The company employs a lot of younger employees, and according to Busque (who was long the company’s VP of Technology but also tackled HR for some time), they weren’t taking advantage of TaskRabbit’s 401(k) program.
In fact, the participation rate was somewhere in the range of 30 to 40 percent — on par with other U.S. businesses, where 401(k) participation is around just 36 percent, Busque says.
According to Government Accountability Office testimony from 2013, numerous reasons explain such low figures. Sometimes, the employer plans of small businesses are too expensive. Sometimes, employees worry they aren’t making enough money to contribute to retirement savings. Often, too, retirement plans are so confusing that employees – younger staffers especially — decide they’re not worth the hassle.
Enter Guideline Technologies, Busque’s four-month-old, San Francisco-based company, which has just raised $2 million in seed funding from New Enterprise Associates, Lerer Hippeau Ventures, SV Angel, Red Swan Ventures, BoxGroup, Xfund and 500 Startups. Its big idea: To work with small and mid-size employers in making 401(k) plans affordable for employees — as well as dead simple to set up.
Step one: cut out those actively managed funds that can charge plan participants well over .5 percent in fees in expenses. Toward this end, Guideline plans to work mostly with Vanguard, the mutual fund company that’s renowned for its comparatively affordable – and high performing – index funds.
Step two: Replace all those clunky and confusing paper and online brochures about asset allocation and risk tolerance with a slick interface that’s easy to understand and a joy to use.
Step three: Fix the rest of the onboarding process. Says Busque: “We’ll know who has joined, who hasn’t, and where employees are in the onboarding process, and we think we can get double the participation rate just by fixing” those early, key steps.
Of course, much remains to be seen. Guideline is still in beta testing. It has yet to satisfy all the elements required for it to become a registered investment advisor (though it’s getting there, says Busque). It also employs just three people aside from Busque, though he says the company is using its new funding to add to its engineering team.
Another challenge: raising awareness, which isn’t easy to do on a shoestring budget. Toward that end, Guideline has already amassed a mountain of IRS data to create a database of small businesses with 401(k) plans, and it plans to use social media, paid advertisements, and other traditional channels to reach them. (Guideline will be paid directly by employers, and will be “completely transparent on which fees we charge,” says Busque.)
On the bright side, 401(k) planning remains a nightmare, and many automated investment firms seem far more focused on other aspects of their customers’ investment needs, such as Betterment, which helps its users roll over their existing 401(k)s and FutureAdvisor, which gives clients advice on their current 401(k).
The market opportunity is also, unsurprisingly, enormous. According to the Investment Company Institute, 401(k) plans held an estimated $4.4 trillion in U.S. retirement assets as of June 2014.
Small businesses alone – those with between one and 500 employees, generate $12 billion in administrative fees, says Busque.