Webinar: 401(k) Straight Talk for Employers

Jeff Plakans | Founder & President, CommPayHR

Jeff Plakans founded CommPayHR in 2006, for a better, holistic solution for SMB payroll and HR. He is passionate about improving employment practices and compliance to create the best business environment.

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Alex Krisak CPFA® CEPA® | Financial Advisor, Baystate Financial

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Seth Larner | CEO, Compass

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Rob McDermott | Regional Relationship Manager, 401Go

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Rick Nahill | Sales Consultant, DWC

Jeff Plakans:
Good afternoon. Thanks for joining us today during your lunch hour or, if you’re on the west of us, in the morning.

We’re going to be talking today about 401(k) Straight Talk for Employers. Why do I think this is important? Obviously, there’s a lot of discussion out there right now on 401(k), a lot of different terminology, some vocabulary. It’s clear to all the guys here joining us today, but not so clear to many of you as employers. And so we felt that at Commonwealth, for our clients, for folks that are thinking about doing business with us, it would make sense to separate the fact and the fiction and to talk about the things that are important to consider, no matter whether you have a 401(k), whether you’re thinking about having a 401(k), or whether you’ve had a 401(k) and it wasn’t a great experience, what’s changed and how to focus on the things that have changed.

Now, a little housekeeping before we get into all of our panelists today, that is we are going to be recording this session. So if you’re registered for the session, you will be getting a copy of that recording. You’ll also be getting a copy of our slides. We’re going to have a section at the very end on questions and answers, and I’m sure there’s going to be lots of questions. So in those questions, you have a question box, which is in the top right-hand corner of your screens. Go ahead and submit questions to us that way. When we get to the questions section, we’ll be answering those questions.

From that, let’s talk a little bit about introductions. We’re joined by a wide variety of 401(k) experts. I’m going to have all of them introduce themselves.

Guys, when you introduce yourself, if you could tell the folks that are on the call, not only what you are, who you are and what you do, but how you got into the 401(k) business in the first place.

Rob, let’s start with you.

Rob McDermott:
Sure, absolutely. My name is Rob McDermott. I’m with a company called 401(k)GO. We are a FinTech 401(k) company. We work with clients of all shapes and sizes, and I predominantly work with partners like Jeff to provide a vehicle for clients to offer their employees a 401(k) plan.

How I got into the business, actually the business actually found me. About five years ago, I was in payroll working for a regional company. I always had an issue with when 401(k) came up, how do I get that to move forward and get my payroll to move forward. A competitor of mine came to me and said, “Hey, this is what we do,” and I was like, “Oh, that sounds great. I wish I would’ve had you guys when I was in my payroll career.”

So yeah, about five years ago, it knocked on my door, and it’s been 401(k) ever since.

Jeff Plakans:
Awesome. Thanks, Rob. Appreciate it.

Rob McDermott:
Welcome.

Jeff Plakans:
Seth, how about you?

Seth Larner:
Sure. Hi, everyone. I’m Seth Larner. I’m the CEO of Compass Retirement Consulting Group. We are a third-party administration firm that kind of specializes in 3(16) fiduciary pep work, basically fiduciary compliance work. That’s what we specialize in. We’re located in Stratham, New Hampshire, just a little south of Portsmouth, so we’re there. Our employees are throughout the country though, but that’s where we’re headquartered.

How I got into the space, I actually kind of got in right out of college, so been in it for quite a bit of time now, and worked for a record keeper. So kind of have a different perspective of the industry because I started with a record keeping firm, John Hancock, back in the day. And then got into the compliance and consulting side of the industry later on.

Jeff Plakans:
Awesome. Thank you. Thank you.

Alex, how about you?

Alex Krisak:
Yeah, thanks for having me.

So I’m a financial advisor. I’ve been at Baystate Financial for just over 13 years, and I really got into the 401(k) business because some of my clients needed 401(k). We had a great specialist at the firm who had left and there’s some turnover there, and so that was kind of a lesson for me to know how to do it and then realized that I really loved it. We specialize, we have a very open architecture work with a lot of different record keepers, try to find the right fit, whether it’s 401(k) or SIMPLE or another strategy. So that’s how I got started.

Jeff Plakans:
Awesome. Thank you very much.

Rick Nahill.

Rick, we can’t hear you.

Rick Nahill:
Thanks everyone for joining. My name’s Rick Nahill. I am with DWC. We’re a national third-party administrator with local offices throughout the country, and I’m a sales consultant up in New England and the Northeast. We do administration for 401(k)s, cash balance plans, some of what we’re going to be talking about today.

And I got into the business because I blame my sons. My wife and I had triplets, and I suddenly had to leave a family business where I wasn’t making as much money, and I got into the advisory business, and they did 401(k) plans and private wealth. And then I subsequently joined John Hancock, that’s how I know Seth, and was with a record keeper. And now I’m in the administration side. Been doing it for 23 years, and I’m very happy that I’m here.

Thank you for asking, Jeff.

Jeff Plakans:
Well, thanks, Rick.

So we’re joined by a lot of years of expertise here in the 401(k) business. And in case you’re listening, you’re hearing lots of words, you might not know what they mean. Trust me when I say, by the end of this session, you’re going to know not only what they mean, but why it’s relevant to you, and why this whole session is relevant is, again, because there’s a lot of words, there’s a lot of jargon, there’s a lot of terminology which can really turn people off from recognizing the true benefits and true values of having a 401(k) plan in your business. What we hope to do today, what our goal for all of you, is that you get off the call significantly more confident about understanding 401(k), why you should have one, and what questions to be asking while you’re doing that.

Our agenda today is very simple. This is educational. It is not a pitch. You rarely get a how-to and a construction of on retirement plans like you’re going to get today. So if you’re a business owner who has a plan that’s causing you agita or you’re considering a plan or it’s just too much to think about, this is the session for you because I’m not going to say we’re going to simplify it, but we’re going to give you greater clarity and we’re going to cover things like state mandates and where they stand. We’re going to cover why you should be offering a 401(k), who’s involved in the 401(k) process and how they get paid. We’re going to talk about SECURE 2.0. You might have heard a little bit about that and said, “I don’t know what that is. Is that relevant for me?” And then of course you’re going to learn a lot about fiduciary risk, plan design, and some other things that come into play on putting a plan together and obviously then maintaining that plan.

Let’s get started.

We promised to talk a little bit about state mandates first. So Rob, one of the things driving new plan adoption that we’re seeing out there in the marketplace is obviously state mandates. What exactly does that mean?

Rob McDermott:
Well, it basically means the states, as you can see, some of them have and some of them are in a proposal stage or going through the legislature, have signed into law that businesses of certain size, been in business for a certain amount of time, are mandated to offer their employees a retirement plan or a retirement vehicle. And that can be in a couple of different shapes and sizes or different versions of that, but it has driven the adoption and implementation of 401(k) plans because there are certain flexibilities and things that they bring to the table.

As you can see by the map, 40 states are in play of having something in the books at some point. 15 of them are already baked, and deadlines have passed, and things of that nature. If you’re in the Northeast, you’re like me, you can see that we’re surrounded. I’m in Connecticut, and there’s mandates throughout New York up through Maine. The tricky thing is or maybe the interesting thing is the enforcement of this is kind of lagged. Deadlines have passed. There’s not really like the Gestapo out there finding out if you have a plan or not. In Connecticut where I am, have they made an example of anybody yet? No, I haven’t heard it really in the news, but at some point down the line there’s going to be some enforcement of this. But I think they are giving employers the opportunity to adopt and take a little bit of time to adopt because it is, for lack of a better word, forced upon them to offer this to their employees.

States are different flavors, right? So some states are 5 employees, some states are 10, where I am in Connecticut, anybody with five employees or more. Part-time employees are not excluded from that. So the threshold there is anybody that makes over $500 a year in W-2 wages, which if you make 100 bucks a week, yes, you need to be offered a retirement plan.

And then there’s some nuance to that too. So for instance, if I’m in Connecticut or Massachusetts or what have you, and I have nine employees, and one of my employees resides in California, you are mandated by California to offer that employee a retirement plan. So that does bring some nuance to it as well where it could again get a little tricky as far as what you have to do and what state you have to abide by, and just not only your home state, but other states can mandate that as well.

Jeff Plakans:
So question for the group, speculation. Why is this happening state over state over state? What’s the driving force behind this?

Anybody?

Seth Larner:
Yeah. I’ll jump and jump here. The main driving force is really when it gets down to retirement savings. And when you really look at it, with a lot of the SECURE 2.0 regulations that came out with new plans having to have auto-enrollment and some other features, it’s really addressing the issue where the US is drastically underfunded for retirement compared to every other country in the world. A lot of other countries have different types of retirement type plans to help make sure that people hit the right retirement goals, and the US has taken a different approach with that than what other countries have done. The US is really trying to focus on making sure people have enough money for retirement because social security is not going to cover it.

Jeff Plakans:
Got it. Yep. Okay, excellent. Thank you, Seth. Appreciate that.

Rob, thank you very much.

We have small and medium-sized business owners, and they say to us all the time, “Other than helping myself put money away, why should I have a 401(k)?” Now, we talked a little bit about the state mandates and we sort of covered the fact that retirement wasn’t happening at the level that we wanted to. But Rob, tell me a little bit… There’s more to it than that, right?

Rob McDermott:
Mm-hmm.

Jeff Plakans:
Tell me what we need to be thinking about here when we’re thinking about offering a 401(k).

Rob McDermott:
Yeah, absolutely. I think the first point is 401(k)s have become more streamlined and easier to access, more cost-effective for small businesses where the pension plans of the past and 401(k) used to be a big business benefit. That has truly trickled down to the small business. Part of that ties into attraction and retention.

A couple years ago, I had a landscaping company. They do landscaping and they do pools and all sorts of stuff. He said, “Hey, I need to put this in place because I can’t hire anyone.” Everybody that comes to me says, “Do you have benefits? The pay’s equal or close, but do you have a 401(k)? Do you have somewhere else I can get a benefit through?” I think that attraction piece, especially when you’re

matching and you’re offering profit sharing, things of that nature, brings that to the table to bring in good people. But then at the other side of the spectrum, it’s retaining those good workers with the profit sharings and providing them a match on what they’re putting in, right?

Jeff Plakans:
Mm-hmm.

Rob McDermott:
And there’s certain things you can do with that to keep them along, like vesting, so they can’t have access to that match until they’re there with you for two years or so on. There is an employee aspect to this where we want to keep good people and we want to bring in good people as well. And I think, obviously, we just talked about mandates, that’s put a little pressure on or provided some different expectation of employers, and requiring them to do so has let them look for different options. Maybe they don’t want to deal with the state, because when you deal with the state, you’re dealing with the state, right?

Jeff Plakans:
Right.

Rob McDermott:
So you want to deal with professionals that are going to help you manage that, administer it, and come out better in the end than just going with a, “I’ll just take it because I have to.”

Jeff Plakans:
Got it. Excellent. Thank you.

Okay. So Seth, there’s lots of different titles, roles, if you will, around a 401(k) plan, and you’re a TPA. While there’s a lot of folks we know that are familiar with these, I think for most clients that we talk to, most of our small and medium-sized businesses, they often use these terms interchangeably when the roles are very different. Can you educate us a little bit on the different roles around 401(k) plan administration?

Seth Larner:
Yeah, of course.

First start with the two roles that are mandatory, you need, and then we’ll go over to the discretionary roles from there on out. So plan sponsor, plan administer, you have to have that because you need a plan sponsor to sponsor retirement plan, every plan document. If you own your own company, that company is going to have to sponsor the plan. So you always need a company with an EIN to start the plan. Plan administrator, next to it too, versus plan sponsor/administrator, typically quite often, in legal plan documents, the plan administrator is defaulted to the plan sponsor. That is the typical situation you see in general. So you need a plan sponsor in theory to sponsor a plan.

The second one that you definitively need to is a recordkeeper. A recordkeeper is, I like to say, the client-facing software. Someone can log in, see their account balance, there it is. For 401(k) plans, 403(b) plans, you need a recordkeeper, so you need someone to do this work. That’s something that you definitively need.

The two ancillary parts that you see in most plans, but it’s not required, the services are required, depending on how you want to handle it. First is TPA, that’s what we do, so some clients will hire us to do the work. So we do all compliance testing, consulting, plan design, and reporting to the government. Basically, best way to describe this is we’re a CPA for retirement plans. That’s what we specialize in.

Now, sometimes recordkeepers can take that service too. So it’s do you have what we call bundled or unbundled depending on… If you want to have an outside TPA or not. Then when you get to plan advisor, plan advisors, depending on the role, it can vary in nature, but typically they’re selecting the investments, the funds, doing participant education, and handling participant advice on how to invest the funds. Again, you want to talk to each advisor about the service they perform, but again, typically most plans have this, but at the same point, some clients do just say, “We want a Robo 338.” It’s an optional service, but most times you see it on plans.

Jeff Plakans:
Awesome.

Seth Larner:
The two you definitely need is the plan sponsor to sponsor and then the recordkeeper.

Jeff Plakans:
Thank you. Appreciate that. Thanks for clearing that up because I know that that is a messy question that we get a lot of times.

So Rick, I know there’s some pretty serious responsibilities with each of these roles under the IRS and under ERISA for the retirement plan. Can you tell us a little more about those responsibilities and specifically what it’s all about?

Rick Nahill:
Sure. Thanks, Jeff.

To start off, the plan sponsor is that quadrant off to the side where you’re sponsoring the plan, and with that comes some fiduciary responsibilities. There’s duties and there’s responsibilities. So the core duties for the 401(k) is that the plan sponsor acts solely in the interest of the plan participants and their beneficiaries. You have the duty of prudence, meaning you need to make decisions with the care, skill, prudence, and diligence that a knowledgeable person would use in these situations. You need to follow the plan document. Third-party administrators, we have the plan document, that’s the rules of the road. What we do as third-party administrators is, in addition to the rules, we have and design the plan that fits specifically for your business. 401(k) s are probably the most flexible of all the retirement plans, but you need to follow that document. In the document are the definition of salary, will you have loans, whether you not have loans, things of that nature.

Another duty you have is to diversify investments. The fact that you have 20 investments on a platform does not mean it’s diversified. So you have to build and offer a diversified menu of investment options and paying reasonable expenses. The Department of Labor IRS requires that it be reasonable expenses, doesn’t have to be the least expensive, and that’s really to ensure that the administrative costs, recordkeeping fees, and investment expenses are reasonable and competitive. So those in a sense are your duties, but then you have also key operational responsibilities.

As a service provider, you have to provide oversight, prudently select the recordkeeper, the third-party administrator, the finance advisor. You should be reviewing these every year. Operate the plan

according to the plan document we mentioned and investment oversight of selecting those funds. Now, because of that fiduciary responsibility, if you look up on the slide, putting this into perspective of a business, fiduciary responsibility is that 401(k). Basically, you’re the CEO of the plan. You’re picking the advisor, you’re selecting the investments, you’re selecting the recordkeeper, third-party administrator. When it comes to investments, those are going to be part of the recordkeeper’s menu that you would have. So you’re the overall CEO.

So for administrative, like the COO, these are the day-to-day tasks that you have to do, whether it’s loans, whether it is making sure payroll’s done on time and money is sent and invested on time. And then there’s the CFO, the chief financial officer. They’re the ones who usually… that responsibility is to pick the specific funds for the platform. The codes you see are sections of ERISA or IRC codes. The CEO is that 401(a), you’re the overall arching fiduciary. 3(16), that’s the section for administration. And then 3(21) and 3(38) are two different levels of investments. And this is going to be your ability to push off some of that responsibility, which we’ll talk about a little bit later.

And then there’s the easy button. So the easy button is some of these plans that have been developed over the last few years, group plans. You probably have heard of PEPs and MEPs and MEAPs and group plans. These are plans that package all of these responsibilities, some of them at different levels, but to take that responsibility off of your plate. So that’s what those codes are, and that’s what the easy button stands for.

Jeff Plakans:
So that’s a lot of responsibility, and thanks for sharing all that, because I know that that’s a place where a lot of folks, a lot of clients we talk to, a lot of prospects we talk to, they just don’t understand what the roles are required and what their own responsibilities are. Many of them we’ve talked to are very surprised to recognize that they have an amount of implied liability under these responsibilities for a plan that they might offer, or in some cases not.

When we talk about handing off the risk, Rick, so does it mean that all business owners need to take on the risk, or they don’t have to necessarily?

Rick Nahill:
They don’t have to necessarily. The fiduciary responsibilities is always the potential for liability, and fiduciaries of a 401(k) who don’t follow the basic standards, you are personally liable. So there’s no corporate protection from LLCs or C Corps, S Corps. You are personally liable, and that was intentionally done that way. You carry more than you think, as Jeff said, because this has usually not been explained to you. Usually, you just go in, someone will say, “Oh, sign here,” you sign here, and off you think you go.

But here are some of the ways that fiduciaries can limit the liability in certain situations. And I have to say the first and most basic way of demonstrating that you are running the plan appropriately is to document your process. Why did you pick the recordkeeper? How did you pick the third-party administrator? Why are you picking that financial advisor? What are their fees, and what services are they going to provide? That’s probably the most basic and what we find the most often not done.

But that’s beside the point. We’ll talk about the fiduciary responsibilities that the IRS and DOL allows you to do. Under that sort of CFO, the investment, you can select the selection and monitoring of the investments. Remember, the fiduciary responsibility, it’s not about picking winners, it’s about the investment process. How did you pick the funds, and how do you monitor them? You should have an investment policy statement which basically describes how you pick them, how a fund was selected, and how a fund may be changed.

You can choose between two different levels. The first level is a 3(21) where the advisor recommends the funds and, as a business owner, you sign off and you approve them. So now you’re a co-fiduciary or you can be what’s called a 3(38), which is an investment manager. 3(21)’s an investment advisor. 3(38) is an investment manager where they have full discretion. They pick the funds for you, there’s still an investment policy statement, and they make the changes for you. With the 3(21), oftentimes you have to make the final approval. The advisor may say, “We recommend this be changed to this,” and that’s what you do. So that’s covering the CFO.

The COO, that’s the 3(16). This is where you create notices for the employees, administer loans if you have them, sign and file the 5,500 annual plan reviews, QDROs. There’s a lot more work. The COO does a lot of work in these plans, and that would be a 3(16) where you’d push that off to… Usually, the third-party administrator would do all of those.

Then there’s, how does the CEO get rid of their fiduciary responsibility, that overall arching? What we talked about earlier, those group plans, the PEPs, MEPs, oftentimes they have and take on that fiduciary 402(a) responsibility, and that is going to be the group that they’ll now do the monitoring of the different parties in the plan. But I have to tell you that you cannot completely eliminate your core duty of prudently selecting and monitoring the third-party administrators. Just because you push these off to a PEP or any of these other levels of fiduciary responsibility, you still own that, you should be reviewing them and making sure that they’re doing their job.

Jeff Plakans:
And that falls into the category… what I always talk about is having your business owner’s card and making sure you’re doing your responsibilities as a business owner. Thank you for that, Rick. I appreciate it.

Rob, one size doesn’t fit all. Plans come in different shapes and sizes. We’ve clearly talked a little bit about that already. Can you tell us a little bit about the differences in plan constructions and what can go right and wrong?

Rob McDermott:
Yeah, absolutely.

Like the easy button, right? It doesn’t always mean that it’s the right way to go. It doesn’t always mean it’s the smartest way to go. We talked about mandates before. Sometimes that’s the quickest way to resolve the issue is go with the easy way, but it doesn’t mean it’s the best fit for the owner or the participants moving forward. And that convenience potentially could have costs that you don’t realize, right? You could go with the easy button and dig deeper later and find out that your cost on the back end for assets and funds and all that is higher than you expected. So there’s definitely some pitfalls to just a convenient way to go.

I think that the growth of your company changes too. So you started with 5, 10 employees, now you’ve grown significantly to 100, 120, or what have you, and there’s different things that you need to be cognizant of scope of the business. We’re here, you have payroll, it is an anchor to 401(k). You do want to, if you can, at the very least, have integration with your 401(k) plan. From an administrator’s perspective, they hit the payroll button, and everything flows from payroll over to 401(k), information flows back. So a participant changes from 5 to 7% of what they want to put away. We don’t want to miss that. Within payroll, there is a functionality that the integration is important to the process.

And then service-wise, this is potentially a heavy lift for the plan sponsor or the administrator. We want to make sure that the recordkeepers and sponsors and the advisors, everybody’s in communication with

one another to make sure, like Rick said with the documents and all these responsibilities, that nobody’s dropping the ball, if you will, so making sure everybody’s aligned on the service side.

Jeff Plakans:
I know that we hear quite a bit, when we’re taking companies on that are coming from the big national companies, they talk a lot about the service gaps. And one of the bigger things we hear about is the seemingly lack of integration. So the need to integrate, which is something that we’re doing a lot of, is driving a lot of business to us that actually has less to do with what we’re doing and more to do with what their needs are surrounding their 401(k) plan. So it’s kind of interesting how that works and how we’ve seen that on our side. Thanks, Rob.

Now, Alex, SECURE 2.0 has been synonymous with 401(k), it feels like, for the last few years. What is it? Why should our audience care about it? And what do they need to know?

Alex Krisak:
Yeah, great question. SECURE 2.0 is really the step 2 in the SECURE Act, and it’s really… I think the theme of it was helping small business owners to offer retirement plans, giving them tax credits, increasing tax credits. If you have 20 employees, you could get 5,000 in tax credits to offset maybe the entire cost of your plan, the base cost, as long as you can outlay that over the course of the year. Auto-escalation and auto-enrollment are now going to be commonplace, law of the land, so that if you start a 401(k), you need to auto-enroll people that, are eligible, didn’t get a chance to enroll. And then as they roll into January, if they don’t really touch things, the set it and forget it folks that never really…

I have plenty of people as a 401(k) advisor that didn’t make it to enrollment and got auto-enrolled, and they’re going to get auto-escalated, so they’re going to increase their retirement savings each year, which I think is a good thing. If people aren’t paying attention to it, they have a nest egg that’s building and it’s going to increase as they get older. So I think that’s one of the big things that SECURE 2.0 did.

It really was the impetus for the evolution of MEPS into what we now see as the evolution of MEPS is PEPs, the Pooled Employer Plan. You see that came out and lots of recordkeepers came out with programs that have that easy button that Rick was talking about.

Jeff Plakans:
Excellent. Well, so you said PEP, and you just defined it for everybody. Thank you for that because I’m sure there were folks watching that are like, “I forget what that means.” What is a PEP? What can go right? Where are the things we have to be thinking closely about around PEPs? Tell us a little bit about that if you can.

Alex Krisak:
Yeah. A PEP or Pooled Employer Plan, I like to think of it as it’s like a cruise ship that’s coming to dock. You don’t have your own boat. It’s a cruise ship. Everybody that… cruise ship, they’re going to have their own cabin. PEPs are a lot like cruise ships, and that they’re going to buy everything in bulk, and their investment fund lineup might be higher negotiated and lower costs. That doesn’t necessarily mean that the cruise ship itself is going to be less expensive than if you went out and got your own boat.

Now, when you get in there, a lot of PEPs are going to let you customize certain things in your cabin. If you want a certain type of eligibility or a certain type of match for your plan that isn’t like everybody else, a lot of PEPs will let you do that. But often you won’t be able to go up into the captain’s chambers and say, “Hey, I want to change the investment lineup.” There’s certain things that you probably won’t

be able to do, and that’s why it becomes more of an easy button because everything’s kind of there for you. You just have to make a few specifications.

It also brings a lot of businesses in a safe way, aggregated. So you have this economies of scale where, if you’re dealing with a large PEP, that PEP is going to be go out into the marketplace and get things maybe at a lower cost. There are a few things that can go wrong. So most PEPs, and Jeff, you mentioned some of the big box payroll companies out there, they have their own PEPs. You’ll have a two-step process to get out of a PEP often. If you say, “I want to transfer or terminate out of a PEP,” you’re probably going to have to spin out of that Pooled Employer Plan because you can’t terminate the cruise ship. Everybody else is going to sink with you, so you can’t terminate the cruise ship often. So you need that two-step process to go into a traditional 401(k) and then move into a transfer or termination.

It also is going to be, I would say that in general, larger Pooled Employer Plans. If you’re a small, small business, you’re now going to be subject to the watchdogs of a large organization and typically an audited Pooled Employer Plan that’s going to be really keeping close eyes on what you’re doing. You’re going to get a lot of notices, you’re going to have to comply with things. It’s a different thing. And for some businesses, that’s not always easy.

I’d say the last thing too is my family’s in the food business. For the folks that don’t want to be in an investment committee and they don’t have a lot of HR folks and office managers and a CFO, I think PEPs are a lot easier because they’ll build that into the infrastructure of the cruise ship for you. So you’re kind of walking on the ship and saying, “Okay, what do I have to do? I hope it’s not too much.”

Jeff Plakans:
Thank you. Appreciate that.

All right. Seth, when we’re designing a plan that’s going to be fit well to an employer, what should the employer be considering specific to their plan design?

Seth Larner:
Yeah. I mean, obviously you want to design a plan that fits the needs of the company and the goals and objectives of the company. So when you want to look at it, you always want to look at, what is the company budget for this? Because if you’re going to give a company match out, it’s going to increase company costs. I mean, it’s a fact. And typically you’re seeing three to 4% matchings on plans. Depending on your size of population, that’s going to affect it. And then the second thing is auto-enrollment. So if you are a new plan, you have to have it, mandatory. If you’re existing plans, you add it. But if you add it, 90% of people stay in the plans with auto-enrollment. It’s a fact. It’s a proven statistic. So that, again, affects the match. And then is the benefit trying to benefit the company executives, or it’s to benefit the rank and file?

So when you go through all this, you always want to make sure you’re very cognizant of all of this and take your time designing this and figure out what’s the best way for it. Sometimes you need Safe Harbor to help pass testing. Sometimes you can’t afford Safe Harbor. So then you’re going to have auto-enrollment to help pass testing because there is compliance testing associated with retirement plans. And then making sure you hit your budget, and if you have high turnover, maybe you want to have a longer eligibility than normal. As I always say, people say, “Well, what is industry average? What do most people do?” I’m like, “Well, let’s talk about your business. Because if you have high turnover, we don’t want a short eligibility window to get people in the plan in two seconds and then they’re terminated a month or two later and then we’re working and trying to force them out of the plan.” So there’s things like that you want to b

And then the biggest thing and the key thing is the payroll integration. I’ll be honest with you, you typically see that as the biggest thing. So if you can have the two systems talk, it’s great that common payroll can do that, then that makes life a lot easier when it gets down to it all. That’s usually a pretty big thing I push quite often is integrating payrolls.

Jeff Plakans:
Great. Thank you. Appreciate that.

Okay. So Alex, how do all the folks around your plan get compensated? It’s always curious that I have clients ask me like, “How do you pay for all this?” This seems like it’s all free and nothing’s free. So how does this work for each of the roles that we talked about earlier?

Alex Krisak:
Yeah. Well, first of all, everybody needs to be paid if they’re hired, they’re part of your plan. I see a wide range of what different recordkeepers and TPAs will charge and some will have higher asset-based fees. An asset-based fee is percentage coming out of assets. You see BIPs, 10 BIPs would be 10% of 1%, 100 BIPs would be 1%. So you’ll see some charges are going to be higher asset-based charges, some are going to be lower. And if you just started your plan, having high asset-based charges doesn’t matter… grows. It becomes more of a factor. You’ll see a lot of recordkeepers that have more fixed costs and less asset-based fees. And then primarily advisors are going to charge an asset-based fee, sometimes a flat fee, especially when there’s a plan that’s upmarket that’s larger. A lot of that is flat fee business for financial advisors, whether they’re signing as a 3(21) or a 3(28) as a fiduciary on your plan and giving education. So you’ll see fees will range.

And there’s a lot of people that are thinking about changing a plan. I would always say, “Look at the cost, but also factor in what that cost is in five years if your plan grows.” So if you’re just looking at today’s cost, you’ll realize that some of these combination of recordkeeper TPAs, whether it’s bundled or unbundled, the advisor, everything… into your proposal that you’re looking at it in this year and also look at it five years out. Because sometimes the construct that you’re looking at today is going to be less expensive down the road, especially if you’re a growing business.

Jeff Plakans:
Awesome. Thank you. All right. Well, appreciate that.

Okay. So we’re now onto the questions section. We’ve definitely been thorough, or we’ve confused people, because there’s very few questions in here. But there’s one very good question in here that I think is worth a discussion, and that is when, hold on, oftentimes, when I’ve sent my 401(k) withholdings in, I’ve done so a little late and that’s cost me a lot. Why?

Anybody want to take a shot at that one?

Seth Larner:
So I can maybe chime on this one a little bit, and then everyone else. The one thing to be aware of is the IRS has timing issues with deposits. So it’s what you call, if you hold onto the money as a business, and don’t deposit timely, it’s considered a prohibitive transaction by the IRS, considered-

Jeff Plakans:
They didn’t-

I’m sorry. Can you say that again, Seth?

Seth Larner:
A prohibitive transaction.

Jeff Plakans:
Prohibitive transaction, got you.

Seth Larner:
So what they say is if you’re a large plan, if you’re audited, have over 100 employees, you have three. The general rule of thumb is that ruling states as soon as administratively feasible, which auditors typically say within three business days from check date. If you are a small business, less than that, then they typically say they want to end within five business days of check date. So you get a little bit more grace period for smaller businesses. But if you do deposit late, then you have to provide missed earnings and all of that on that money.

Jeff Plakans:
What does missed earnings mean for those out there in Commonwealth land?

Seth Larner:
That’s a great question. And I’m going to tell you, we all answer all a couple of different things. The IRS says you have to use a reasonable rate of return. Depending on that, what is classified as reasonable? Now, you have to use what’s in the plan. So A, some will say you have to use the highest performing rate of return to be safe. So you look at your investment performance of the plan and use that. Some will say, well, if you use a target date fund or something, then that’s reasonable, so that could work. Others sometimes will say there’s also a DOL calculator. You could use that as well too. But if you use the DOL calculator, you have to follow a voluntary correction program. So there is… I mean, depending on your situation and [inaudible 00:44:18] your plan may depend on that answer.

Jeff Plakans:
All right. Thank you.

Anybody want to add anything else?

Rick Nahill:
The only thing I’d add is the main reason that there are these fees is to make sure that you as the business owner or the one in control of that, the COO, is sending the money in on time. It’s not uncommon in certain industries for this to be a common occurrence or to use potential contributions or deferrals to pay some bills, and they make up for it at the end. It’s a really bad no-no for the IRS. It’s something you have to declare on your 5500, and then that flags you for a while. This is where integration comes in. This is where a group plan might come in. If that administration is something that’s costing you money, it’s not just costing you money, it’s also costing you a target, if you would, someone that’s going to keep looking out after you. That’s when you might want to consider one of the other plans that would take that off your hands.

Jeff Plakans:
So let me add to that, what the payroll integration does for those of you who may not have a plan or may not have an integration is, generally speaking, once you’ve run payroll, you have to report what’s been withheld and any matches to the plan recordkeeper. And if it’s not integrated and that information’s not flowing automatically, that means a human being has to do it. And we all know human beings get sick or they take vacations or they don’t show up to work on time, and when they don’t do that, things don’t happen the way they’re supposed to, and sometimes things fall between the cracks. Payroll integrations can prevent that from happening 100% of the time, not to mention they also have a tendency to be significantly more accurate.

So another question for you guys. I’m like Rob, a payroll guy at my small business who’s been thrown into the COO role that Rick was describing and have been learning on the job over the last 18 months of our plan existence. I’m really concerned over the potential personal liability Rick mentioned. Is there a periodic audit process that I should anticipate being prepared for or worried about? I think I’m following the proper procedure for plan administration, but I admit to being ignorant and maybe I don’t know what I don’t know.

Great question.

Guys, anyone want to answer?

Rick Nahill:
I think for myself, what I find is that it’s important for you to not just be learning on the draw. If you have a financial advisor, if you have the recordkeeper, if you have a payroll provider, access their services and education. What do I need to do? And if you can’t write down what your process is, that would be the first place to start. Again, it’s the documentation. Many of the suits that have gone through… And we’re not saying everyone’s going to get sued and there’s no specific audit process, it’s if you get audited or something of that nature, but it’s best to have that process. They’re going to ask you, I’m sure Seth and Alex and Rob, you’ve seen plans that were audited by the IRS, this is a set rule, they want to see three years of loans if you’ve had them. They want to see what’s your definition of compensation. So they’re going to ask you these things. If you don’t have access to them, that would be the first place to start and then rely on your partners that you have in your recordkeeping plan.

Jeff Plakans:
Alex.

Alex Krisak:
Yeah. So first of all, it’s okay to be the person that’s thrown into the mix. My wife was that person, so I know how that feels. And as you’re figuring it out, I would say that, like Rick said, lean on the people that are your professionals. That’s a great plan to consider walking onto the cruise ship because you are taking personal liability. And if you can get that cruise ship to take you aboard, you can get that liability off your back. Now, everybody’s situation is different, but that feels like that would be a great fit, especially if you’re a non-owner employee that’s concerned about your personal liability. I would be looking at Pooled Employer Plans as a possible change to your strategy to get that off your back.

Jeff Plakans:
All right.

Okay, another question, I think this is the last one. Because email is arguably somewhat high risk as a method of notifying participants of plan changes, is it permissible to use an alternative tool such as Slack

as a communication process as long as everyone in the company knows and understands this channel will be used?

Seth Larner:
You want me to… I can [inaudible 00:49:44]-

Jeff Plakans:
Yeah, Seth. Absolutely.

Seth Larner:
So the issue you have is you can do e-notifications. It is allowed. There are some notifications with security, I’m going to have to go back to mail, but you can do email. The biggest issue you have, you run into, is consent. One thing you’re going to run into is you can email notifications out to people, but do you have the consent to do it? So the biggest thing you’re going to see in the industry is a lot of people… For instance, up here we’ll say, “You can email, but we can only email to work addresses because the employer can give consent to that.” Recordkeepers can typically consent to personal email addresses because when an employee signs up to use their website, they’re consenting to use their personal email address. You want to be very careful with notices and emailing and how you’re going to distribute them because this is where I see employers getting into a lot of trouble pretty quickly. Not these penalties and fines, but the correction process is expensive in regards to giving people the right things.

And you want to make sure you’re doing it exactly correctly and by the book, because otherwise you may owe someone a QNEC or a mismatch, or someone may say, “I never received the enrollment form, so now you got to give me the full mismatch and 50% what I would’ve contributed,” and that just gets expensive. I would just follow the process that’s set for you, that the IRS sets, and just talk to the professionals that are on your plan on the best way to do it.

Jeff Plakans:
Awesome. Thank you.

Alex?

Alex Krisak:
Yeah, I would say the answer’s no, don’t use Slack because you’re asking for trouble. It’s kind of an old industry with a lot of regulations, and I would really just lean on the folks that you’re working with to get you to do it in a way that doesn’t get you in trouble. That’s what I would say. As soon as I hear of somebody using Slack though, I will circle back and let you know, but I can’t imagine that that would keep you safe.

Jeff Plakans:
We get this question quite a bit and we have folks that have leveraged our messaging tools within our payroll platform where employees can receive notifications and then they acknowledge the receipt of those notifications, which is also helpful because then there’s no question that they didn’t get back and forth. So we found that’s been helpful as well.

So Alex, is your hand still up, or did you have it as something else to add? There you go.

Alex Krisak:
Sorry, I forgot to put it down. That’s right.

Jeff Plakans:
Okay. Excellent. Well, that’s it for questions.

Gentlemen, thank you very much for imparting all of this knowledge upon our audience today. This has been very, very helpful for everyone. There will be a quiz later, I might add. So if you’ve not been taking notes, hopefully someone next to you has. Now, we recognize here at Commonwealth that there’s a lot of folks like we just talked about who’ve been thrown into positions that they’re not necessarily trained for. You don’t know what you don’t know. Become a member of our Employer’s Handbook Community. Just hit that QR code right there on the screen. That will allow you to jump in on a community that’s full of people just like you, and you get to learn from each other and from us and from the folks that we deal with, like all of the gentlemen here on this call on a regular basis. That’s what the Employer’s Handbook Community is all about. There’s employee handbooks out there, but there’s very few employers handbook. We hope to play that role. So go ahead and join that community.

If you want to get in touch with any of the guys on the call today, or with me, of course, right here is all of our contact information.

Gentlemen, once again, thank you so much for the time that you’ve given us. For those of you who’ve taken the time out to watch, or if you’re watching this recording, remember that this was put together not as legal advice, but for informational purposes only. And if you want to get more specific about the specifics of your company, your plan, or the potential for your plan, feel free to reach out to Alex, to Seth, to Rick, or to Rob, or certainly to myself or any of our team members at Commonwealth to help you.

If not, have a great afternoon. Thanks again for joining us and giving us your time. We appreciate all of you.

Thanks, guys.

Rob McDermott:
Thanks, Jeff.

Rick Nahill:
Thank you, everybody. Have a good one.