If it weren't for startup SaveDay, John Frankola would likely have shelved the idea of providing his two employees with a workplace retirement plan.
"When I looked at it in the past, it was cost prohibitive. It just didn't make sense," said Mr. Frankola, the Pittsburgh-based president of registered investment adviser Vista Investment Management LLC.
It didn't make sense until it suddenly did with the low-cost 401(k) plan SaveDay Inc. was offering. The plan cost significantly less than any of the 401(k) providers Mr. Frankola had considered, charging 0.35% of plan assets to employee accounts annually plus a modest investment fee ranging from 0.06% to 0.08%. After years of searching for a viable provider, Mr. Frankola at last was able to implement a 401(k) plan in late 2017.
"For a firm our size or even slightly larger, we would be paying double or triple or some- times even five times that amount," Mr. Frankola said. "With the offerings that are out there, you can be paying up to 2% of plan assets."
Indeed, plan sponsors with 10 participants and $100,000 in assets would pay an average of 3.96% of assets for record keeping, administration and investment services, according to the latest edition of the 401(k) Averages Book updated through Sept. 30. They would pay an average of 2.22% for record keeping and administration and an average of 1.74% for investments. For plan sponsors with 10 participants and $500,000 in assets, the combined cost for all three services would average 1.85%.
As the industry struggles with how to increase employee access to workplace retirement plans, a new generation of online 401(k) providers are stepping in to fill the void with low-cost, digital options for budget- and resource-constrained small businesses.
The new so-called "robo record keepers" are leveraging advances in technology and low-cost investment options, such as index and exchange-traded funds, to make their pricing affordable to a segment of the 401(k) market they say has been largely ignored. All are betting that their rock-bottom pricing will attract the millions of small businesses that don't offer retirement plans for their workers.
Some of these companies act as a combination of ERISA 3(16), 3(21), and 3(38) fiduciaries and others outsource the roles or help the sponsors assume the 3(16) fiduciary role.