Retirement
Services sell account benefits to owners for low-cost monthly fee.
New venture Honest Dollar plans to sell individual retirement account benefits to small companies.
Will Hurley, a serial entrepreneur in Austin, wants to upendWall Street. He’s starting with an unsexy part of the financial landscape: smallbusiness retirement planning.
Honest Dollar, Hurley’s new venture, plans to begin selling individual retirement account benefits to companies for a monthly fee of $8 per employee. Intended for even the tiniest businesses, which rarely offer retirement benefits for their workers, the site aims to bring simplicity and transparency to a market that’s often a minefield of hidden fees.
“When people are paying 2 percent in fees — that’s criminal,” said Hurley, a longtime software developer. “Between you and your retirement, there’s lots of exit routes for your money.”
Small companies lag bigger ones when it comes to retirement benefits. When companies are young, entrepreneurs have more pressing priorities — like making enough money to stay in business — and as they grow, new obstacles emerge, like cost and complexity. Only 14 percent of businesses with 100 or fewer employees sponsor a retirement plan, according to an estimate by the Government Accountability Office, and employees at the smallest companies, those with 50 workers or fewer, pay administrative fees that are twice as high on average as those paid by participants in larger plans.
That market gap is luring new players into the field.
ForUsAll, a startup in San Francisco, recently began offering 401(k) plans tailored for small companies. It sells its service for a monthly fee with no setup costs and focuses on simplicity, building its portfolios around low-cost, institutional stock and bond index funds.
“We challenged ourselves to imagine what an ideal 401(k) looks like for a small business if we rebuilt it from the ground up,” said Shin Inoue, ForUsAll’s chief executive.
ForUsAll charges companies $94 for up to 10 employees and $5 per additional employee. (After 40 employees, the monthly cost drops to $3.) For companies with just a few workers, that’s significantly cheaper than the thousands of dollars it typically costs to establish and manage a plan.
Large providers have the best selection of low-cost funds, but small plans with just a handful of participants aren’t profitable enough for them to bother selling directly. Fidelity says its 401(k) plans tend to be too costly for companies with less than $10 million in plan assets. At Charles Schwab, the floor starts at $20 million. Vanguard’s small-group plan, managed by Ascensus, an independent administrator, carries administrative fees of $3,475 a year for up to 15 participants.
ForUsAll and Honest Dollar both exclusively use Vanguard funds, and both offer participants few choices about how their money will be invested — by design.
The average mutual fund last year charged 1.19 percent in management fees, according to Morningstar. By offering only index funds, which carry significantly lower fees than actively managed funds, Honest Dollar and ForUsAll keep their fund fees to 0.20 percent or less. Thanks to compound interest, every fraction of a dollar saved on fees translates into higher savings over time.