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Technology has streamlined many of the most complicated business-related processes for small-business owners — and now Betterment for Business allows you to add employer-sponsored retirement planning to that list.
Betterment for Business is an all-in-one retirement planning tool that can benefit both you and your employees. But is it right for your unique business? Here's what you need to know to decide for yourself.
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. It also helps 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, it doesn't receive compensation from the investment companies it chooses for you.
This fiduciary role is one trait that differentiates Betterment for Business from its 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.”
Betterment for Business helps employers design, review, manage and convert their retirement plans. 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.
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 it chooses, 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, it will 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.
While Betterment for Business can support small to midsize businesses of many types, Conlon says that it tends 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.
A version of this article was first published on Fundera, a subsidiary of NerdWallet.