According to Bureau of Labor Statistics data, there is a retirement savings gap affecting industries dominated by jobs paid by the hour. Human Interest Inc., a small-plan 401(k) provider, believes it can help change that by offering low-fee retirement plans to franchises employing hourly workers.
“Franchises are one of the areas that we identified as a massively untapped opportunity,” says Rakesh Mahajan, chief revenue officer at San Francisco-based Human Interest. “We have a mission to go and help these workers so they can save for retirement. … We have the ability to help every American worker.”
When speaking with Mahajan, it’s clear Human Interest—founded in 2015—has big ambitions. It is also operating in a crowded space, one that already includes longer-term small-plan 401(k) providers such as Ubiquity and Betterment, as well as more recent startups like Vestwell and Icon Savings Plan. Human Interest, however, has some big-name backers, and in January announced a new round of funding led by global investment firm BlackRock.
Part of Human Interest’s growth strategy is working to integrate its 401(k) offering with payroll providers, essentially getting its retirement plan into the plumbing of many companies serving the U.S.’s large service industry.
“We’ve integrated with over 400 payroll providers to be part of their weekly payroll runs, and we’re seeing a ton of hourly workers sign up,” Mahajan says. “Now they don’t have to create an enormous Excel spreadsheet and download it and manipulate it. … People have screen-shared with me what they had to do in the past, and I said, ‘No wonder you didn’t want to manage a 401(k) plan!’”
Mind the Gap
About 68% of workers in private industry had access to workplace retirement plans in 2021, with 51% of eligible workers choosing to participate, according to the latest data available from the BLS. When looking at the service industry, however, that access rate drops to 40%, and participation falls to 24%.
Those figures fit general trends that show sectors with high concentrations of hourly workers, such as service and retail, have lower retirement plan access, and participation that can be half or two-thirds lower than some higher-coverage industries, according to Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute.
There is a need for more retirement plan access among hourly workers, Copeland says. Automatic enrollment in retirement plans for such employees might help increase coverage, he says, which was mandated by the SECURE 2.0 Act of 2022 and will start in 2024. Overall, though, Copeland sees state-mandated retirement plans as having more far-reaching impact than federal regulation, which relies on incentives.
“The state plans have the most reach within those states, as they require all employers [with exceptions] to facilitate money going directly to a tax-advantaged plan,” he says. “At the federal level, Congress has not gone that far.”
There are currently 14 states that require small business to provide retirement plans, according to payroll services provider ADP. Meanwhile, there are more than 30 states considering enacting some form of mandated-retirement-plan legislation.
The combination of SECURE 2.0 and state mandates is a potential boon for small-plan providers such as Human Interest. The firm currently has more than 11,000 customers and 200,000 plan participants, according to a company spokesperson.
Other growth, according to Mahajan, will come from working with organizations such as Neighborly, a franchise model with thousands of home-service professionals working on an hourly basis, including Molly Maid, Mosquito Joe and Glass Doctor. In a December announcement, Human Interest noted that its retirement plan is on offer to 4,400 Neighborly franchise locations in the U.S.
The goal for this and other partnerships is not just ease of use, but to take the administrative and fiduciary burden off plan sponsors. Human Interest acts as a 3(16) fiduciary, helping to administrate the plan, as well as keeping it in compliance with ERISA guidelines. Another step Human Interest took was to bring its recordkeeping services in-house in 2020 to cut down on fees that are often passed down to customers from recordkeepers. The in-house option also improved the timing and experience for customers, according to the company.
Can You Hear Me Now?
Mahajan admits that, when he first came to the retirement space about four years ago, he was a bit sheepish. He had found success in creating growth at startups, but he had never operated in the 401(k) space.
Now he says the “privilege” of looking to help hundreds of thousands of American workers with their retirement savings has made him a firm believer in both the potential for growth in the space, as well as the need for innovation. That includes systems that make new employees immediately eligible to start saving when they start work, as opposed to the common 20-day wait that comes with 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 on Day 1, right out of the gate,” he says. “That’s how it should work, but not how it does work.”
Mahajan equates this work to time he spent at T-Mobile, when it was a little-known mobile provider evolving to become a cheaper option serving businesses and consumers across the country. The key, he says, is partnering the right people with services that can outperform—and cost less—than the entrenched systems already in place.
“Partnering was always the frame for me,” he says. “We talk with payroll, CPAs, brokers, anybody who can help align a conversation with a potential plan sponsor. … The scale of the problem is massive, and the opportunity is in the trillions.”
That’s trillions with a “T,” not a “B,” Mahajan reiterates, just to make sure the message, and opportunity, is clear.