- Review: Captain401
- Reviewed by:
- Published on:
- Last modified:
Captain401 offers a service that’s built for quickly spinning up 401(k) plans that employers can set up online with a few simple steps. Specifically designed for small- to medium-sized companies, Captain401 is hoping to fill a niche neglected by industry giants like Fidelity: the 70 million people who work for companies that don’t currently offer a 401(k) retirement savings plan.
401(k) plans are the most common private-sector employer-sponsored retirement program in the United States, with more than $4.7 trillion in assets at year-end 2015. As pension plans have all but disappeared and the future of Social Security has become uncertain, people are increasingly responsible for funding their own retirements, and 401(k) plans are a primary retirement savings tool.
Small-business owners have historically been underserved by plan sponsors and face unique challenges in setting up a 401(k) as an employee benefit, including:
- Difficulty finding suitable plans;
- Processes that are administratively cumbersome; and
- Plan expenses that are very high, particularly burdensome on smaller businesses.
Because small businesses have a smaller pool of assets, they’ve been stuck with high-priced, inflexible plans from the brand name providers who have always ruled the small-business 401(k) market.
Captain401 is one of several companies joining the movement toward offering low cost, uncomplicated retirement plans for small businesses. It helps small to medium-sized businesses set up and manage their company-sponsored 401(k)s.
Captain401 launched in July 2015, founded not by career retirement plan professionals, but by Silicon Valley entrepreneurs backed by venture capital. In February 2016, Techcrunch reported the company had raised $3.5 million in venture capital financing in a round led by SoftTechVC and SV Angel.
Co-founder and CEO Roger Lee and co-founder Paul Sawaya, a former software developer at Mozilla, set out to develop a solution to the dilemmas faced by many small businesses. “We wanted to bring a Wealthfront into the 401(k) space,” explains Lee.
Captain401’s investment philosophy follows what they call “best practices rooted in decades of academic research and espoused by the world’s leading financial economists.”
The reasoning behind offering index funds is supported by a quote, prominently displayed on their website, from legendary billionaire investor Warren Buffett:
Most investors will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.
Captain401 applies this by selecting index funds, instead of managed mutual funds, to meet investor objectives. Their plans include index funds that cover as many of the major asset classes as possible to provide diversification.
And Captain401 chooses the lowest cost fund that makes sense for a given asset class. Besides explicit costs, they also consider hidden costs like the fund’s level of trading activity, which generates transaction costs that can decrease returns.
Captain401 Advisors, LLC, an SEC-registered investment advisor, provides investment advice to employees, while Captain401 is a designated plan fiduciary, which means they are subject to standards of conduct set by the US Department of Labor, which include “acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them” and “paying only reasonable plan expenses.”
How It Works
Captain401 is an online administration tool that syncs with several cloud-based payroll providers to automatically manage the contributions, deductions and maintenance of a 401(k) plan for a company.
Captain401’s standard offering of investment choices is a diverse menu of low cost Vanguard index funds, including 10 different value and growth small cap and mid cap U.S. stock funds, three international stock funds, one real estate investment trust (REIT) fund and a total of six long-term and short-term bond funds.
If employees want additional choices, Captain401 provides access to nearly every mutual fund and index fund on the market, including household-name funds from Charles Schwab, BlackRock, Oppenheimer, Fidelity and others.
Captain401 works with employees three ways:
- Providing automated investment advice for each individual employee;
- Providing personalized investment recommendations for each employee, if desired; and/or
- Providing an investment platform for employees who want to choose and manage their own portfolio of funds.
Once the employee has set up their diversified portfolio of funds, rebalancing is automatic.
One of the unique features of Captain401 is their simple and transparent fee structure. Below is a chart published in a report by Investment Company Institute, showing the variety of convoluted fee structures currently existing in the 401(k) retirement plan industry.
Captain401’s pricing is straightforward — and affordable:
As a fiduciary, Captain401 does not make any money on the spread of the expenses charged by the funds, and instead charges 0.50% annual asset-based fee to participants. This is a flat fee that includes custodial, investment advising and all administrative costs.
Captain401 supports 401(k) rollovers from previous plans and employers, excluding rolling over a Roth IRA into your 401(k), which the IRS prohibits.
Captain401 also offers 403B plans, which are the equivalent of 401(k) plans but for public education organizations, some non-profit employers, cooperative hospital service organizations and self-employed ministers in the United States.
No-fee investment advisory services — Automated investment advising or flexibility for employees who want to choose and manage their own funds.
Customer service — Support team available by email and phone. Captain401 also provides employee training presentations on-site at the employer’s location or via webinar.
Speedy set up — Captain401 claims it takes employers just 10 minutes to set up their plan, and all ongoing administration is paperless.
Plan customization — Employers can choose a variety of options to customize the plan they offer, to meet their particular business concerns and needs. For instance, a restaurant owner dealing with high employee turnover might want to set a 6-month eligibility requirement or a 1,000-hour service requirement. On the other hand, a dental office competing for highly paid talent may want to offer immediate eligibility, a generous employer match and immediate vesting on the match.
Pre- or post-tax investing available — Employees can choose from among traditional and Roth 401(k)s, and both pre- and post-tax plans.
- Fee Transparency — The fee structure is transparent for both employers and employees, with no mutual fund fee kickbacks to Captain401.
- No-Fee Investment Advice — If an employee would like one-on-one investing consultation, there’s no fee.
- Full Array of Investment Fund Choices — Captain401’s plan features low-cost Vanguard index funds from every major asset class and risk category. Additionally, any employee can customize their plan and select from the over 30,000 mutual funds, index funds, target date funds and ETFs available on the market.
- Low Cost to Employers — Captain401 charges employers $120 plus $4 per employee per month, which includes compliance and administration.
- Low Cost to Employees — Plan participants benefit from a flat fee of 0.50% annually.
- Compliance Can Be a Minefield — All qualified tax-deferred employee benefit plans are subject to an array of regulatory and statutory requirements. Captain401 works with a third party administrator, LT Trust, a leading provider of trust and custodial services with decades of experience and more than 2,000 corporate retirement plans and with top ERISA attorneys to ensure compliance. And Captain401 is a registered, insured and bonded SEC investment advisor; however, compliance is untested simply because they haven’t been around as long as the dinosaurs in the industry.
Captain401 is just one of several companies that have emerged in the last 12 months with a mission to use technology to reduce costs and simplify the 401(k) process. Captain401 does this through automated administration and built-in investment advice.
A low cost 401(k) plan that’s easy for employers to set up and equally easy for employees to figure out may just be what’s needed to spur more small businesses to provide a 401(k) plan. Captain401 claims employee participation rates of upwards of 90% even without an employer match. That’s a nice move in the right direction for increasing retirement plan savings, which is good for everyone.