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How your 401(k) plan can help boost employee financial wellness (and productivity) Financial stress is hurting productivity. Here’s how you can help change that at your business starting with your 401(k). Not only does financial stress make an individual’s personal life more difficult, it can hurt their employer's bottom line. As business leaders, we are in a position to make a positive impact on our employees’ lives and our business performance. Three different studies, one diagnosis Three national studies, including our own, found that financial stress negatively impacts work performance. PwC found that 60% of full-time employees are stressed about their finances and one in three full-time employees says that money worries have negatively impacted their productivity at work. Morgan Stanley found that 66% of employees agree that financial stress is negatively affecting their work and personal life. Our own study at Betterment at Work found that 46% of workers said that financial anxiety impacts their ability to work all or most of the time. The problem is clear but what do we do about it? The right benefits can help ease the pain When asked to rank potential financial wellness benefits that an employer could offer, employees ranked a 401(k) plan first followed by 401(k) matching contributions. These are some of the additional findings in our 2022 Betterment at Work Financial Wellness Barometer survey. If you offer a 401(k), it may be your core financial benefit but it isn’t the sole remedy. Our study also found that 93% of employees said it was at least somewhat important that their employer provides financial wellness benefits. Also, the demand for these benefits is increasing, with 68% saying financial wellness benefits are more important to them now than they were a year ago. It’s important to look at how you can build financial wellness features around your 401(k) plan to support your employees’ financial lives—and your business’s future. A comprehensive approach to wellness that starts with your 401(k) Knowing the needs of a modern workforce, at Betterment at Work, we’ve built a suite of financial benefits designed to support your employees, starting with your 401(k) plan. We believe that evolving your benefits with the needs of your workforce can help provide a strategic advantage in attracting and retaining talent. At our core is our modern 401(k) platform: Your 401(k) plan should be easy to manage for you and easy to use for your employees. Our technology streamlines this, whether via integrations with common payroll providers or through our intuitive platform that helps employees invest in diversified portfolios of generally low-cost ETFs. Enhancing your 401(k) plan: We’ve built additional benefits that integrate with our 401(k) platform to make managing benefits easier and reduce the financial stress that your employees carry. 529 Education Savings: Including 529s in your benefits package helps employees tackle rising education costs and shows your commitment to their financial health. It’s easy to manage, with 529s integrating into your existing benefits platform for a seamless experience. Financial Coaching: Help employees take better control of their finances with tailored 1:1 guidance and advice. Adding Financial Coaching to your Betterment 401(k) can help build a more confident, productive team. Plus, as a fiduciary, every financial advisor at Betterment is legally responsible to act in your employees' best interest.

How tax credits can make offering a 401(k) affordable See how new tax credits under the SECURE 2.0 Act could help with a new 401(k) plan’s implementation costs. After the passing of the SECURE 2.0 Act, CNBC published an article titled, “There may never be a better time to create a retirement plan.” The article largely focused on the increased tax credits smaller businesses can receive under the Act. These tax credits may amount to sizable savings for smaller employers looking to start a 401(k) plan. For that reason, we tend to agree with CNBC: this really may be the best time there has ever been to start a 401(k). What are the SECURE 401(k) tax credits? For businesses with 100 or fewer employees, there are three main tax credits to consider: Startup Tax Credit: Provides businesses with fewer than 100 employees a three-year tax credit for up to 50% of plan start-up costs. Increases the tax credit to up to 100% of the plan start-up costs for employers with 50 or fewer employees. The credit is based on the greater of $500 OR $250 per non-highly compensated employee (NHCE), capped at $5,000. Employer Contribution Credit: Offers a new tax credit to employers with 50 or fewer employees, encouraging direct contributions to employees, as much as $1,000 per participating employee with wages less than $100,000 (indexed annually). The credit covers the first five years of the plan allowing 100% of the employer contribution to be claimed in the first and second tax years, 75% in the third year, 50% in the fourth year, and 25% in the fifth year. The credit also applies to employers with 51-100 participants, but the amount of the credit is reduced by 2% per employee over 50 employees earning less than $100,000 per year. Automatic Enrollment Credit: Employers with new or established 401(k) plans that add automatic enrollment can take advantage of a $500 tax credit. Employers can claim this tax benefit for up to three tax years if they have 100 or fewer eligible employees. Sample scenario: Understanding the math To illustrate how tax credits can impact a business, consider the following hypothetical scenario for a business starting a new 401(k) with 25 participating NHCEs with wages less than $100,000 and a $3,000 average annual employer matching contribution per employee. Startup Tax Credit Employer Contribution Credit Automatic Enrollment Credit Total Credits Year 1 $5,000 ($250 per NHCE up to $5,000) $25,000 (100% or $1,000 max per employee) $500 ($500 per year) $30,500 Year 2 $5,000 ($250 per NHCE up to $5,000) $25,000 (100% or $1,000 max per employee) $500 ($500 per year) $30,500 Year 3 $5,000 ($250 per NHCE up to $5,000) $25,000 (75% or $1,000 max per employee) $500 ($500 per year) $30,500 Year 4 $0 (No credit) $25,000 (50% or $1,000 max per employee) $0 (No credit) $25,000 Year 5 $0 (No credit) $18,750 (25% or $1,000 max per employee) $0 (No credit) $18,750 Note: All information provided above is hypothetical for educational purposes only. For employers using the employer contribution tax credit, a tax deduction won't typically apply. Please review scenarios unique to your plan with your accountant to decide which tax credits and deductions are best for you. Three steps to make sure you get your tax credits Know the provisions: You’re already reading this, so you’re headed in the right direction. If you are considering starting a 401(k) plan, be sure to research both the tax credit and other SECURE 2.0 provisions. Know your plan: Whether you are starting a new plan or adding features to an established plan, to make the most of SECURE 2.0, you’ll need to review how your plan interacts with the law’s provisions and understand if your business is eligible. Talk to your tax adviser: Once you have a firm grasp of SECURE 2.0 provisions and how they impact your plan, reach out to your accountant and/or tax professional to plan for potential tax credits. They can walk you through your business’s situation and help you complete Form 8881.

How to decide if you should offer a 401(k) match on student loan payments SECURE 2.0 gives 401(k) plan sponsors the option to offer matching contributions on qualified student loan payments. Our three-step process balances the needs of your people, your budget, and your operations to help you as you decide if offering a 401(k) match on student loan payments is right for your company. Step 1: Assess your people’s needs When thinking about your team, it’s important to consider your current employees and future hires. The workforce is evolving and the needs of your employees may evolve as you hire. Your current employee’s needs: You’ll want to review your workforce’s current participation in your 401(k) plan. If you see that enrollment and savings are high, you may not have a need. On the other hand, if you see larger portions of younger graduates not enrolled, student loan matching may be a good fit. If feasible, talk with your employees to better understand their needs. Remember, it’s not always younger employees who are paying student loans. (Tip: If you offer other student loan benefits, like direct reimbursements, look at who is using those benefits and whether or not those employees are also contributing to their 401(k). A 401(k) match on student loan payments may be a good fit if you see a savings problem.) Your future employee’s needs: Your workforce in a few years might look different than your workforce today. Consider the types of employees you want to attract over the coming years. For recent grads, especially when hiring for key roles, this new type of 401(k) match could be a differentiating factor when deciding where to accept a job. Knowing your employee’s needs is crucial to engagement and retention, but next, you’ll need to know how much that will cost. Step 2: Review your budget There are two cost aspects to consider when budgeting for offering a 401(k) match on student loan payments. Matching contributions: You’ll need to review the cost of matching contributions, considering employees whom you previously did not provide with matching contributions. Your goal is to calculate the incremental cost. You may already be budgeting for these potential contributions if you include them in your salary match budget. But it’s important to estimate the actual increase you could see year-over-year in matching contributions. Operational costs: Depending on your 401(k) provider, you may have technology-related costs, although they should be minimal in most cases. Also, consider “soft costs” like employee time used to manage operating processes. With the right technology, these operational costs can be relatively low. The goal of reviewing your budget is to walk away with a confident estimate of the total annual costs of offering the benefit. Knowing that, you can decide whether the cost makes sense. Ultimately, understanding the ROI of the decision is fundamental for your business. That’s why we recommend taking it a step further and calculating the ROI of offering a 401(k) match on student loan payments. Step 3: Understand your operational needs Anything new in business usually comes with process changes. And that’s true if you adopt a 401(k) match on student loan payments. When analyzing how to efficiently manage this new plan feature, consider the following: Automation via technology: Work with your plan’s tech platform to understand their capabilities. Ideally, most of the process will be streamlined for you and your employees. Human intervention: There will most likely be some manual intervention, such as approving qualified student loan payments in order to process the matching contributions. Understanding who on your team will complete these tasks can help create an efficient process and avoid operational issues post-implementation. We recommend mapping out a process as you initially launch a 401(k) match on student loan payments. You’ll be able to train your staff, explain the feature to employees, and make adjustments as needed.

The ROI potential of offering a 401(k) match on student loan payments Over 20% of employees would consider leaving their jobs for a 401(k) match on their student loan payments. But can you afford to offer the benefit? In a 2022 Betterment survey of over 1,000 employees, we found that student loans are an important issue for many employees. 64% of employees said student loans have had an impact on their ability to save for retirement 21% of employees reported that a 401(k) match on student loan payments would entice them to leave their jobs. Generally, we believe that the more employees who participate in a 401(k) program, the less turnover a company will see. Data from payroll software provider Gusto backs up that belief. They report that employees with a 401(k) plan are 32% less likely to quit in any given month. We see a large opportunity for savvy employers to build stronger 401(k) programs to retain their employees. Adding benefits like a 401(k) match on student loan payments could be a difference maker. But how does an employer know if the costs of offering a 401(k) match on student loan payments is worth it? Let’s dive in and find out. First, some SECURE 2.0 fast facts Before we look at the potential ROI of this new match, let’s cover some fast facts about the provision included in the SECURE 2.0 Act. Effective date: January 1, 2024 401(k) student loan matching: Qualified student loan repayments could count as elective deferrals and qualify for 401(k) matching contributions from their employer. Employees who take advantage of this would be compliance tested separately. How it works: At a high level, there are three things to know. Employees are required to certify that they made loan payments. They do not have to show proof of payments if the employer doesn’t require it. An employer can rely on employee certification alone. Matching contributions must vest on the same schedule as salary deferral matching contributions. Employers can make matching contributions less frequently than salary matches, although contributions must be made at least once a year. Understanding the costs of a 401(k) match on student loan payments First, let's take a wider view of cost. Replacing a single employee may not directly show up on your company’s financial statements, but it's expensive, no matter the company, especially if it happens more than once. One report by SHRM cites employee replacement costs as being six to nine months of an employee’s salary. Another report by Gallup cites one-half to two times the employee's annual salary. Employee replacement costs to consider include: Hard costs: These are straightforward to quantify and include hiring costs like HR staff, technology, and job postings. Once an employee is hired there are also hard costs like onboarding training, new equipment, and processing paperwork. Soft costs: These can be murky to measure but impact every hiring decision. These include the time spent by employees who help with the hiring process, from interviews to position description reviews and onboarding planning. As a new employee joins the company, these costs continue with additional onboarding meetings and lowered productivity as the new team member gets up to speed. Now that you’ve considered the real costs of recruiting and onboarding a new employee (vs. retaining a good team member), we can talk about the cost of this new 401(k) match. Provision implementation costs may include: Participant Fee: If you are using a modern 401(k) tech platform, these costs are minimal often ranging from $5 to $10 per month. You can also consider passing these small costs on to the employee. Nondiscrimination testing: Depending on your 401(k) provider, an increase in participants may result in increases in fees for additional compliance testing. (Note: At Betterment at Work, there are zero additional compliance testing fees if your plan has an increase in participants.) Matching contribution costs: If more employees use the 401(k), contributions may increase, although some companies may have already budgeted for a portion of these in their overall 401(k) match budget. Administrative costs: Tracking self-certifications requires implementing a process. This can be reduced if your company leverages technology to streamline this workflow. There are costs to administering the 401(k) student loan match provision. But compared to losing a talented employee, provision costs may be far less. Think of the match benefit as an investment in talent. Calculating ROI of a 401(k) match on student loan payments It’s important to note that when calculating ROI for your company, you should take into consideration each employee’s unique value and the costs associated with replacing their role. To help illustrate, consider the following hypothetical example of an employee making $75,000 at a company offering a 6% 401(k) match. Estimated replacement costs: $37,500 to $150,000 one-time cost An employee making $75,000 could cost between $37,500 and $150,000 to replace using the benchmark of one-half to two times the employee's annual salary. Estimated 401(k) student loan match costs: $4,620 to $5,000 per year If that employee uses the 401(k) student loan matching program with a 6% match, the employer would pay $4,500 in matching contributions. We’ll add on $120 per year in estimated monthly participant plan fees plus potential administrative costs estimated at a few hundred dollars to process and test this employee’s student loan match. We see that with a full employer match plus administrative fees, we are still not even close to the costs associated with needing to replace the employee. It would take over seven years in 401(k) matching costs to reach the low-end cost of replacing the employee. That’s without considering the value a satisfied, tenured employee brings in workplace production, institutional knowledge, cultural contributions, and more.

How to use SECURE 2.0 to enhance your total rewards program Learn how the SECURE 2.0 Act can have a positive impact on your total rewards program. Plus, follow our checklist for a smooth implementation. Leading HR teams take a strategic approach to ensuring their employees see and feel the value of their total rewards programs. In a competitive business environment, total rewards—the monetary and non-monetary benefits you offer—can be the difference maker for attracting and retaining top talent. Optimize how you promote your total rewards program The SECURE 2.0 Act gives employers an opportunity to create even stronger 401(k) and retirement benefit offerings. Some employers may hesitate at the opportunity, fearing operational demands or added costs. But strategic leaders can capitalize on the new law. We encourage companies to view SECURE 2.0 as a chance to implement new, modern 401(k) features and to highlight the value of their 401(k) benefit as part of their total rewards program. Benefits that make a difference Although many SECURE 2.0 provisions are mandatory, the Act gives employers some implementation flexibility along with some optional provisions. Review provisions to see how they could be leveraged to increase the value of your 401(k) program. A sample of the provisions that you may find add value to your total rewards program include: 401(k) match on student loan payments (Optional): Consider your current and ideal future employees. If it’s common for them to have student loan debt, this provision can help them kickstart their retirement savings when they otherwise may not have been able to save. Automatic enrollment (Required for plans established after 12/29/22): Data has shown that 401(k) participation—and employee savings—dramatically increases when you automatically enroll employees, rather than requiring them to opt in. Plus, because automatic enrollment makes opening a 401(k) the default, the enrollment process can be streamlined for all eligible employees. Automatic escalation (Required for plans established after 12/29/22): Adding to automatic enrollment is the automatic escalation provision, requiring employers to increase employee contributions by 1% per year to at least 10% (but no more than 15%). This escalation will help employees get closer to the 10% to 15% mark that many financial experts recommend as the desired retirement savings rate. Your company can use this mandatory provision as an opportunity to provide financial education to employees around adequate retirement savings. Long-term, part-time employee eligibility (Required): This is a mandatory provision that could have a large impact depending on your employee base. If you find that you have a large portion of employees that fit into this group, you can clearly communicate the benefit these employees will receive. Communication is the key to success Communication drives the success of the 401(k) plan changes you make due to SECURE 2.0. It’s a big opportunity to engage with your employees. Rather than simply rolling out operational changes and sending mandatory paperwork to employees, take the time to explain how these changes are designed to help employees and their families. Think of this not as an operational change to your 401(k), but rather as a strategic change to your total rewards program. Pro tip: As you implement provisions from the SECURE 2.0 Act, it’s also an opportunity for you to re-educate your workforce on all benefits you provide. Take the time to develop an internal communications plan for your total rewards program. Think holistically and show employees the total value of their benefits and compensation. Checklist: Leveraging SECURE 2.0 in your total rewards program As you implement SECURE 2.0 provisions, build out a checklist to make sure you consider all relevant details. Here’s a list to get you started. Talk with your 401(k) plan provider: Understand how they are operationalizing each provision and what that means for your processes. Determine which optional provisions you will implement: Research each provision, consider surveying employees to measure demand, and conduct a budget analysis. Determine how you will implement mandatory provisions: Work with your management team to decide how to implement mandatory provisions such as automatic enrollment and escalation. Provide pre-launch communication to employees: Explain that positive changes are coming and what to expect. Distribute launch communication to employees: Hold meetings and distribute materials explaining new benefits including their value, timing of changes, and how to access benefits. Consider using a formal “total rewards statement” to show the value to employees. Communicate to prospective employees: Update total rewards listings on your website, job descriptions, and other public-facing locations to attract your ideal employees. Measure adoption and value: Working with your 401(k) provider, measure the adoption of your 401(k) features and use the data to communicate value to stakeholders including employees, management, and your board of directors. For a full overview of what to consider when building out a 401(k) plan, check out our Plan Design article. Our modern 401(k) platform meets your modern total rewards program At Betterment at Work, we’ve built a modern 401(k) platform with an all-in-one admin dashboard and payroll integrations to save time managing your plan. Not only are we a leading provider of modern financial benefits, but our team of experts is by your side providing topical educational content. We also help you take your 401(k) plan a step further with financial wellness features. Support your employees with 1:1 Financial Coaching, 529 Plans, and our Student Loan Management platform, including the option to easily provide your employees 401(k) matches on qualified student loan payments.

At the top of HR lists in 2024: 401(k) match on student loan payments With the SECURE 2.0 Act here, employers can offer a 401(k) match on student loan payments. And the need may be larger than you think. “It’s at the top of our list.” That’s what Kraft-Heinz’s associate director of pensions said in an interview with Pensions&Investments. He was referring to a 401(k) match on student loan payments, one of the 90-plus provisions in the SECURE 2.0 Act. This optional provision allows for qualified student loan repayments to count as elective deferrals and qualify for 401(k) matching contributions from an employer. When an employer offers to match student loan contributions into a 401(k), employees can pay down their loans while also taking advantage of their 401(k) match. A proven benefit Prior to SECURE 2.0, 401(k) matching your employees’ student loan payments was not an option, but Abbot Laboratories saw a need (and an employee retention tool). In 2018, the IRS approved a request from Abbot to offer this new type of match. One year after launching the program, more than 1,000 Abbott employees had signed up, ranging in age from 20 to 60, proving there was demand for the benefit. Today, the provision in the SECURE 2.0 Act makes it possible for nearly all employers to offer a similar style benefit. Is the need greater than we think? It’s well known that Millennial and Gen-Z employees are often overburdened by student debt, but recent data shows that the need for a 401(k) match on student loan payments may be even greater than we think. A 2023 report by the National Institute on Retirement Security found that 13% of Gen-X employees (people born from 1965 to 1980) still have student loans, with an average balance of $40,000. The report went on to say, “...those Gen-Xers with student loan debt have lower net worths and are more likely to fall short of their retirement savings targets, at least in part due to student loan debt.” Knowing what your employees need As generations age, it will be important for each employer to understand the changing demographics, expectations, and needs of their employee base. If you are trying to attract a college-educated workforce, having relevant benefits in place will make hiring and retention more successful. Also, keeping track of the benefits offered by workforce competitors will allow for more strategic creation of benefits packages. Our solution for your need At Betterment at Work, our modern 401(k) platform helps streamline your administrative processes. We’ve designed offering a 401(k) match on student loan payments to be seamless and simple for you and your employees. Your employees simply record their qualified loan payments, and you can approve the match using an easy-to-use dashboard.

Don't have a 401(k) plan? Why now may be the best time to offer one Learn how the SECURE 2.0 Act can make it easier for your business to offer a 401(k) plan and attract top talent. A 401(k) plan. For many, that’s a boring topic. But for business owners and leaders—especially if you don’t offer one—a modern 401(k) plan could be your secret to building a strong, loyal workforce. Let’s dive in to see how a 401(k) could help you overcome hiring and retention challenges, and learn why now might be the time to start offering one. Your challenge: Attracting and retaining top talent People are leaving their jobs at record rates: In 2022, over 50 million people left their jobs according to FED data, setting a record, besting 2021’s nearly 48 million. People are leaving their jobs for various reasons: We surveyed 1,000 employees and found that burnout or work/life balance topped the list at 31% but 26% left because they found a job with better benefits. We also found that 51% said that a 401(k) from a prospective employer would entice them to leave their job. That number increased to 57% when a 401(k) employer match was added. The struggle to attract (and retain) top talent is real. But you have an opportunity. Your opportunity: Leveraging the SECURE 2.0 Act The SECURE 2.0 Act is packed full of 90-plus provisions. We've highlighted a few key provisions that make it easier to offer a 401(k) that benefits you and your employees. Some could reduce (or even pay for) your plan's implementation costs. Others help you capture the long-term employee retention benefit that a 401(k) provides. Please note that this is not intended as legal guidance or as a comprehensive resource on all SECURE 2.0 provisions. The information provided below is for education purposes only and is subject to change. Tax credits for small employer plans Quick facts: Effective date: December 29, 2022 Startup tax credit: Tax credits are available to offset the costs of a new plan for up to three years. According to the legislation, plan sponsors with 100 employees and fewer can claim up to $5,000 in their first year. Employer contribution credit: This clause allows eligible businesses starting a new plan after 12/29/22 to claim back costs associated with making employer contributions toward employees’ 401(k)s. If your company adopts employer contributions as a part of your plan design, you may be able to claim these costs for up to five years. Automatic enrollment credit: Employers that establish a new 401(k) plan after 12/29/22 with automatic enrollment can take advantage of this credit. Employers can claim this tax benefit for up to three tax years if they have 100 or fewer eligible employees. Your opportunity: Reduced plan cost: A tax credit reduces the amount of taxes you may owe. For smaller employers with lower plan costs, the tax credit may actually cover all 401(k) plan implementation costs in the first three years. Regardless, the SECURE 2.0 Act has made implementing a 401(k) more affordable for many businesses. Employers can offer a 401(k) match on student loans Quick facts: Effective date: January 1, 2024 401(k) student loan matching: Qualified student loan repayments could count as elective deferrals and qualify for 401(k) matching contributions from their employer. Employees who take advantage of this would be compliance tested separately. Your opportunity: Employee retention: If you have employees with student loans, often early in their careers, offering to match their loan payments with 401(k) contributions can help them jumpstart saving for retirement. This becomes an attractive benefit that can help retain talent. Required automatic enrollment and escalation Quick facts: Effective date: January 1, 2025 Auto-enrollment: Requires plans established after 12/29/22 to automatically enroll employees at a default rate between 3% and 10%. Auto-escalation: Requires plans to automatically increase contributions by 1% per year to at least 10% (but no more than 15%). Exemptions: Small businesses with 10 or fewer employees and businesses newer than three years old are exempt. Opt-out: Employees can change their contribution rate or opt out of the plan at any time. Plans must offer participants who are automatically enrolled the ability to request a withdrawal of their contributions within 90 days of their first contribution. Your opportunity: Employee retention and financial wellness: In a summary of the SECURE 2.0 Act, the United States Senate Committee on Finance states that auto-enrollment “significantly increases participation” in 401(k) plans. As an employer, the sooner your employees see value in their benefits, the sooner they may see the value in working for your business. Plus, saving earlier in life sets up employees for long-term financial health—and your business can play an important role in that process. Your solution: A modern 401(k) platform Because of the SECURE 2.0 Act, now may be the best time in recent history for many businesses to start offering a 401(k). But simply offering a 401(k) isn’t enough. You’ll want to do your research to make sure your plan has the features and technology to make your life, and your employees’ lives, easier. At Betterment at Work, we’ve designed a modern 401(k) platform for you and your employees: For you: We’ve streamlined onboarding, payroll integration, and detailed reporting—all accessible on one easy-to-use dashboard. Plus, we’re here to help make meeting SECURE 2.0 Act requirements simple. Save time on managing 401(k) student loan matches, auto-enroll, and auto-escalation through our simplified admin tools. For your employees: Employees can link outside accounts, get retirement advice, and take advantage of automated tax-smart strategies. Plus, our 401(k) match on student loan payments helps employees pay off their debt while gaining a 401(k) contribution if you choose to match their loan payments. For a full overview of what to consider when building out a 401(k) plan, check out our Plan Design article.

Does your current 401(k) plan help you leverage the SECURE 2.0 Act? Learn the two strategic areas that can give your 401(k) a competitive advantage as you navigate SECURE 2.0. Plus, get resources to help you along the way. With over 90 provisions, the SECURE 2.0 Act has created one of the largest opportunities in history for employers to support their employee’s financial wellness. But the Act is complex and it’s a lot to manage. This article covers what you should expect from your 401(k) partner as you navigate the Act, along with how to help your internal leadership team understand the Act’s implications. With a carefully planned strategy, you can get the most out of SECURE 2.0. Your opportunity: Leveraging the SECURE 2.0 Act The Act positions savvy HR and business leaders to create highly attractive 401(k) programs. Based on our research, 51% of employees would consider leaving their job for a 401(k), and if you add on employer matching contributions, the figure jumps to 57%. Some of the major SECURE 2.0 provisions that your 401(k) program needs to consider include: Optional 401(k) match on student loan payments Required auto-enrollment and auto-escalation Period of service requirements for long-term, part-time workers reduced to two years But how do you go about making the most of these provisions, with the goal of increasing the ROI on your 401(k) plan? Beyond understanding the provisions, we recommend focusing on two strategic areas to help give you and your executive team a competitive advantage: Technology Insights Here’s what you need to know to get the most from your 401(k) plan. While the information provided about SECURE 2.0 is accurate based on Betterment’s current understanding and analysis, the details described in Betterment’s content are subject to change based on additional regulatory guidance. Betterment content should not be considered legal or tax advice. Technology = Automation + Integration With SECURE 2.0, now is a good time to review if your 401(k) technology, including your recordkeeper and internal processes, are equipped to help you implement the new provisions. The Act is designed to help people save for retirement, but if your 401(k) platform isn’t built on modern technology, you may struggle to incorporate the provisions efficiently. You could be stuck with hours of costly manual work. Your 401(k) technology partner should be able to: Automate: You shouldn’t be manually updating tasks like auto-enroll and auto-escalation. If you choose to offer matching contributions on student loan payments, make sure your platform has the technology to process those transactions, as well. Integrate: Data management is only becoming more important in implementing the new provisions. You’ll want to make sure you have integrations with your payroll provider that allow you to move the right data between systems. See if you can integrate data like hours worked to allow for easier implementation of provisions like plan participation by long-term, part-time workers. Also, as provisions like the mandatory Roth catch-up contribution (which has been delayed until 2026) go live, your 401(k) platform should facilitate processing the right data to help stay in compliance and reduce manual work. Insights = Facts + Guidance SECURE 2.0 leaves you facing a myriad of information, and you need expert insights. It’s not enough to simply know the facts. You—and your internal stakeholders—need the right insights to make decisions that will help retain employees and generate a positive ROI for your business. Your 401(k) partner should be providing you with: Updates on SECURE 2.0 facts: The SECURE 2.0 provisions are important to understand so you know how your plan will be impacted—especially as they evolve with guidance from the government. Guidance beyond the facts: To create value with your 401(k), your plan partner should help you think through which optional provisions make sense to implement and how to get the most out of implementing mandatory provisions. For example, how to determine if 401(k) matching contributions on student loan payments are right for your business or how to set your auto-enrollment and auto-escalation levels. Just as important, look for a partner who can help you plan and send communications to your employees so they understand how they can get the most out of your plan. Setting your leadership team up for SECURE 2.0 success As you analyze your current 401(k) plan and its abilities to leverage the SECURE 2.0 Act, be sure to consider the perspectives of your organization’s leadership team or 401(k) committee. They will most likely want to understand how your current plan provider will help implement plan changes. Be prepared to answer the following questions for each leadership role. This is not an exhaustive list of questions, and roles may be slightly different at your company, but it should help you get into the mindset of each stakeholder. CEO / Board of Directors: What are the overall costs and/or ROI of implementing SECURE 2.0 provisions? What is the implementation plan to successfully roll out the changes? Is the 401(k) plan competitive within the industry? Chief Financial Officer / Chief Operating Officer: How will adopting SECURE 2.0 provisions impact plan administration efficiency and cost? Who is responsible for administering provisions and processes? Chief Risk / Compliance Officer: Are provision implementation deadlines being met? How does adopting these provisions impact 401(k) nondiscrimination testing? Are policies, procedures, and plan amendments being updated as needed? Chief Human Resources Officer: What is the best employee communications approach to implementing SECURE 2.0 provisions? Are current HR vendor integrations, like payroll, sufficient to implement SECURE 2.0 efficiently? Do the provisions have implications on the 401(k) plan’s role within the organization’s total rewards program? Your 401(k) plan provider should be a resource to help answer these questions as you implement SECURE 2.0 provisions. We have resources to help you leverage SECURE 2.0 Our tech is built so you can run a modern 401(k) program. Our platform helps streamline processes like: Automation: Enabling auto-enrollment and auto-escalation customized to your plan. Student Loan Management: A platform for you and your employees, including the ability to process 401(k) matches to student loan payments. Payroll Integrations: Integrating with payroll and benefits providers to make sure your data gets where it needs to go, to help reduce manual processes as you implement SECURE 2.0. Our 401(k) content provides insights to help you leverage SECURE 2.0. Our team of experts has created resources to help you increase the ROI on your 401(k) program. Free Email Course: We offer a free, six-month email series called “Beyond the Facts: SECURE 2.0” that guides you through some of the most important SECURE 2.0 decisions business leaders need to make, from implementing provisions to communicating with your employees. SECURE 2.0 Resource Site: Plus, we have a content library designed to brief you on the most important aspects of SECURE 2.0 so you can stay in the know and build a 401(k) that fits into your total rewards program.

Safe Harbor vs. traditional 401(k) plans: Which is right for you and your Employees? Weigh the pros and cons of each carefully before making a decision for your company. 401(k) lingo can sound like a foreign language. There's "MEPs" and "PEPs," “QDIAs” and “QACAs.” But for now, let's focus on Safe Harbor 401(k) plans. If you’ve concluded that a 401(k) is right for your company, the next decision you face is what kind of 401(k) plan. They come in two primary flavors, with the Safe Harbor variety providing an alternative to the traditional 401(k) plan. Does the “Safe Harbor” name mean the traditional route is riskier? Not necessarily. There's a host of pros and cons to each plan type. The best fit for your company depends ultimately on your unique situation. Keep reading to try on a Safe Harbor for size. Editor’s note: If you’re reading this during the first half of the year, with eyes on possibly implementing a Safe Harbor plan the following year, time is of the essence! Learn more about Safe Harbor setup deadlines below. Table of contents Safe Harbor 401(k) plans in a nutshell How nondiscrimination testing can trip up small businesses Safe Harbor may make sense for you if … Safe Harbor setup deadlines What Betterment at Work brings to your Safe Harbor 401(k) setup Safe Harbor 401(k) plans in a nutshell Safe Harbor plans offer companies an enticing deal. Contribute to your employees’ 401(k)s, the federal government says, and we’ll give you a free pass on most compliance testing. There's plenty more nuance to them of course (keep reading for that), but this is the key distinction. In traditional 401(k) plans, employer contributions are allowed but not required—and you face the added burden of annual testing. As with all things in life, Safe Harbor plans come with tradeoffs. Matching your employees’ contributions—or contributing regardless of whether they do through what’s called a nonelective contribution—is great for your employees' financial wellbeing, but it could also increase your overall employee budget by 3% or more depending on the size of your contribution. How nondiscrimination testing can trip up small businesses Federal law requires annual nondiscrimination tests, which help ensure 401(k) plans benefit all employees—not just business owners or highly compensated employees (HCEs). Because the federal government provides significant tax perks through 401(k) plans, it wants to make sure these benefits don’t more heavily favor high earners. The three main nondiscrimination tests are: Actual deferral percentage (ADP) test—Compares the average salary deferrals of HCEs to those of non-highly compensated employees (NHCEs). Actual contribution percentage (ACP) test—Compares the average employer matching contributions received by HCEs and NHCEs. Top-heavy test—Evaluates whether a plan is top-heavy, that is, if the total value of the plan accounts of “key employees” is more than 60% of the value of all plan assets. The IRS defines a key employee as an officer making more than $230,000 (indexed), an owner of more than 5% of the business, or an owner of more than 1% of the business who made more than $150,000 during the plan year. In practice, it’s easier for large companies to pass the tests because they have a lot of employees at many different income levels contributing to the plan. If, on the other hand, even just a few HCEs at a small-to-midsize business contribute a lot to the plan, but the lower earners don’t, there’s a chance the 401(k) plan will not pass nondiscrimination testing. You may be wondering: “What happens if my plan fails?” Well, you’ll need to fix the imbalance by either returning a portion of the contributions made by your highly compensated employees or by increasing the contributions of your non-highly compensated employees. If you have to refund contributions, affected employees may fall behind on their retirement savings—and that money may be subject to state and federal taxes! If you don’t correct the issue in a timely manner, there could also be a 10% penalty fee and other serious consequences. Failing these tests, in other words, can be a real pain in the pocketbook. Safe Harbor may make sense for you if … Every company is different, but here’s a list of employer characteristics that tend to align best with the plan type. Your staff count is in the dozens, not hundreds. Not all small businesses are created equal. In general, however, the smaller your staff count, the more likely it is that the 401(k) contributions of high earners could outweigh those of their lower-compensated peers. If that happens under a traditional 401(k) plan, you’re at a higher risk of failing nondiscrimination testing. Your staff includes a high percentage of part-time and/or seasonal employees. For companies with more fluid staff makeups, the same elevated risk of failing nondiscrimination testing applies. These types of workers are typically allowed to participate in plans yet often don’t contribute, thus negatively impacting testing. Your company has previously failed ADP or ACP compliance tests. This one’s a no-brainer. If traditional 401(k) plans have given you testing fits in recent years, switching to a Safe Harbor plan could help avoid these costly tripups. Your company’s previous plans have been deemed “top-heavy.” Similar to the above, if you haven’t recently failed an ADP or ACP test as part of a Traditional 401(k) plan, but your plan was deemed “top-heavy,” you may have a higher risk of failing in the future. Your company has consistent and adequate cash flow. Safe Harbor 401(k) plans offer employees a pretty sweet deal. The company kicks in a minimum of 3-4% of their salaries, either contingent on a matching contribution or not (see: nonelective). That money vests immediately, too, which means employees can quit tomorrow and keep it. This commitment to your workforce’s retirement savings is the key cost consideration of Safe Harbor plans. It’s why we typically don’t recommend them for companies with less predictable cash flow year-over-year. You’d rather avoid administrative burdens. Take it from us: even successful compliance testing can be a hassle. And failures? They can lead not only to the aforementioned penalties but to uncomfortable conversations with impacted employees. They’ll need explanations for why their contributions are being returned, and they ultimately may not be able to maximize their 401(k). If you prefer peace-of-mind over these compliance worries, consider the Safe Harbor option. Safe Harbor setup deadlines If you’re strongly considering setting up a Safe Harbor plan or adding a Safe Harbor contribution to your existing plan, here are a few key deadlines you need to know: Starting a new plan For calendar year plans, October 1 is the final deadline for starting a new Safe Harbor 401(k) plan. But don’t cut it too close—you’re required to notify your employees 30 days before the plan starts—and you’ll likely need to talk to your plan provider before that. If we’re fortunate enough to serve in that role for you, that means we’ll need to sign a service agreement by August 1. Adding Safe Harbor to an existing plan If you want to add a Safe Harbor match provision to your current plan, you can include a plan amendment that goes into effect January 1 so long as employees receive notice at least 30 days prior. At Betterment, the deadline for you to request this amendment is October 31. Thanks to the SECURE Act, plans that want to become a nonelective Safe Harbor plan—meaning the employer contributes regardless of whether the employee does—have newfound flexibility. An existing plan can implement a 3% nonelective Safe Harbor provision for the current plan year if amended 30 days before the close of the plan year. Plans that decide to implement a nonelective Safe Harbor contribution of 4% or more have until the end of the following year in which the plan will become a Safe Harbor. Communicating with employees Every year, eligible employees need to be notified about their rights and obligations under your Safe Harbor plan (except for those with nonelective contributions, as noted above). The IRS requires notice be given between 30-90 days before the beginning of the plan year. What Betterment at Work brings to your Safe Harbor 401(k) setup An experienced plan provider like Betterment at Work can bring a lot to the table: Smooth onboarding | We guide you through each step of the onboarding process so you can start your plan quickly and easily. Simple administration | Our intuitive tech and helpful team keep you informed of what you need to do, when you need to do it. Affordability | We’re fully transparent about our pricing so no surprises await you or your employees. Investing choice | Give your employees access to a variety of low-cost, expert-built portfolios. Ready to get started – or simply get more of your questions answered? Reach out today. Or keep reading to learn more about whether the other big consideration for your 401(k) plan—auto-enrollment—is right for your situation.

Add a Friendly Face to Your Employees’ 401(k)s Why some of your 401(k) plan’s participants may need a little extra advice—and how to give it to them. Before our arrival more than a decade ago, the finance world typically worked one way for everyday investors: you had a “guy.” In rare cases—much too rare—it was a “gal,” but that’s a story for another day. This advisor may or may not have been a fiduciary, meaning someone legally obligated to act in your best interest. But if you wanted to invest, you had to go through them. And they likely charged a hefty sum for their services, given that today’s average fees for a traditional financial advisor are still more expensive than alternatives like Betterment. Something about this dynamic didn’t sit well with us, so we flipped the relationship on its head. We put our team of experts to work behind the scenes. Traders and tax experts, behavioral scientists and “quants,” they all worked together to infuse technology with their investing insights, leading to a piece of software that served up personalized advice and automated features at scale and for a fraction of the cost of what most investment firms charged. While plenty of investors—800,000 and counting—utilize our approach to automated investing, some still prefer to add a human advisor to that experience, someone to coach them through their money moves face-to-face. And you know what? We not only think that arrangement is okay, it sums up our investing philosophy well: automate what you can, and leave the rest to humans. The implications for your company’s 401(k) plan All of the above holds true for your employees and their 401(k)s. You can give them an intuitive platform to automate their retirement savings. You can match a percentage of their contributions as an incentive. You can share a robust library of educational resources to help explain investing. Some will thrive in this scenario, some will struggle, and some may not bother to sign up at all. So what are you, the plan sponsor, to do? Well, you can add Financial Coaching to your Betterment at Work 401(k), giving your employees access to professional financial advice from our team of advisors. These experts—all fiduciaries, by the way—add a warm touch to the cold arithmetic of retirement saving. They can help your employees not only maximize their 401(k)s, but sort through the rest of their financial lives. “You know, the biggest emotion I sense from clients after a session isn’t excitement; it’s a sense of relief,” says Corbin Blackwell, one of our advisors. “They’re smart people, but investing is scary. Sometimes you just need reassurance that you’re on the right track.” Or sometimes, your employees really do have unusual life circumstances that make for complicated financial decisions. The sort of scenarios that aren’t easy to automate. Maybe they’re high earners, for example, trying to weigh the pros and cons of a Roth IRA conversion. In any case, it’s helpful to have an advisor like Corbin available to talk with. Giving your employees this premium resource can help boost your plan’s participation rate and may improve their financial wellbeing. It can also elevate your 401(k) above your competitors. Retirement saving’s role in the recruiting arms race So far we’ve focused on the benefits of Financial Coaching to your existing employees. We haven’t touched on the appeal to prospective employees, the people you’re hoping fill your talent pipeline for years to come. To some of these workers, a 401(k) is an expectation and neither a surprise nor a delight. They’ve seen plenty of cookie cutter retirement benefits in past jobs and none stood out, at least for the right reasons. While some companies consider this business as usual, another box to check in their benefits package, others see an advantage just waiting to be taken. Because let’s be real, what actually stands out: a piece of paper in your benefits packet, or real-time access to an expert like Corbin? Don’t take our word for it, listen to the recruits. We surveyed workers—and 1-in-5 said access to a live financial advisor could entice them to leave their current job. Whether you’re already a Betterment at Work customer or considering becoming one, Financial Coaching carries the potential to differentiate not only your 401(k) plan but your company. It’s a straightforward way to show you care about the financial well-being of recruits and current employees alike.

The Tax Benefits of Offering a 401(k) Seize the tax deductions (and credits!). Offering a 401(k) to your employees can unlock several tax benefits for your company. When employees contribute to their 401(k) accounts, they unlock some pretty sweet tax perks. But no less important are the potential tax benefits awaiting your own company by virtue of offering a 401(k) in the first place. We’re not a tax advisor, and none of this information should be considered tax advice for your company’s specific situation, but we’d be remiss if we didn’t lay out three key tax benefits that generally await companies that choose to sponsor a 401(k) plan: Company contributions are tax deductible Plan administration fees are (usually) tax deductible Small businesses can snag tax credits for starting a new plan and/or adding auto-enroll Keep reading for more details on each opportunity. Your company’s contributions to employees’ 401(k)s are tax deductible When you contribute to your employees’ 401(k)s, you not only supercharge their retirement savings and boost the appeal of your benefits, you can deduct your contributions from your company’s taxable income, assuming they don’t exceed the IRS’s limit. That annual contribution limit is 25% of compensation paid to eligible employees and doesn’t change from year to year. Compensation Pro-Tip: Consider a contribution over a raise It’s for this reason that dollar-for-dollar, contributing to your employees’ 401(k)s on a pre-tax basis (i.e. via a Traditional 401(k)) is more tax efficient for you and for them compared to giving them raises of an equivalent amount. Consider this example using $3,000: A $3,000 increase in employees’ base pay would mean a net increase to them of just $2,250, assuming 25% in income taxes and FICA combined. For the company, that increase would cost $2,422.12 after FICA adjusted for a 25% income tax rate. You contributing $3,000 to an employee’s 401(k), on the other hand, results in no FICA for both you and them. The employee receives the full benefit of that $3,000 today on a pre-tax basis, plus it has the opportunity to grow tax-free in a Traditional 401(k) until retirement. As the employer, the value of your tax deduction on that $3,000 contribution would be $750, meaning your cost is just $2,250—or 7% less than if you had provided a $3,000 salary increase. Your plan administration fees are (usually) tax deductible Although companies have the option of passing on their plan administration fees to employees—or splitting the tab—many employers opt to pay them entirely. In this case, these costs are typically considered a tax-deductible business expense. The result is a win-win: employees keep more funds invested in their 401(k) accounts and you reduce your company’s taxable income. Small businesses can snag valuable tax credits thanks to SECURE Act 2.0 With newly introduced SECURE Act 2.0 tax credits, employers – and especially small business owners – are in a better place than ever to start offering an employee-friendly retirement plan. Item #1.1 - Startup Tax Credit: Starting a new plan? There are tax credits available to offset the costs of that plan for up to three years with this new clause. According to the legislation, plan sponsors with 100 employees and fewer can claim up to $5,000 in their first year. Item #1.2 - Employer Contribution Credit: This clause allows businesses starting a new plan after 12/29/22 to claim back costs associated with making employer contributions toward employees’ 401(k)s. If your company adopts employer contributions as a part of your plan design, you may be able to claim these costs for up to 5 years. Item #1.3 - Automatic Enrollment Credit: Employers that establish a new 401(k) plan after 12/29/22 that include – you guessed it – automatic enrollment can take advantage of this credit. Employers can claim this tax benefit for up to 3 tax years, if they have less than 101 eligible employees. If eligible, these tax credits would subtract the value from the taxes you owe.

SECURE Act 2.0: Signed into Law Formally called the SECURE 2.0 Act of 2022, the legislation expands retirement plan coverage and makes it easier for employers to offer retirement plan benefits. The SECURE 2.0 Act of 2022 was signed into law on December 29, 2022. Let’s break down each of the key provisions related to 401(k)s, between those that will be required versus those that will be optional, based on their effective year, and whether the provision is geared towards participants, new plans, or all plans (existing and new). Then we’ll highlight which provisions we’re most excited about and why. It's important to note that information regarding Secure 2.0 is subject to change and is not legal guidance. This is not a comprehensive resource with respect to employer-sponsored plans that Betterment does not support. REQUIRED 2023 Participants: Increases the Required Minimum Distribution (RMD) age to 73 in 2023; and to 75 in 2033. Also, failure to take RMD penalty reduced from 50% to 25%, or 10% if the shortfall is corrected within 2 years. 2024 Participants: Elimination of Required Minimum Distribution (RMD) for Roth 401(k) accounts. 2025 All plans with effective dates of 12/29/2022 or later: Automatic enrollment must go into effect by 1/1/2025. Deferrals must be between 3-10%, escalating to 10-15%. Newly auto-enrolled participants must have a 90-day window to request their funds back. All plans: Part-time employees who work at least 500 hours in at least two consecutive years must enter the plan (this was 3 years in the first SECURE Act). Participants: Participants aged 60-63 can contribute up to $10,000 (indexed) as catch up, others over 50 can contribute $7,500 (indexed). 2026 Participants: The IRS determined that anyone who earned $145,000 (indexed) or more in the prior year must make catch-up contributions in Roth dollars. OPTIONAL 2023 New plans: Increases tax credit to up to 100% of plan startup costs for employers with up to 50 employees. Plus a new tax credit on employer contributions for up to $1,000 per participating employee with wages less than $100,000 (indexed). All plans: Employers can provide small non-matching incentives (gift cards) to employees who begin contributing for the first time. All plans: Employers allowed to match in Roth dollars (must be 100% vested), based on selection made by participants. All plans: Employers can rely on participants to self-certify that they have had a safe harbor event that constitutes a deemed hardship. 2024 All plans: Qualified student loan payments can effectively be considered deferrals for purposes of 401k matching contributions. All plans: Emergency savings account within the 401(k) for non-highly compensated employees (NHCEs). Must be funded post tax (Roth), invested in cash or principal reservation vehicle and can be withdrawn from at least once per month, with 4 annual withdrawals fee free. Annual contribution limit is $2,500 (indexed) and automatic enrollment can be applied. All plans: Force out limit increase, from $5,000 to $7,000 All plans: Ability to offer one penalty free withdrawal of up to $1,000 from plans for “unforeseeable or immediate financial needs relating to personal or family emergency expenses.” New plans: SIMPLE IRA plans allowed to be replaced at any time during the year if certain criteria are met. This also waives the 2 year rollover limitation currently in place. New plans: Ability to establish a new, safe harbor plan with no employer contributions requirements and no compliance testing; however, contribution limits will reflect that of an IRA. Top 3 provisions we’re most excited about 1. Automatic enrollment for all (with exceptions). Participation rates at plans with automatic enrollments are much higher than those with voluntary enrollment, based on Betterment’s internal data (87% participation rate with auto-enrollment, 37% without, as of 02/03/23), as well as industry reports. If you’re offering a 401(k) plan to your employees, there’s no better way to get people to use the benefit than automatically enrolling them. Of course, people can always opt-out (which is not common), and the SECURE Act’s provision stipulates that people must be able to get a “refund” of any automatic contributions within 90 days. Which employers are exempt from the automatic enrollment requirement? Plans that have been in effect since before 12/29/22 do not need to add automatic enrollment (unless an existing plan adopts a multiple employer plan (MEP) following 12/29/22). New businesses in existence less than 3 years. Businesses with 10 or fewer employees. Keep in mind any plan is welcome to add automatic enrollment at any time! 2. Student loan payments may qualify for employer matching into a 401(k). More than 40 million Americans are grappling with $1.73 trillion dollars of student debt. Those Americans are less likely to contribute to a 401(k) plan as a result. But if their employer offers a match on 401(k) contributions, those people are missing out, even though they’re trying to do the right thing by paying off their loans. This provision would allow qualifying student loan payments to count as if they’re contributing to a 401(k) and receive their employer’s matching contribution into a 401(k) account, even though they are not contributing to it themselves. It just so happens that Betterment has been preparing for this provision! We already offer a Student Loan Management tool that allows employees to pay off their loans alongside their 401(k) contributions. In the coming months, we’ll be hard at work to build out what’s needed for this new matching contribution provision. 3. Significant tax credit increase if starting a new plan. The SECURE Act of 2019 already provided businesses with fewer than 100 employees a three-year tax credit for up to 50% of plan start-up costs. The new law increases the credit to up to 100% of the costs for employers with up to 50 employees. On top of that, SECURE Act 2.0 offers a new tax credit for 5 years to employers with 50 or fewer employees, encouraging direct contributions to employees. This new tax credit would be up to $1,000 per participating employee with wages less than $100,000 (indexed annually). The credit also applies to employers with 51-100 participants but the amount of the credit is phased out for this group. A few other provisions on our radar: Penalty-free withdrawals in case of domestic abuse. The new law allows domestic abuse survivors to withdraw the lesser of $10,000 or 50% of their 401(k) account, without being subject to the 10% early withdrawal penalty. In addition, they would have the ability to pay the money back over 3 years. Expansion of Employee Plans Compliance Resolution System (EPCRs). To ease the burdens associated with retirement plan administration, this new legislation would expand the current corrections system to allow for more self-corrected errors and exemptions from plan disqualification. Separate application of top heavy rules covering excludable employees. SECURE 2.0 should make annual nondiscrimination testing simpler by allowing plans to separate out certain groups of employees from top heavy testing. Separating out groups of employees is already allowed on ADP, ACP and coverage testing. “Retirement savings lost and found” directs the DOL to create a national, online lost and found database no later than January 1, 2025. So-called “missing participants'' are often either unresponsive or unaware of 401(k) plan funds that are rightfully theirs.

Your Employees Can’t Focus — and Money Worries Might be Why Financial anxiety is impacting workers’ ability to do their jobs. Here’s how the benefits you offer can do something about it. From stock market whiplash to escalating inflation, the past year provided plenty for your workers to worry about with respect to their finances. And while you might think they can keep calm and carry on, new research by Betterment at Work is showing these worries are impacting their productivity. More than half (54%) of the 1,000 full-time U.S. employees surveyed in our latest Financial Wellness Barometer say financial anxiety makes it difficult for them to focus at work. So what’s an employer to do beyond increasing base pay? You’d be surprised how much benefits can help. In addition to offering a barometer of workers’ overall financial wellness and the unique struggles they face, our annual survey zeroes in on the benefits employees value most. Our survey found that while turnover has cooled since a year ago, it’s still well above average, showing the Great Reshuffle is far from over. More than half (54%) of workers surveyed would be enticed to change jobs for better benefits. Which benefits exactly? A 401(k) is mentioned most often among desirable financial wellness benefits, but it’s not the stopping point. Hot on its heels are two other benefits, with each one illustrated by a troubling trend. Breaking the retirement bank, in case of emergency An alarming number of surveyed workers (more than one-in-four) tapped into their retirement accounts to pay for short-term expenses. This behavior not only has big implications for their retirement goals, but can quickly become a bad habit. Instead of getting a high yield on cash set aside for short-term expenses, like the variable 4.00%* offered in a Betterment Cash Reserve account, savers who dip into their retirement accounts early are, with few exceptions, slapped with a 10% penalty by the IRS. All of this points to a notable lack of emergency funds—and explains why an employer-sponsored emergency fund is the second-most desired benefit beyond a 401(k). These funds act similar to a 401(k), with contributions automatically coming from a worker’s paycheck, albeit without the tax benefits of a retirement account. At a minimum, employers can help educate their workers on emergency funds and how to build them. Feeling the squeeze from student loans Nearly half of Millennial and Gen Z workers surveyed currently hold student loan debt — and a lot of it. Among all workers surveyed who hold this type of debt, the majority (59%) owe at least $10,000. Payments on federal student loans may still be paused through at least the first half of 2023, but the previously-announced $10,000 of debt relief on said federal loans is now in limbo. And with this much student debt saddling Americans, saving for retirement will likely continue taking a back seat to paying down student loans. This also shows why greater employer support would be welcome in this space. That support can take the form of 401(k) add-ons like our Student Loan Management.

401(k) Considerations for Highly Compensated Employees Help ensure your 401(k) plan benefits every employee – from senior executives to entry-level workers. Read on for more information. A 401(k) plan should help every employee – from senior executives to entry-level workers – save for a more comfortable future. To help ensure highly compensated employees (HCEs) don’t gain an unfair advantage through the 401(k) plan, the IRS implemented certain rules that all plans must follow. Wondering how to navigate these special considerations for HCEs? Read on for answers to commonly asked questions. 1. What is an HCE? According to the IRS, an HCE is an individual who: Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or Received compensation from the business of more than $155,000 (if the preceding year is 2024), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation. 2. Why are there special considerations for HCEs? Does your plan offer a company match? If so, consider this example: Joe is a senior manager earning $200,000 a year. He can easily afford to max out his 401(k) plan contributions and earn the full company match (dollar-for-dollar up to 6%). Thomas is an entry-level administrative assistant earning $35,000 a year. He can only afford to contribute 2% of his paycheck to the 401(k) plan, and therefore, isn’t eligible for the full company match. Not only that, Joe can contribute more – and earn greater tax benefits – than Thomas. It doesn’t seem fair, right? The IRS doesn’t think so either. To ensure HCEs don’t disproportionately benefit from the 401(k) plan, the IRS requires annual compliance tests known as non-discrimination tests. 3. What is non-discrimination testing? In order to retain tax-qualified status, a 401(k) plan must not discriminate in favor of key owners and officers, nor highly compensated employees. This is verified annually by a number of tests, which include: Coverage tests – These tests review the ratio of HCEs benefitting from the plan (i.e., of employees considered highly compensated, what percent are benefiting) against the ratio of non-highly compensated employees (NHCEs) benefiting from the plan. Typically, the NHCE percentage benefiting must be at least 70% or 0.7 times the percentage of HCEs considered benefiting for the year, or further testing is required. These tests are performed across employee contributions, matching, and after-tax contributions, and non-elective (employer, non-matching) contributions. ADP and ACP tests – The Actual Deferral Percentage (ADP) Test and the Actual Contribution Percentage (ACP) Test help to ensure that HCEs are not saving significantly more than the employee base. The tests compare the average deferral (traditional and Roth) and employer contribution (matching and after-tax) rates between HCEs and NHCEs. Top-heavy test – A plan is considered top-heavy when the total value of the Key employees’ plan accounts is greater than 60% of the total value of the plan assets. (The IRS defines a key employee as an officer making more than $220,000 in 2024—and indexed each year after), an owner of more than 5% of the business, or an owner of more than 1% of the business who made more than $150,000 during the plan year.) 4. What if my plan doesn’t pass non-discrimination testing? You may be surprised to learn that it’s actually easier for large companies to pass the tests because they have many employees at varying income levels contributing to the plan. However, small and mid-size businesses may struggle to pass if they have a relatively high number of HCEs. If HCEs contribute a lot to the plan, but NHCEs don’t, there’s a chance that the 401(k) plan will not pass nondiscrimination testing. If your plan fails, you’ll need to fix the imbalance by returning 401(k) plan contributions to your HCEs or increasing contributions to your NHCEs. If you have to refund contributions, affected employees may fall behind on their retirement savings—and that money may be subject to state and federal taxes! Not to mention the fact that you may upset several top employees, which could have a detrimental impact on employee satisfaction and retention. 5. How can I avoid this headache-inducing situation? If you want to bypass compliance tests, consider a safe harbor 401(k) plan. A safe harbor plan is like a typical 401(k) plan except it requires you to: Contribute to the plan on your employees’ behalf, sometimes as an incentive for them to save in the plan Ensure the mandatory employer contribution vests immediately – rather than on a graded or cliff vesting schedule – so employees can always take these contributions with them when they leave To fulfill safe harbor requirements, you can elect one of the following employer contribution formulas: Basic safe harbor match—Employer matches 100% of employee contributions, up to 3% of their compensation, plus 50% of the next 2% of their compensation Enhanced safe harbor match—Employer matches 100% of employee contributions, up to 4% of their compensation. Non-elective contribution—Employer contributes at least 3% of each employee’s compensation, regardless of whether they make their own contributions. Want to contribute more? You absolutely can – the above percentages are only the minimum required of a safe harbor plan. 6. How can a safe harbor plan benefit my top earners? With a safe harbor 401(k) plan, you can ensure that your HCEs will be able to max out your retirement contributions (without the fear that contributions will be returned if the plan fails nondiscrimination testing). 7. What are the upsides (and downsides) of a safe harbor plan? Beyond ensuring your HCEs can max out their contributions, a safe harbor plan can help you: Attract and retain top talent—Offering your employees a matching or non-elective contribution is a powerful recruitment tool. Plus, an employer contribution is a great way to reward your current employees (and incentivize them to save for their future). Improve financial wellness—Studies show that financial stress impacts employees’ ability to focus on work. By helping your employees save for retirement, you help ease that burden and potentially improve company productivity and profitability. Save time and stress—Administering your 401(k) plan takes time—and it can become even more time-consuming and stressful if you’re worried that your plan may not pass nondiscrimination testing. Bypass certain tests altogether by electing a safe harbor 401(k). Reduce your taxable income—Like any employer contribution, safe harbor contributions are tax deductible! Plus, you can receive valuable tax credits to help offset the costs of your 401(k) plan. Of course, these benefits come with a cost; specifically the expense of increasing your overall payroll by 3% or more. So be sure to evaluate whether your company has the financial capacity to make employer contributions on an annual basis. 8. Are there other ways for HCEs to save for retirement? If you decide against a safe harbor plan, you can always encourage your HCEs to take advantage of other retirement-saving avenues, including: Health savings account (HSA) – If your company offers an HSA – typically available to those enrolled in a high-deductible health plan (HDHP) – individuals can contribute up to $3,650, families can contribute up to $7,300, and employees age 55 or older can contribute an additional $1,000 in 2022. The key benefits are: Contributions are tax free, earnings grow tax-free, and funds can be withdrawn tax-free anytime they’re used for qualified health care expenses. The HSA balance carries over and has the potential to grow unlike a “use-it-or-lose-it” FSA. Once employees turn 65, they can withdraw money from an HSA for any purpose – not just medical expenses – without penalty. However, they will have to pay income tax, so they may want to consider reserving it for medical expenses in retirement. Traditional IRA – If employees make after-tax contributions to a traditional IRA, all earnings and growth are tax-deferred. For 2024, the IRA contribution maximum is $7,000 and employees age 50 or older can make an additional $1,000 catch-up contribution. Roth IRA – HCEs may still be eligible to contribute to a Roth IRA, since Roth IRAs have their own separate income limits. But even if an employee’s income is too high to contribute to a Roth IRA, they may be able to convert a Traditional IRA into a Roth IRA via the “backdoor” IRA strategy. To do so, they would make non-deductible contributions to their Traditional IRA, open a Roth IRA, and perform a Roth IRA conversion. This is a more advanced strategy, so for more information, your employees should consult a financial advisor. Taxable Account – A taxable account is a great way to save beyond IRS limits. If employees are maxed out their 401(k) and IRA and want to keep saving, they can invest extra cash in a taxable account. Want to learn more? Betterment can help. Helping HCEs navigate retirement planning can be a challenge. If you’re considering a safe harbor plan or want to explore new ways to enhance retirement savings for all your employees, talk to Betterment today. Betterment assumes no responsibility or liability whatsoever for the content, accuracy, reliability or opinions expressed in a third-party website, to which a published article links (a “linked website”) and such linked websites are not monitored, investigated, or checked for accuracy or completeness by Betterment. It is your responsibility to evaluate the accuracy, reliability, timeliness and completeness of any information available on a linked website. All products, services and content obtained from a linked website are provided “as is” without warranty of any kind, express or implied, including, but not limited to, implied warranties of merchantability, fitness for a particular purpose, title, non-infringement, security, or accuracy. If Betterment has a relationship or affiliation with the author or content, it will note this in additional disclosure.

Share the Wealth: Everything you need to know about profit sharing 401(k) plans In addition to bonuses, raises, and extra perks, many employers elect to add profit sharing to their 401(k) plan. Read on for answers to frequently asked questions. Has your company had a successful year? A great way to motivate employees to keep up the good work is by sharing the wealth. In addition to bonuses, raises, and extra perks, many employers elect to add profit sharing to their 401(k) plan. Wondering if it might be right for your business? Read on for answers to frequently asked questions about profit sharing 401(k) plans. What is profit sharing? Let’s start with the basics. Profit sharing is a way for you to give extra money to your staff. While you could make direct payments to your employees, it’s very common to combine profit sharing with an employer-sponsored retirement plan. That way, you reward your employees—and help them save for a brighter future. What is a profit sharing plan? A profit sharing plan is a type of defined contribution plan that allows you to help your employees save for retirement. With this type of plan, you make “nonelective contributions” to your employees’ retirement accounts. This means that each year, you can decide how much cash (or company stock, if applicable) to contribute—or whether you want to contribute at all. It’s important to note that the name “profit sharing” comes from a time when these plans were actually tied to the company’s profits. Nowadays, companies have the freedom to contribute what they want, and they don’t have to tie their contributions to the company’s annual profit (or loss). In a pure profit sharing plan, employees do not make their own contributions. However, most companies offer a profit sharing plan in conjunction with a 401(k) plan. What is a profit sharing 401(k) plan? A 401(k) with profit sharing enables both you and your employees to contribute to the plan. Here’s how it works: The 401(k) plan allows employees to make their own salary deferrals up to the IRS limit. The profit sharing component allows employers to contribute up to the IRS limit, noting that the maximum includes the employee's contributions as well. After the end of the year, employers can make their pre-tax profit sharing contribution, as a percentage of each employee’s salary or as a fixed dollar amount Employers determine employee eligibility, set the vesting schedule for the profit sharing contributions, and decide whether employees can select their own investments (or not) What’s the difference between profit sharing and an employer match? Profit sharing and employer matching contributions seem similar, but they’re actually quite different: Employer match—Employer contributions that are tied to employee savings up to a certain percentage of their salary (for example, 50 cents of every dollar saved up to 6% of pay) Profit sharing—An employer has the flexibility to choose how much money—if any at all—to contribute to employees’ accounts each year; the amount is not tied to how much employees save. What kinds of profit sharing plans are there? There are four main types of profit sharing plans: Pro-rata plan—Every plan participant receives employer contributions at the same rate. For example, every employee receives the equivalent of 5% of their salary or every employee receives a flat dollar amount such as $1,000. Why is it good? It’s simple and rewarding. New comparability profit sharing plan (otherwise known as “cross-tested plans”)—Employees are placed into separate benefit groups that receive different profit sharing amounts. For example, business owners (or other highly compensated employees) are in one group that receives the maximum contribution and all other employees are in another group and receive a lower amount. Why is it good? It offers older owners the most flexibility. Minimum Gateway – In order to utilize new comparability, the plan must satisfy the Minimum Gateway Contribution – All non-highly compensated employees (NHCEs) must receive an allocation that is no less than the lesser of 5% of the participant's gross compensation, or 1/3 of the highest contribution rate given to any highly compensated employees (HCEs). General Test – Once the minimum gateway is passed, it must pass the general test which breaks up the plan into “rate groups” based on their Equivalent benefit Accrual Rate (EBAR). Every HCE is in their separate rate group, which includes all participants who have an EBAR equal to or greater than that HCE. If the ratio percentage for each rate group is 70% or higher, the plan passes, and no further testing is necessary. If each rate group does not satisfy the ratio percentage test, then we revert to using the average benefits test. The average benefits test is the more complicated test, and consists of two parts: the nondiscriminatory classification test and the average benefits test. Betterment will always try to make the test pass using the ratio test method first. Permitted disparity—Employees are given a pro-rata base contribution on their entire compensation (up until the IRS limit). In addition, employees who earn more than the integration level, will receive an excess contribution on the amount over that limit. The integration level that provides the highest disparity allowed (5.7%) is the Social Security Taxable Wage Base (SSTWB). Plans that choose to lower the integration amount will receive a reduced disparity limit. Why is it good? It offers younger HCE’s who make more than the SSTWB a greater benefit. Age-weighted profit sharing plan—Employees are given profit sharing contributions based on their retirement age. That is, the older the employee, the higher the contribution. Why is it good? It can help with employee retention. How do I figure out our company’s profit sharing contribution? First, consider which type of profit sharing plan you’ll be using—pro-rata, new comparability, permitted disparity, or age-weighted. Next, take a look at your company’s profits, business outlook, and other financial factors. Keep in mind that: There is no set amount that you have to contribute You don’t need to make contributions Even though it’s called “profit sharing,” you don’t need to show profits on your books to make contributions The IRS notes that the “comp-to-comp” or pro-rata method is one of the most common ways to determine each participant’s allocation. Using this method, you calculate the sum of all of your employees’ compensation (the “total comp”). To determine the profit sharing allocation, divide the profit sharing pool by the total comp. You then multiply this percentage by each employee’s salary. Here’s an example of how it works: Your profit sharing pool is $15,000, and the combined compensation of your three eligible employees is $180,000. Therefore, each employee would receive a contribution equal to 8.3% of their salary. Employee Salary Calculation Profit sharing contribution Taylor $40,000 $15,000 x 8.3% $3,333 Robert $60,000 $15,000 x 8.3% $5,000 Lindsay $80,000 $15,000 x 8.3% $6,667 What are the key benefits of profit sharing for employers? It’s easy to see why profit sharing helps employees, but you may be wondering how it helps your small business. Consider these key benefits: Provide a valuable benefit (while controlling costs)—With employer matching contributions, your costs can dramatically rise if you onboard several new employees. However, with profit sharing, the amount you contribute is entirely up to you. Business is doing well? Contribute more to share the wealth. Business hits a rough spot? Contribute less (or even skip a year). Attract and retain top talent—Profit sharing is a generous perk when recruiting new employees. Plus, you can tweak your profit sharing rules to aid in retention. For example, some employers may elect to have a graded or cliff profit sharing contribution vesting schedule to motivate employees to continue working for their company. Rack up the tax deductions—Profit sharing contributions are tax deductible and not subject to payroll (e.g., FICA) taxes! So if you’re looking to lower your taxable income in a profitable year, your profit sharing plan can help you make the highest possible contribution (and get the highest possible tax write-off). Motivate employees to greater success—Employees who know they’ll receive financial rewards when their company does well are more likely to perform at a higher level. Companies may even link profit sharing to performance goals to motivate employees. What are the rules? The IRS clearly defines rules for contribution limits and calculation rules, tax deduction limits, deadlines, and disclosures (as with any type of 401(k) plan!). Be sure to keep an eye out for any annual changes from the IRS. Are there any downsides to offering a profit sharing plan? Contribution rate flexibility is one of the greatest benefits of a profit sharing 401(k) plan—but it could also be one of its greatest downsides. If business is down one year and employees get a lower profit sharing contribution than they expect, it could have a detrimental impact on morale. However, for many companies, the advantages of a profit sharing 401(k) plan outweigh this risk. How do I set up a profit sharing 401(k) plan? If you already have a 401(k) plan, it requires an amendment to your plan document. However, you’ll want to take the time to think through how your profit sharing plan supports your company’s goals. Betterment can help. At Betterment, we’re here to help with a range of tasks from nondiscrimination testing to plan design consulting to ensure your profit sharing 401(k) plan is working the way your business needs. And as a 3(38) fiduciary, we take full responsibility for selecting and monitoring your investments so you can focus on running your business—not managing your retirement plan. Ready for a better profit sharing 401(k) plan? Get started here. The information provided is education only and is not investment or tax advice. Any links provided to other websites are offered as a matter of convenience and are not intended to imply that Betterment or its authors endorse, sponsor, promote, and/or are affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise.

Understanding 401(k) Fees Come retirement time, the number of 401(k) plan fees charged can make a major difference in your employees’ account balances—and their futures. Did you know that the smallest 401(k) plans often pay the most in fees? We believe that you don’t have to pay high fees to provide your employees with a top-notch 401(k) plan. With Betterment, you can manage plan eligibility and coverage, which gives you more control over cost. We're transparent about our fees and don't hide future costs like some providers. Why do 401(k) fees matter? The difference between a 1% fee and a 2% fee may not sound like much, but in reality, higher 401(k) fees can take a major bite out of your participants’ retirement savings. Consider this example: Triplets Jane, Julie, and Janet each began investing in their employers’ 401(k) plan at the age of 25. Each had a starting salary of $50,000, increased by 3% annually, and contributed 6% of their pre-tax salary with no company matching contribution. Their investments returned 6% annually. The only difference is that their retirement accounts were charged annual 401(k) fees of 1%, 1.5%, and 2%, respectively. Forty years later, they’re all thinking about retiring and decide to compare their account balances. Here’s what they look like: Annual 401(k) fee Account balance at age 65 Jane 1% $577,697 Julie 1.5% $517,856 Janet 2% $465,894 Information is hypothetical and provided for educational purposes only. As such, these figures do not reflect Betterment’s management fee and do not reflect any actual client performance As you can see, come retirement time, the amount of fees charged can make a major difference in your employees’ account balances—and their futures. Why should employers care about 401(k) fees? You care about your employees, so naturally, you want to help them build brighter futures. But beyond that, it’s your fiduciary duty as a plan sponsor to make sure you’re only paying reasonable 401(k) fees for services that are necessary for your plan. The Department of Labor (DOL) outlines rules that you must follow to fulfill this fiduciary responsibility, including “ensuring that the services provided to the plan are necessary and that the cost of those services is reasonable” and has published a guide to assist you in this process. Generally, any firm providing services of $1,000 or more to your 401(k) plan is required to provide a fee disclosure, which is the first step in understanding your plan’s fees and expenses. It’s important to note that the regulations do not require you to help ensure your fees are the lowest available, but that they are reasonable given the level and quality of service and support you and your employees receive. Benchmark the fees against similar retirement plans (by number of employees and plan assets, for example) to see if they’re reasonable. What are the main types of fees? Typically, 401(k) fees fall into three categories: administrative fees, individual service fees, and investment fees. Let’s dig a little deeper into each category: Plan administration fees—Paid to your 401(k) provider, plan administration fees typically cover 401(k) set-up fees, as well as general expenses such as recordkeeping, communications, support, legal, and trustee services. These costs are often assessed as a flat annual fee. Investment fees—Investment fees, typically assessed as a percentage of assets under management, may take two forms: fund fees that are expressed as an expense ratio or percentage of assets, and investment advisory fees for portfolio construction and the ongoing management of the plan assets. Betterment, for instance, acts as investment advisor to its 401(k) clients, assuming full fiduciary responsibility for the selection and monitoring of funds. And as is also the case with Betterment, the investment advisory fee may even include personalized investment advice for every employee. Individual service fees—If participants elect certain services—such as taking out a 401(k) loan—they may be assessed individual fees for each service. Wondering what you and your employees are paying in 401(k) fees? Fund fees are detailed in the funds’ prospectuses and are often wrapped up into one figure known as the expense ratio, expressed as a percentage of assets. Other fees are described in agreements with your service providers. High quality, low fees Typically, mutual funds have dominated the retirement investment landscape, but in recent years, exchange-traded funds (ETFs) have become increasingly popular. At Betterment, we believe that a portfolio of ETFs, in conjunction with personalized, unbiased advice, is the ideal solution for today’s retirement savers. Who pays 401(k) fees: the employer or the participant? The short answer is that it depends. As the employer, you may have options with respect to whether certain fees may be allocated to plan participants. Expenses incurred as a result of plan-related business expenses (so-called “ settlor expenses”) cannot be paid from plan assets. An example of such an expense would be a consulting fee related to the decision to offer a plan in the first place. Other costs associated with plan administration are eligible to be charged to plan assets. Of course, just because certain expenses can be paid by plan assets doesn’t mean you are off the hook in monitoring them and ensuring they remain reasonable. Plan administration fees are often paid by the employer. While it could be a significant financial responsibility for you as the business owner, there are three significant upsides: Reduced fiduciary liability—As you read, paying excessive fees is a major source of fiduciary liability. If you pay for the fees from a corporate account, you reduce potential liability. Lowered income taxes—If your company pays for the administration fees, they’re tax deductible! Plus, you can potentially save even more with the new SECURE Act tax credits for starting a new plan and for adding automatic enrollment. Increased 401(k) returns—Do you take part in your own 401(k) plan? If so, paying 401(k) fees from company assets means you’ll be keeping more of your personal retirement savings. Fund fees are tied to the individual investment options in each participant’s portfolio. Therefore, these fees are paid from each participant’s plan assets. Individual service fees are also paid directly by investors who elect the service, for example, taking a plan loan. How can you minimize your 401(k) fees? Minimizing your fees starts with the 401(k) provider you choose. In the past, the price for 401(k) plan administration was quite high. However, things have changed, and now the era of expensive, impersonal, unguided retirement saving is over. Innovative companies like Betterment now offer comprehensive plan solutions at a fraction of the cost of most providers. Betterment combines the power of efficient technology with personalized advice so that employers can provide a benefit that’s truly a benefit, and employees can know that they’re invested correctly for retirement. No hidden fees. Maximum transparency. Costs are often passed to the employee through fund fees, and in fact, mutual fund pricing structures incorporate non-investment fees that can be used to pay for other types of expenses. Because they are embedded in mutual fund expense ratios, they may not be explicit, therefore making it difficult for you to know exactly how much you and your employees are paying. In other words, most mutual funds in 401(k) plans contain hidden fees. At Betterment, we believe in transparency. Our use of ETFs means there are no hidden fees, so you and your employees are able to know how much you’re paying for the underlying investments themselves. Plus, our pricing structure unbundles the key offerings we provide—advisory, investment, record keeping, and compliance—and assigns a fee to each service. A clearly defined fee structure means no surprises for you—and more money working harder for your employees.

Betterment’s 401(k) Investment Approach Helping employees make better decisions and providing choice to those who want it. Dan Egan, Betterment’s VP of Behavioral Finance and Investing, explains why Betterment’s investment approach is effective for all 401(k) participants Investment Approach Q&A Betterment’s 401(k) investment approach differs from that of traditional providers, but can you give us a little history about the 401(k) environment pre-Betterment? If I go back to the first job where I had a 401(k) probably about 20 years ago, there was a lineup of funds, and it was up to me as a 401(k) participant to figure out which funds to pick and in what ratios, how much to save and so on. The research coming from that period showed that people often ended up in an analysis paralysis state, where there was so much choice and so many things to consider. It was very difficult for people to know whether they were investing at the appropriate risk level, how much they were paying and so on. Many people were so overloaded that they decided to forego saving for retirement rather than risk making a “bad” decision. But as the industry matured, and everyone realized that more choice does not necessarily lead to better decision-making, the Pension Protection Act (PPA) was passed in 2006. The idea here was not to eliminate choice, but to encourage good defaults that would encourage 401(k) plan participation. How exactly did the PPA encourage more 401(k) participation? For one thing, it allowed for safe harbor investments in the form of QDIAs, or qualified default investment alternatives. The most popular QDIAs were target date funds, which are linked to an individual’s age so if you're 40, it’s assumed that you will be investing for the next 25 years and retiring at 65. Target dates have a glidepath so that the stock allocation becomes more conservative over time, so the employee doesn't have to do anything like managing a portfolio or rebalancing. After the PPA, it became much more common for employees to be auto-enrolled using a target date fund or something like it, and all of sudden, they no longer had to make choices. People were no longer worried about picking and choosing from a whole bunch of individual funds or even individual stocks. And the plan designs promoted by the PPA really worked: plan participation rates that had been languishing saw rates increase to more than 90% after implementing auto-enrollment. By the time Betterment started its 401(k) platform, the changes brought about by the PPA were already well established. So talk a little bit now about how Betterment's 401(k) investment approach differs from that of traditional 401(k) providers. Betterment takes and builds upon a lot of the ideas in a target date fund and goes further. Number one, we are not a fund provider. We are independent from fund companies. So part of our job as a 3(38) investment fiduciary is to be an investment advisor and financial advisor, and do the due diligence on all of the funds that we make available. If you're picking from amongst eight large-cap US stock funds, there's not a lot of variation in what their returns are going to look like and you can generally predict performance versus a benchmark knowing the fund costs. So part of our job is to actually do the work on the behalf of participants, to narrow down the field of funds towards just the ones that stand out within a given asset class and that are cost-effective. We then ask more specific questions including not just how old someone is, but also more personalized questions like when someone plans on retiring. Some people want to retire as early as possible. That might be 55, 57, 62 (which is the earliest possible age you can start collecting Social Security). Other people want to keep working as late as possible, which is 70 or 72. Those are extremely different retirement plans that should have different portfolios based upon those hugely different time horizons. So unlike a target date fund, which says, this is your age and you're done, Betterment is going to ask about your age, but also things like, when do you want to retire? Putting together a retirement plan might also involve your spouse or significant others, retirement assets, and even doing tax optimization across the account types that you have available to you. And how does that help the employee? A lot of it is about making it easy for consumers to make better decisions, not imposing a bunch of choices on them. You have to remember, the vast majority of people are not frequently thinking about stocks and investing. They don't want to have to look up prospectuses and put together a risk managed portfolio. So Betterment does the work for them to make it easy for them to understand how to get to where they want to be. I want to be clear that that's not necessarily about removing choice, it's about making it easy to get to a solution quickly. It’s also about minimizing the number of unnecessary choices for most people while maintaining choice for people who want it. At Betterment, 401(k) investors can still modify your risk level. You can say, "Yeah, maybe it makes sense for me to be at 90% stocks, but I'm not comfortable with it. I want to be at 30% stocks." Or they can modify their allocations using our flexible portfolio strategy, so that they can come in and say, "Actually I don't like international [investments] as much." So it's not about removing choice. And we let them see the consequences of that in terms of risk and return. So employees in Betterment 401(k)s have choice, but how do you respond to people who might already have a 401(k) or are already invested in funds outside of their 401(k), and have a favorite fund that they feel is an absolute must have? I’m not necessarily against people who have put time and effort into researching something and wanting to invest in it. But I think it is focusing on the wrong thing. When you look at long-run research statistics on funds, the predictability of fund success within a category is low. A fund that outperformed last quarter is unlikely to continue to outperform this quarter. So I would say that the fund is very rarely the most important aspect of the 401(k) plan or decision. And I’d guess most participants don't have a favorite fund. Again, going back to research we've looked at across a wide array of companies, most people are looking to minimize how much burden is imposed upon them in making decisions about what they should do for their retirement. There is generally a very small minority who have very strong views about what the right investments are. And that trade-off shows up in that we will generally look at low-cost funds, well-diversified funds. We do offer a range of choice in terms of portfolio strategy: do you want a factor-tilted portfolio or a socially-responsible portfolio or an income portfolio? Without necessarily saying that you're responsible for doing the fund due diligence yourself. It is true that we offer a trade-off: we're not the wild west where you can go out and get anything you want. And that is because that level of discretion is rarely used by plan participants. There's a lot of potential to do the wrong thing when somebody has a completely open access plan. Not to mention, all plan fiduciaries have an obligation to act in the best interests of their plan participants as a whole. So they have to evaluate what makes the most sense for the majority of plan participants, not a small, vocal minority. Somewhat related, what is your response to people who argue that Betterment’s all-ETF fund line-up is too limited? A 401(k) plan made up exclusively of ETFs is no less limiting than a 401(k) plan made up exclusively of mutual funds. Because mutual funds have been around much longer, it’s true that their universe is larger, but I think anyone would be hard pressed to argue that our expert-built and third-party portfolios are not enough to choose from. ETFs are critical to Betterment’s investment approach and a better alternative for 401(k) plans, in large part because mutual funds have complex fee structures and are typically more expensive than ETFs which have transparent and low costs. So why do so many plans still use mutual funds? We believe it’s not despite these issues but because of them, since fees embedded in mutual fund expense ratios are often used to offset the costs of 401(k) vendors servicing the plan. In addition, many legacy recordkeeping systems do not have the technology to handle ETF intraday trading and must restrict their clients to using funds that are only valued at the end of the day. Betterment’s 401(k) plan comes with a 0.25% investment advisory fee. What do employers and employees get for that? I think there's actually two levels to this. The first is “does this actually cost me more?” It’s definitely more transparent in its cost, but most 401(k) plans charge more via higher fund fees. The fund fees may even include embedded fees that go to pay for other plan services. In these more traditional models, the fees are hidden from you, the consumer. But trust me: everybody is getting paid. It's just a matter of whether or not you're aware how much and who you're paying. That also sets up the very important second aspect which is: what is this investment manager responsible for and what are they incentivized to do well? What does Betterment do for 25 basis points? Well, number one, that's how we make sure that we're independent from the fund companies; we don’t get paid by them. Every quarter, we go out and we look at all of the funds that are available in the market. We review them, independent of who provides them, looking at cost, liquidity, tax burdens, and more. And if we find a better fund, because we take no money from fund companies, we're going to move to that better fund. So one thing that you're paying for is, in effect, not only ongoing due diligence and checking, but you're paying for independence, which means that you know we’re unbiased when changes are made inside of your portfolio. The other thing you get is that we want to earn that 25 basis points by serving clients better. So we want to invest in things like personalized retirement portfolios (available to every 401(k) participant) where we are actually able to give better retirement advice that takes into account you, your partner, all the various kinds of retirement accounts you have: Roth, IRA, taxable, trust, and more. Or asset location, for example, which works across tax-advantaged retirement accounts so that employees can keep more of their money and enjoy higher levels of spending in retirement. Employees with a Betterment 401(k) can learn more about our investment options here; plan sponsors can explore them here.

How Does a Multiple Employer Plan Compare to a Single Employer 401(k) Plan? Are MEPs and PEPs the new solution for workplace retirement savings or should I pick my own 401(k) plan? Multiple employer plans (MEPs) have been around for many years, but the rules governing these types of retirement plans limit their availability to many employers. In an effort to help more small and mid-sized companies offer retirement savings plans to their employees, the SECURE Act ushered in new changes so that, beginning in 2021, any business can join a new type of MEP, called a Pooled Employer Plan (PEP). Because of this new development, MEPs and PEPs have become buzzwords in the industry and no doubt you’ll see advertisements touting the benefits of these one-size-fits-all type plans. But are they really the magic bullet policymakers are hoping will solve the “retirement savings crisis”? That remains to be determined, but for many employers, sponsoring their own 401(k) plan with the right plan provider is the best way to ensure their goals for a retirement savings plan are met. What is a MEP? A multiple employer plan or MEP is a retirement plan, often structured as a 401(k) plan, that is established and administered by an “MEP organizer.” The MEP organizer makes the plan available to many different employers. If the MEP meets certain requirements set forth in the tax laws and ERISA (Employee Retirement Income Security Act), it will be treated as a single plan managed by the organizer and not as a series of separate plans administered by each participating employer. The MEP organizer serves as plan fiduciary and typically assumes both administrative and investment management responsibilities for all employers participating in the MEP. An MEP is viewed by the Department of Labor (DOL) as a single plan eligible to file one Form 5500 only if the employers participating in the MEP are part of the same trade or association or are located in the same geographical area. There must be some commonality between the participating employers besides just participating in the MEP. A Professional Employer Organization (PEO) may also sponsor an MEP for its employer clients. What is a PEP? The rules limiting the benefits of an MEP to employers with commonality limited the usefulness of MEPs for many small businesses. To allow broader participation in MEPs, the SECURE Act added a new type of MEP, called a Pooled Employer Plan or PEP, effective for plan years beginning in 2021. A PEP is a 401(k) plan that will operate much like a MEP with a plan organizer and multiple participating employers, but there are a few important differences. Any employer can join a PEP; the businesses do not have to have any common link for the PEP to be considered a single plan. But the PEP must be sponsored by a “Pooled Plan Provider” (PPP) that has registered with the DOL and IRS. The Pooled Plan Provider must be designated in the PEP plan document as the named fiduciary and the ERISA 3(16) plan administrator. This service provider is also responsible for ensuring the PEP meets the requirements of ERISA and the tax code, including ensuring participant disclosures are provided and nondiscrimination testing is performed. The PPP must also obtain a fidelity bond and ensure that any other entities acting as fiduciary to the PEP are bonded. What are the benefits of participating in a MEP or PEP? Small businesses may refrain from adopting a retirement plan for their employees because of the administrative burdens, fiduciary liability, and cost associated with workplace plans. MEPs have been identified in recent years as a way to address these concerns for employers and potentially increase access to workplace retirement plans for employees of small and mid-size businesses. The MEP structure can alleviate much of the administrative and fiduciary burdens for participating employers, and potentially reduce costs. Reduced fiduciary responsibility – The MEP organizer or the PPP takes on fiduciary responsibility for managing the plan and for selecting and monitoring service providers. This generally includes selecting investments that will be offered in the plan. Reduced administrative responsibility – The MEP organizer or the PPP is responsible for day-to-day administration and complying with all applicable rules and regulations for plan operations. Investment pricing – A MEP/PEP arrangement pools plan assets of all participating employers, which may allow the MEP/PEP to obtain better pricing on investments. Reduced plan expenses – MEPs/PEPs allow small businesses to benefit from economies of scale by sharing the expenses for plan documents, general plan administration, and one Form 5500. Because of these benefits, interest in MEPs has grown over the years, leading to the rule changes that open the MEP opportunity to all employers through a PEP. How do MEPs & PEPs Differ from a Single 401(k) Plan? Many of the responsibilities associated with managing a retirement plan that can challenge plan sponsors are taken on by the MEP organizer or the PPP. This third party is responsible for making almost all the decisions related to managing the plan, hiring and monitoring service providers, and overseeing the plan’s investments and operations. The MEP/PEP entity must perform these services on behalf of all participating employers and will be held to the high fiduciary standards of ERISA for these duties. Once the employer has prudently selected the MEP/PEP entity, the employer is relieved of the day-to-day operational oversight and investment management. However, this transfer of responsibilities also means a transfer of control over key decisions regarding the plan. Conversely, when an employer establishes its own 401(k) plan for its employees, the employer retains many of these operational and investment responsibilities, which the employer typically fulfills with the support of service providers. The employer can design the plan based solely on their goals and objectives for the plan and their employees’ needs. The flexibility retained by an employer adopting a single 401(k) plan includes: Selecting the plan design features that fit their employees’ needs Picking the service provider that will assist them in operating the plan and provide relevant education and guidance to their employees Choosing the menu of investments that will be offered to participants in the plan or engaging an investment advisor to manage or guide investment selection Deciding whether to offer personalized advice to employees When Might a Single 401(k) Plan Might Be Better? While the shared expenses and reduced responsibilities of participating in a MEP/PEP can be attractive to small and midsize employers, sometimes what one employer sees as a benefit, another employer sees as a disadvantage. For example, because the MEP/PEP entity is operating one plan for many employers, the plan may be designed with the features that will be most widely accepted by most employers. There is typically little customization available in order to keep plan operations efficient (and cost effective) for the MEP/PEP entity. Participating employers generally have no control over service providers, plan design, or the participant experience. Additionally, although the structure of a MEP/PEP is meant to reduce administrative and investment expenses for participating employers, it remains to be seen if the cost of these plans will be competitive with the low-cost 401(k) plans available today without compromising on the quality and breadth of services. PEPs will open up the multiple employer plan market to all employers for the first time ever. And there are many financial organizations and service providers preparing to capitalize on this new solution by launching PEP products. Although the DOL has provided some guidance, the industry is still awaiting additional guidance on a number of critical elements necessary for building the PEP plan product, including plan documents, acceptable compensation arrangements for service and investment providers, administrative responsibilities for PPPs, and special Form 5500 rules. With so many unknowns yet in the PEP market, it’s difficult to predict whether this new type of multiple employer plan will hit the mark for small business owners. Employers can benefit from the simplicity of a single service provider solution and receive professional fiduciary and administrative support right now with a 401(k) solution designed specifically for small and midsized plans. Ready for the right 401(k) solution? Betterment at Work offers an all-in-one dashboard for employers that aims to simplify plan administration at one of the lowest costs in the industry. Our guided onboarding, dedicated customer support team, and expert-built portfolios can help you deliver a 401(k) plan that works both for your organization and your employees.

Helping Employees Set Up an Emergency Fund Employers are looking for ways to help their employees save for unexpected financial emergencies. Betterment’s 401(k) platform can help. Your water heater fails. Your car breaks down on the side of the road. Your spouse loses their job because of a global pandemic. Life is filled with challenges, and some are more stressful and expensive than others. As a business owner, you’ve likely witnessed firsthand how financial emergencies can impact your employees. Not only does the stress affect employees’ personal lives, it can also affect their work performance, attendance, and focus. That’s why an emergency fund —with enough money to cover at least a few months of expenses—is such an important part of your employees’ overall financial plan. However, many people lack this critical safety net. Rainy day funds are running dry According to research by the Federal Reserve and reported on by the Employee Benefit Research Institute (EBRI), less than 25% of working families had liquid savings of more than three months of their family income. And even when asked if they have 75% of funds needed for three months, that jumps to just over one quarter. When faced with an emergency, employees without an emergency fund may turn to credit cards, take a payday loan, or even raid their retirement savings—triggering early withdrawal penalties and derailing their retirement savings progress. Having a solid emergency fund may help prevent employees from spiraling into a difficult financial predicament with wide-reaching implications. Emergency fund 101 So, what should your employees consider when setting up an emergency fund? At Betterment, we recommend: Saving at least three to four months of expenses—If employees have an emergency fund, they’ll feel more confident focusing on other important goals like retirement or home ownership. Investing emergency fund money—By investing their money—not socking it away in a low-interest savings account—employees don’t run the risk of losing buying power over time because of inflation. Making it automatic—Setting up a regular, automatic deposit can help employees stick to their savings plan because it reduces the effort required to set aside money in the first place. All of this is summarized for employees here: How to Build an Emergency Fund. Helping employees save for today—and someday Some employees may feel like they have to choose between building their emergency fund and saving in their workplace retirement plan. But it doesn’t have to be a choice. With the right 401(k) plan provider, your employees can save for retirement and build an emergency fund at the same time. For example, the Betterment platform is more than just a 401(k) in that it provides: Quick and easy emergency saving fund set-up Betterment makes it easy to establish an emergency savings fund—helping ensure employees don’t need to dip into their 401(k) when faced with unexpected financial difficulties. If your employees aren’t sure how much to save, Betterment can calculate it for them using their gross income, zip code, and research from the American Economic Association and the National Bureau of Economic Research.Betterment will also estimate how much employees need to save to build the emergency fund they want to reach their target amount in their desired time horizon. Using our goals forecaster, employees can model how much they need to save each month to reach their emergency fund goal and view different what-if scenarios that take into account monthly savings, time horizons, and target amounts. Linked accounts for big picture planning Our easy-to-use online platform links employee savings accounts, outside investments, IRAs—even spousal/partner assets—to create a real-time snapshot of their finances, making it easy for them to see the big picture. That means that in a single, holistic view, employees can track both their 401(k) plan account and their emergency fund. Personalized advice to help employees save for today (and someday) By offering personalized advice, Betterment can help your employees make strides toward their long- and short-term financial goals. Ready for a better way to help your employees prepare for the inevitable—and the unexpected? Talk to Betterment today.

Pros and Cons of OregonSaves for Small Businesses Answers to frequently asked questions about the OregonSaves retirement program for small businesses. Launched in 2017, OregonSaves was the first state-based retirement savings program in the country and has since surpassed managing $100 million in assets. Employers with 5 or more employees are already required to offer a plan; for employers with 4 employees or fewer, the deadline is March 1, 2023. If you’re wondering whether OregonSaves is the best choice for your employees, read on for answers to frequently asked questions. 1. Do I have to offer my employees OregonSaves? No. Oregon laws require businesses to offer retirement benefits, but you don’t have to elect OregonSaves. If you provide a 401(k) plan (or another type of employer-sponsored retirement program), you may request an exemption. 2. What is OregonSaves? OregonSaves is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, you must automatically enroll your employees into the program. Specifically, the Oregon plan requires employers to automatically enroll employees at a 5% deferral rate with automatic, annual 1% increases until their savings rate reaches 10%. All contributions are invested into a Roth IRA. As an eligible employer, you must facilitate the program, set up the payroll deduction process, and send the contributions to OregonSaves. The first $1,000 of an employee’s contributions will be invested in the OregonSaves Capital Preservation Fund, and savings over $1,000 will be invested in an OregonSaves Target Retirement Fund based on age. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. (They can also opt out of the annual increases.) 3. Why should I consider OregonSaves? OregonSaves is a simple, straightforward way to help your employees save for retirement. Brought to you by Oregon State Treasury, the program is overseen by the Oregon Retirement Savings Board and administered by a program service provider. As an employer, your role is limited and there are no fees to provide OregonSaves to your employees. 4. Are there any downsides to OregonSaves? Yes, there are factors that may may make OregonSaves less appealing than other retirement plans. Here are some important considerations: OregonSaves is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate in OregonSaves. For example, single filers with modified adjusted 2022 gross incomes of more than $144,000 would not be eligible to contribute. However, 401(k) plans aren’t subject to the same income restrictions. OregonSaves is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—OregonSaves only allows after-tax (Roth) contributions. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—IRA contribution limits are lower than 401(k) limits. The maximum may increase annually, based on cost-of-living adjustments (COLA), but not always. (The maximum contribution limits for IRAs stayed stagnant from 2019 through 2021 and increased slightly in 2022.) So even if employees max out their contribution to OregonSaves, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, OregonSaves does not. Limited investment options—OregonSaves offers a relatively limited selection of investments, which may not be appropriate for all investors. Typical 401(k) plans offer a much broader range of investment options and often additional resources such as managed accounts and personalized advice. Potentially higher fees for employees—There is no cost to employers to offer OregonSaves; however, employees do pay approximately $1 per year for every $100 in their account, depending upon their investments. While different 401(k) plans charge different fees, some plans have far lower employee fees. Fees are a big consideration because they can seriously erode employee savings over time. 5. Why should I consider a 401(k) plan instead of OregonSaves? For many employers —even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you can benefit from: Tax credits—Thanks to the SECURE Act, you can now receive up to $15,000 in tax credits to help defray the start-up costs of your 401(k) plan over three years. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over three years. It’s important to note that the proposed SECURE Act 2.0 may offer even more tax credits. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision. Saving power—Thanks to the higher contribution limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with OregonSaves, that means more employee savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers expert-built, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. What action should I take now? If you decide that OregonSaves is most appropriate for your company, visit the website to register. If you decide to explore your retirement plan alternatives, talk to Betterment. We can help you get your plan up and running —and aim to simplify ongoing plan administration. Plus, our fees are at one of the lowest costs in the industry. That can mean more value for your company—and more savings for your employees. Get started now. Betterment is not a tax advisor, and the information contained in this article is for informational purposes only.

What state-mandated plans could mean for your small business Increasingly, states are requiring that businesses provide retirement plans to employees. Learn if you may need to enroll in one of these state-mandated plans. State-mandated retirement plans are on the rise due to local and state legislation requiring businesses to provide retirement benefits to their employees. With the growing number of private workers not having access to these crucial benefits, many states decided they had to act. In 2015, the Department of Labor (DOL) issued guidance to support the states effort to help promote retirement benefits within their respective states. What are state-mandated retirement plans? When we talk about “state-mandated plans,” what we mean is that, increasingly, more and more states have passed legislation that require businesses to provide retirement benefits for their employees. In these states, the employer has the option of enrolling their employees in the state-sponsored program or sponsor their own workplace retirement plan offered by providers like Betterment. A state-sponsored plan is typically an individual Retirement Account (IRA) in which the employer sets up for their participants to contribute. Certain features may differ between states so it’s a good idea to check in with your state's specific program. Is a state-mandated retirement plan required for my company and what is the deadline to register? Legislation is continuously being updated for each respective state and new states are emerging with future plans to offer this. To date, we’ve tried to provide resources as enough information becomes available on Betterment’s website. You can find more details on states like California, New York, Oregon and Illinois at the links provided. In most states, the mandate only applies if an employer meets certain criteria, such as having been in business for at least 2 years and having greater than 9 employees, as an example. If you have questions, it’s best to reach out to a representative of your state directly or consult your state’s retirement website (if applicable). That said, a state-mandated plan might not be the best plan for your business. Read on to learn more of the pros and cons. What are the benefits of a state-mandated retirement program? Registration to the program can be relatively quick They have limited employer responsibilities & fees No fiduciary responsibility for the employer Participants gain access to retirement benefits for a modest fee Automatic features can force savings (from which employees can opt out) What are the downsides of a state-mandated retirement program? Deferral limits are much lower than 401(k) plans Employees not able to defer taxes if state plan only utilizes Roth May offer limited financial wellness tools compared to 401(k) providers like Betterment May not be as flexible compared to a 401(k) plan Program may not be as competitive with other retirement vehicles for talent acquisition Missed deadlines can cause penalties to the employer Overall, state-mandated programs are a good push to increase the overall percentage of workers who have access to retirement benefits. As of 2021, 32% of private industry workers do not have any access to retirement benefits. If you are or will be required to offer your employees retirement benefits as a result of a state mandate, please know that you have options in setting up your company’s retirement plan and we are here to help. So, what should I do? For any employer who is concerned with attracting and retaining talent in today’s market, offering a 401(k) has become a table stakes benefit. At the end of the day, state mandated plans are designed to help employees save for retirement, but they may lack some of the benefits that offering a 401(k) plan affords. In order to compete for talent, but also to benefit your business’s bottom line with tax savings, we recommend thinking about designing a more thoughtful retirement option that will help you and your employees in the long run. Want to talk about how? Get in touch.

Thinking of Changing 401(k) Providers? Here’s What to Consider If you’re considering changing 401(k) providers, be sure to spend some time assessing your current situation and prioritizing your criteria. If you’re reading this, you may have reservations about your current 401(k) provider—and that’s okay. It’s not unusual for companies to change their 401(k) provider from time to time or feel out potential alternatives. We’d argue it’s even best practice to periodically take stock of your current situation. You want to feel confident your plan is keeping up with industry best practices and that you and your employees are getting good value for your money. So how do you go about it? In this guide, we’ll walk you through: Four criteria to consider before switching providers How to switch providers, step-by-step What to expect when switching your plan to Betterment at Work Four criteria to consider before switching 401(k) providers Let’s start with a friendly reminder: because choosing a 401(k) provider is a fiduciary act, you should carefully evaluate your options and clearly document the process. Even just a few criteria can go a long way in that pursuit. Taken altogether, they can give you a better sense of whether you should make a move or stay put. So if you haven’t read through your current agreement recently, now’s a good time to re-familiarize yourself and see how those terms stack up with the following criteria. It isn’t an exhaustive list by any means, but if you find they fall short in these criteria, it may be time to assess other options. Cost 401(k) plan fees can be complicated, but we’ll simplify things a little by sorting them into three categories: Plan administration fees Plan administration fees are (in most cases) paid by you, the plan sponsor, and cover things like plan setup, recordkeeping, auditing, compliance, support, legal, and trustee services. Investment fees Investment fees are typically paid by plan participants and are often assessed as a percentage of assets under management. They come in two forms: - Fund fees, aka “expense ratios,” charged by the individual funds or investments themselves. - Advisory fees charged by the provider for portfolio construction and the ongoing management of plan assets. Individual service fees If participants elect certain services, such as taking out a 401(k) loan, they may be assessed individual fees for each service. Plan providers are required to disclose costs such as these—as well as one-off fees relating to events such as amendments and terminations—in fee disclosure documents. All in all, fees can vary greatly from company to company, especially depending on the amount of assets in their plans. Larger plans, thanks to their purchasing power and economies of scale, tend to pay less. While comparisons can be hard to come by, one source is the 401k Averages Book. You’ll just need to pay—ahem—a fee to access their data. Support Support can encompass any number of areas, but it really boils down to this: do you and your employees feel forgotten and left to fend for yourselves, or do you feel the comforting and consistent presence of a trusted partner? The quality of service received by both groups—both you the plan sponsor and the plan participants—matters equally, so be sure to ask your employees about their experience. How easy is the provider’s user interface for them to navigate? Was it simple to set up their account and get started toward their goals? What kind of education are they being served along the way? One indicator of good participant support is when a majority of them are making contributions at healthy rates. From the plan sponsor’s perspective, many of the same questions regarding setup and day-to-day operations apply. Crucially, however, your support should extend to matters of compliance and auditing: Are the documents provided for your review and approval accurate and timely? When you’ve needed to consult on compliance issues, do you receive clear and helpful answers to your questions? Does the provider deliver a comprehensive audit package to you if you need it and collaborate well with your auditor? There’s also the question of payroll integration. Does your current 401(k) provider support it? How smoothly have things been running? Betterment at Work supports both 360-degree integration, where your payroll system and 401(k) system can send information back and forth, and 180-degree integration, where the data flows only one way, from your payroll system to the 401(k) system. If payroll integration is something you’re looking for in a new provider, be sure you understand these different levels of integration and which responsibilities you may retain. Investment Options For starters, it’s worth thinking about the investment philosophy of your current provider and whether that approach aligns with the needs of your employee demographic. What sort of investment options and guidance do they provide your employees? Some providers could offer a handful of target date funds and mutual funds then call it a day. This could be less than ideal for several reasons. For one, target date funds are essentially a rigid, one-size-fits-all solution to the problem of 401(k) investors not adjusting their risk exposure as they near retirement. If, however, an employee wants to customize their allocation according to their risk appetite, or if they plan to work past their retirement date, the target date fund may no longer be suitable for them. They’re left to figure out for themselves how and where to invest. Contrast that with Betterment at Work, where our portfolios can be customized based on a participant’s planned retirement date or their appetite for risk in general. Mutual funds, meanwhile, tend to cost more, anywhere from 2.5x to 5x more on average, and perform worse over the long run. This is why Betterment builds and manages its portfolios with lower-cost exchange traded funds (ETFs). All things considered, our investment options are designed for the long-term to help your employees reach their retirement goals. Wherever your plan’s investment options land, you still have an obligation as a fiduciary to operate the plan for the benefit of your employees. This means it’s not about what you or a handful of managers want from an investment perspective, but what serves the best interests of the majority of your employees. Finally, one important consideration is whether the plan provider is an ERISA 3(38) investment fiduciary like Betterment. This alleviates the burden of you, the plan sponsor, having to select and monitor the plan investments yourself. Instead, the plan provider assumes the responsibility for investment decisions, saving you time and stress. We’ll touch on other forms of fiduciary responsibility in the section below. Plan design Changing providers doesn’t mean you’re terminating your 401(k) plan and starting from scratch. That has legal ramifications, including not being able to establish another 401(k) plan for at least a year. It does present an opportunity to consider changing the design of your plan, like adding a Safe Harbor match provision. There are also features like auto-enroll and auto-escalation, which Betterment at Work offers at no additional cost. Now’s also a good time to know what level of fiduciary responsibility your current provider assumes and whether you’d want a new provider to have that same level of responsibility, take on more, or whether you’re comfortable taking on more fiduciary responsibility yourself. In terms of investments, the provider may serve as the ERISA 3(21) fiduciary, which provides only investment recommendations, or the aforementioned ERISA 3(38) fiduciary (like Betterment at Work), which provides discretionary investment management. Or they may not be a fiduciary at all. In terms of administration, the provider may or may not provide ERISA 3(16) services (Betterment at Work does). There can be a wide range of functions that fall within that, so refer to your agreement to be sure you know exactly which services they are responsible for and which by default, fall to you as plan administrator. How to switch providers, step-by-step So you’ve done and documented your research and reached the conclusion that it’s time to make a change. What next? Better understanding the mechanics of a move can help you manage expectations internally and create reasonable timelines. Typically, changing providers takes at least 90 days, with coordination and testing needed between both providers to reconcile all records and ensure accurate and timely transfer of plan assets. Once you’ve identified your chosen successor provider and executed a services agreement with them, high-level steps include: Notify your current provider of your decision. You may hear them refer to this as a “deconversion” process. Establish a timeline for asset transfer and a go-live date with the new provider. Review your current plan document with the new provider. This will give you the chance to discuss any potential plan design changes. Be sure to raise any challenges you’ve faced with your current plan design as well as any organizational developments (planned expansion, layoffs, etc) that may impact your plan. Set up the investments. If your new provider is a 3(38) investment fiduciary, you’ll likely have nothing to do here since the provider has discretionary investment responsibilities and will make all decisions with respect to fund selection and monitoring. If your new provider is NOT a 3(38) investment fiduciary, then you’ll have the responsibility for selecting funds for your plan. The plan provider will likely have a menu of options for you to choose from. However, this is an important fiduciary responsibility, and if you (or others at your organization) do not feel qualified to make these decisions, then you should consider hiring an investment expert. Review and approve revised plan documents. Communicate the change to employees (including required legal notices), with information on how to set up and access their account with the new provider. Wait through the blackout period. The blackout period is a span of time—anywhere from 2 to 4 weeks depending on your old provider—when employees can’t make contributions, change investments, make transfers, or take loans or distributions. Participants’ accounts are typically still invested up until the old provider liquidates them and sends them to the new provider. From there, they’re re-invested by the new provider. Outstanding employee loans are also transferred from the old provider to the new provider. Confirm the transfer of assets and allocation of plan assets to participant accounts at your new provider. What to expect when switching your plan to Betterment at Work As you can see from the steps above, switching 401(k) plan providers isn’t as simple as flipping a switch. But that doesn’t mean some providers don’t make it easier than others. We pride ourselves on streamlining the process for new clients in a number of ways: As a 3(38) fiduciary, we handle all investment decisions for you. That’s one less thing to worry about when serving the interests of your employees. We also create accounts for eligible employees and participants, saving them the hassle. You can track the entire onboarding process, meanwhile, in your employer dashboard. Regardless of whether you end up making a switch, we hope the criteria above helped you take better stock of your current 401(k) offering. Before, during, or after that decision, we’re here to help.