Vanguard Announces Small Business 401(k)
Vanguard announced today that it is entering the 401(k) business for small businesses. Vanguard stated it will offer bundled 401(k) plan services for small companies which will combine Vanguard's low cost investment options and indexing expertise with the small plans record expertise of Ascensus, a leading record keeper and administrator of of retirement plans.
The new service will be offered directly to plan sponsors and fee-only advisors who serve those sponsors. It will offer low-cost Vanguard funds, record keeping, call center services, compliance testing, and participant education. Optional services will also include participant advice, self-directed brokerage, and trustee serves. It is expected to be launched in the fourth quarter of this year.
Vanguard public relations spokesperson Linda Wolohan told me that this would be a Vanguard branded product. While Vanguard has not announced specific pricing, she did note that they expect it to be among the lowest in the industry.
Dirty 401(k) Industry
The financial services industry has been known to act against consumers but probably the dirtiest part of this dirty industry resides in employer 401(k) plans. Dan Solin frequently brings attention to this important point noting 401(k) participants could use their own Arab Spring.
Large employers have had good options, such as going directly to Vanguard. Small employers, on the other hand, tend to be cash strapped and willing to accept the offer of the local financial planner offering a virtually free plan. Though it may end up being virtually free to the employer, the employees are stuck with high fee mutual fund choices. I've seen some such plans that average more than three percent in annual fees.
No more excuses
Some time ago, small companies had at least some reason to go with 401(k) plans charging employees high fees saying they couldn't afford to pay the high administrative costs directly. Earlier this year I wrote about a great low-cost solution from Employee Fiduciary Corp. Now, with Vanguard's announcement today, small companies will have multiple solutions to a win-win for themselves and their employees.
I'm not sure how any small company can now say it's exercising fiduciary duty to employees while offering expensive options for its workers.
Author's note: Vanguard has offered individual 401(k) and individual Roth 401(k) plans for some time and I am participating in both.
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