401(k) plans desperately need a refresh
How can employers find innovation in an industry that is slow to change?It’s been 45 years since the IRS introduced section 401(k) – spawning the birth of what is now a massive industry. The birth and growth of low-fee index ETFs has paved the way for millions of Americans to retire comfortably (or at least more comfortably than they would have otherwise). Since then, not much has changed.
Robo-advisors, plan personalization, and financial wellness content abound. All of these things help, but do they move the needle?
$7.9 trillion of assets sit in 401(k) plans (source), yet little has changed in this market to meaningfully improve participation from employees and improve the overall standing of retirement planning for Americans more broadly.
What’s on the horizon for 401(k) plan sponsors?
While the Secure Act 2.0 will change the rate at which employees participate moving forward, companies with established plans still face the challenge of either auto-enrolling employees and incurring additional headcount expense, or coming to terms with a low participation rate for a program that’s expensive to set up and maintain.
What if there were a better option?
Our aim is to offer just that. Basic Capital for Employers offers a path to 5x-ing an existing match without a commensurate increase in headcount related overhead. It’s designed to be a win for employees, a win for talent-hungry CHROs, and a win for CFOs looking to control costs.
While a 401(k) matching program is unequivocally generous on the part of the plan sponsor, it’s understandable that an employee might fail to be incentivized to think long term by a small percentage match. Basic Capital for Employers changes that. Basic Capital offers employers the ability to contribute to a retirement mortgage on behalf of their employees, where each dollar of contribution is matched with $4 of financing.
Let’s walk through an example of how this works.
This means, for example, an absolute dollar match of $5,000 for an employee (easy to imagine in a program offering a 50% match up to 6% on an employee with a $150,000 salary), would equate to $25,000 in Basic Capital.
This employee would be able to compound on a larger base using non-recourse financing, in a bankruptcy-protected retirement savings account.
Now, before getting too far into the details, you might have some questions:
- Is this ERISA compliant?
- Is the financing non-recourse?
- How are employees protected?
- Where does the financing come from?
We've built our product in partnership with leaders in ERISA compliance, we are SEC registered, we're a fiduciary to sponsors and employees, and we're backed by leading investors committed to changing the role that retirement plans play for all parties.
We'd love to learn more about your program and share how we can help bring it into the future.