Competition is heating up in the small business 401(k) market
For years, the various competitors serving the 401(k) market focused on the big fish. Their business models were best suited for large retirement plans where fees could be spread over vast numbers of employees, and some fixed costs could simply be picked up the big corporation itself.
When small businesses tried to work with existing 401(k) providers, the providers were not really interested in these plans because of the smaller assets and lower employee count. As a result, the plans often contained high expense ratios mutual fund offerings, so sponsoring a 401(k) was downright expensive for employers and employees alike.
No wonder then that big companies were far more likely to offer a retirement plan than small ones. ForUsAll was founded to narrow this retirement gap by simplifying the 401(k) and making it inexpensive for small companies to sponsor. Moreover, we wanted to offer a retirement plan so hassle-free that small business owners wearing a dozen hats had no need to don another – something we didn’t think any of the ForUsAll competitors were doing.
Now, however, some large, traditional 401(k) providers have come to see the small business market as one worth pursuing. They have tweaked their legacy offerings to make them more small business friendly, and, in some cases, have brought costs down as well. Here are some of the bigger players who are reaching out to small businesses:
Who are ForUsAll’s competitors in the small business market?
Capital One Spark 401k
Last August, financial giant Capital One launched its Spark 401k for businesses. The plan is marketed to companies with fewer than 100 employees. Capital One says that the Spark 401k was designed to address small business concerns that retirement plans are complicated and expensive. Capital One calls its 401(k) a low-cost, digitally managed plan. It offers passively managed ETFs which the company says keep total investment expenses under 1%.
Morgan Stanley ClearFit
The push by Morgan Stanley Wealth management into the small business market coincides with its preparation to comply with the for the Department of Labor’s fiduciary rule (which may become effective some time this year). Morgan Stanley has partnered with Ascensus for recordkeeping and administration, and is targeted toward plans with less than $10 million in assets. With ClearFit, Morgan Stanley is taking on the role of a 3(38) investment fiduciary rather than placing that responsibility on its individual advisers. The company is also changing up how its advisers will work with retirement plans due to the fiduciary rule, so that advisers who are not considered “retirement specialists” will “have three options when engaging retirement plan clients, said spokesman Christine Jockle: commission-based business; the ClearFit advisory approach; or a partnership with a retirement specialist, who will take on fiduciary responsibilities.” (Source: InvestmentNews)
Merrill Lynch Advisor Alliance
Like Morgan Stanley, Merrill Lynch is updating its small business platform to comply with DOL rules, but is taking the opposite approach in terms of fiduciary responsibilities. At Merrill, advising a 401(k) plan will require a special designation from the company. Otherwise, the adviser must partner with a fellow Merrill broker who is a retirement specialist. The Adviser Alliance platform has a stable of 11 recordkeeping firms available for its small business clients. Going forward, Merrill advisers servicing defined contribution plans of less than $50 million will act as 3(21) investment fiduciaries.
401(k) Providers Who Seem Like ForUsAll Competitors, but Who Are Not
ForUsAll is an independent, retirement-focused advisor. Our independence means that we can work with a variety of providers (these providers are called recordkeepers – price your plan on multiple recordkeepers using our online tool here!)
Fidelity 401(k) for Small Business
Fidelity was one of the first major 401(k) providers to understand that a defined contribution plan for a Fortune 500 firm might not be appropriate for a small business with a couple dozen employees. Fidelity launched its 401(k) for Small Business way back in 1999. According to the company, its small business offering includes flexibility in plan design, administrative services, investment management and education programs. Given the huge Fidelity platform, it’s no surprise their 401(k) offers a wide range of mutual fund options. Note that Fidelity suggests their plan is best suited for firms with at least 20 employees and that fees vary by plan. ForUsAll competes with a variety of advisors who work with the Fidelity platform – but it’s important to note that ForUsAll helps advise on several Fidelity 401(k) plans.
Vanguard Retirement Plan Access
In 2011, fund giant Vanguard announced that it was partnering with recordkeeper Ascensus to offer a turnkey, low fee plan for small businesses. The plan includes funds, record keeping, call center services, and employee education. Vanguard’s optional services include participant advice and trustee services. Vanguard says it can offer its defined contribution plans directly to plan sponsors or through fee-only advisers. This includes ForUsAll – we work with various plan sponsors who use Vanguard Retirement Plan Access. And if you are talking with a ForUsAll competitor about running your 401(k) on the Vanguard Retirement Plan Assess platform, let’s talk, as we would love to show you a low-cost, age-appropriate fund lineup with Vanguard.
More work to be done to address the small business 401(k) market
Despite this focus on the small business market by these huge competitors, less than half of workers in businesses with fewer than 50 employees have access to a retirement plan. So small businesses must still see hurdles to adding a 401(k).
One hurdle may be that a retirement plan’s many moving parts make comparisons among different ForUsAll competitors difficult. It is important not only to determine what a plan will cost you and your employees, but also what administrative duties you will retain after the contract is signed. For example, some providers may consult with you when it comes to completing the IRS Form 5500, but may not actually sign and file this key document for you.
Another hurdle for many small business owners is surely the uncertainty surrounding the liability that comes with 401(k) sponsorship. When a provider serves as a 3(21), you, the plan sponsor, still have responsibility (and the associated liability) for making the final investment recommendations. At ForUsAll, we can help you with both 3(38) and 3(16) fiduciary services, which take on both your investment and administrative compliance liabilities. This includes responsibility for day-to-day administration, including sending notices as required by ERISA, administering loans, ensuring that the rules of the plan are administered, and maintaining documentation of compliance. Delegating to experts not only reduces your legal liability, but also takes tedious work off your plate. It’s another way ForUsAll is lowering those pesky retirement plan hurdles and taking on the competition.
Now that you know a little more about how the big players are approaching the small business market, why not chat with our 401(k) specialists to learn exactly how ForUsAll compares to the competition? Our experts can also explain how ForUsAll’s technology will facilitate enrollment, contribution levels, and employee education.
Before you know it, a 401(k) may become “a thing” for your business, too.