the cash balance. $50,000 of cash would not be covered by SIPC in this scenario.

Rest assured, we endeavor to fully invest participant accounts in securities, as cash is a drag on investment return. In any case, we would only keep enough cash in your account to cover one years worth of fees (which even with 100+ employees is well below the cash limit).

Please visit [SIPC] 3 for more information.

If OctaveWealth were to be acquired your 401(k) would remain active. Salary deferrals and matching contributions would continue to automatically be deposited to our brokerage partner, and participants could continue to direct their investments through our platform.

In the unlikely event that OctaveWealth goes out of business, there is no risk to your plan account. Your plan account is held in your company’s name with our brokerage partner. They would continue to hold your plan assets and send you quarterly statements to confirm your holdings. Once you found a new 401(k) provider, they would migrate your plan to their system and transfer your plan assets to their brokerage partner, still in your company’s name.

OctaveWealth has Fiduciary Liability Insurance to cover costs in the event we are sued for decisions we make for your plan. We will also help to arrange Fiduciary Liability Insurance for you, and arrange an ERISA bond to protect the participants of your plan.

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for retirement and health benefit plans in private industry.

An ERISA or surety bond is a bond intended to protect plan assets against dishonesty or fraud committed by individuals associated with the plan. This bond is required by ERISA for all plans. Unlike Fiduciary Liability Insurance, a bond does not protect individual fiduciaries, but instead protects participants and beneficiaries of the plan. We will help arrange an ERISA Bond for all our plans.

Fiduciary Liability insurance protects plan sponsors and trustees if they are sued for fiduciary decisions they make for an employee benefit plan. Plan participants may sue individually or as a class if they feel that benefits were misrepresented or if they believe that different decisions by the trustees could have yielded a higher return. Fiduciary Liability Insurance covers both legal defense costs and penalties in this event.

As Investment Manager for your plan, OctaveWealth acts in a fiduciary capacity for investment decisions for your plan. To ensure we can pay for legal defense and penalties, we have our own Fiduciary Liability Insurance. We will also help arrange a policy to protect you and any employees you elect to act as a fiduciary of your plan.

A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account.

1. All employees (founders included) get access to the tax sheltering benefits that 401(k)s provide.
2. A 401(k) makes recruiting easier; most big companies already provide plans and employees recognize they are a valuable benefit.
3. Profit Sharing within your 401(k) can help small business owners hit their annual contribution limit ($53,000 in 2016), and as with all company contributions are tax-deductible for the business.
4. Employer matching contributions are a great incentive for employees to save and to stay with the company. Eligibility requirements and vesting schedules can protect you against employee turnover. These contributions are tax deductible.
5. They make your company look more credible and have a long term outlook with higher company morale.
6. Employee contributions to a traditional 401(k) are tax deductible, so they benefit from a lower average tax rate. They may also be eligible for a Savers Credit of up to $1,000 for making contributions to their plan.

We aim to make this as simple as possible, holding your hand and guiding you through the process of designing a plan that works for you.

1. Online form, or optional call: 10 minute online setup, or if you want guidance we will discuss your goals for the plan, the financial constraints of your company, and answer any questions to get you comfortable with a 401(k).
2. Payroll integration: We will get this automatically from your payroll system
3. Plan Design: To help you decide features such as eligibility requirements, company match, vesting schedules etc, we will build models to simulate the costs of various plan designs.
4. Finalization: Once you’re happy, we will formalize the plan by drawing up Plan Documents and arrange a kick-off meeting to discuss responsibilities.
5. On-board employees: We will email your employees enrollment forms they can e-sign and send the required notices, to make this as smooth as possible. You will be able to track progress from your company dashboard.
6. Employee enrollment: We will hold a meeting with your employees to bring them up to speed on the plan and make sure they’re happy with the investment process.

Administration for the plan falls into three categories:

1. Managing payments: OctaveWealth is integrated with the leading payroll vendors, allowing us to automate salary deductions for plan contributions, and set up notifications when you have newly eligible employees.
2. Timely distribution of notices: To stay compliant, employees must be sent certain notices according to the schedule stipulated by ERISA. OctaveWealth prepares these notices and allows you to to one-click send them to all employees as required.
3. Compliance tests and government filings: We simulate compliance tests throughout the year to ensure your plan isn’t top-heavy, and prepare Form 5500 ready for you to submit to the IRS each year.

No. Whether you contribute to your plan is upto you.

If you do choose to match, contributions will be tax deductible for the company. You can either make a blanket contribution to all employees, or you can match dollar for dollar the amount deferred by each employee, up to a specified percentage of compensation. The most popular type of match is 50% of employee deferrals, up to 6% of pay i.e. a maximum of 3% of compensation.

Yes. You have the flexibility to set the matching rules each year, and you can even withhold the match until the end of the year; maximizing your working capital and giving you time to evaluate.

As matching contributions are discretionary, you have full control over eligibility requirements and vesting schedules. (Deferrals made by the employee are always fully vested, as are Safe-Harbor contributions - see below).

Many only provide high fee active mutual funds that heavily [over charge] 4.

New providers who don’t have an existing cash cow mutual business to defend, provide 401(k) plans with access to Index mutuals, however many are missing the investment tooling needed; just because you have access to 500 funds, doesn’t mean you know what to do with them. Others are cumbersome to administer; they don’t walk you through plan design, automate employee enrollment, or run annual compliance checks to protect you from penalties.

Yes, you can set up a Solo 401(k) or Solo(k). This is a retirement plan designed specifically for small business owners without employees. Contribution limits and tax-treatment are the same as for a regular 401(k), but administration and setup costs are lower.

Please get in touch if you’d like to discuss.

You can choose to shut down your company’s plan at any stage, for any reason. You will be charged the monthly fee pro-rated to the date the plan ends. We will help to transfer your employees’ assets to an IRA.

If the employee has less than $1,000 in their account, you can instruct us to issue a check to close out their balance.

For employees with more than $1,000, we would help them roll their account to an IRA or transfer to their new employers 401(k), if they have one.

If your company is acquired and your parent company has its own 401(k), you can transfer your plan assets to their plan.

If they don’t have their own 401(k) or you want to shut the plan down, we will help participants roll their account balances into an IRA. The same applies if you cease to do business and shut down the plan.

The Employee Retirement Income Security Act of 1974 (ERISA) sets the standards of conduct for those who manage a retirement plan and its assets. These individuals are called fiduciaries.

As a fiduciary, you are expected to abide by certain standards of conduct. These responsibilities are outlined in the questions below, and this DoL [booklet] 5 provides an overview of the basic responsibilities.

As the entity responsible for overseeing your plan’s administration and the selection of investment options, you are a fiduciary. Every plan must have a named fiduciary, and as plan sponsor you would usually serve that purpose in an OctaveWealth plan.

Unless instructed otherwise, OctaveWealth will serve as the Investment Manager for your plan. This means we would assume fiduciary responsibility for all investment related decisions, reducing your burden.

It is important to remember that fiduciaries act on behalf of plan participants and beneficiaries. Your most important duty is to act solely in their interest, and with the exclusive purpose of providing benefits to them.
You must abide by these standards of conduct:

1. Act with care, skill, prudence and diligence: ERISA requires expertise in a variety of areas, such as investment. You are expected to act in the same manner as a professional expert would. If you don’t have a particular expertise you can hire an external service provider to carry out a function on your behalf. For example, installing OctaveWealth as the Investment Manager for your plan.
2. Following the plan documents: The Plan Document is the foundation of the plan, it is important you understand it and help keep it up to date, for example if a named plan official leaves your company.
3. Diversify plan investments: To minimize the risk of large losses in the plan, it is important to diversify the investment options available to participants. As Investment Manager, it is OctaveWealth’s responsibility to help fulfill this duty.
4. Pay only reasonable plan expenses.

OctaveWealth will help you fulfill your administrative fiduciary responsibilities, and will allow your manage your risk by transferring some of these tasks to us.

As an administrative service provider, OctaveWealth is in a unique position to help you fulfill your fiduciary responsibilities, either by setting up processes for you to follow, or by allowing you to transfer some of the burden to us:

1. Design & Training: We will design and formalize a plan you are comfortable with, and then explain your Plan Documents so you are comfortable with your responsibilities.
2. Build repeatable processes: We will create processes for you to follow when making decisions for your plan. Fiduciary standards are about the way you came to a decision rather than the actual decision itself. One way you can demonstrate that you have carried out your duties prudently, is by documenting the processes used to carry out your fiduciary responsibilities.
3. Transfer risk to us: We will allow you to reduce your risk by transferring investment related tasks to us. As your plan’s Investment Manager, it would be our responsibility to select its investment options and ensure the investment menu is diverse. Our [Investment Policy Statement] 6 would establish the process we follow; helping to demonstrate fiduciary responsibility and serving as a standard against which you can hold us to account.

To reduced your fiduciary responsibility. It would be OctaveWealth’s responsibility to make all investment related decisions. Your fiduciary responsibility would be limited to monitoring our performance, rather than being held accountable for the investment performance and diversity of investment options in your plan.

We will provide an [Investment Policy Statement] [6] to outline our investment goals for your plan, and our methods for monitoring investment options. This will become a standard against which you can hold us to account.

One of our core beliefs is that employees should have access to low-cost investment options. Your plan’s investment menu will be formed primarily of low-cost index funds which give your employees exposure to global fixed-income and equity markets. We want them to be able easily build a diverse portfolio with exposure to the global markets, without paying away large sums in management fees. Unlike some other providers, we don’t make commission by recommending a particular investment product.
[6]: /ips

A plan with a 404(c) Safe Harbor protects plan fiduciaries against liability for poor investment performance. These plans are designed to enable participants to easily direct their own investments, and must make it easy for them to create a diversified portfolio.

There is a minimum standard for the plan’s investment options, and for employee education.

As a minimum, the plan’s investment menu should:

1. have at least three diversified investment options, which have varying degrees of risk and return;
2. enable plan participants to achieve a balanced portfolio using the investments in the menu;
3. and have at least three Qualified Default Investment Options (QDIAs), which can be selected by employees who don’t want to actively direct their investments.

For each investment option in the plan, the following should be readily available:

1. Descriptions of each investment’s objectives
2. Historical risk and return statistics, including definitions
3. Historical total return data, including comparative indices
4. Prospectuses and other regulatory filings

Finally, to make it easy for participants to educate themselves about the basics of retirement planning and investing, these financial concepts should be explained in layman’s terms:

1. The investment risk and return characteristics
2. How to achieve diversification through asset allocation
3. The effects of compound interest, tax deferral and inflation
4. Sources of retirement income

Yes. Our investment menu is designed with 404(c) in mind. It contains at least three investment options with distinct risk/return profiles, and our Target-Risk Investment Models meet the DoL requirements to be used as Qualified Default Investment Options.

The IRS wants to ensure your plan doesn’t unduly benefit owners and highly compensated employees at the expense of other employees. To enforce this, they have mandated annual tests which your plan must pass to keep its qualified status.

In a nutshell, these tests compare the average salary deferral, as a percentage of pre-tax compensation, of Highly Compensated Employees (HCEs) to non highly-compensated employees (NHCEs). The average deferral percentage of HCEs may not exceed that of NHCEs by more than 1.25% or a factor of 2.

A top-heavy plan is one that has failed the IRS’s non-discrimination tests, and mainly favors partners, sole proprietors and other key employees.

To continue to benefit from its qualified status, the plan must take corrective action; it can either refund contributions made by highly compensated employees, or it can make a safe-harbor contribution of at least 3% of compensation to all non-highly compensated employees.

As defined benefit plans don’t exist anymore and social security is severely underfunded, you will have to eventually save for your retirement. 401(k)/IRAs are tax efficient ways to save for the long term. Compounding means there is a significant advantage to starting [early] 7. If you’re not living pay-check to pay-check, you should consider a long term investment plan. Surprising, the biggest contributor to lost returns is not only high fees, but [procrastination] 8.

If it’s a recent windfall (inheritance, startup exit, lottery) and really big ($10MM+ after tax) then you should talk to one of the many high end wealth management firms..

Otherwise a clear investment strategy is doubly important. A good plan will ensure you can grow and preserve your assets in a risk appropriate way.

Even if you’re already wealthy or have other ways to fund your retirement (inheritance, stock options etc), it can still make economic sense to be efficient with your cash. Firstly, there are the tax advantages as you can defer money pre-tax, and then there is the reduction of risk by having a diversified portfolio. It’s prudent to use your annual personal allowances. By not taking advantage of 401(k) / IRAs, you are effectively losing money in excess tax and losing years of potential compounding.

If it’s needed in the next 6 months, then leave it in your checking account.

For 6-18 months, and you don’t know exactly when you need it, online [money market accounts] 9 are usually the best bet and will pay under 1% interest.

For 6-18 months, and you do know when you will need it, then online [Certificates of Deposit] 10 will pay higher interest but lock you in.

These are very low risk cash equivalents, and most will be [FDIC] 11 insured.

For anything anything between 18 months and 5 years, there are various options depending on the amount of risk you can take. In ascending order of risk they are; [Treasury Inflation Protected Securities (TIPS)] 12, [Municipal Bonds] 13 and [Corporate Bonds] 14. While each of these can be bought directly, it’s usually better to use a fund for the asset class to get diversification.

Your investments can be held in a [Roth] 15 or Traditional IRA. A Roth IRA takes post-tax contributions, doesn’t tax you upon withdrawal and allows you to withdraw contributions (not investment growth) penalty-free at any time. A traditional IRA takes pre-tax contributions, charges tax when you withdraw funds and penalizes you for non-qualified withdrawals before you turn 59 1/2. Both types of IRA limit you to $5,500 annual contribution (for 2014, 2015, 2016).

For retirement savings, a 401(k) is the best bet if you’re employed as it offers much higher contribution limits ($18,000 employee, $53,000 employer + employee), and a potential employer-match. Your 401(k) contributions don’t affect your IRA limits.

The most important thing to remember is that the vested assets in your plan are yours. This means ALL your salary deferrals, and any matching contributions that have vested (if your plan has a vesting schedule). Your employer cannot use them to pay business expenses or creditors if they run into financial difficulty.

If your company is acquired and the parent company has its own 401(k), your employer may choose to transfer your plan assets to the parent company’s plan.

If the parent company doesn’t have their own 401(k) or your employer wants to shut the plan down, we will help you roll your account balances into an IRA.

Your plan assets are held in an account at a third party custodian. This account is held in your employer’s name, and OctaveWealth only has the right to issue trading instructions against it, not to withdraw any funds. Only you can deposit to or withdraw from your account. OctaveWealth maintains a record of the assets owned by each employee that works at your company.

These investment models are designed to give investors an optimal exposure to global equity and fixed-income markets using low-cost passive index funds. They allow participants to achieve a balanced portfolio with exposure to over 50 markets in a single-click. They also help your plan meet requirements for 404(c) Safe-Harbor protection.

Please see the [Fact Sheet] 17 and [Investment Methodology] 18 for further details.

No, unlike other providers, we do not charge a management fee.

Participants will be charged a very low management fee by the providers of the funds they have invested in. The average fee for oue default fund line-up is 0.1% of assets, and does not result in commission to OctaveWealth in any way. The fee is automatically deducted from dividends distributed by the fund, so you will not see a line-item for this charge on your account.

Yes. OctaveWealth manages our Target-Risk investment models in three stages:

1. Automatic re-balancing: As market prices fluctuate, the asset allocation of a portfolio moves away from its benchmark. Research has shown that rebalancing a portfolio to keep it’s allocation in line with the target can add 0.4% to investment performance. Where possible, we utilize dividends and monthly contributions to rebalance, minimizing transaction costs.
2. Annually rebuild investment models: Our Target-Risk models are rebuilt annually, to account for changes in global investment performance. This helps ensure that participants aren’t over-exposed to the risk of any single asset class.
3. Continuously monitor funds: As stipulated in our Investment Policy Statement, we monitor the performance of every fund we use to invest participant funds. We look at factors such as investment performance, management fees, liquidity and governance, to ensure participants have access to best-in-class funds.

As an SEC-registered financial advisor, OctaveWealth is prohibited from posting statements by former or present client that endorse our advisory services, or refers to favorable investment performance they have experienced. This also extends to linking to testimonials on another site. We’re careful to comply with the regulations regarding this restriction.