This year, a provision in the SECURE 2.0 legislation permits an employer that is not sponsoring a retirement plan to offer a Starter 401(k) or Safe Harbor 403(b) plan to its employees that streamlines two of the most significant barriers when it comes to offering retirement savings plans: cost and ease of administration. And so far, the new legislation seems to be working, according to research from retirement platform Guideline.
Starter plans already account for 15%+ of Guideline's business. All of its Starter plans are first-time plans, meaning the business had never offered their employees a retirement plan before.
Guideline, which compiled some interesting data that paints a compelling picture of how this legislation is impacting everyday Americans, looked at the average participant in a Starter 401(k) compared to someone saving in a Standard 401(k). What the company found is that Starter retirement plans are opening access to retirement savings for a whole new class of workers:
- 67% of Starter participants are paid hourly with an average salary of $66,000, compared with 41% of standard participants being paid hourly with an average salary of $97,000.
- 65% of employees offered a Starter 401(k) participate, compared with 85% of employees offered a standard 401(k), which feature auto-enrollment.
- On average, participants with a Starter 401(k) save 3% of their income, compared with participants with a standard 401(k) who save 5.7% of their income (both exclude employer match).
We discussed Starter 401(k)s with Jeff Rosenberger, COO of Guideline, who has worked in the asset management space for almost two decades.
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