What the Smallest Employers Want: Gusto and a tide of new workplace savings

This week we have the pleasure of chatting with Steve Abbott, Head of Public Policy and Government Affairs for Gusto. We first met Steve during his tenure at the Pew Charitable Trusts, and we recall talking over tacos about retirement savings. In his transition to the private sector, Steve’s kept a true north focus on financial inclusion and design simplicity. So what does it take to serve the country’s smallest employers? *Read on*

Steve, tell us about Gusto’s role in the world of retirement security and coverage accumulation and de-cumulation.

We call ourselves the Gusto People Platform. What that means is we are a payroll, benefits, and HR provider for small businesses. And when we say small businesses, it's truly small – our platform was originally designed for employers with fewer than ten employees. But now, we currently have over 200,000 customers nationwide and our typical customer spans all industries and has fewer than 100 employees.

We are not a 401(k) provider, but for years we had an exclusive partnership with Guideline since they are a small business tech startup who are similar to us offering very simple, straightforward auto enrollment plans designed for small business owners. As we've grown, we saw other businesses wanting more options in terms of 401(k) providers and selection. We still call Guideline our preferred partner, but we built integrations this year with Human Interest, Betterment, Vestwell, and Pay (k)onnect. You can view a demo on our website.

You’re obviously focused on the employer side. We’re interested to know how are the state Auto IRA programs impacting Gusto’s business, if at all?

Well, this should be telling. California is our largest market with tens of thousands customers. The compliance deadline CalSavers instituted on June 30 impacted over thousands of our customers. We started notifying our customers within the platform that this deadline was coming in January 2022, but we weren’t seeing much uptake in 401(k)s initially. As the date approached, we held webinars with our business partners at Guideline to educate our California customers. The product team then ran an experiment sending a “to-do” notification that they had to either enroll in CalSavers or enroll in Guideline, Betterment, Human Interest, etc. The result was we saw a 35% increase in 401(k) conversions and that increased adoption rate has sustained itself at least through the end of August.

Fascinating. Let’s turn to the concept of tech. As a startup, what are some of the top learnings that you’ve identified as you work in payroll and retirement with these very small employers?

Our platform is optimized for small businesses. Even though our core customer is small, they typically are what we call “desk employees” (professional services, people with college educations, tech companies, venture services, nonprofits, etc.). We are also a small group health insurance broker and we spend a lot of time thinking about what are the best options to provide people with enough information, but not too much information.

These are companies that don't have HR departments, and so whoever is running payroll is typically the owner or someone that is doing multiple things. And so you have to get them at the point in which they are ready to make a decision. Referencing the state Auto IRAs and mandatory compliance, this manufactures a decision point for the employer because they have to take action. And we're going to see a lot more states come online, and some significant markets for us – specifically New York and Colorado.

Compliance matters and we need to be deliberate and proactive to get people to sign the necessary forms to maintain compliance. We’re still scaling new products to figure out better ways to educate our customers on different benefit offerings. Our goal is to offer a choice and get a decision at the right time and to make sure it’s as seamless as possible.

Steve, you’re a policy guy. Does Gusto have policy priorities for the retirement space for the next few years?

As a value-driven company we’re supporters of the state Auto IRAs. We think that they serve an important role in the ecosystem for providing economic security, regardless of whether or not they force the conversion into one of our retirement plan partners. And we're also supportive of items in secure/earn. I issued an Op-ed with Jeff Rosenberg of Guideline talking about some of the specific provisions that would expand the tax credit for startup costs to 100% for small businesses and create additional safe harbors. Anything that can minimize administrative costs for small business owners is essential.

So those are the main policy priorities with respect to retirement. We work with our partners to promote that since we don't do it as part of our core business, but it's still important for us as a business. We like to work with partners to promote policies that will benefit them, but also benefit people trying to save for retirement.

We’ve talked about a few important things. What haven’t we touched on that might be interesting today?

Let's talk about the crazy economy and the still tight labor market and how Gusto as a business is evolving. We have a unique data set that can speak to what's happening in the small business marketplace. And my great colleagues in our Gustonomics department, our in-house economists, recently put out a public-facing economic trends data tracker that allows you to look up current average wages, voluntary terminations, and hours worked. But we're also doing some in-house analysis that talks about the significance of benefit offerings on employee attrition and retention. Look for this to be published later this month or in November.

The amazing thing is we see that offering a 401(k) or other defined contribution plan is correlated with a 32% reduction in the risk of monthly attrition. Citing research from Pew in 2017, employers said they didn't think that their employees wanted a retirement plan. You see this sort of the hierarchy of healthcare and then retirement. So if a company offers a 401(k), they’re going to reduce their risk of attrition by one-third. And when you think about the cost of hiring, training, and the productivity loss, it's cheaper to offer the benefit and try to keep your employees than to not offer the benefit and go through a higher churn rate.

These facts can help our customers understand the benefits of offering benefits, and we can help educate the broader market. But, a good way to close – it's good business to offer a 401(k) retirement plan.

We love it. That information needs to be broadcast far and wide. We are going to give one final – non-retirement – note. It's baseball season. No one can see you at the moment, but you’re sporting a Guardians cap. We’re Red Sox fans, which means we support anyone who plays New York.. Go Guardians!

Yes, Go Guardians!

Steve Abbott is the Head of Public Policy and Government Affairs for Gusto. In his role, he leads a cross functional team that designs and executes a public policy strategy that advocates for a robust ecosystem for small business formation and growth, and promotes employee financial health and wellness. Prior to Gusto, Steve spent 10 years at the Pew Charitable Trusts leading government relations for projects focused on promoting family economic stability. Steve also has experience working for Congress and was a consultant to Fortune 500 companies and non-profit organizations advising them on public policy. Steve holds a Bachelor’s Degree in Economics from Denison University and an MBA from the University of Maryland.

This piece was featured in the October 20, 2022, edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here.