Betterment provides 401(k) plans with access to a lineup of 12 low-cost stock and bond exchange-traded funds (ETFs) from Vanguard and iShares.

Plan participants go online to provide Betterment with information about their salary, household income, net worth, and risk preference, and the robo uses that information to decide how to allocate their 401(k) savings among the investments available. Participants can also link their Betterment account to other investment accounts, which allows Betterment to fine-tune their asset allocation.

Cynthia Loh, general manager of Betterment for Business, noted that participants select their risk tolerance rather than picking individual funds. "Every single investor at Betterment is invested in some number of those funds," said Loh, pictured at left. "The risk level is between 0% stocks and 100% stocks."

The fees paid by 401(k) participants have become a concern in recent years, and Betterment stands out for its low cost, ranging from 0.60% a year for plans with less than $10 million in assets down to 0.10% for plans with more than $1 billion in assets. Plans with less than $10 million in assets would also pay an upfront fee of $1,500.

Betterment for Business had 50 customers when it launched on January 1, and Loh said the majority of those are 401(k) plans with less than $10 million in assets.

Small to midsize companies usually don't provide 401(k) participants with advice unless the plan uses a financial adviser, Loh said. "And that can get pretty expensive," she added, with advisers' fees in the neighborhood of 1% to 2%.

Range of Options

Investment guidance for participants in 401(k) plans can range from managed account providers like Financial Engines to target-date funds, which assign asset allocations by workers' projected retirement dates, to arrangements with financial advisers who may discuss investment options via companywide meetings or may meet with participants individually.

There has been a lot of take-up of target-date funds. A Deloitte benchmarking of defined contribution (DC) plans showed that, of the 398 companies surveyed, 83% offered in their 401(k) last year either target-date funds or other funds that select an asset allocation based on time factors. That's up from 77% in 2013 to 2014. Another 29% of plan sponsors offered funds that allocate assets between stocks and bonds based on an employee's risk preference.

Betterment's model for guiding participants' asset allocation resembles the managed accounts provided by companies like Financial Engines.

Most employers that offer Financial Engines to plan participants do so as an option, rather than a default. If participants decide to use Financial Engines, they can go online to provide information about their risk tolerance and other assets, but they can also talk to human advisers. And unlike Betterment, Financial Engines works with the investment lineup chosen by the plan sponsor. At the end of 2015, Financial Engines provided managed accounts to 670 companies and had $113 billion in 401(k) assets under management.

The Deloitte survey shows that 34% of plans offered managed accounts last year.

Another survey by Cogent noted a pickup in interest in managed accounts as a choice that participants are defaulted into. Eighteen percent of mega-plans used a managed account as a default last year, up from 5% in 2014.

"It's telling us that there's a certain focus from plan sponsors in terms of addressing the needs of participants, not just personalization but what a managed account offering brings—asset allocation and decreasing the [level of do-it-yourself responsibility] that participants often face in managing their defined contribution assets," said Julia Johnston-Ketterer, a senior director for Cogent Reports at Market Strategies International.

Donald Stone, director of DC strategy and product development at Pavilion Advisory Group, said plan sponsors struggle to provide unconflicted advice to participants at a reasonable cost.

"It's not easy to do either one of those," he said. "I think the robo-advisers can play a role in that regard. I think they'll play more of a role at the small end of the market than the mid or large end.

"Most [robo-advisers] will get people into a better asset allocation than they would get into by themselves," Stone added. He noted, though, that the asset allocations judged appropriate for various participants differ from robo-adviser to robo-adviser. He also suggested that there may be too much weight put on participants' aversion to the risk of losing money on their investments in the short run.

"The real risk is running out of money in retirement," he said. "That means they may have to take more risk in their working years than they may be comfortable with."

Stone also noted that even if a plan sponsor provides a managed account as an option to participants, they may not bother to use the service or provide enough information to use it optimally. (Financial Engines says about 20% of participants given access to its services make use of them.)

Brooks Herman, head of data and research at BrightScope, which provides ratings on retirement plans, said that Betterment for Business' model makes it simpler for a smaller employer to provide a 401(k) plan, while the low level of its fees "is by all means a good deal and a selling point for them."

But sponsors of smaller 401(k) plans tend to be less sophisticated, he said, and might shy away from hiring a 401(k) provider that is using new technology. "People move very slowly in this marketplace because of all the fiduciary concerns," Herman said. "Defined contribution plan sponsors are very aware of litigation."

Fiduciary risk involves more than plan fees, he said. "Can Betterment actually execute the trades, can they fill out the paperwork, can they handle the 5500 form filing? When you're a brand-new startup, you have to address all these issues."