JPMorgan launches new retirement plan for small businesses

October 15, 2020.

JPMorgan Chase, the largest U.S. bank by assets, on Thursday launched a new 401(k) product that caters to small business owners, as the retirement sector shows signs of recovery from COVID-19 market shocks.

Dubbed Everyday 401(k) by , the new plan allows small business owners to pick from a selection of plans pre-made by JPMorgan Asset Management or create a customized one, which start at $75 per month and $5 a month per participant.

The debut of the new offering follows a flight to safety across the global financial markets in the first quarter as the pandemic triggered massive volatility, with many retirement funds losing billions of dollars in asset value. Those funds have since partially recovered their pre-pandemic value.

“Now more than ever, small business owners are struggling to keep their doors open and retain their employees,” Chase Business Banking CEO Jennifer Roberts said.

“This is a simple, affordable way for them to offer the added perk of a retirement plan, something previously thought of as a benefit you could only get from a larger employer,” she added.

The new program will leverage existing resources at JPMorgan Asset Management and Chase Bank’s business unit, said Jamie Dimon, chairman and CEO of JPMorgan. Plan participants will have access to research and other insights from the asset unit, the bank said.

Everyday 401(k) offers “transparent pricing” and up to $5,000 a year in tax credits, according to its product description page. There is a $300 fee for those who are converting an existing plan.

Critics of 401(k) plans often point to the lack of transparency in such arrangements, citing “hidden fees” that investors don’t know about. In a 2018 survey, found that only 27% of 401(k) participants are aware of all of the fees they pay to manage their accounts.

Businesses can sign up for the new plan through a questionnaire on Chase Bank’s website, which asks about income and other related information. Once they sign up, the user will be asked to verify their information with fintech company , which will act as the underlying recordkeeper for the program.

In a recent survey, JPMorgan found that more than a third of small business owners said they plan to roll out 401(k) plans over the next year, while 48% already offer the plans to their employees.

The bank said its pricing scheme for the plans will be attractive to business owners, many of whom cited low revenue and high administrative costs as reasons why they don’t currently have those plans in place. It also cited employee retention and recruitment as chief reasons for businesses planning to offer retirement options. 

The U.S. retirement industry shrank to $28.7 trillion in total assets in the first quarter from $32.3 trillion at the end of 2019, as stocks and bonds faltered, according to the Investment Company Institute, a global trade group for funds.

The market partially rebounded to $31.9 trillion in total assets in the second quarter, the group said in a report last month. All retirement account types saw their portfolios swell during this period. Most notably, individual retirement accounts grew to $10.8 trillion from $9.5 trillion in the first quarter, just shy of $11 trillion recorded in the fourth quarter.

Withdrawals from defined contribution plans picked up in the first half of 2020, to 2.8% from 2.5% in the prior-year period, the group found in another report. About 1.1% of defined contribution plan participants made hardship withdrawals this year compared to 0.9% in the aftermath of the housing crisis in 2009.

It’s unclear, however, that American small businesses have sufficiently recovered from the impacts of the pandemic that they can afford to open a new retirement account.

Kristin Adreski, senior vice president and general manager of Retirement Services, said in a recent interview that the firm has seen an increase in businesses dipping into their retirement accounts just to stay afloat. The trend follows the CARES Act in March, which included a provision that allows people under the age of 59.5 years to withdraw up to $100,000 from their retirement accounts without a penalty.

She told the Service Corps of Retired Executives, a nonprofit that advises small businesses, that 57% of its in-service withdrawals were so-called “coronavirus related distribution,” 60% of which were for the maximum amount allowed.

About 86% of the CRDs were made by individuals younger than 55 and 27% by those 35 and younger.

“If a small business owner or participant finds themselves in a hardship situation due to the coronavirus and needs to access their funds, they should do it,” Andreski said in August.