In the fall of 2011, Vanguard [profile] entered the under-$20-million 401(k) business, and now the low-cost mutual fund titan's chief is trumpeting the success of that iniative.

Juliet Samuel of the Wall Street Journal reports that on Tuesday in London Vanguard CEO Bill McNabb (who rose up through Vanguard's 401(k) ranks before taking over the whole shop) told journalists at a Vanguard press event that the shop has "entered the small-plan market very aggressively." McNabb expressed his support for the creation of "a simplified scheme" for something 401(k)-like, but with less bells and whistles and thus less cost for small businesses.

The WSJ reports that, as of the end of 2014, Vanguard's small business 401(k) effort held $6.7 billion for 2,678 plans with 126,956 participants. That's more than triple the almost $2 billion Vanguard reported having in those offerings 20 months earlier when it extended its small-business 401(k) distribution to the third-party administrator (TPA) channel.

The WSJ pieces frequently substitutes the word "pension" for "retirement", "defined contribution", or "401(k)." And the article doesn't mention Ascensus, the small-market, open-architecture recordkeeper that Vanguard teamed up with to power the platform, called Vanguard Retirement Plan Access.

McNabb reportedly said that administering 401(k)s is "extremely burdensome" for small businesses and that "market forces haven't worked that clearly" at the small end of the 401(k) space. The WSJ does mention that smaller companies tend to pay higher fees "because they lack scale." That's because many of the costs in a 401(k) plan are relatively fixed, so larger employers can better spread them out across their larger base of employees. The article does not mention a key driver of small business 401(k) costs: the advisor, who often provides high-touch services to the employer (plan sponsor in defined contribution industry lingo) and employees (participants), services that aren't very scalable.

"I think you'll see the fees in the small end come down," McNabb reportedly said. 

Edited by: Neil Anderson, Managing Editor


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