More employees will have access to retirement savings through Betterment’s 401 (k) plans, thanks to the rapid growth the online wealth advisor has seen in this part of their business.
The company’s 401 (k) business, Betterment for Business, saw a 370% increase in retirement plan adoption year over year.
In 10 of the states working on automatic enrollment for individual retirement accounts, Betterment has seen 88% year-over-year growth in plan adoption.
These states are establishing programs that would force more employers, especially small and medium-sized businesses, to offer retirement plans to their workers.
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Companies like Betterment that offer private plans say they see an opportunity to offer more choice compared to state-run self-ARI programs.
Based on the growth reported by Betterment, this bet pays off.
The opportunity for Betterment’s 401 (k) business is something Betterment CEO Sarah Kirshbaum Levy, a former executive of Viacom Media Networks, said she spotted when she took over as head of the company in December 2020.
Betterment had already established a track record as a record keeper and entered the 401 (k) space. Workers today face increased responsibility for funding their retirement, and employers are looking to soften the advantages they offer in a competitive labor market.
“What I took from last year is that this opportunity was really ripe to explode,” Levy said.
Employees who have a Betterment 401 (k) account can add additional retirement savings through IRAs or emergency savings, as well as access advice through the platform.
Betterment for Business says it targets small and medium-sized businesses with two to 500 employees, although it can serve larger businesses as well. About three-quarters of the companies on the platform have fewer than 50 employees. Businesses pay an annual fee based on their size, plus $ 4 per attendee per month. Employees, on the other hand, typically pay 25 basis points on their assets under management.
Late last year, Betterment began marketing the 401 (k) activity to employers and employees in states that have adopted automatic IRAs to help them understand how their private plan might compare to accessible options. to the public.
Betterment was able to differentiate itself because it’s inexpensive and easy to use, with a huge set of investment selections, Levy said.
“This opportunity was really ripe to explode,” said Sarah Levy, CEO of Betterment, of the company’s pension plan business.
“A lot of employers want a little more freedom of choice when it comes to the selection of investments, and many state plans are pretty rigid in that regard,” Levy said.
Three of the 10 states have launched their programs so far, although that number is expected to increase by next year.
The improvement is seeing rapid adoption in California and Oregon, which have already launched their state programs. The company’s pension activity is up 76% and 1,000% in those states, respectively, so far this year compared to all of last year.
Illinois, the other state that has kept its program alive, hasn’t seen the same increase, which the company attributes to companies in that state not looking for other options.
Meanwhile, Betterment is experiencing strong growth in Virginia, which is up 1,100%, and Maryland, with growth of 700%.
The company is also seeing increased adoption in other states, namely Massachusetts, New Jersey, New York and Washington.
“This is a tremendous growth opportunity for the private sector,” said Angela Antonelli, research professor and executive director of the Center for Retirement Initiatives at the McCourt School of Public Policy at Georgetown University, Savings Programs -state retirement.
“They are incredibly innovative and develop products that are simple, inexpensive and attractive to employers,” she said.
Plus, states don’t mind if employers choose private plans over public plans, as it’s access and coverage for workers that matters.
“If the private sector is in a position to help close the gap, it welcomes it,” said Antonelli.
Betterment has used the automated advice it provides to set itself apart from the plans of the state and other competitors, according to Levy.
This feature helps answer the question a new Betterment 401 (k) account owner may be asking, “Now what should I do?” »Said Lévy.
“The next thing we would do as a trustee would be say, ‘Set aside emergency savings funds,’” Levy said. From there, Betterment can help investors identify the best way to diversify their investments based on their time horizons.
Betterment expects its retirement plan business to grow even more as more employers look to financial health and wellness as a way to compete for talent, Levy said.
“Financial stress is the # 1 stressor for employees,” Levy said. “If employers can be part of this solution and Betterment can be part of this solution for employers, that’s where we’re headed.”
The states’ overall growth is good news for workers who don’t have access to retirement savings plans at work and can still opt out if they choose, Antonelli said.
Between California, Illinois and Oregon, more than $ 330 million in assets are currently under administration.
“Hundreds of thousands of workers are now saving for their retirement when they weren’t saving before,” said Antonelli.