Technology has streamlined many of the most complicated business-related processes—whether it’s keeping your books, processing payments, or securing a business loan, there’s an all-digital solution on the market. Now, you can add employer-sponsored retirement planning to that list with Betterment for Business, a 401(k) plan for employees.
Like the original Betterment, Betterment for Business is an automated wealth management platform. Using a combination of software and a support team of retirement planning professionals, Betterment for Business partners with you, the employer and plan sponsor, to manage your company’s plan. Employees also receive personalized advice about how to most effectively save and invest to meet their retirement goals.
Essentially, Betterment for Business is an all-in-one retirement planning tool that can benefit both you and your employees. But is Betterment for Business the right retirement plan for your unique business? We’ll go through all the details on Betterment for Business so you can decide for yourself.
Why Offer Your Employees Retirement Plans?
As an employer, you’re not obligated to offer your employees retirement plans. And for small business owners in particular, setting up a retirement plan can simply seem too intimidating, time-consuming, or expensive a prospect to consider.
But providing a retirement plan is a crucial element to an enticing benefits package. On a qualitative level, providing your employees with great benefits—retirement plans included—can simply provide your employees with peace of mind, and help them feel valued at work. Benefits can also attract better talent when you’re ready to hire.
On a quantitative level, offering your employees retirement plans can provide your business with pretty significant tax benefits. And of course, you’ll be providing yourself with a nest egg, too.
A Quick Rundown on 401(k) Plans
As a reminder, Betterment for Business provides 401(k) plans, which is just one of many types of employer-sponsored retirement plans. Employees can choose to contribute a portion of their pre-tax earnings into their 401(k) accounts, and contributions are then invested in a diverse portfolio of stocks, bonds, money market accounts, and other types of investment funds.
Employers aren’t required to contribute to their employees’ 401(k) accounts, though many choose to match their employees’ contributions up to a certain amount. If you do choose to contribute to your employees’ accounts, you can deduct those contributions from your taxes.
What Is Betterment?
Before we explain Betterment for Business, let’s rehash what Betterment is.
Betterment launched in 2010 in response to the current financial services market, says Tom Conlon, head of client relations at Betterment. Financial companies sold products to individual consumers and businesses, but offered neither the advice nor the personalized solution tailored to the particular buyer.
“We looked at the landscape and thought, you don’t necessarily need more financial products; you need someone to make sense of it all for you. Betterment was born out of that idea,” Conlon says.
Put simply, Betterment is an online financial advisor—also referred to as a “robo-advisor”—that helps individuals make smarter investments. Based on your financial profile, your investment goals, your risk level, and other factors, Betterment uses a combination of technology and human expertise to recommend and manage an optimized portfolio of ETFs (exchange-traded funds) for you.
In all, Betterment aims to make investing simpler, more streamlined, more user-friendly, and less expensive than the traditional model, which involved either manually managing your own funds, or paying hefty fees for a financial advisor to do so for you.
Betterment isn’t free, however. Based on the plan a customer chooses (Digital, which offers customers online-only support, or Premium, which allows customers to speak with advisors and financial experts over the phone), they’ll need to pay a fee of either 0.15% or 0.40% of the fund assets annually.
What Is Betterment for Business?
Betterment for Business is Betterment’s 401(k) channel. Like Betterment, Betterment for Business is a digital service that advises customers on how to optimize their money. In this case, however, the service specifically advises employees on how to leverage their 401(k) plans to increase their retirement income. They also help plan sponsors convert their existing 401(k) plans to a Betterment 401(k).
Betterment takes on fiduciary responsibilities for your company’s retirement plan that invests your plan’s assets on your behalf. Under ERISA (Employee Retirement Income Security Act of 1974), as a 3(38) fiduciary, Betterment is legally and ethically required to act in your plan’s and company’s best interests. As such, they don’t receive compensation from the investment companies they choose for you.
This fiduciary role is one trait that differentiates Betterment for Business from their incumbents, according to Conlon. “We don’t manufacture investment products; we derive 100% of our revenue directly from our customers. Nearly all the revenue from other 401(k) providers comes from an asset manager on their platform, which involves significant hidden fees. But we don’t receive commissions from asset managers. That allows us to be unconflicted, independent, and always acting on our customers’ sides.”
Benefits of Betterment for Business
Betterment for Business helps employers design, review, manage, and convert their retirement plan. It can be difficult for small business owners to understand these processes without an advisor; Betterment for Business does so with a unique combination of human expertise and technology.
“No one’s built new 401(k) technology for decades,” Conlon says. “We revolutionized the technology, and we built a business model in which we don’t need to sell a product—we distribute advice, and we use technology to distribute that advice.”
On the dedicated dashboard for plan sponsors, employers can access a digital hub on which they can easily track and manage all aspects of their company’s plan. Employees, too, benefit from this tech-focused retirement solution—with RetireGuide, employees receive holistic, personalized retirement planning advice.
Through this digital tool, employees can sync up both their Betterment and external investment accounts and upload their Social Security data, which Betterment for Business will then review and analyze. Based on this data, their retirement goals, their current financials, and other factors, like where they plan to live when they retire and their spouse’s earnings, users receive recommendations about how to save and invest more efficiently.
From this single dashboard, users can see and manage important data points. The dashboard also indicates whether they’re on track to achieve their retirement goals. If they’re not, then RetireGuide guides them on how they can amend their tax-efficient savings, or which other accounts to open, to get back on course.
Betterment for Business Pricing
Under Section 408(b) of ERISA, fiduciaries like Betterment for Business are legally required to set transparent fees that directly align with the services they provide.
But what are those services, exactly?
- Advising: Every participant receives personalized investment advice.
- Fund selection: Betterment chooses the funds in which to invest your money, based on your plan and participants. Betterment doesn’t receive compensation from the investment companies they choose, so your fees will cover these services.
- Administration: Betterment takes care of recordkeeping, bookkeeping, and tracking for you.
- Compliance: Compliance services are built into Betterment’s model. If you choose to work with a TPA (third-party administrator), however, you won’t be responsible for paying an additional compliance fee.
To understand exactly how much you would pay for the service, on the Betterment for Business website you can enter the following information. Then, they’ll show you a complete breakdown of your fees, as both a percentage of your plan assets and as a dollar amount:
- What is the size of your company’s retirement plan?
- How many employees will participate in the plan?
- Do you plan to partner with a TPA?
Employers can choose whether to pay by employee or at the company level. You can also choose how to share the cost of each fee type with your employees, or whether you’ll handle the fee yourself.
Is Betterment for Business Right for Your Small Business?
While Betterment for Business can support small to midsize businesses of many types, Conlon says that they tend to best service businesses with about 50-1,500 employees. 401(k) plans can be complicated for the smallest of small businesses, like sole proprietorships or other firms with very few employees.
Here are some alternatives to a Betterment for Business 401(k) for self-employed individuals, or very small business owners who want to offer their employees a retirement plan:
- SIMPLE IRA: Compared to other plans, it’s relatively easy and low-cost to set up and manage a SIMPLE IRA account. These plans are options only for employers with fewer than 100 employees, and can work equally well for sole proprietorships and partnerships. Employers must make contributions, but employees can choose whether or not to contribute each year.
- SEP-IRA: SEP-IRA plan holders can contribute up to 25% of their annual compensation. Employers must match their employees’ contributions, which offers self-employed people a great opportunity to double their savings.
- Solo 401(k): Solo 401(k) plans are the same as the traditional 401(k) plans on Betterment for Business’s platform, but these plans are only available to self-employed individuals with no employees.
And of course, remember that Betterment for Business is a robo-advisor. If you and your employees aren’t entirely comfortable managing your retirement plans digitally, consider opening your account with a traditional asset manager, like Vanguard or Fidelity.
But whether you’re considering holding a retirement plan with Betterment for Business elsewhere, do your due diligence when seeking a provider. It’s important that all employers—whether you run a team of one or 100—offer their employees retirement plans. But it can be an admittedly complicated task, especially for those without knowledge of the landscape. And your employers may feel a little lost about how to properly manage their plans once they’re established.
So, whichever retirement plan you choose for your business, work with a provider who’s able to provide top-to-bottom assistance in helping you find and manage your plan—and doesn’t charge you mysterious fees to do so.