A few days ago I found myself talking to a founder whose startup just raised a bunch of money and is growing fast. His company has 30 full-time employees now, and it’s set to hire a lot more soon. But in the rush to on-board and get new hires set up with salary and health benefits, there’s one thing the company is not doing — that is, helping employees to set up retirement accounts.
If you work for a startup or other small business, that’s not unusual. There are more than 70 million individuals in the U.S. today who don’t have access to a retirement plan, even if they have a job.
The main reason they don’t have retirement benefits? In most cases, it’s too expensive and too much of a hassle for an employer to set up. That was the case with the startup above, whose founder admitted that he had been working with a financial consultant on implementing a 401(k) plan for employees, but hadn’t figured out all the paperwork yet.
Austin-based startup Honest Dollar wants to eliminate the hurdles associated with setting up and maintaining employee retirement accounts for small businesses. The company also wants to help reduce the fees workers are hit with through typical 401(k) programs.
The company offers an easy-to-use platform for small businesses to begin offering retirement benefits to their employees. They simply connect their payroll system to the platform, and Honest Dollar extracts the employee information it needs to set up retirement plans for them.
Rather than creating an employee 401(k) program, which can have significant costs both in terms of time and money it takes to implement, Honest Dollar offers plans that are structured as a Simple IRA.
By doing so, it simplifies the cost structure of the program and mitigates employer liability around managing the plan. There are no setup fees, and Honest Dollar charges small businesses just $10 per employee per month to offer the program to employees.
Employees can contribute up to $12,500 a year into these plans, which is above the $5,500 for typical IRAs. Employers also have the option to make contributions by setting up a Simplified Employment Pension plan for qualified employees.
But those are just the advantages that small businesses get from signing up for Honest Dollar. Employees also benefit due to significantly lower fees than typical 401(k) plans. Founder Will Hurley told me that those plans typically charge about 2 percent in fees for management of the program, and that can go as high as 4 percent in some cases.
Rather than offer a wide array of mutual funds to choose from, Honest Dollar has reduced the number of options to a handful of ETFs, all of which carry of a fee of just 0.09 percent. In that way, users are saving massive amounts of money in fees, which can add up and significantly increase the cash they have for retirement.
The company also hopes to make it extremely simple for users to manage their retirement accounts, by offering an app and dashboard to track their investment.
Honest Dollar was founded by Hurley, a kind of quirky dude who in real life goes by Whurley and was one of the brains behind Austin-based design and development shop Chaotic Moon. He’s joined by Henry Yoshida, a former retirement plan adviser who wants to repent for past sins by changing the way retirement planning is done.
The company is targeting startups and small businesses typically with fewer than 50 employees, and just closed a $3 million seed round led by Expansive Ventures, a new fund founded by The Founder Institute’s Adeo Ressi and former Blumberg Capital managing director Jon Soberg. Other investors participating include Formation 8, Core Innovation Capital, and Mint founder Aaron Patzer.
It also just launched at SXSW Interactive and won the festival’s ReleaseIt startup pitch competition. After a few months in private beta testing, the company is opening up a more public beta in which it hopes to get more small businesses signed up.
It’s early days, but it seems clear that Honest Dollar has a lot of room to grow and a huge market opportunity to go after. And hey, if it succeeds that also means a lot more people will have better retirement years ahead of them.