Work for a small company that doesn’t offer a 401(k) plan to help you save for retirement?
Don’t sweat it. Several startups, backed by technology entrepreneurs and venture capitalists, have launched online plans that offer robo-style automated investment services to those mom-and-pops and smaller businesses that have no retirement savings plans or offer only high-cost ones, according to the Wall Street Journal.
Only 14 percent of companies with 100 or fewer employees sponsor a retirement plan for their workers, estimates the Government Accountability Office. These companies employ about 42 million people, or one-third of the private-sector workforce. The new investment ventures hope to pursue this market, which has been mostly ignored by the larger players.
Some of these startups include Captain 401 Inc., Dream Forward Financial LLC, ForUsAll Inc. and SaveDay Inc. But there are also other more established companies competing for what some consider a lucrative market — the behemoth Vanguard Group Inc., which has had a small business 401(k) service since 2011 and Employee Fiduciary LLC.
“The 401(k) market is ripe for disruption,” Cynthia Loh, general manager of robo-advisory pioneer Betterment LLC, told WSJ. “Everybody is trying to leverage technology to make things more efficient.”
It’s difficult to set up retirement plans at small companies because many lack the time and expertise to implement such services. Small plans are also expensive to run. It is estimated that fees can run as high as 1.5 percent of assets. Participants in larger plans pay an average of .26 percent of assets.
The lack of retirement savings plans at smaller employers has been a growing concern for the industry because these companies comprise such a large share of the private sector workforce. Four states — Connecticut, Illinois, Maryland and Oregon — recently passed laws requiring small businesses to offer retirement savings plans. Others are in the process of studying similar legislation.