Close Close
ThinkAdvisor

Portfolio > Mutual Funds

Vanguard Launches 401(k) Plan for Small Businesses

X
Your article was successfully shared with the contacts you provided.

Vanguard launched a small business 401(k) plan service in September that provides a low-cost plan, including index funds and target-date funds, in a bundled retirement plan package. The service is provided directly to sponsors of 401(k) and profit-sharing plans with assets up to $20 million, as well as to advisors who sell fee-based 401(k) plans.

The plan fees, comprising total investment, record-keeping, and administration costs, are anticipated to be among the lowest in the small-plans market, the company said in a statement. Research on 401(k) plan fees done by the Investment Company Institute and Deloitte Consulting shows that industry median all-in fees are 1.27% of plan assets for plans between $1 million and $10 million in assets.

The new Vanguard service all-in fee for a hypothetical plan with $5 million in assets, an average account balance of $50,000, and an investment lineup of Vanguard index and active funds was estimated at 0.32% of plan assets (actual pricing will depend on a plan’s investment options, demographics, and ancillary services).

More on this topic

Low fund expense ratios are the primary driver, according to the company, with an average annual fund expense ratio of 0.21%, compared with the industry average of 1.15%. This allows investors to keep more of what they earn. Also, plan sponsors have flexibility in paying for their plan’s costs.

The service emphasizes low-cost Vanguard broad-market index funds, including Vanguard Target Retirement Funds. Sponsors may also choose among low-cost Vanguard money market funds, actively managed funds, and ETFs, as well as non-Vanguard active funds and stable value funds. Advisors will have the ability to build model portfolios leveraging the low-cost funds in a plan’s investment lineup.

The bundled nature of the service simplifies plan management for small businesses. Record-keeping and other services are provided through Ascensus, one of the nation’s top record-keeping firms, and include a call center, compliance testing and documentation, participant education materials, dedicated plan sponsor and participant websites, and trustee services. Among optional services are participant advice and self-directed brokerage.