A Fintech Makes It Easy For Small Businesses To Offer 401(k) Retirement Benefits

The Great Resignation has made attracting and retaining employees a top priority. After health insurance, providing retirement benefits is the second most frequently offered benefit to attract talent. State and city regulation is prompting more interest in 401(k) plans, too! More than one-third of small businesses that do not currently offer 401(k) plans expect to within 12 months.

A 401(k) retirement plan is also a way to take care of employees’ financial wellness and provide a tax benefit to companies and their employees. But legacy 401(k) providers avoid marketing to the smallest businesses because the market isn’t very profitable. Yet, the vast majority of companies have fewer than 20 employees.

Penelope is a 401(k) platform that gives small businesses an affordable and east-to-use way to provide retirement benefits. It is helping small businesses navigate the challenges of the Great Resignation. At the same time, its CEO and founder, Jean Smart, manages her own challenges.

Smart is a founding member of Chief, a private network for influential women leaders. She became part of a peer-advisory group with female founders and corporate executives who have similar interests and challenges and help each other problem-solve. One founder in Smart’s peer group has already achieved unicorn status—a billion-dollar-plus valuation.

Smart had worked in companies like Citi, Charles Schwab, and TD Ameritrade, and at the time, UBS. She worked on institutional employee benefits, such as 401(k) plans, employee stock options, and financial wellness. Inspired by the female founders in her Chief group, Smart started developing a business concept of her own.

Smart, the daughter of Korean immigrants who own a grocery store and restaurant, saw how her parents sacrificed to provide for their children and employees while neglecting to save for their retirement. Not saving has left them vulnerable in their later years. “With one in four Americans having no retirement savings, my parents are an all too familiar story in the U.S.—equal parts inspiration and cautionary tale,” said Smart.

“I’m a Gen-Xer and I’ve heard my entire life that we’re going to run out of Social Security,” said Smart. For many Americans, Social Security provides an essential source of income in retirement. But its money is running out. Projections say that starting in 2034; the Social Security Administration will reduce retirement benefits.

Smart’s personal and professional background made her think she was the right person to tackle this problem.

“I wanted to do something around fintech, education, and inclusive capital,” said Smart. She wanted to dispel the notion that there was a quick way of getting rich. Investing regularly in a 401(k) was the way to build a nest egg for retirement. “The reality is it takes generations to build wealth,” she sighed. “It doesn’t happen overnight, and it takes people working 20, 30, 40 years before they have money to pass on [to loved ones].” She wanted to create a way to set it and forget it.

Businesses with fewer than 20 employees—the vast majority—of small businesses need help, thought Smart. Many of these businesses are owned by women, minorities, and immigrants. Fintech streamlined processes, allowed her simplify paperwork, and helped her cut costs by using a self-serve business model, making it affordable for small businesses to provide retirement benefits for their employees.

“It’s hard making things simple,” said Smart. “There are 50 to 60 thousand funds to choose from. We offer 10.The trade-off is there isn’t customization.” Through a low-cost subscription model, Penelope’s technology platform automates employee investing, streamlines cost and paperwork, provides practical savings tools for employees, and offers the choice of Pooled Employer Plans (PEP), traditional 401(k)s and Solo 401(k)s.

Penelope is an intuitive, cloud-based 401(k) platform, which in January . There are no 30-to-40 page documents filled with complicated jargon, and the content is brief, to the point, and uses plain English. People have different learning styles, so content is provided as text and FinTok videos.

Timing can be everything. More and more states and cities are mandating that businesses provide retirement benefits. California, Oregon, Illinois, Maryland, Colorado, Connecticut, New York City, New Jersey, Virginia, Seattle, and Maine do so. Rules and regulations vary, depending on where your business operates.

“During the Great Resignation, we’re all fighting to get the best people,” said Smart. She relies on referrals, and, fortunately, she is well connected.

Her employees could undoubtedly make more money working in larger companies as a startup. But Smart emphasizes the company’s purpose. “The fact that we are mission-based is very attractive,” she said. “It’s really striking a chord, not just with professionals in their 20s and 30s, but also their 40s, 50s and even their 80s. I’ve got five generations working with me,” Smart proudly said.

She recruited Ted Benna, widely known as the “father of the 401(k),” as an advisor to Penelope. “I’ve helped a lot of small businesses in my lifetime, as well as running my own business, and for many of them, the idea of offering a 401(k) was out of reach, expensive and confusing, filled with jargon and too time-consuming,” said Benna. “Penelope provides plans that are easier to understand and economically make sense for small businesses and startups.”

Shifting from a well-resourced mindset to a resource-constrained startup has been a steep learning curve for Smart. “You’re working with a blank slate,” she said. “You make many mistakes. You have to be open.” You have to be an agile leader, and there are ways to improve your adaptability. Once you have, “it’s thrilling.”

Penelope has successfully raised $2.1 million in pre-seed fundraising led by Slauson & Co. Additional investors include Amplify LA, Black Jays and executives from Wells Fargo, Citigroup and US Bank. “Saving for retirement is an essential tool for building wealth and financial equality,” said Austin Clements, Managing Partner at Slauson & Co. “Penelope fundamentally changes the way small business owners and employees invest in themselves, their families and their communities.”

How are you taking advantage of your experience and market trends to launch or re-calibrate your business?