Deals and People September 25, 2019

Start-Up Specialist America’s Best 401k Acquired by Creative Planning

Creative Planning already has a well-established 401(k) offering, but the acquisition will open up its market reach to smaller plans.

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Creative Planning has announced the acquisition of America’s Best 401k, a technology driven retirement plan provider focusing on a high-transparency, low-fee model.

America’s Best 401k Founder and President Tom Zgainer will remain in his current role. The financial terms of the deal are not being disclosed.

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In a number of conversations with PLANADVISER held over the last few years, the leadership at America’s Best 401k have emphasized their intention to “disrupt” the traditional retirement plan recordkeeping model. Now, speaking about his firm’s goals in acquiring America’s Best 401k, Peter Mallouk, CEO of Creative Planning, says the “disruptor” mindset will continue. He says Creative Planning has long embraced the same principles driving America’s Best 401k, and in fact the firms already work together extensively behind the scenes.

“As the current 3(38) investment fiduciary and registered investment adviser for America’s Best 401k, Creative Planning has in-depth knowledge of the firm’s clients,” Mallouk says. “We became the fiduciary for all of their plans a few years ago, and we have taken on the role of picking their investments and handling the fiduciary services for their clients. So in that respect, this deal has been some time coming.”

Mallouk notes that Creative Planning already has a well-established 401(k) offering, but it tends to be best for large, established plans that have millions of dollars and lots of participants, and which are seeking in-person education services. America’s Best 401k, on the other hand, has specialized in efficiently serving start-up plans and smaller entities with a digital-first footprint.

“They have built an incredibly efficient and technology driven platform,” Mallouk says. “We expect to be able to leverage their digital onboarding and client service model, which makes high quality plans accessible even for startups and smaller employers. Their capabilities will round out our recordkeeping offering completely, and of course there is a good cultural fit. They have focused on the same things we have from the start—full fiduciary services and highly transparent, indexed-based fund lineups.”

Echoing the leadership’s language at America’s Best 401k, Mallouk says the retirement plan industry is “laden with conflicts of interest and very high fees relative to service levels.” Investment lineups continue to exist for the wrong reasons, he suggests, but increasingly plan sponsor clients are pushing back.

“What’s happening broadly is that providers have to do more for the same fee,” Mallouk says. “From that perspective, it is very helpful to be a fiduciary these days, and to have a low-cost fund lineup. On top of this, things continue to get even move competitive from a value-for-fee perspective. You really have to have strong technology and established economies of scale to be able to be competitive in this type of recordkeeping marketplace. That’s why you will see more and more consolidation.”

Mallouk expects the integration of America’s Best 401k to be fairly rapid, given the extent of the existing collaboration.

“Part of the excitement for us is that we have already been fulfilling a big part of their offering for years now,” he adds. “For us, this deal is ultimately about being able to say ‘Yes’ to more Creative Planning clients, and to do so in a seamless way, rather than maintaining and explaining two separate brands. The other component is being able to integrate their powerful technology within our current platform. That’s the integration we are working on now.”

Data and Research September 25, 2019

Retirement System Problems Contribute to Financial Inequality

Researchers contend that financial asset inequality is exacerbated by regressive tax incentives for retirement savings and unequal access to employer-provided retirement plans, and they offer suggesting for addressing this.

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Financial asset inequality among Americans continues to increase, and combined with dangerously low retirement savings among most households, poses a significant threat to retirement for working Americans, researchers say in an Issue Brief released by the National Institute on Retirement Security (NIRS).

The researchers contend that financial asset inequality is exacerbated by regressive tax incentives for retirement savings and unequal access to employer-provided retirement plans.

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They found that the share of Baby Boomer financial assets owned by the wealthiest 5% of households in this generation grew from 52% in 2004 to 60% in 2016. Over the same time period, the share of financial assets owned by the top 10% of Baby Boomer households grew from 68% to 75%, and the share owned by the top 25% grew from 86% to 91%. The share of assets owned by the bottom 50% of Baby Boomer households shrank from 3% in 2004 to less than 2% in 2016.

The data shows Generation X and Millennials appear to have reached comparable degrees of financial asset concentration among the wealthiest households as Baby Boomers, at younger ages.

A 2018 NIRS report analyzing U.S. Census Bureau data found deeply inadequate retirement savings levels among working age Americans. More specifically, the median retirement account balance among all working individuals is $0.00, and 57% of working age individuals do not own any retirement account assets in an employer-sponsored defined contribution (DC) plan, individual retirement account (IRA) or pension.

The researchers say in the current report that the lack of retirement plan access is largely to blame.

The current Issue Brief also points out that Social Security provides critical retirement income for a large majority of Americans. The program has a progressive benefit structure that helps lower-income Americans retire above the poverty line and helps retirees keep up with generational improvements in the standard of living. However, the Social Security tax structure has become increasingly regressive over time. The cap on earnings subject to Social Security payroll taxes, known as the tax max, has failed to keep up with increasing earnings inequality. Even though the share of workers with earnings above the tax max has remained relatively stable for decades at about 6%, the system captures a smaller and smaller share of U.S. earnings every year.

The researchers offer suggestions for improving the financial asset inequality that is caused by retirement system issues. First, the President and Congress could strengthen Social Security. Eliminating the earnings cap would increase revenues for the program, which would help to improve the Social Security trust fund’s funding shortfall. These increased revenues could also finance improvements to the program, such as more generous benefits for lifetime lower-income earners and earnings credits for those who take time out of the workforce to provide caregiving.

Second, the researchers say, states can play an important role by creating state-facilitated retirement savings plans for those who are not offered a plan through their employer. This will provide a meaningful wealth-building opportunity for workers who lack access to employer-sponsored plans. Ten states so far have established retirement savings plans for workers without a plan. After just two years of operation, Oregon workers are accumulating $2.5 million per month through the state’s auto-IRA program.

Of note, however, U.S. Attorneys have filed a Statement of the Interest of the United States in a lawsuit, offering evidence that California’s state-run auto-IRA program is preempted by the Employee Retirement Income Security Act (ERISA).

Finally, the researchers suggest the federal government could act to improve and promote the federal Saver’s Credit. They say the rapid phase-out at low income levels and lack of refundability restrict the credit’s effectiveness. The average credit in 2014 was only $174, and the cost to the federal government was miniscule compared to the tax expenditures that subsidize the savings of higher-income earners through 401(k) tax provisions.

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