Simple, Consumer-Friendly 401(k)s Empower Small Businesses

Simple, Consumer-Friendly 401(k)s Empower Small Businesses

One of the first things we needed, when we started our business, was company email. It literally took 10 minutes to set it up on Google. Merely 10 years ago, you had to hire an IT specialist, buy an Outlook license, install it, maintain it with a service contract, and then upgrade to the next version a few years later…

Setting up company email has been consumerized, and the good news for the small business is that the consumerization of all things enterprise is radically changing what’s possible for the small business and empowering them to achieve more with less.

A case in point is the growing ecosystem of innovative software companies focused on making the basic functions of running a business – like payroll, benefits, and accounting – easier and more consumer-friendly for small companies that don’t have dedicated staff and big budgets. This wave of “consumerizers” is led by companies like ZenPayroll, Zenefits, and Xero, and we think simple 401(k) is next.

HR providers

The 3 Cs of Consumerization

When I look at what these transformative companies have done, I see three common characteristics shared by the consumerizers who are changing the way small businesses operate.

1) CHEAP – remove the hurdle to get started

We don’t mean badly-built. We mean so well-built that it’s inexpensive. Low, transparent and often subscription-based fees are a hallmark of a consumerized experience. Gone are long sales cycles and negotiated pricing. And of course, there are usually no upfront setup fees, so it’s a much lower hurdle to get started. Consumerizers go out of their way to simplify the cost structure for customers and provide tools like pricing calculators to help companies assess the exact cost based on their size. A great example is ZenPayroll’s pricing calculator, which is front and center on their home page.

ZenPayroll Pricing

2) CONNECTED – play nice with others in the cloud

A typical enterprise solution works as a silo, keeping the data “safe” within a proprietary platform. A consumerized version, on the other hand, not only is cloud-based, but also leverages APIs and data aggregation to integrate with other services in the cloud eco-system. This minimizes the manual data transfers that are required when services work in silos. When systems speak to each other and data is seamlessly shared, small companies gain a lot of efficiency and save their most precious commodity, time. The difference between the enterprise approach versus a more consumerized tack became wildly apparent in the recent public dispute between ADP and Zenefits.

3) COMPLIANT – take care of the scary paperwork automatically

Compliance is a scary word for many small companies. How can a small company possibly keep up with the ever-changing legal and compliance landscape? Small businesses don’t have the dedicated staff to figure out what needs to be done, gather data from multiple sources, fill out convoluted government forms, and keep themselves in compliance for all of their non-core business functions like payroll, benefits, etc. But, fear not! Consumerizers track compliance requirements and even take care of the scary paperwork for the small business because they can leverage their ability to connect with others to gather necessary data and automate the form filling and processing. The result is compliance without breaking the bank or the back.

Zenefits Quote

What’s next? The 401(k)

One area that is far from consumerized is the 401(k) (the darn thing is still referred to by its Internal Revenue Code!). If you’re looking for a bastion of high and confusing costs, proprietary, siloed platforms and compliance complexity — the traditional 401(k) for small business is it!

The result: Only 16% of small businesses offer one, while 89% of large companies do. This puts small businesses at a disadvantage when recruiting since according to Charles Schwab, 87% of employees consider it a must-have benefit. It also puts our nation at risk since 77 million Americans don’t have an employer-sponsored retirement plan, which is contributing to the $6 trillion retirement shortfall facing the US.

Luckily, the 401(k) is ripe for consumerization and again the keys to success will be the same three Cs:

1) CHEAP – remove the hurdle to get started

The average 401(k) fees paid by employees at a Fortune 500 company are 0.50% while the average for employees at small companies are 1.3% — a material difference that impacts Americans’ retirement outcomes. A consumerized 401(k) can do so much better than this. Fees need to be transparent and low with no set-up fees. For example, at ForUsAll the all-in, average fee for a participant is 0.57%.  

2) CONNECTED – play nice with others in the cloud

Gone are the days of downloading the payroll files, combining and re-formatting, and uploading the new file into a separate 401(k) recordkeeping system. A consumerized 401(k) seamlessly connects to each employer’s cloud-based payroll system so that 401(k) contributions are deducted automatically and new employees are added when eligible.

3) COMPLIANT – take care of the scary paperwork automatically

The biggie for the 401(k) is the Form 5500 (which comes with a 82-page instruction manual from the Department of Labor!) that all 401(k) plans have to fill out and submit annually. A traditional (old-school) service provider typically helps prepare the form for you, but you are on the hook for gathering data from multiple sources, verifying its accuracy, signing, and submitting to the government. And make sure it’s filed on time. A consumerized 401(k) goes that extra mile and will not only prepare the Form 5500, but will review it, sign it, and submit it on your behalf.

Bonus C – the ultimate consumerization!

At ForUsAll, we’ve added a fourth “C” to a consumerized 401(k) and that is Cake – yes, as in the baked, yummy variety. We think having a 401(k) as a small business is worth celebrating and by delivering a genuine #401cake to each client, we commemorate the milestone and celebrate one more company helping its employees work toward a more secure retirement.

What could be more consumer than that!

Soiree Salon #401cake

Special acknowledgement — a shout out to Meg Sloan and Alex Sahai at Foundation Capital for their insightful input for this article.