Human Curiosity Focusing on 401(ok)s for Hourly Employees

According to data from the Bureau of Labor Statistics, there is a pension gap affecting industries dominated by hourly-paid jobs. Human Interest Inc., a small-plan 401(k) provider, believes it can help change that by offering low-fee retirement plans to franchises that employ hourly workers.

“Franchising is one of the areas that we’ve identified as a massive untapped opportunity,” said Rakesh Mahajan, chief revenue officer at San Francisco-based Human Interest. “Our mission is to help these workers so they can save for retirement. … We have the ability to help every American worker.”

Speaking to Mahajan, it’s clear that Human Interest – founded in 2015 – has big ambitions. It also operates in a crowded environment that already includes longer-term 401(k) small plan providers like Ubiquity and Betterment, as well as newer startups like Vestwell and Icon Savings Plan. However, Human Interest has some notable backers and announced a new round of funding in January, led by global investment firm BlackRock.

Part of Human Interest’s growth strategy is to integrate its 401(k) offering with payroll providers to essentially integrate its retirement plan into the installations of many companies that serve the large US service industry.

“We’ve partnered with over 400 payroll providers to be part of their weekly payroll and we’re seeing a ton of hourly workers signing up,” says Mahajan. “Now they don’t have to create a huge Excel spreadsheet, download it and manipulate it. …People in the past have shown me the screen of what to do and I said, ‘No wonder you didn’t want to manage a 401(k) plan!’”

Watch out for the gap

About 68% of workers in private industry had access to occupational pension plans in 2021, with 51% of eligible workers choosing to participate, according to the latest available data from the BLS. However, looking at the service industry, that hit rate drops to 40% and engagement to 24%.

These numbers fit with general trends showing that sectors with a high concentration of hourly workers, such as Some industries, such as services and retail, have lower access to pension plans and participation that can be half or two-thirds lower than some industries with higher coverage, according to Craig Copeland. Research director for wealth benefits at the Employee Benefit Research Institute.

According to Copeland, there is a need for more access to hourly workers’ pension plans. Automatic inclusion in pension plans for such employees could help increase coverage, he says, which was mandated by the SECURE 2.0 Act of 2022 and will start in 2024. Overall, however, Copeland sees state-mandated pension plans as having broader implications than federal regulation that relies on incentives.

“The state plans have the widest reach within these states because they require all employers [with exceptions] Putting money directly into a tax-deferred plan,” he says. “At the federal level, Congress hasn’t gone that far.”

According to payroll service provider ADP, there are currently 14 states that require small businesses to offer retirement plans. More than 30 states are now considering enacting some form of statutory retirement plan.

The combination of SECURE 2.0 and government mandates is a potential boon for providers of small plans like Human Interest. According to a company spokesman, the company currently has more than 11,000 customers and 200,000 plan participants.

Additional growth, Mahajan says, comes from working with organizations like Neighborly, a franchise model that has thousands of home care workers working on an hourly basis, including Molly Maid, Mosquito Joe and Glass Doctor. In a December announcement, Human Interest announced that its retirement plan would be offered to 4,400 Neighborly franchised locations across the United States

The goal of this and other partnerships is not only ease of use, but also relieving plan sponsors of administrative and fiduciary burdens. Human Interest acts as a 3(16) trustee and assists in the administration of the plan and compliance with ERISA guidelines. Another move Human Interest took was to move its recording services internally in 2020 to reduce fees that are often passed on to clients by recording administrators. The in-house option also improved timing and the experience for customers, according to the company.

can you hear me now

Mahajan admits that when he first retired about four years ago, he felt a bit embarrassed. He has had success creating growth at startups, but has never worked in the 401(k) space.

Now he says the “privilege” of wanting to help hundreds of thousands of American workers with their retirement plans has made him a firm believer in both the potential for growth in the field and the need for innovation. These include systems that allow new hires to start saving as soon as they start work, as opposed to the standard 20-day waiting period common to many legacy providers.

“We need a system for workers that says [when you start a job]”Here’s your 401(k) and you can start saving right away on day one,” he says. “That’s how it’s supposed to work, but it doesn’t.”

Mahajan equates this work to the time he spent at T-Mobile when it was a little-known wireless carrier that evolved into a cheaper option serving businesses and consumers across the country. The key, he says, is matching the right people with services that outperform existing systems and cost less.

“Partnership has always been the framework for me,” he says. “We’re speaking to payrolls, CPAs, brokers, and anyone who can help initiate a conversation with a potential plan sponsor. … The scale of the problem is vast, and the odds are in the trillions.”

That’s trillions with a “T,” not a “B,” Mahajan repeats, just to make sure the message and opportunity are clear.