When James Manns Jr. became the people operations analyst at Greenhouse Software in 2015, one of his first acts was to bring benefits back in-house. And that meant finding a new 401(k) provider.
Greenhouse, a 5-year-old maker of recruiting and onboarding software, had outsourced all of its benefits to third parties in its early days but, as the company grew to 200 employees, wanted to bring them back in-house.
In July 2016, after looking at various retirement offerings, Greenhouse chose Betterment for Business and today, after just a year with the robo 401(k) adviser, the company has boosted plan enrollment from 20% of its employees before Betterment to more than 80%.
Betterment handles all aspects of the Greenhouse 401(k) plan, including custody work, transaction work, writing plan documents, providing compliance testing, recordkeeping and issuing statements.
When Manns began looking into robo 401(k) plans, he wanted a tool or platform that was attractive enough that employees would want to explore, was easy to use, and that offered easy plan explanations without a lot of jargon. “Something modern, sleek and nice to look at,” he says.
The company’s previous retirement plan was clunky and hard to use and, Manns says, only about 40 highly compensated employees were enrolled in it.
“It didn’t show or guide employees on how to view or manage or access their account. They were thrown into a world where they had to figure it out on their own,” he says. “We wanted a solution that would educate employees and guide them and persuade them to get involved and think about retirement no matter what age they were.”
Betterment for Business fit the bill. When logged into their account, employees can ask for advice, call up customer service, change their plan allocation for investments, see how much they are saving, get a forecast of when they can retire based on how much they have saved and when they plan to retire, Manns says.
Ease of use
With the Betterment for Business 401(k) platform, the company implemented automatic enrollment. Participants are auto-enrolled at 6% of earning. New hires, however, can then opt out or decrease their plan contribution. Because of the automatic enrollment feature and the modern look and ease of use of the website, participation in the company’s 401(k) plan increased to 83% of the company’s employees.
“We provide them with retirement plan savings solutions,” says Tom Conlon, head of the client relations team at Betterment for Business in New York. “It gives true advice at a low cost to all their employees. When you look at how individuals save for retirement, the best and most efficient way to do that is out of their paycheck. However, people need advice on how much they should be saving and how to save that. That’s where Betterment comes in. We are the largest automated investment adviser.”
He adds that robo advisers are getting the edge over more traditional 401(k) plans because they leverage the latest and greatest technology.
“Companies that offer 401(k)s, even if the 401(k) comes with advice, which is rare, that advice is limited to the 401(k) plan. To give participants or employees or retirement savers really good advice you have to know their entire financial picture,” Conlon says. “We’re able to aggregate all that data. The more information you give us as an employee or plan participant, the better advice we are able to give you. You can only do that through technology.”
Andrew Way, a senior analyst with Corporate Insight, says he doesn’t believe traditional 401(k) providers that operate in the larger plan arena need to worry about the competition from robo 401(k) providers just yet. He says robo 401(k) providers cannot compete in terms of plan/investment fees and cost efficiency. In addition, he says, most traditional record keepers provide a host of employee communication and support resources that robo 401(k) providers don’t.
Small space fiduciary
Way, however, does think the robos have a market in the smaller plan space. “The robo 401(k) providers recognize the opportunity there and are currently targeting the smaller plan market,” he says.
“If you are a smaller plan sponsor, say a fast-growing technology company, you build software. That’s what you do. You don’t know how to pick a fund lineup, what is an appropriate fee or how to do the search process,” he says. “You need expert guidance … you need a fiduciary.”
Betterment, which launched in January 2016, acts as a fiduciary to both the plan sponsor and plan participants.
Its new business team walks prospective clients through the process of what they are looking for in a retirement plan and what provisions they would like to have. If the client decides to sign a contract with Betterment, the company will guide them through the onboarding process.
“We give them all the tools necessary so it is as hands off as we can possibly make it. It allows the employer to run their business and not worry about running their retirement plan,” says Conlon.
Betterment continues to improve its offering. Over the summer the company added two new features to its online 401(k). The additions include a social responsibility portfolio, which is great for employees who want to align their personal values with their investments, says Manns. Betterment also added an advice feature to its mobile app, meaning plan participants can ask for help at any time right from their mobile device.
In today’s current retirement plan model, many record keepers exist as a distribution arm of some other function, like insurance companies, that love doing record keeping because they are able to distribute insurance products, says Conlon. It is the same with asset managers because being the record keeper gives them a distribution channel for their funds.
“Betterment is different. We don’t manufacture any investment products. We are in the business of giving good advice,” he says. “I think that the industry is headed toward automated investment advice or robo advisers because people want and need advice for saving for retirement or saving for anything.”
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