By and large, robo record keepers are targeting small businesses that don't have retirement plans in an effort to close what they see as a gaping hole in the U.S. retirement system.
Guideline Inc., for example, derives 85% of its business from employers than never offered retirement plans to their workforces.
Startup plans also generated the lion's share of the business for SaveDay Inc., Human Interest Inc. and Ubiquity Retirement & Savings. SaveDay derives 80% of its business from first-time plans while Human Interest derives 75%. Ubiquity has a slightly lower share of business from new plans, ranging from 65% to 70%.
The new providers employ a variety of pricing strategies to entice employers to their 401(k) platforms. In addition to a $500 setup fee, Guideline charges plan sponsors with less than 100 employees a flat $8 per participant monthly fee for record-keeping services. Participants also pay an average expense of 0.06% for the mutual funds in their portfolios to the mutual fund providers.
Ubiquity also touts its flat fee pricing. The company offers three plans at fixed price points based on the number of employees. An employer with two to 15 employees, for example, would pay $75 a month for Ubiquity's entry-level Saver(k) plan, a preset plan that includes auto enrollment, a safe harbor provision and other features. An Express(k) plan offering greater flexibility, including optional auto enrollment, would cost the employer $115 a month. And the Custom(k) plan offering customizable options, including tailored eligibility and vesting rules, would cost $165 a month. In addition, the company would pay a setup fee of $495.
Ubiquity also charges a $5 per participant fee per month that is either paid by the company or in most cases the participant. Like other online record keepers, participants also pay investment management expenses directly to the providers of index funds, exchange-traded funds and other investments in their portfolios.
In contrast to Guideline and Ubiquity, SaveDay gives small business owners the option of an asset-based fee, which is charged to employee accounts annually, or a per-participant fixed fee of $8 per month billed directly to the employer. In addition, participants pay an investment fee for the indexed ETFs in SaveDay's managed account portfolios ranging from 0.06% to 0.08% in both pricing options.