David Hassell is the CEO at 15Five, a software development company in San Francisco. He recently shopped around for a retirement plan for his 18 employees. The process left him confused and frustrated.
He’d read a book about retirement plan participants paying too much for their 401(k) plans to the detriment of their retirement savings, so he wanted to avoid companies with high fees. But in looking around, he found it very difficult to figure out what all of the fees were and what the providers were doing to earn them.
“Lots of times they are hidden fees but you, as a business owner, are a fiduciary and responsible for providing good investment opportunities for employees,” he says. Sometimes “companies maybe are not as transparent. You don’t really know what all the fees are, and are potentially exposing yourself to liability and providing a drag on employees’ savings potential.”
Hassell spoke to companies that offer more traditional 401(k) plans and others that offer more automated solutions. He eventually settled on San Francisco-based Ubiquity Retirement + Savings, a full-service third-party administrator and recordkeeper, because he felt they were the most honest about their fees. They charge a flat fee of $4 a month per employee.
Hassell was wary of individuals who promised to take the fiduciary duty off his shoulders in exchange for a hefty fee, usually more than 50 basis points.
The reality is, the employer is still the fiduciary, Hassell says. “I can’t get away from that by picking someone else.”
401(k) companies need to do a better job of explaining what they are doing to earn the fees they’re getting, he says.
“When you look at that half percent over 20 years of compounding, that is a significant amount of drag for basically no value,” he believes.
Ubiquity uses a proprietary platform and softwar and handles all documents, compliance, daily plan administration, Form 5500s and everything in between.
Founder and CEO Chad Parks says he welcomes new entrants into the 401(k) space, including robo-advisers such as Betterment, which made a big splash earlier in the year when it announced a 401(k) offering for businesses.
“It legitimizes that there is a huge need, and it shows that technology can make things more accessible and more affordable,” he says.
And while some in the 401(k) industry have called robo-advisers market “disruptors,” Parks is more skeptical.
“That’s a generous statement,” he says. “In that instance, time will tell. But I think people perceive it as disruptive because people other than us are interested in the space. No one I’ve seen has gotten any massive game-changing approach to this, mainly because we are all limited to what the regulations are and what the reality is. We’re creating a bunch of new front doors. Behind it all, it is still the same thing.”
Many of the companies that have jumped into the automated retirement account space, like Wealthfront, serve IRAs and rollovers from 401(k)s to IRAs.
Others, such as blooom, focus primarily on 401(k)s or 403(b)s. “They are a large market. An unserved market,” says Chris Costello, co-founder and CEO of blooom, which is based in Overland Park, Kansas. “I think we will develop a big brand name for ourselves in the years to come.”
Paula Aven Gladych is a freelance writer based in Denver.
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