Betterment is a robo-advisor who also offers corporate 401(k) plans under the brand Betterment for Business. 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 is not a great fit for small businesses or startups that do not currently have a large 401(k) plan. Betterment is probably best for companies with digital-native employees and for companies with over $3 million in assets in the retirement plan. A lack of payroll integration may make it more challenging to administer a plan for fast growing companies.
Betterment 401(k) has several important differences from traditional small business 401(k) providers:
Unique Features of Betterment for Business vs. Traditional 401(k) Vendors
- High degree of fee 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
- Good user interface: While many of the traditional providers are catching up with their web experience, Betterment for Business has the well designed user interface that you’d expect from a startup technology company. (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 for Business Pricing
Betterment for Business publishes transparent 401(k) pricing on their website. 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.
Betterment for Business acts 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.
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.
Betterment 401(k) Payroll Integrations and Connections
- 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 for Business 401(k)
|Client Size||Small businesses and startups with over a million in retirement assets, usually over 100 employees|
Low cost model portfolio
No target date funds
|All in Cost||Overall low cost; details below|
3(38) Investment Fiduciary or
3(21) Investment Fiduciary
Yes, but limited to only ADP and Intuit
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
|Employee web experience||Excellent!|
In January of 2016, Jon Stein, Founder and CEO of Betterment, announced the launch of Betterment’s 401(k) solution, Betterment for Business. The startup wants to bring smarter technology and personalized investment advice to all plan participants. Betterment for Business 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.