Employer Benefits

Welcome to Betterment 401(k)! Find out how to make the most of your plan and get your employees to start saving for their future. We’re excited that you have chosen to help your employees prioritize your financial wellness with us, starting with your 401(k) plan. Betterment’s easy-to-use platform is designed to help you feel confident in administering your plan. Let’s get started. TABLE OF CONTENTS Overview Administration and compliance Investments Employee experience Overseeing your plan (including our 401(k) glossary) Betterment contact information Plan Sponsor dashboard overview Special note for first-time plans Adding new participants (individually and in bulk) Adding multiple employees at once Updating employee information Remitting contributions to Betterment Updating employee contribution (deferral) rate changes Distribution and loan requests Approving distributions Approving loans Reports Important documents Overview By sponsoring a 401(k) plan, you take on important fiduciary responsibilities for the plan, including acting in the best interests of plan participants at all times, following the plan document as written, paying only reasonable fees, depositing contributions in a timely manner and meeting all reporting and disclosure requirements. While you can never fully transfer or eliminate all fiduciary responsibility, Betterment will help with many of these duties. In fact, at no extra cost to you or your employees, Betterment assumes certain fiduciary functions to reduce your liability, serving as both a 3(16) administrative fiduciary and a 3(38) investment fiduciary. Let’s review key areas of your plan and the support that Betterment provides. As always, we provide support via phone and email to both you and your employees. Administration and compliance Our innovative technology and dedicated support make it easy for you to keep your plan running smoothly and remain fully compliant at all times. As your 3(16) fiduciary, we perform a wide range of administrative duties including preparing and filing your Form 5500 As your 3(38) investment manager with full discretion, we will select and monitor plan investments We provide on-going consultative support with respect to plan design, compliance testing and annual audits Investments Betterment uses low-cost ETFs to create globally diversified portfolios across 12 asset classes that are designed to help maximize returns for each level of risk. Employees will be defaulted into a portfolio that corresponds to their years to retirement, but they choose alternative investment strategies if they wish: Flexible Portfolio -- using funds in Betterment Core Portfolio Strategy, employees can customize their portfolio by adjusting fund weights Socially Responsible Portfolio -- for socially-conscious employees who want their investments to reflect their personal values Goldman Sachs Smart Beta Portfolio -- for employees who are willing to take on additional risks in the pursuit of higher returns BlackRock Target Income Portfolio -- for retirees (or employees with non-retirement goals), this approach seeks to provide a steady stream of cash income In addition, our investment approach incorporates sophisticated strategies such as automatic rebalancing, tax coordination, and automatic allocation adjustments as someone gets older. And with personalized advice and an integrated platform, employees can earn better returns at various levels of risk. Employee experience Betterment’s clean design and straightforward tools help your employees get more out of their retirement plan. Our goals-based approach helps employees see all of their financial goals in one place. We help employees establish a Personal Retirement Plan based on their unique situation and preferences. Every time they log in, they can easily see whether they are off-track and take immediate corrective action. We make it easy for employees to sync other accounts so that our advice will propose a total solution that takes everything into consideration. Employees have access to numerous educational resources including: Comprehensive guide to your Betterment 401(k)  Webinars and videos Website resources Articles FAQs Tools and calculators In addition, feel free to share the following to promote plan engagement and in response to specific employee questions: One-pagers Why save with a 401(k)? Small increases can make a big difference Employee guides 401(k) Rollovers  What to do with your 401(k) account when you leave the company Overseeing your plan In addition to the fiduciary responsibilities mentioned above, plan oversight includes making sure you and those responsible for the plan’s operations are familiar with the plan document. Depending on the size of your organization, it may be appropriate to establish a 401(k) committee that meets periodically to review the plan. Decisions should be fully vetted and documented. On an on-going basis, you and members of your team will also be responsible for: Adding newly eligible employees to the plan Ensuring that Betterment has current and accurate employee information Review and approval of distributions (and loans, if offered by the plan) Sending contributions and contribution rate changes to Betterment (non-integrated plans only Monitoring any vendors you hire You will find more details in the day-to-day operations section below, including the differences between integrated and non-integrated plans. 401(k) glossary of terms Betterment contact information: For employers For employees Monday - Friday 9:00am - 6:00pm EST 1-855-906-5280 plansupport@bettermentforbusiness.com Monday - Friday 9:00am - 6:00pm EST 1-855-906-5281 support@betterment.com Plan sponsor dashboard overview The plan sponsor dashboard is the home for your 401(k) plan, where you can perform all administrative functions and find all plan information. To get started, visit the plan sponsor login page, which is not to be confused with the login page to your personal Betterment account. (Although you may have the same login credentials for both pages, they are two different websites with different login specifications.) The plan sponsor dashboard allows for three levels of access: Administrator access provides full access to the dashboard and allows all actions to be performed. Staff access provides the same access as an administrator but does not allow plan managers to be added or deleted. View only access does not allow items on the dashboard to be edited. In order to gain access to the plan sponsor dashboard, you must either be invited by a member of your Betterment Plan Support Team or a current plan manager who has Administrator access (via Settings>Manage access). The plan sponsor dashboard contains several tabs that you should familiarize yourself with.  We will be referencing these tabs throughout this document. Home -- shows you high-level statistics and summary information about your plan, along with notifications that may require your attention and and recent plan activity Employees -- lists all active and inactive employees in your plan, along with information that requires your review Payroll -- location to upload payroll. Also includes notifications and past payroll activity Plan -- in addition to plan statistics, this is where you will go to approve loan and distribution requests. You will also be able to view recent activity as well as upcoming compliance deadlines Resources - source for reports, documents and education information to support you in your role as plan administrator. Under the Documents tab, you will find templates you may need for various uploads; and under the Support tab, you will find FAQs. Special note for first-time plans As a new plan, there are two small but important items to set up your 401(k) plan correctly and avoid complications down the road: Ensure payroll system and Betterment match Before your payroll launch date, make sure that your payroll system is set up to correctly withhold employee contributions. Your Betterment 401(k) offers Traditional and Roth contributions. Typically, these are two separate deduction codes within payroll systems. Make sure that your employee contribution elections from Betterment match your payroll system. You will receive notifications in your plan sponsor dashboard of changes and you can also run a custom report. Definition of compensation Our plan documents usually define compensation as all earned income (think Box 5 of the W2). That means all income reported on the W2 must be included in the calculation of deductions within the payroll system. You want to ensure that your payroll system includes commission and bonus checks as compensation for purposes of 401(k) deductions. Loan Code If your plan offers loans, you will need to set up a loan deduction code in your payroll system so that the loan repayment amount will be deducted from the participant’s paycheck on the first repayment date. Adding new participants (individually and in bulk) If your plan is integrated with one of our preferred payroll providers, new participants are added automatically when created in the payroll system, so this operation does not apply to you. When an employee becomes eligible for the plan, they must be added to the Betterment system. You can add each employee individually through the plan sponsor dashboard using these steps (our bulk upload process is outlined further down): To add a new participant, login to the plan sponsor dashboard. Once in the dashboard, click on the Employees tab, then click on the blue Add Employee button Follow the prompts on each page to successfully add a new employee. You will receive an error message if any data is incomplete or appears incorrect. Uploading multiple employees at once To make it easier and save time, you may want to take advantage of our bulk employee upload process which is detailed in this in-depth tutorial. We have built in a 15-minute buffer between the time you submit employee information to us and the time an employee sees a Betterment 401(k) welcome email. This allows you to correct any mistakes that you might realize right after you hit submit! Clients often ask: What are some common errors when adding a new employee? Answer: Two common errors we see during the “add a new employee” process include: Mismatched information to existing Betterment customer record If someone has previously had a Betterment account before joining your organization, all of the personal information must match the information we have on file. Differences may occur if, for example, the employee may have had a different last name when they signed up for Betterment years ago or their current profile includes a typo. The error “Last name matches existing user” indicates that the employee’s Betterment profile has a different last name. Failed ID check As part of SEC regulations and the US Patriot Act, Betterment must attempt to verify the identity of all our clients. Our system automatically checks new employee information you enter against a database of publicly-available information. Participants who fail the ID check will be alerted via email and should follow the prompts in the email to resolve the issue. It is not uncommon for newly married, recently-relocated or younger participants to fail the ID checks, which is not a cause for concern. Updating employee information It is important that all employee information be kept current on the Betterment system. If your plan is integrated with one of our preferred payroll providers, please make sure all demographic data is correct in your payroll system, as that is the main source of truth and all demographic data on the Betterment system will be overwritten when the next sync with your plan occurs. For plans that do not have payroll integration: Participants can update every piece of personal information themselves within their profile under Settings. Plan administrators can update most employee information, with the exception of the email address linked to a participant account which serves as a login ID. If an email address was changed without an employee’s knowledge, they will be locked out of their account. Please contact the Betterment Plan Support Team for help in changing an email address or direct the employee to make the change themselves. Remitting contributions to Betterment If your plan is integrated with one of our preferred payroll partners, the process to remit contributions to your 401(k) plan couldn’t be easier. All you have to do is ensure the contribution data is accurate and run your payroll as you normally would! Once you run your payroll in your system: the contribution data will be automatically sent to Betterment for processing Betterment will send an ACH request to your bank account on file Upon receipt, Betterment will allocate the funds to the proper accounts and execute any necessary trades. For plans without integrated payroll, data must be uploaded via the Payroll Upload template accessible via the Payroll Upload page of the Plan Sponsor Dashboard. The pre-formatted template includes all of your employees who have an account in your 401(k) plan and can be populated with a report available on most payroll systems. Information required: compensation for the pay period hours worked for the pay period contribution amounts any applicable employer match amounts any applicable loan repayment amounts Once you have the file ready for upload: Login to the Plan Sponsor Dashboard and navigate to the Payroll Upload Page Click Upload Payroll NOTE: You will always get an email confirmation for the payroll upload. If you do not receive that email, your payroll submission was not completed. Upon receipt, Betterment will check for any issues and will send you an email with a summary of the contribution file, along with the amount to be withdrawn from your organization’s bank account. Once you approve the submission, we will send an ACH request to your bank account on file and upon receipt, allocate the funds to the proper accounts and execute any necessary trades. Updating employee contribution (deferral) rate changes If your plan is integrated with one of our preferred payroll providers, Betterment pushes all contribution rate changes directly to your payroll provider, meaning there is nothing for you to do! For plans that do not have payroll integration, some work is needed to make sure contribution rates are correctly passed to Betterment as recordkeeper and to ensure a clean audit trail. There are three ways for you to see contribution rate changes made by employees: View all recent changes by logging into the plan sponsor dashboard and clicking on Payroll>Notifications. View the Weekly Deferral Rate Change email sent by Betterment, which links directly to the reports found on the dashboard. Run a Current Deferral Rate report by logging into the plan sponsor dashboard and  navigating to Documents>Reports>Run a Report>Current Deferral Rates. Regardless of which method you use, if any employees have made contribution rate changes, you will need to reflect those changes in your payroll system before you run your next payroll. Clients often ask: Are there regulatory requirements around how quickly I need to make contribution rate changes once I am alerted? Answer: The requirement is “as soon as administratively feasible,” which usually means within 1 to 2 pay periods. It’s very possible for you to miss a contribution rate change that an employee makes shortly before you run payroll. As long as you update your payroll system next time, you are fine. Distribution and loan requests As plan administrator, you are responsible for approving all loans and distributions since assets are leaving the plan. Approving distributions When a participant seeks a distribution online, our system will dynamically present them with available options at that moment in time (based on plan rules and the individual eligibility), with brief explanations regarding the pros and cons of taking a distribution. Once the participant submits a request, you will be alerted via email that a distribution request is pending. You can view any pending distribution request in the dashboard under Plan>Distribution Requests. We suggest you check the distribution request for: Common or obvious spelling mistakes Accuracy of vesting Accuracy of matching contribution amounts if your plan provides a match Please note: Mistakes are easier to fix before the request is approved. Approving loans For the participant, the online loan request flow works similarly as for distributions. Once you receive an email that a loan request is pending, you will need to do the following: Approve the loan Add the loan repayment to your payroll system (regardless of whether your payroll is integrated). Reports You can find a variety of reports within the Plan Sponsor Dashboard to help you analyze, manage, monitor, and evaluate your plan. To run a report, simply go to Resources>Reports> Run a Report. Important documents Many of the important documents related to your plan can be found within Resources>Documents, including participant notices and disclosures (participants may also find this information within their account via disclosures. These disclosures can be found in the plan sponsor dashboard via Documents>401(k) Documents.

Should I Offer Stock Options to My Employees? Betterment’s Head of Tax answers commonly-asked questions that small business owners often have about stock options. Conversations with Small Business Owners: Betterment understands the challenges that small business owners face. In this series, we interview various Bettermenters on topics that we hear from prospects and clients. Have a question for us? Let us know! In this first article, Eric Bronnenkant, Betterment’s Head of Tax, answers commonly-asked questions that small business owners often have about stock options. Can you briefly explain what stock options are and how they work? Stock options are a common way for privately-held start-up companies to incentivize employees. They are awarded to employees, granting them the right to purchase shares, usually over a period of time according to a vesting schedule. The predetermined stock purchase price is the strike (or exercise) price, paid when the buy option is exercised. The hope is that the shares will be worth more in the future. How do stock options incentivize employees? Employees are incentivized by their paycheck, of course, but stock options can help supercharge that incentive in that they provide equity potential. They can help employees consider how their decisions and actions contribute to the company’s success. With stock options, when the company does well, employees also benefit. So compared to pure cash compensation, stock options do a much better job of aligning the company's interests with the employees' interests. They may also help with employee retention because they are usually awarded over a period of time. What are the different types of stock options? There are many different types of equity compensation, but the two types of stock options are non-qualified stock options and incentive stock options. The biggest difference is whether the discount of the stock option (the current market value less the strike price) is treated as compensation to the employee. For a non-qualified stock option, the discount is considered to be compensation to the employee at the time of exercise. For the incentive stock option, that discount is generally not considered to be compensation. So the real benefit of the incentive stock options over non-qualified options is the potential to convert what would otherwise be treated as compensation into capital gains. Capital gains generally have a lower tax rate than compensation taxes. What would cause an employer to choose one over the other? I would say that the most common reason that an employer would choose the incentive stock option is that they don't need to pay the employer portion of payroll tax on the compensation that would be paid on the non-qualified side. And it ultimately shifts all of the tax benefits and burdens over to the employee. In addition, the tax deduction that comes with the non-qualified stock options is not really valuable if your company isn’t profitable, which is the case for most early-stage companies.  However, once your firm becomes profitable, having the tax deduction on non-qualified options becomes much more valuable. When might it make sense for companies to consider offering stock options? One of the most attractive reasons for using stock options for an employer is that, up front at least, it doesn't cost any money to issue the stock options. So it allows an employer to potentially provide a lower salary in exchange for more potential equity upside. Businesses that are just starting out typically have very limited resources and are trying to maximize how they're going to use those resources. Compensation is usually a large part of that decision making process, especially for service-based companies. One way to reduce that cash compensation cost is to shift that mix from 100% cash to, for example, 75% cash and 25% stock options. That frees up cash to hire other employees or invest in new products for the business. In other words, stock options maximize the use of the available cash resources. Even companies that are just starting out will want to do some kind of benchmarking to be sure they can attract the kind of talent they want and so may determine that stock options make sense. After that, I would say you would want to evaluate your equity compensation arrangements on an annual basis. How are stock options taxed? For the employer, taxation is related to which type of option you’re talking about and whether the discount is treated as employee compensation. As mentioned earlier, when non-qualified stock options are exercised, any discount (where the current market value is greater than the strike price) is treated as compensation to the employee. In addition, any future appreciation is treated as a capital gain. For the employer, employee compensation is a deduction to the business. With Incentive Stock Options, there is no tax deduction for the employer. For the employee, in general, there is no income tax on exercise. The entire gain upon sale is treated as a capital gain. However, the employee may owe alternative minimum tax (AMT) upon exercise but that is dependent on many other factors. Are there other equity compensation structures that companies may wish to consider? Late stage start-ups, say those that are pre-IPO, may wish to consider restricted stock units (RSUs) which means employees who work for a certain period of time will typically be entitled to something regardless of the performance of the stock. With stock options, the stock has to appreciate in value in order for the employee to benefit. Would firms who want to go this route typically convert existing options to RSUs? It really depends on the kind of goals of the employer. If the employer wants to make sure that employees are getting rewarded for working for whatever their vesting requirement is, then they may be likely to convert over to the RSUs. But typically, RSUs are used for new equity grants and the original stock options would be left alone. How do stock options fit into an overall benefits package? Small companies, especially those in highly competitive industries or geographic areas, have to consider their overall compensation package to attract and retain top talent. Stock options may be one method to do that, but more traditional benefit components shouldn’t be overlooked and can serve as good complements to stock options. For instance, 401(k)s are almost a “must-have” benefit these days, but not all 401(k)s are the same. Some are much better at engaging employees, helping them save more for retirement and becoming more financially confident and secure—all of which could be especially important if options don’t pay off. Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional.

How an Employer Benefits from Offering a 401(k) A 401(k) plan offers many valuable benefits to employees, but what’s in it for employers? The good news is that there are many compelling employer benefits, too. Tax advantages. Investing opportunities. Matching contributions. As you know, a 401(k) plan offers many valuable benefits to employees. But what’s in it for employers? The good news is that there are many compelling employer benefits, too. Let’s start with defining exactly what a 401(k) is—and why it might be a great fit for your company. What is a 401(k)? A 401(k) plan is an employer-sponsored retirement savings plan that enables employees to contribute a portion of their paycheck to a tax-advantaged retirement account. In 2020, employees can contribute up to $19,500 to their 401(k), and if they’re age 50 or older, they can make additional catch-up contributions of up to $6,500. Unlike other plans—such as the SIMPLE IRA or Roth IRA—401(k) plans have higher contribution limits. Under IRS guidelines, employees can make Traditional 401(k) contributions with pre-tax dollars. In addition, many employers offer the opportunity to make Roth 401(k) contributions with post-tax dollars—enabling employees to make tax-free withdrawals in retirement. Once they contribute to the plan, participants can invest their money in a range of investment options. For employees, a 401(k) plan is a convenient and effective way to save for the retirement they envision. Want to learn more about 401(k) plans? Betterment can help. Do you have to offer a 401(k)? The simple answer is you don’t have to provide a 401(k). However, according to a recent survey from the Society for Human Resource Management (SHRM), 93% of organizations offer traditional retirement savings plans such as a 401(k). Why are these plans so common? Well, they feature many outstanding benefits for employers and employees alike. Here are the top five 401(k) benefits for employers: Benefit #1: Attract and retain talented employees When it comes to recruiting and retention, the 401(k) is a powerful tool. In fact, according to a Betterment for Business survey: 67% of plan participants said that a good 401(k) was very important or important in their evaluation of a job offer 46% of plan participants said offering an employer match played a role in deciding whether to take a job In the battle for top talent, a competitive 401(k) plan with perks like matching contributions can entice employees to join (or stay with) your company. In fact, according to the recent SHRM survey, 74% of employers match employee contributions at some level. Not only that, but a company match costs less than you think.  Consider these three ways to use your 401(k) as a powerful recruiting tool: Demonstrate your commitment to current and prospective employees. By offering a 401(k) plan that has low fees, a competitive employer match, and a good selection of investments, you signal that you care about your employees’ futures. Think strategically about your vesting schedule if you decide to include company matching contributions. Some employers may elect to have a gradual vesting schedule as a motivator for employees to continue working at their company; however, immediate vesting may be a great selling point when recruiting new staff members. Communicate the benefits. You could have the best 401(k) plan, but if you aren’t communicating the benefits of participation, then you’re missing a vital opportunity. Whether you decide to send an email or host an event, be sure to get the word out about the value of your 401(k) plan. Benefit #2: Help your employees build a brighter future Saving for retirement is one of the most daunting financial goals employees face. In fact, many studies have shown that personal financial stress negatively impacts employees’ performance, productivity, and ability to focus. This can have a damaging impact on business output, and lead to higher employee turnover—and increase costs associated with hiring and retention. By offering your employees a 401(k) plan—and the guidance they need to make the most of it—you can help reduce their financial stress and allow them to focus on what matters most. Go beyond retirement Buying a car. Saving for a house. Paying down debt. At Betterment, we know that saving for retirement is only one aspect of your employees’ financial lives. That’s why 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. By offering personalized advice, Betterment can help your employees make strides toward their long- and short-term financial goals. Benefit #3: Enjoy valuable tax advantages The government wants to encourage retirement savings—and as a result, the IRS grants some valuable tax benefits that can really add up over time: A tax credit to help defray 401(k) start-up costs—You may be eligible if you can answer “yes” to the following questions: Do you have 100 or fewer employees? Did you pay each of them at least $5,000 last year? Was there at least one “non-highly compensated employee” who earned less than $120,000 last year? If you meet these qualifications, you are likely eligible for a tax credit. Historically, the credit was 50% of your 401(k) plan start-up costs up to a maximum of $500 a year. However, with the recent passage of the SECURE Act, the limit is now the greater of: $500 or The lesser of $250 multiplied by the number of non-highly compensated employees eligible for participation or $5,000 Plus, you can claim this credit for the first three years of the plan. That means up to $15,000 in tax credits! A tax credit for adding automatic enrollment to a new or existing plan—Thanks to the SECURE Act, small businesses can now earn an additional $500 tax credit for adding an automatic enrollment feature to their plan. The credit is available for each of the first three years the feature is active for a total of $1,500 in tax credits. Tax deduction for employer matching or profit sharing contributions—Employer contributions are tax-deductible; however, we recommend you consult the IRS website or talk to a tax accountant for the rules governing these deductions. In addition, some of the fees for plan administration may be tax deductible. If you think these benefits sound great, you may be asking yourself: Can my company afford to offer a 401(k)? As an employer, you know that providing quality employee benefits can be pricey. However, employers and employees typically share the cost of providing a 401(k) plan through a combination of asset-based and/or per-participant fees. At Betterment, our fees are a fraction of the cost of most providers. Not only that, but we’re always up front and fully transparent about our pricing. That means no surprises for you and more money working harder for your employees. Seize the benefits Are you ready to dive deeper into the benefits of offering a 401(k) plan? Talk to Betterment today. As your full-service partner, we can help you with everything from enrolling new participants to managing the transition when employees retire. We handle all the details to help make life easier for you—and the future even brighter for your employees.