You’ve probably heard of Betterment, the well-known robo-advisor who also offers corporate 401(k) plans under the brand Betterment at Work. The company was founded in 2008 and has raised well over $200 million in venture capital. Betterment’s technology creates individualized portfolios based on the employees profile and retirement goals, using Betterment’s in house funds.
Betterment likes to serve companies with millions in the retirement plan, and may be a bit expensive for small businesses or startups that do not currently have a 401(k) plan in place. Betterment is probably best for companies with digital-native employees and for companies with over $3 million in assets in the retirement plan. Betterment integrates with a few large payroll providers, a necessary feature, in my opinion, to administer a 401(k) for fast growing companies.
What makes Betterment at Work unique?
- Transparency: Unlike many traditional 401(k) providers, who intentionally make it hard to understand the full price of the retirement plan, Betterment has up front pricing split between what the company will pay and what the employees will pay
- Easy to Use: While many of the traditional providers are catching up with their web experience, like many technology startups, they have focused on crafting a well designed user interface. This is definitely an area where FinTech startups beat the more traditional vendors like Principal or John Hancock.(See the screenshot below)
- Startup recordkeeper: Betterment built a recordkeeper from the ground-up, so the 401(k) does not live in an established, highly-resourced Wall Street firm.
Betterment 401(k) Pricing: How much does it cost?
Betterment at Work publishes transparent 401(k) pricing online. The fees include a per-employee amount paid by the employer, plus fund and advisory fees paid out of the employee’s assets. If you work with an outside advisor and use this platform there may be additional fees.
- Employer fees: $6 dropping to $4 per employee per month based on the number of employees, with the first 100 being $600 per month, and the 101st employee costing $5 per month.
- Employee fees: 0.25% per year of assets plus approximately 0.10% per year in fund fees.
- TPA fee: $1,500 per year.
What fiduciary protection does Betterment at Work provide?
Unlike most providers, Betterment will act as a 3(38) fiduciary to the plan sponsor. 3(38) investment fiduciaries are responsible, and take legal liability for, choosing and monitoring the investment options in the plan. This means that Betterment will choose and update the funds in the 401(k) plan if the plan sponsor hires them as the 3(38) fiduciary. Not only does this relieve the sponsor (i.e. the employer who offers the plan) of the liability for choosing appropriate and “decent” funds for the employees, it also reduces the amount of work required – and, hopefully, enables the 401(k) plan to have better investment offerings for the employees.
This provider will not act as a 3(16) ERISA administrative fiduciary, meaning that they do not take on the legal liability for signing the Form 5500 for the Department of Labor and ensuring that the fund is perfectly administered. This liability will stay with the plan sponsor, and specifically the individual signing the governmental paperwork.
What are the best alternatives to Betterment’s 401(k)?
Betterment has several close competitors, all with their own pros and cons. The best alternatives to Betterment at Work include:
There are also the whole host of “traditional” providers that offer 401(k) administration services to small businesses, such as:
- John Hancock
- Principal
- Fidelity
- Vanguard
As an owner who set up a 401(k) for my small business, I like Betterment’s features of the investment fiduciary and the payroll integration, plus the easy to use interface for the employees.
Competitors who offer an alternative that we think stack up are Human Interest and Guideline. Both are ideal for companies who don’t yet have a 401(k) plan, or those who do but don’t yet have hundreds of employees.
Betterment 401(k) Payroll Integrations
- ADP
- Intuit Online Payroll
Not all providers offer payroll integration. Payroll integration is important because administering a 401(k) can be very manual, time consuming and error prone in a fast growing business. As the plan sponsor (the company sponsoring/offering the retirement plan), you are responsible for making sure that when employees make changes in payroll they are reflected in the 401(k).
For example, if an employee reduces their savings rate from 10% to 6%, or if they get a raise, the person running the plan is legally required to make sure that the correct amount of money is taken out of the employee’s paycheck and deposited into their retirement account. There can be large penalties for getting this wrong, so this is a feature that works right out of the box for this vendor.
Betterment at Work Feature Review
Betterment at Work 401(k) Review | |
|---|---|
| Client Size | Small businesses and startups with over a million in retirement assets, usually over 100 employees |
| Investment Options | Low cost model portfolio No target date funds |
| All in Cost | Overall low cost; details below |
| Fiduciary Coverage | 3(38) Investment Fiduciary or 3(21) Investment Fiduciary |
| Payroll Integration | Yes, but limited to only ADP and Intuit |
| Pricing Details | Employer fees: $6 dropping to $4 per employee per month, plus $1,500 yearly TPA fee Employee fees: 0.25% per year of assets plus approximately 0.10% per year in fund fees |
| Setup Fee | Unknown |
| Employee web experience | Excellent! |
| HR portal | Good |
| 401(k) Recordkeeper | Betterment |
| Mobile App? | ✅ |
Betterment Overview
In January of 2016, Jon Stein, Founder and CEO of Betterment, announced the launch of Betterment’s 401(k) solution, Betterment for Work. The startup wants to bring smarter technology and personalized investment advice to all plan participants. Betterment for Work is the 401(k) arm of the well known, direct to consumer robo-advisor. As of March 2018, the company had $13.5 billion under management.
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