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I worked as a CFO in the small business community for almost 20 years. I was usually responsible for Compensation plan design as well as Benefit plan design - including 401k / Profit sharing. This experience made me very aware of the challenges faced by small businesses regarding retirement benefits. This is also what inspired me to create 401ktest.com

In 1999, I left a Software firm to help a Design firm pursue an aggressive growth model. It was a very challenging and rewarding job. I loved almost every minute of it! We grew the company by 400% in 7 years, and it's still doing very well today! I left the firm in 2006 to start 401ktest.com.

So much has happened since 1999! The dot-com crash, Enron, the 9/11 tragedy, The commercial real estate crash, the housing bubble, Britney Spears shaved her head..... I remember sitting in my office (prior to these events), looking thru the documents of another poorly designed and poorly managed 401k plan. Many small businesses have 401ks with poorly designed features like this:
  • Officers couldn't take full advantage of the plan. At the beginning of every year our investment advisor/administrator (IA) would give each of our officers a number - a very low number - and say "This is how much you can invest in the plan this year. If you would give your employees a safe-harbor match, you could invest more".
  • The officers didn't know they had another option to increase their 401k withholdings - interim testing. It was very frustrating to see the owners under-fund their withholdings by $10,000 every year. Owners were only presented with 2 options by their IA:
    • Adopt a Safe-harbor plan, or
    • Suffer. This is a relative term of course!
  • Owners weren't getting very much out of the Profit-sharing contribution. The plan had a discretionary profit-sharing provision, but the allocation formula gave the bulk of the fund to the employees. So every year, our very young employees would get a piece of paper with a number on it.
    "You mean I can't get any of this money till I quit, or turn 60?". That was the reaction of most employees. If you are an HR manager with a safe-harbor 401k, I'm sure you've heard this question many times!
Given my research and experience, I knew company contributions were a bad use of benefit dollars, especially for a young labor force like ours. I could use half that Profit-sharing money to increase Christmas bonuses and the employees would appreciate it 10 times more. The only people that really cared about retirement savings were the owners and the older officers, and they were being restricted more than necessary!

Nothing against the IA. He gave decent investment advice, but when it came to designing a proper benefit plan, he was focused on talking the owner into a safe-harbor plan.
Who can blame him? He is paid based on the assets in the plan!

The IA wouldn't perform interim testing, so I started doing it myself. We used Prior Year Testing and the officers were thrilled! After the 1st year we started testing more often - Once a quarter, once a month, then once every time we ran payroll, especially in the 4th quarter when things can change quickly! We later switched to the current year method, which is a little more aggressive and unpredictable than the Prior-year method.

Testing this often bacame very time consuming in Excel, so I started looking for a systematic testing process. There had to be a testing service on the internet somewhere, right? There was, but it was very expensive! There was nothing out there that was priced for the small business community.

In 2001, I explored the idea of creating an affordable ADP/ACP testing site. By the end of 2004, I created a decent prototype testing procedure in Excel and started interviewing web/development programmers (Yes, it took 3 years to create a prototype! But don't forget, I still had a full-time job!). I was most impressed by a company called Robin Technologies. They seemed to understand the project more than anyone else. The next step was to flowchart the process then coordinate with the programmers. I knew I had come to the point of no return. If I didn't devote myself to this project full-time, it would never get done. I quit my full-time job in 2006, and started working on 401ktest.com full-time.

We launched the beta sight in November, 2006. We offered systematic testing using the prior-year method. The process worked great and it was more user-friendly and feature-rich than I hoped it would be. the biggest change during the development process was the drag and drop feature. We provide the option to move employees from one category to the other in the middle of the testing process - This is a great way to run scenarios and explore options without having to reconfigure plan features.

The first version was released in June 2007 to very mixed reviews - Some people liked it, but most people wanted a testing option using the current year method. Back to the drawing board!

We released version 2.0 in September, 2006 and everyone loved it, except the competition! Subscriptions started pouring in after just a few months. Everyone who uses the sight seems to really like it. Many people ask me to add a the Top-heavy test, but my biggest criticism is that I'm not charging enough for the annual license. That's probably true, but my original vision was to provide a great testing product that everyone in the small business community can afford; and that's what we're going to do as long as I'm with the company.

Anthony C. Gruber, CPA
President / Founder, 401ktest.com

    PS: We currently have no plans to add a Top-Heavy testing option for a couple reasons:
    • The test requires more than just payroll and employee census data, so it cannot be performed quickly; even if it is made available as a web-based test. IE: A systematic testing process wouldn't save the user very much time.
    • In theory, the test is very easy, but there are so many rules, options and frequent changes, the testing routine would be very complicated and it would need to updated frequently.
    IE: The price for such a test would have to be relitavely high, and it ultimately wouldn't save the user that much time.
    However, We provide detail instructions for the the Top-Heavy test in our Courses and Tables section. This content is available at no extra charge for active subscription holders.

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