New Low-Cost Retirement Plans for Small Businesses

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It’s not often a corporate entity goes back to its entrepreneurial roots, but that’s what happened a few weeks ago with what used to be Capital One’s all-ETF digital 401(k) business.

By Rieva Lesonsky

The top 10 bank’s former head of 401(k) products Stuart Robertson and a small group of investors (including other ex-Capital One leaders who now run their own B2B start-ups) purchased the business with plans to operate, expand and scale it independently—taking it back to its small business roots.

The new company, ShareBuilder 401k offered by ShareBuilder Advisors, plans to “focus on expanding access to low-cost retirement plans, and continuing to address the enormous need and gap in retirement saving among American workers through low-cost, all-ETF digital 401(k) products, quality educational content and thought leadership, and rapid innovation focused on merging UX that reduces friction and removes common roadblocks to investing with quality human support.”

ShareBuilder 401k’s president Stuart Robertson talked to us about the company’s new direction.

Rieva Lesonsky: What was the impetus for buying the business?

Stuart Robertson: Earlier this year, myself, a few members of my management team, and a small group of former Capital One leaders and other strategic investors made the exciting decision to purchase Capital One’s 401k business and create a new company, ShareBuilder Advisors. As ShareBuilder Advisors, we will continue offering ShareBuilder 401k to a wide range of businesses and will be 100% focused on helping American business owners and their workers save and invest for the future with low-cost, digital retirement solutions.

[While] we accomplished great things since becoming a part of Capital One in 2012…after much consideration, we determined the potential to invest in and grow the business, to enhance and maximize the 401(k) customer experience, and ultimately to help lead more Americans to save, would be best reached by taking the business independent, and we’re thrilled to be kicking off that journey now.

Lesonsky: And why did you decide to do it by buying Capital One’s product, rather than building from scratch?

Robertson: This is a business we’ve built and loved since launching almost 14 years ago.  ShareBuilder 401k pioneered the all-ETF digital 401(k) and the ability to quote and purchase a plan online, and the business has a long and proven track record serving business owners dating back to before ShareBuilder 401k became a part of Capital One. (For context, ShareBuilder 401k was launched in 2005 by ShareBuilder Corporation, a retail and direct brokerage that was acquired by ING Direct in 2007, and then Capital One in 2012—so the product and UX was indeed developed by many of the team members who are still on board with the company today.)

Today we serve more than 6,500 businesses ranging from one to over 5,000 employees—and we’re adding about 1,000 businesses to our customer lineup each year. Our plan is to double down on the path we’ve been on—continuing to develop and deliver products and experiences that help more Americans save and invest for retirement—as there is a proven need and opportunity in the space.

Lesonsky: What needs did you identify in the market that weren’t being met by other companies?

Robertson: Our customers choose ShareBuilder 401k because we offer a unique combination of low costs, easy to use and accessible products, and quality service.

Traditional 401(k) providers are often focused on large businesses and are hooked on mutual funds and insurance products that are more expensive than index funds as they typically need to provide revenue pass through fees to their distribution channels. Most of these providers are also very paper-based, and their plans are time-consuming and complex to setup—which can be a huge barrier for many businesses that would benefit from a 401(k) plan. Because we sell direct using index funds without pass-through fees, we provide a powerful 401(k) plan that is typically half the cost of traditional providers.

We’re also a big believer in helping to educate business owners and their employees on the benefits of 401(k) investing and the options they have—and we do that by offering easy to digest content across our site, as well as professional support and guidance.

Finally, we know that access to quality service is a must, yet most plans that offer access to professional advisors are too expensive (and even inaccessible) to smaller businesses, while many of the newer digital platforms don’t offer professional support or guidance at all. ShareBuilder 401k offers the best of all worlds—great technology, low costs, and high-quality service. We also have financial experts and CFAs managing our client’s fund and investing lineup—which gives our customers peace of mind, as well as a leg up over other offerings.

Lesonsky: Why do you think American business owners—and employees are not prepared for retirement?

Robertson: Now more than ever—with more Americans working for small companies, with the future of Social Security in question, and with life expectancies and healthcare costs rising—we as a country and as individual working Americans have a responsibility to plan and save for our futures.

Unfortunately, most of us aren’t doing what we should be—only 1 in 5 American workers are saving anything (according to a recent survey by Bankrate.com), and those who are saving aren’t saving enough (more than half of American adults have less than $1,000 saved). Meanwhile, a high percentage (as many as 50%) of workers are employed by small businesses, yet a staggeringly low percentage of small companies offer a retirement plan. And not surprisingly, the smaller the business, the less likely they are to offer a plan—for instance, less than 10% of businesses with 10 or less employees offer a plan—despite having easy and low-cost options (and the benefits) of doing so.

At ShareBuilder 401k, we believe this is a critical issue and also a huge opportunity to help get American businesses and their workers on track for retirement, and we’re committed to achieving this through great technology, low costs and exceptional service and partnership.

Lesonsky: What are the current roadblocks to investing?

Robertson: The main barriers to planning and investing in 401(k)s stem from misperceptions related to access, costs and ability to invest in or offer a plan to employees. Many business owners believe they are too small to offer a plan, or that offering a plan would be too costly due to match or general benefit costs—and many are not aware of the short- and long-term benefits of offering a plan (ranging from retirement and tax savings, to talent recruitment and retention, and more).

Our goal is to break down these barriers by offering easy-to-use digital solutions paired with 401(k) experts—and through quality education, helpful tools, and low-cost products and services designed to empower business owners to invest in the future of themselves, their businesses and their employees.

Lesonsky: I understand there’s legislation in Congress. What does it address? What’s the current status?

Robertson: The Setting Every Community Up for Retirement Enhancement (or “SECURE”) Act is a proposed legislation that includes a variety of provisions aimed at increasing access to tax-advantaged retirement accounts like 401(k)s, and helping more Americans do a better job of preserving their nest egg and not outliving their savings.

Some aspects of the bill, like raising required minimum distribution age for IRAs, enabling more part-time employees to gain access to 401(k) plans, and increasing tax credits for small businesses to start a 401(k) plan, are a step in the right direction and can certainly help more Americans save.

But there are other components of the Act that may be well-intentioned but will likely not have the intended impact. For example, the bill’s support of MEPs (which enable multiple employers to use a single plan) sounds good in theory—as the assumption is, they would reduce plan costs overall—but the devil is in the details. Unfortunately, there is likely little- to-no cost advantage for the recordkeepers that support these plans, as MEPs are not standardized and could actually increase costs in some scenarios (given matching amounts, eligibility and other features would likely vary by employer). Another challenge is actively managed mutual funds and annuities are expected to remain prevalent in MEPs, despite the clear cost savings of using index-based funds (or ETFs) instead.

Finally, we must focus resources on the heart of the issue—which is lack of awareness, education and engagement. At ShareBuilder 401k, this is our focus—offering low-cost, index-based 401(k)s with easy-to-digest educational content and professional guidance and support.

Lesonsky: Is it specifically for small businesses? Employee size?

Robertson: ShareBuilder 401(k) serves businesses of all sizes (from one to 5,000 employees) and we offer a variety of plans tailored to small, medium and commercial business’ needs.  We have seasoned professionals that can help determine the best plan design, education program, and features to help you get the most out of your plans.

Retirement stock photo by Gustavo Frazao/Shutterstock

The post New Low-Cost Retirement Plans for Small Businesses appeared first on SmallBizDaily.

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