401(k) 411
How do business owners sort through all the decisions of players involved in implementing a workplace retirement plan for their organization? Here to demystify the employer-sponsored retirement plan is Eric Burnside, VP and director of business development of Independent Retirement, a third-party administrator, and Bonnie Treichel co-founder and chief operations officer of Zoona, a national finance and benefit consulting firm. I found Eric and Bonnie to be really refreshing in demystifying the process and clearly explaining how operators in the SMB space can make these decisions with confidence.
Episode Highlights:
01:41 - Questions business owners should ask themselves about retirement plans
03:10 - Benefits of a qualified retirement plan
05:00 - OregonSaves and other state-run savings vehicles
10:14 - Differences between simple IRA or 401(k)
16:20 - What are the moving pieces once you decide on the type of retirement vehicle?
26:31 - The different roles outside the organizations when it comes to managing a retirement plan
31:38 - Ongoing considerations regarding compliance
37:50 - What’s happening with these plans legislatively?
41:10 - What’s reasonable regarding fees?
Guests:
Eric Burnside & Bonnie Treichel
Resources/Links Mentioned in this Episode:
Sponsors: First Generation Advisors & First Generation Financial
Transcript
DISCLAIMER: This transcript is automatically generated by Descript. Please excuse any errors.
[00:00:00] Rick Thomas: [00:00:00] My guests today are Eric Burnside, VP and director of business development of independent retirement, a third party administrator, and Bonie Treichel co-founder and chief operations officer of Zoona, a national finance and benefit consulting firm.
[00:00:15] Eric and Bonie are compelling and deeply knowledgeable professionals in this space. Before running Independent Retirement, a Portland based family owned and operated third party administration firm he runs with his mother, Eric had his own registered investment advisor firm in Portland. Bonie is also an ERISA attorney by background and works with both retirement plan professionals and employers to create effective and transparent workplace retirement plan solutions.
[00:00:41] In trying to make sense of how business owners sort [00:00:45] through all the decisions of players involved in implementing a workplace retirement plan for their organization. I found Eric and Bonie to be really refreshing in demystifying the process and clearly explaining how operators in the SMB space can make these decisions with confidence.
[00:01:03] I really enjoyed this conversation and I learned a lot and I hope you will too.
[00:01:07]
[00:01:07] Thank you, Eric and Bonie for joining me on this conversation. As we have had the conversation, a couple of times leading up to this you know, I'd been approached by a couple of my clients about how do they start a employee participating retirement plan. And the question has come up certainly a lot.
[00:01:28]And so I'm finally at the [00:01:30] point where I wanted to do a little deeper dive on this and explore what are some of those considerations, questions that small business owners will be facing when they start asking this question. And maybe as a place to start what, in terms of the different types of plans and even some of the questions that a business owner should be asking themselves, why they want to do this, what are some of those considerations?
[00:01:54] Where would you start? And Eric we'll kick off with you. And then Bonie, you can jump in.
[00:01:59]Eric Burnside: [00:01:59] I think when we're approached by business owners we always want to understand where they're coming from and what they're trying to accomplish. So we understand that there are a lot of different vehicles for business owners to save in a tax advantaged way.
[00:02:14][00:02:15] 401k plans is just one example or one vehicle for that. And there are several others that a business owner can consider. So when we engage with a new client for the first time, it's really critical to understand the objective. And based on that objective, we can figure out what is the right solution for that client?
[00:02:37]I'll have Bonie jump in here cause she's she has a lot of experience with OregonSaves. A lot of experience with different multiple employer vehicles as well as the 401k plan. So I think she I'll have her jump in and explain those in more detail. But I think just for listeners that.
[00:02:56] The most important thing is marrying the objective [00:03:00] with the solution, almost like any other consultative practice, really understanding and diving deeply in what the business owner is trying to accomplish and then figuring out what the right solution is.
[00:03:09] Rick Thomas: [00:03:09] That's great. And, Bonie, maybe before you start also, because you made a statement in one of the prior conversations we had that it was qualified retirement is not for everyone. And maybe if you can embellish that a bit in how you're answering what Eric was referring to. That'd be great.
[00:03:25]Bonnie Treichel: [00:03:25] Sure. Absolutely. And yes. I mean, what I do all day every day is work with qualified retirement plans. So I'm certainly an advocate for the qualified retirement plan or, you know, 401ks and 403b plans.
[00:03:41] But, that being said, I would still reiterate that a [00:03:45] qualified retirement plan it's not a fit for everyone. So Eric's point is so well taken that you really have to think about what are the objectives and making sure that we really think that through before saying let's just set up your 401k plan today, because once you start the process of setting one up, they're a little bit difficult to unwind and get out of.
[00:04:09] So you want to think about what's the objective? Is the objective the tax savings , the tax advantage for the employer? Is it about really making sure that employees are set up to save a lot of money for retirement and how much do you want employees to be able to save? And so do you want to use [00:04:30] it as a recruitment tool? Is it a retention tool for employees? What is that real objective? And then as service providers, it's really thinking about the life cycle of the business and meeting that business owner where they are in their life cycle as an organization and with their benefit plans. So I think of it in terms of like, Stair-step in terms of what are the different options for an employer that wants to have some sort of savings vehicle.
[00:05:00] And so in Oregon, and there's other states that have this too, not all states at this point, but in Oregon, we have OregonSaves. And so that's kind of like the first entree into some sort of savings. And it's actually a [00:05:15] requirement that you have OregonSaves as an employer, if you don't have some other savings vehicle set up.
[00:05:23] So step one is OregonSaves and that is actually an IRA program. It's not actually an ERISA covered retirement plan. So that's not going to allow the full, maximum savings of a 401k plan, for example. So that's kind of step one. It's like, if you want to have something, but you don't want all of the liability that ERISA comes with in a 401k plan, you could just kind of get started.
[00:05:51]And that's a great option for a lot of organizations, right? The next step would be, we've outgrown an OregonSaves we want to give our [00:06:00] employees more of an opportunity to save more, but we're going to take on a little bit more probably expense in liability would be, then we're going to go into, what's called like a map or now there's this new term pep.
[00:06:15] But what this really means is we're willing to give up some flexibility. We're going to look like all the other employers in this pool. And we're gonna go into this kind of single pool of employers and look like everyone else and offer a plan, but it is going to actually be a 401k plan. So we get to save a lot more than we would an OregonSaves.
[00:06:36]But we're going to look like everyone else. So that's kind of like the next step up.
[00:06:40]Rick Thomas: [00:06:40] Really quick on the OregonSaves plan, is that the same contribution limits [00:06:45] of a standard IRA then?
[00:06:46]Bonnie Treichel: [00:06:46] Yes, that would be the same contribution limits as a standard one. And it varies depending on what the state kind of auto IRA program is.
[00:06:54] But, and Eric correct me if this is wrong, but at $6,500 from 2020, I believe is the lender.
[00:07:01]Rick Thomas: [00:07:01] And then would that a MEP or a PEP, but a 401k under those pulled plans, similar contribution limits to a standard 401k. If you could call it that?
[00:07:12] Bonnie Treichel: [00:07:12] Yeah, exactly. So you jumped from the 60, what is it... 6,500 all the way up to $19,000 and that's got the COLA adjustments on top of it. So you're getting to contribute as an employee a lot more so you can see how that could be a much bigger advantage for the employee, if you get to have [00:07:30] that much savings and then you also get, for example, the catch up opportunities on top of that, which can afford an even bigger opportunity for savings.
[00:07:38]Rick Thomas: [00:07:38] So what's beyond the MEP or the PEP, you know , how much more complicated does this get?
[00:07:44] Bonnie Treichel: [00:07:44] Yeah. So the nice thing about the MEP or the PEP is that, you know, you give up flexibility, but as an employer , you there's some liability and we could do a whole another podcast just on but there's not as much because you're not totally responsible for all the day-to-day little things, right? So, If you then say, no, we want to design our own plan. We want to go out on our own and have all of our own kind of bells and whistles, then you just have your kind of we'll call standard 401k. So you're going to be your own single [00:08:15] employer, sponsoring your own 401k plan. And again really fantastic opportunity to have your own 401k plan.
[00:08:24] But, as an employer, then you take on the liability of being a sponsor of that plan under ERISA. And so that can come with some liability. And that shouldn't scare anyone off, I think that's where we'll talk about a little later how service providers can really assist with that. And that can be a really great opportunity, but the trade offs are one, you get a lot more flexibility. Two, you do get the opportunity again for your employees to save a lot more, but the downside is that can come with more liability. Now, maybe what I'll do is also kind of the [00:09:00] alternative path two is not a 401k, but there is something called a simple IRA, which I'll maybe let Eric talk a little bit about, which is kind of an alternative track that some employers take as well.
[00:09:13]Eric Burnside: [00:09:13] Yeah, absolutely. So I just wanted to throw that in there as a potential option for business owners, because we see it pretty often as an intermediate solution before an employer will jump to a 401k. And take on maybe what Bonie refers to as the liability, the fiduciary responsibility, the cost of the service providers.
[00:09:36] A simple IRA is a very well, it is simple in the sense that the testing and the [00:09:45] compliance associated with those plans is pretty much non-existent and it affords an employer a little higher contribution limit than they can get an IRA program. And so you, you do see that as a pretty common retirement savings vehicle for again, that employer that doesn't want to take on the burden responsibility of managing or overseeing a 401k plan, but still wants a bit higher contribution limits.
[00:10:11]So that's another option.
[00:10:14]Rick Thomas: [00:10:14] In an employer making the decision between a simple IRA or going with a 401k, is there a particular threshold that is common that you find, I mean, is it employee headcount or some other metric [00:10:30] that says, you know, this really tips it into a 401k category?
[00:10:33]Eric Burnside: [00:10:33] Yeah, I think there's two ways a business owner would think about that decision. One is from an administrative lens. So with a simple IRA program, typically each participant in that plan has their own individual investment account. And. If I'm the business owner and I'm funding contributions into those individual accounts, that can become a pretty laborious process.
[00:10:58] Every pay cycle I'm contributing and cutting checks or making some physical deposit to these accounts. So you start to see as the participant base expands or the business grows, that can become unwieldy pretty quickly. And [00:11:15] sometimes advisors step into a role where they're facilitating those types of functions, but it's not often.
[00:11:22] So I'd say one lens is the administrative lens. The other way to look at it is contribution limits. So where you see a drawback or the disadvantage of the simple IRA is you're very constrained in terms of what the employer can contribute to the plan. So really if you were to compare that as a solution to the 401k plan, the employer contribution limits on the 401k plan are much, much greater.
[00:11:49] So. And we can dive into specifics if we want, or we can reference those in show notes, but basically your contribution limits and total in [00:12:00] aggregate between what the employee can contribute and what the employer can contribute are much greater in the 401k plan than they are in the simple IRA.
[00:12:09]Rick Thomas: [00:12:09] Yeah. To your point, we don't need to go into all the details, but I'll be sure to include a link of how to access those differences for at least for 2020 , between a simple IRA and 401k. Bonie any other thoughts on that conversation between the two.
[00:12:26]Bonnie Treichel: [00:12:26] No, I think, Eric did a good job of covering that and just being cognizant of where those limits are for when you, as an employer, jump from the simple IRA to a 401k from an employee head count perspective.
[00:12:39] Rick Thomas: [00:12:39] Right. Right. Okay. One more question, because we are going to get in, let's say under the hood, so to [00:12:45] speak on what are all the moving pieces in a 401k and really trying to understand the different roles that the third-party advisers or third-party administrators play and what the employers need to be mindful of from a recruiting or retention tool. And this may is maybe more of an anecdotal question, but is this still the as desirable for businesses today as it was maybe 10 or 15, 20 years ago.
[00:13:14]I'm curious if you are observing any kind of behavior is the next generation coming into businesses, do they find this as desirable as let's say our parents' generation did?
[00:13:27]Bonnie Treichel: [00:13:27] I think certainly you don't [00:13:30] have the next generation walking in and saying, what's your benefits package as the first question they ask. Right. I think there's some good data to support things like, you know, well up until maybe six months ago, things like flex time, ability to work from home, those were what were the more important questions that the millennial generation was asking. Right. It wasn't, what's the 401k contribution?
[00:13:57] I will be curious to see what the data supports one year from now when things like work from home has become more the norm. So that isn't the top requested benefit. And when, you know, I did see a lot of organizations, they were [00:14:15] quick to have to cut things like contributions. And so I will be curious to see if that becomes a question and again, that's industry dependent, so that was a broad generalization that I just made, but we certainly saw during COVID over the last six months, a lot of organizations, they had to make financial decisions. So if it's a question of keep the plan and cut the contribution in half or cut the match in half , those types of decisions were being made.
[00:14:42] And so certainly employees saw the impact of that. I would be curious if six months or a year from now, we see it come back around and those types of questions become more important as flex time or work from home or work from anywhere is something that's [00:15:00] more readily available. Eric, I don't know if you have a different opinion.
[00:15:03]Eric Burnside: [00:15:03] I don't think I have a different opinion. I have maybe one additional viewpoint on this question, which is a great question. If I'm a business owner, I think where this comes up often is in, I don't know if it's so much recruiting in that I'm offering a benefit that my competitors don't offer.
[00:15:23]As much as it is, I want to make sure I'm offering at least the same benefit that my competitor is offering. So if you are in a industry where it's typical to provide a 401k plan to your employee and you don't offer one, I think from a business perspective, [00:15:45] that's a disadvantage. And so often when we're talking to a business owner where this is a point of interest for them in the discussion, I think mostly we're seeing it as I just want to make sure it's a competitive package relative to what my competitors are doing.
[00:16:02]And that would be common in like a startup scenario. So where we're speaking with a business owner that is just interested in establishing a plan for the first time.
[00:16:14]Rick Thomas: [00:16:14] Well, I appreciate your taking a stab at that from both of you. So let's get under the hood, like I mentioned. So, I'm a small business owner, I've made the decision that I want to go to the 401k route. Now, what are all the moving pieces there? Where are some of the [00:16:30] big, chunky decisions that I need to make? And what am I need to be aware of, Eric?
[00:16:34] Eric Burnside: [00:16:34] Yeah it's a good question. And a very practical one, really.
[00:16:38] So a business owner, the first decision they're likely to make is which advisor are they going to work with that's going to assist them with getting the plan up and running? And there are specialist advisors that focus deeply in qualified plans that can be simple IRAs, 401k plans and other varieties, but advisors that build their business specifically around providing this service. But what you find in reality is there a lot of [00:17:15] advisors that dabble in providing consultation to business owners around 401k plans, but I always recommend trying to find a specialist. So again, and I define the specialist as the advisor who's the majority of their service is focused and dedicated to working with plan sponsors on, 401k plans or retirement plans.
[00:17:36]And the reason why I say you start there is because the advisor is often the one that's going to bring in the other components that are necessary to get this plan up and running and those other components, I should say service providers , include a third-party administrator. So that's what my firm focuses on and the third-party administrator, [00:18:00] assists the employer with designing and maintain their plan document, which is basically think about it as the manual for how that 401k plan needs to operate day in and day out. So and then you have a record keeper.
[00:18:19] Rick Thomas: [00:18:19] And let me interject, Eric, really quick cause you and Bonie had put together a graphic.
[00:18:24] Would that be a good time to bring that up now as you're talking through this?
[00:18:27] Eric Burnside: [00:18:27] Yeah, absolutely. Yeah. bring up the graphic cause there are a few players that come together as a team to support the plan sponsor in this objective of getting it right.
[00:18:37] Rick Thomas: [00:18:37] And by the way for the listeners that are checking out the audio version of this, there will be a PDF downloadable PDF link [00:18:45] included in the description below the podcasts listing. So keep going, Eric.
[00:18:50] Eric Burnside: [00:18:50] Yeah. Thanks, Rick. This is a great illustration. It's very simple one page. And it identifies the service providers that have been speaking about. So obviously the business owner is the plan sponsor. So the plan sponsor, as I mentioned before, it's likely you're going to go search for, or be referred to an investment consultant or an investment advisor in this case.
[00:19:14]And the investment consultant advisor is going to typically refer other service providers in here to create this team of experts at their basically going to serve the plan sponsor and this mission of setting [00:19:30] up the 401k plan and managing it on an ongoing basis. And so if I can draw your attention for those that are looking at the graphic, next to investment consultant, you have a third-party administrator, a record keeper, and potentially an auditor.
[00:19:48] And and that makes kind of the core of your team. And the third party administrator is if I just give you a high level sense of what they do for each of these service providers, your TPA or your third-party administrator is really responsible for designing and maintaining your plan document.
[00:20:08]And then on an ongoing basis, performing compliance tests and [00:20:15] calculating contributions and preparing your tax filing. It's basically making sure the plan stays within the guard rails that are established by the department of labor and the IRS. Your record keeper is I think about them as basically the technology provider that helps run the plan.
[00:20:36] So they're providing the website too the employees so they can interact with their investment account. They can modify their contributions, they can select their investments. Typically the record keeper is going to provide you a suite of retirement planning tools. The auditor really only comes into play if you have [00:21:00] more than 120 participants in the plan. For folks that are eligible to participate in the plan. So once you reach that threshold, we do need to bring in a CPA typically that performs these types of audits. But it's going to be rare and kind of the startup scenario.
[00:21:16] Rick Thomas: [00:21:16] For those that, that do hit that threshold, is that an annual audit?
[00:21:22] Eric Burnside: [00:21:22] That is an annual audit. Yup. And there are folks again, if you want to dive deeply into that space and there are CPA firms that do it as a hobby, and then there are CPA firms that focus on it and specialize in it.
[00:21:36]Rick Thomas: [00:21:36] Who would you recommend somebody that specializes or as a hobby maker?
[00:21:43] Bonnie Treichel: [00:21:43] The DOL really [00:21:45] prefers you, not go with the hobby maker.
[00:21:47]Eric Burnside: [00:21:47] But you'll find that. I mean, just in, in reality, sometimes the easy button is if I'm the business owner and I'm having my CPA firm prepare my corporate tax return and I know that my CPA also does small plan 401k audits, oftentimes you will see that, that relationship expands to include that audit.
[00:22:08]But I think one of the interesting insights that we can offer is that if you're working with a specialist, an investment consultant that specializes in this space, one of the intangible values they can bring beyond just the responsibilities they have to you and the plan, is [00:22:30] that they are bringing a network of specialists. So when we're trying to create the best team possible, obviously I think they're in a great position to be able to make a recommendation or make a referral or introduction to people that are really doing good work in that space. So that's not to be discounted. I think that is one of the intangible things of working with folks that really have dedicated their careers to this space.
[00:22:56]Rick Thomas: [00:22:56] So who's leading this dance, is it really, is it me as the employer that the plan sponsors is... am I the one that, that really needs to, again, lead the dance or are there multiple dances? And it depends on who the partners are?
[00:23:12]Eric Burnside: [00:23:12] So I'll take a stab at that and then Bonie can add [00:23:15] some color. My sense is we always want to make it as easy as possible for the business owner. So in order to be easy to do business with, I think that's a, it's a critical requirement, And the way we can make it easy for them or how we kind of see that play out is the investment consultants going to take the lead.
[00:23:33]So really I think the business owner most often is just in the position of finding that investment consultant they want to work with. And if that investment consultant is good at what they do, they will quarterback the entire process from there. So the investment consultants, often the one that's going to make a recommendation or referral to a third party administrator.
[00:23:55] Saying, Hey, I think Independent Retirement does a great job in [00:24:00] this space would be a good fit. Let's set up an introduction and I'll coordinate, and then they're going to typically do the same thing with record keepers. And they will basically go through an RFP type of a process to collect information about various different record keepers, that could be a good fit and then present the recommendation to that business owner. And if an audit is required, they would do the same thing for the auditor. And so the plan sponsor is in an executive role to make decisions about who they want to work with, but the heavy lifting is often done by the investment consultant.
[00:24:41]Bonnie Treichel: [00:24:41] I would totally agree with Eric. My job as an [00:24:45] investment consultant, I think the name investment consultants is really a misnomer. While investment consulting is part of the role, I think 401k plans are complicated, but the investment piece, candidly, that's not that complicated.
[00:25:01]That's a pretty straightforward piece in a retirement plan. And we're talking about participant directed retirement plans where, as the investment consultant, I'm picking a lineup and then ultimately the employees actually get to select from that lineup. That's pretty straightforward. The more complicated piece is that really to be a really strong investment consultant, you have to be a really great project manager because you're really just coordinating a lot of service [00:25:30] providers.
[00:25:31] And if you do your job well, the plan sponsor or employer, they should just be getting reports back from you and making decisions and they can be as involved or as un-involved as they desire. And that's really, the goal is really, we want more people to have an opportunity to save for retirement and to do so in a compliant way.
[00:25:53] And so it's to make it easy for the employer to be able to do that and not feel like I'm afraid to do this because it's going to be too much work and not worth it, or too much risk and not worth it. But if I do my job well, then the employer is going to feel like, Oh wow I can just meet with her, make some decisions, and do so in a way [00:26:15] that's going to be really safe from a liability perspective and not take too much of my human capital or my people's time and energy.
[00:26:22] And that's where, you know, bringing the right, right. People like an Eric or the right record keeper to the table allows them to do so. So hopefully I lead the dance and leave the dance well.
[00:26:31] Rick Thomas: [00:26:31] Yeah. Yeah. Good. Thank you. Well, I'm going to come back to you cause I want to talk a little bit more about what that looks like, you know, once the plan is set up an ongoing, but Eric as maybe a way to talk about the different roles. So you talked about the the different roles outside the organization. What about within my business? So you've got payroll here and what if I use an outsource payroll service? Is that still all easily executed?
[00:26:56]Eric Burnside: [00:26:56] Yeah. So yeah, if we kind of jump on the other side of the [00:27:00] table, if you will, and think about this then as the business owner, what is their, you know who inside their firm is typically managing or overseeing the 401k plan? That, to answer that question, you really gotta think about the scale of the business.
[00:27:16] So small employers, you know, maybe they have less than 50 employees. It's going to be rare to find an executive suite within that organization where you might have an HR director a CFO, a controller and you know, then maybe a CEO or a president type role. So, so typically, maybe it's the business owner, and there might be some type of office [00:27:45] administrator or bookkeeper type role. Those folks are going to be, again, talking with small businesses, typically they'll fold that into their responsibility that, that kind of day to day with 401k plan . If you have large organizations, there's typically, we see the HR director taking a lead role in, in oversight of the plan or the CFO.
[00:28:10]And sometimes in collaboration with one another, if both roles are filled at the firm, but anyhow, yeah. and then working with the payroll provider. The payroll provider is the conduit for the contribution. So that's where they get involved. So it doesn't really matter whether the company [00:28:30] is calculating payroll internally and they have somebody dedicated to that, or they're working with an outside firm. Or they're using, you know, kind of it's the smallest and we see employers use, you know, Intuit's payroll service often. I mean that all of these solutions are viable and they're basically just the conduit for contributions in the same way you would think about, you know a health benefit, right? The deductions for that for those premiums are being facilitated through payroll with same idea with contributions to a 401k plan.
[00:29:02]Rick Thomas: [00:29:02] Actually, one more question before I jump over to Bonie here . From a timeline perspective, again, if I'm looking at setting this up. At what point in the year do I really want [00:29:15] to be questioning whether there's enough time left? I mean, is this is this doable within, let's say fourth quarter?
[00:29:22]Eric Burnside: [00:29:22] So the answer Is almost always yes, we can figure it out. But of course, I think you're asking what's an ideal timeframe. And I think ideally you want to consider or be considering this decision no later than july or August of the year. And I say that as I'm painting with the broadest stroke possible, and that there is a, for specific plan designs, there is a deadline in which a plan must be adopted to be [00:30:00] effective for that current year.
[00:30:01] So if I'm, you know, let's fast forward to 2021 and say, I'm considering starting a plan for 2021. If that plan is going to be, what's called like a Safe Harbor, and it's going to have a contribution formula that's based on a match. That plan really has to be adopted by October 1st and most service providers want a 30 day window. And so before the inception of that plan or before contributions really flow into that plan. And so then you're already back to September 1st and you can think about the different decisions that need to be made leading up to the actual execution of the [00:30:45] plan document.
[00:30:45] So that's why I say, I think, again, pending with the broadest stroke, I can say late summer is a good time to be thinking about whether you should do this or not
[00:30:58] Rick Thomas: [00:30:58] I'm hearing there may be options to make that decision later in the year, but I'm reducing my options in terms of what types of plans I might be able to get implemented and for how many employees.
[00:31:11] Eric Burnside: [00:31:11] So, absolutely that's the right way to think about it. And yeah, you're just going to, as you get further and further into the year, You're going to reduce your flexibility. For that given year now, prospectively, these plans are living, breathing documents. They can be amended and you should be working with a team [00:31:30] of experts that's really consulting around that. But for the given year, yes, the deeper you get into the years, the less flexibility you have. Yeah.
[00:31:38]Rick Thomas: [00:31:38] Bonie let's hear from you. So I've got this plan up and running and I've survived the startup phase. So I haven't gotten any regulators mad at me for making bad decisions. And I've got a good team obviously with you two and others. What are some of the ongoing considerations I need to be thinking about either from a regulation point of view, with ERISA or you know, as you mentioned, some of those tax implications?
[00:32:05]Bonnie Treichel: [00:32:05] Sure. So I think what you want to keep in mind is that two different categories you have to think about satisfying, and one is the tax code or the internal [00:32:15] revenue code. And so we've got the IRS monitoring your compliance there. And then the other side is ERISA provided that this is an ERISA covered plan and we have the DOL or underneath the DOL The EBSA.
[00:32:30] So we've got the DOL and we've got the IRS and we've got to always be satisfying, both sides of that. And in broad terms, I break it down into really three categories of things you have to do on an ongoing basis. If you are offering a retirement plan, and I'm just going to speak generally because 401ks are ERISA covered. So I'm not going to keep saying if you're in ERISA covered plan. So let's just assume this isn't an ERISA covered 401k plan. [00:33:00] You've got three general categories of responsibility. And the nice thing is you can delegate responsibility for a lot of this, to people like Eric's firm or my firm. And then once you've delegated that responsibility, you're only responsible for making sure you properly monitor the people that you delegate to. So one thing that you have to keep in mind is once you set up a plan, you're always responsible for it. So until the last dollar is out of that plan, you're always responsible. So you've got to keep that in mind.
[00:33:34] Rick Thomas: [00:33:34] So the ronco set it and forget it it doesn't work here.
[00:33:36]Bonnie Treichel: [00:33:36] No, it doesn't. It doesn't. So once you've put the first dollar in, until that last dollar is out, you're responsible for it. And so [00:33:45] that's the one thing that, you know, it's the trade-offs of having a plan versus not, you're always responsible and you're responsible as that business owner or those people who have discretion over the plan.
[00:33:56] So you can't just like out title it for example, and say, Oh, I just gave it to someone else and gave them a title of like, They're responsible for the plan, that doesn't work. But back to kind of what are the categories of responsibility? You know, the first is the investments. So you're responsible for that lineup of investment options.
[00:34:16] So for anyone, who's had a 401k plan before they're familiar with, when you log on to, you know, the website, you see that you can only select from a certain number of investment options. It's not the universe as though you would see in like [00:34:30] a brokerage account for your own IRA, right. In your retirement plan, you're used to saying maybe you only have 20 or 30 options.
[00:34:38] So as the employer, you're responsible for selecting those 20 or 30, unless you've hired someone like an investment consultant such as our firm. And then we would select that for you. So that's the first area of responsibility and that's an ongoing to your point. It's not a set it and forget it. So you selected initially, and then you monitor that over time.
[00:35:01] And that's something where, you know, there's investment reports and we monitor that and we report on, is this fund still doing well? Do we need to replace it and give employees a different option? That sort of thing. So [00:35:15] that's the first area. The second area of responsibility is I'll call it just administration and operations.
[00:35:22] And that's really just the nuts and bolts of, and really all the complication of the plan itself. And that's a lot of what Eric's office, does an excellent job of doing and coordinating with the record keeper. So that's everything from if the plan has loans, making sure the loans are administered properly, that's making sure the money actually comes out of the paycheck from the employee and actually gets deposited to the record-keeper and into the custodian and in the right amounts, and in a timely fashion because there's rules around how long that can take. So it's all of the day-to-day [00:36:00] tasks associated with the plan. That also includes things like the notices you have to, there's a lot of regulations around what notices have to go to employees about the plan and what they have to say.
[00:36:12] So that's the second, I'll just call it bucket of responsibility, the administration and operations. And again, a lot of that can be delegated to someone like your third party administrator. And that's where selecting a really good one or having an expert like Eric's firm can be really helpful. So I don't share all of that to scare someone from starting a plan, but it's just making sure you have the right experts helping to really administer the plan.
[00:36:42] And then that last area is, [00:36:45] you know, I think it's the easiest area. If you have the right team, but it's the monitoring of service providers, that's the last area of responsibility. And it's making sure that once you hire your service providers, so the record keeper, your auditor, if applicable, the investment consultant, the third-party administrator, you have to monitor them and you have to make sure that if the participants are paying for those service providers, which is something, and we can come back to that in a minute, if the participants are paying for them, that it's no more than a reasonable fee that's being paid. So it is okay to have the participants or employees rather pay for these service providers fees.
[00:37:29] But it can't be [00:37:30] too high of a fee and it's up to the employer to make sure it's not too much.
[00:37:35] The employer can't they can't go hire a golf buddy and then pay way too much in fees for their golf buddy to be the investment consultant or the third party administrator, and then pay them too much.
[00:37:48] That would be not okay under ERISA.
[00:37:50] Rick Thomas: [00:37:50] Yeah, definitely. Let's come back to that on on the cost side of it. I'm curious in terms of what's happening today with legislation around these plans. What do you see happening and how does this affect, like my decisions as the plan sponsor and employer.
[00:38:09]Bonnie Treichel: [00:38:09] Within the last, this year, there's been a lot of legislation and regulation around [00:38:15] these plans. So we had at the end of 2019, we had the secure act and I think two big goals of the secure act included, one trying to address the longevity issue, which is just people outliving their retirement savings given that we no longer have very many defined benefit plans and people they're saving, but maybe not enough. So there's provisions in that act that are trying to encourage ways to help people understand how much they need and how long they're gonna live. The other thing that Act did is it's trying to increase the coverage.
[00:38:57]In other words, we talked about [00:39:00] the the MEPS or the PEPS. So those groups of employers coming together and the goal there, and there are several other provisions that address this in the Act. But the idea is trying to give more people access to an employer sponsored plan. So there is a recognition that we need to find ways to help employers Be able to offer a plan.
[00:39:22]Another component of that was having an ability for tax credits for starting a plan. So for small employers defined as those which are a hundred employees or fewer, if you start a plan, then you have the opportunity for a tax credit for starting that plan. So there's a lot [00:39:45] packed into that legislation and, you know, I'm sure Eric can weigh in on that as well, and subsequent regulation that goes along with that, but really the goal is encouraging employers to start plans and to continue to have plans and to help employees understand how much money they need to save for retirement.
[00:40:04] Rick Thomas: [00:40:04] With regard to that legislation presuming that you and Eric are well versed and help your clients stay on top of what they can be taken advantage of, whatever's current.
[00:40:15] Bonnie Treichel: [00:40:15] Yeah, absolutely. I would say that's probably a big part of my job is just really understanding the rules and the regs as they come out. And I know Eric does a great job of that as well, and just keeping clients informed as to how [00:40:30] they can take advantage and how they can help employees when there's specific provisions, that impact employees, how they can apply that for their employee population. So a great example was with COVID. There were changes as it relates to like loans and distribution or withdrawal provisions for how people struggling, could access their retirement plan if they needed to.
[00:40:53] So it was helping to communicate from the employer to the employee, this is what's available, don't take advantage if you don't need it, cause you don't want to tap into your savings if you don't have to, but if you really need it, here's how you can access it. And how and why and the notices, et cetera.
[00:41:10]Rick Thomas: [00:41:10] Let's come back to that fee discussion because I've certainly noticed some [00:41:15] of the big headlines that have shown up over the last year or so about excessive 401k fees and whatnot. How does a typical participant even begin to assess that? I mean how did they, you know, wade through the opinions and overwhelming probably data to say, what is a reasonable fee?
[00:41:37] Bonnie Treichel: [00:41:37] Well, Eric, I mean, don't, we just tell them to look at their 404a5 fee disclosurs, which is just...
[00:41:45] Rick Thomas: [00:41:45] yeah, I got it in my hip pocket. Let me grab it.
[00:41:48] Bonnie Treichel: [00:41:48] It's only like 30 pages of plain english.
[00:41:53] Rick Thomas: [00:41:53] Written by a lawyer, probably too.
[00:41:55]Bonnie Treichel: [00:41:55] I, I don't know, Eric, do you want to take that? You want me to?
[00:41:58]Eric Burnside: [00:41:58] Well, I'll take a stab [00:42:00] at it in that. It is obviously a difficult analysis. But I would say that, again, this is where an investment consultant is going to be very helpful to the employer because they're the ones that I think do that heavy lifting for that business owner.
[00:42:19] And typically one way in a consultant will demonstrate value is preparing an analysis that compares different options available in the market and running through basically a benchmark. And the benchmark is and there's different softwares that a consultant might use, or they might just have a proprietary process, but the benchmark is going [00:42:45] to identify what the participant is paying.
[00:42:48]And what they could be paying if they were to work with other service providers. And basically that I think is the most common way to substantiate this idea is of are the fees reasonable because it's like, the IRS, defining whether or not an owner's compensation is reasonable.
[00:43:09] There's a ton of gray space, but the reasonableness test often just comes to, well, what's acceptable in the marketplace today. And so that I think is the process that business owner could expect to go through, and that would be the documentation that they would want to have on file, to [00:43:30] support whatever selection or decision they made around the service providers they were working with.
[00:43:35]So I think that's kind of the practical view on that. There's definitely been a lot of legislation. So the last five years focused specifically on the investment options being too expensive. And I think as a result of that particular litigation and in the result or the outcomes of those lawsuits, we've seen really the 401k space, I think move forward in some ways around transparency and also reducing the expense on investment options.
[00:44:07] Bonnie Treichel: [00:44:07] The only just tidbit I would offer too on the litigation front is that I think it's interesting that ince COVID [00:44:15] started, the litigation around fees has actually picked up, which I just find to be peculiar, given that from, if you look at like the number of courts, so these are federal courts . Courts have actually been closed, like deppos, haven't been happening in the traditional sense.
[00:44:32] So I would have anticipated that there would be a decline in litigation, but actually the number of cases filed since COVID, litigation has actually picked up in the like ERISA fee space. So just random side note, but I think it's not slowing down. These are totally just copycat cases. It's not, it's really just once the data becomes available more law [00:45:00] firms or plaintiff's firms rather are now filing these cases.
[00:45:02] So it's just a curious thing. It doesn't get down. You have to look at the math behind the lawsuit to see how far down market it will go, because you have to keep in mind, these are plaintiff's firms that are taking these cases on contingency most of the time, So it's not going to get too far down market, but it is interesting to see how many cases are filed and how far down market it won't go because it's moved from in the mid two thousands, these were jumbo cases, to they are coming down to the, you know, 200 million and below where they weren't at one time. So, interesting side note, if you're up for learning about litigation.
[00:45:44] Rick Thomas: [00:45:44] Good deal. [00:45:45] Good deal. Well, hey , thank you to both of you for this discussion today, it's been a pretty informative hour.
[00:45:51]I could think of a lot more questions to ask and maybe we'll save that for the comment section, but maybe as a way to close if you know, any of the listeners do want to reach out and begin this conversation how best to reach either of you, Bonie, let's start with you. How best for somebody to reach out to you and your firm and start that conversation?
[00:46:13] Bonnie Treichel: [00:46:13] Sure. Well, thanks again to Eric for, you know, introducing me to you, Rick. And, Rick, thanks so much for having me today. This has been a great conversation . to continue the discussion I can be reached at just my email's probably easiest. And that's [00:46:30] Bonie. Bonie@teamzuna.com and that's zuna.com. So That's probably the easiest way to get in touch and I look forward to starting a conversation and increasing savings.
[00:46:44] Rick Thomas: [00:46:44] Perfect. Thank you. And likewise, Eric, how about with your firm? What's the best way for somebody to reach out and connect?
[00:46:51] Eric Burnside: [00:46:51] Yeah. And thanks. Thanks Rick for hosting and inviting me to join.
[00:46:54] It's a pleasure to talk about this stuff. I, it can be unwieldy, but I think that's why we're here to make it simple. Make it easy. And just kind of help business owners navigate this important decision. So yeah, if anybody wants to get ahold of me with questions, I'll echo Bonie and say that email is probably the best way to do that.
[00:47:12]Email address for me is Eric [00:47:15] eric@independentretirement.com. And yeah, I look forward to helping anybody out that needs it. And thank you all so much. Yeah. Perfect. All
[00:47:26] Rick Thomas: [00:47:26] right. Thank you.
