Personalizing Benefits To Meet Employees’ Unique Needs
The beginning of the new year will soon be upon us, and many business owners are thinking about the benefits they offer to employees and how best to structure their benefits packages. Not too long ago I appeared as a guest on The Group Practice Exchange Podcast with Maureen Werrbach to discuss how to tailor a practice’s retirement benefits to meet their employees’ particular needs. Our conversation is below and I’m going to build on a couple of things that were discussed about optional profit sharing in your plan design.
Matching is a great incentive for employees to contribute to their retirement plan. It’s mutually beneficial to help attract and retain talent, it motivates employees to save more for retirement, it’s tax deductible for the employer, and it helps boost company culture and employee financial wellness. But, there’s another “bucket” of contributions that employers can use to reward employees as well, which is the profit sharing contribution. This is often able to be set up as an optional provision and employers can make the decision on it from year to year.
Issues that typical business owners face at year-end include tax efficiency, working with unpredictable profits, and employee retention. One great example of how one of our clients, a marketing firm, handles this, is they review their profitability at the end of third quarter when considering whether and how to bonus employees. We work through scenarios with them where they give cash bonuses and contribute to their retirement plan accounts, helping to reward their employees for contributing to the profitability of the company while transfering it tax efficiently to everyone. They are sure to discuss the retirement plan profit sharing contribution in their employee review meetings as year end approaches. One of the reasons they can do it this way is because of their cash flow and billing cycle.
Another one of our clients waits until the close of the books for the year before deciding what to do with their profit sharing. They have until the corporate tax deadline to decide whether or not they want to award it to the employees, and they work through final numbers and the corporate budget for the following year before making decisions. Employees must be employed on December 31st in order to receive any profit sharing and they have a vesting schedule to encourage longer term employees.
Maureen and I dug in on some specifics here, as well as changing over from SIMPLEs to 401k plans. It’s not easy to put these types of plans together with the laundry list of provisions and vendors, so do reach out if you have any questions. You can read the transcript of our chat below. Enjoy!
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Maureen Werrbach (00:00:01) - You're listening to The Group Practice Exchange Podcast - we’re the business development resource for group practice owners, where we talk candidly about business ownership and leadership, from practice building tips to live coaching to real talk episodes with other group practice owners. We’re the resource you've been looking for to help you grow your group practice. I'm your host, group practice owner and entrepreneur, Maureen Werrbach.
Hey, everyone, welcome back. Today I have Courtenay Shipley on. She owns a business called Retirement Planology - which by the way, I love the name of your business. We are going to be talking with Courtenay about how to personalize retirement benefits to help meet your employees’ needs. The beginning of the year is right around the corner. It's a time where group practice owners tend to really focus on the benefits that we offer our employees. So, I'm really happy to have you on to share a little bit of your expertise. Before we jump in, if you can just introduce yourself and your business.
Courtenay Shipley (00:02:09) - Hi, I’m Courtenay Shipley with Retirement Planology. We work with companies on setting up employee retirement plans, helping them navigate the retirement planning maze and keep them going to meet the needs of their evolving business.
Maureen Werrbach (00:02:22) - Awesome. So, like I had mentioned, by the time this recording comes out, it'll still be before the beginning of the year. The beginning of the year is a time when group practice owners focus on benefits that are offered to employees. My executive director and I are thinking about the benefits that we have been offering the past year, any changes we want to make or additions we want to make. And when it comes specifically to retirement planning and retirement benefits, there's obviously a handful of different things you can do. I feel like a lot of the questions that come up are usually about 401(k)s, if we should be offering them and if we should be offering IRAs. People wonder what the difference is between those. People also have questions about navigating what you as a business owner need with what you can offer your team. Obviously as a business owner you can't give yourself things that are different from what you're going to offer your employees in terms of retirement benefits. Then, in regards to percentages, business owners want to know what to match and try to be mindful that you're matching percentages with potential future benefits that you want to offer. Because once you sort of give a percentage, it's usually pretty hard to go backwards on that. For example, I've seen a lot of practice owners who go right to 4% matching and then end up realizing how hard it is to maintain if they wanted to add any additional benefits.
I know I just said a lot in a few minutes, but what is your first piece of feedback for practice owners who already have retirement plans for their employees, but maybe aren't sure if they're even using the right type of plans?
Courtenay Shipley (00:03:49) - Sure. You're going to want to think about what you want to accomplish with the plan. Every plan has a purpose, and if it's just to give the owner the chance to save for retirement, that's okay. If the purpose is to give back to everybody in the form of profit sharing because they've helped to grow the business, or because they've had an impact on the way that the finances go, that's a good reason to. It might just be because you have to offer a competitive package in order for recruiting purposes or even retention purposes, like, why would I stay here if I could go somewhere else and get better things? So, it's important to be thoughtful about 1) why you have it in the first place and then 2) what it is you want to accomplish.
The 401(k) plan is the one that everybody knows the most. Those are the ones that we work on. If the company is a nonprofit, it's a 403(b), but otherwise there's also what's called a SIMPLE IRA and a SEP IRA. All of those are a little bit different. The 401(k) plan is kind of what you've graduated to. It's at the top of the pyramid. So if you're just starting out, the others or an IRA program are probably the ones to investigate first. But a 401(k) gives you a fair amount of flexibility. It also gives you the ability, like you said, to do some matching or to do some optional matching. I should say too, at the end of the year, we always tend to encourage people to have more flexible plan designs, if we can make it happen. So, saying things like, “You have the option of making a contribution to your employees at the end of the year,” either as a match or as some other way, or we start with a stated match, like you mentioned before, or we're just going to give everybody 3%.
That is the benefit that the employer is going to give, and then the employees can put some more in on top of that. So, there's several different ways to accomplish it. But your budget obviously is the thing that matters the most. And you have to take into consideration the tax savings that you get. Because when employees save and then when you as the employer put money in, that does help your taxes. So sometimes it doesn't hit your pocketbook quite as hard as you thought. That's where your accountant is your right-hand person!
Maureen Werrbach (00:05:52) - So you mentioned something just now that I actually have a question about. And I love when I do interviews with people where I'm asking questions that I am also intrigued by, because a lot of times (because my business has been around for so long) a lot of questions I'm asking come more from a place of what I know newer or smaller practice owners might want to know, but I sort of have already been past that. But this -- you were talking about profit sharing and not just the retirement matching where you're matching an X percentage, but some additional optional things.
This goes beyond my knowledge and experience as a good practice owner. So, if you can elaborate on those two pieces that would be awesome.
Courtenay Shipley (00:06:30) - Yeah, no problem. So, profit sharing is what it sounds like, right? You are determining at the end of the year or after the year is over, really, before you file your corporate taxes, whether or not you've got some extra money (profit) that you would like to redistribute among everybody. So maybe you're going to give everybody a stated amount. I'm going to give everyone $500, or I'm going to give everybody 2% of their pay or something along those lines, and you can be pretty flexible with that and choose some different plan designs there. You can also do certain things that will incorporate Social Security benefits or age. So if you have people who are close to retirement, they could get a higher benefit just because they're closer to retirement. And the people who are younger have a longer time for that money to be invested. There's lots of tests that get performed by some math geeks that we partner with, and they are the ones that can keep you within the guardrails of what you're allowed to do, but you do have a fair amount of flexibility.
Normally when we set up 401(k) plans, we try to put that in there as discretionary. So you can decide from year to year if that's something that you would like to do as the business owner. The other thing is everyone tends to start off the 401(k) plan, and they hear about this thing called a “safe harbor plan design.” And what that means is that it's your get out of jail free card. It's a way to bypass the nondiscrimination testing. Basically in nondiscrimination testing (for your audience) the IRS does not want people who are less highly compensated than an owner to not be benefiting from the plan as much. In other words, they do not want the owners to be using it and the other employees not. So that means that you can either give them a match up to 4%, or you can give everybody 3% whether or not they contribute.
Well, the other option is you could just start off and see how that nondiscrimination testing goes, and you could just have an optional match. So, at the end of the year, again, you're taking stock of what happened over the year, your profitability, etc. And then saying, okay, I do want to give everybody a benefit either as a match or just as a straight up employer contribution. So again, you build that in as discretionary and you want to have somebody like us who is helping you watch over the plan to make sure it's going to go the way we want it to go, but those are features that most people don't think about. They kind of just sign up and say, give me the “plan in the box.”
Maureen Werrbach (00:08:53) - Yeah, I was going to say, I feel like that's probably most of us in our industry especially. I guess it makes sense if this isn't our specialty. And so I notice that group practice owners really look at what other practice owners are doing. And if there isn't anyone that's really researching and going in depth on what they can offer, then that sort of trickles down. And so, what is your suggestion? Because I feel like a lot of people will just use Gusto.
[Gusto is] a payroll company. I don't know if you know them, but that's usually also where they'll add their benefits, because Gusto has different types of benefits that you can just offer directly through there. It's obviously easy because it's all in one place where you do your payroll, but I think that the drawback of that is that because they are a payroll company they don't always have the knowledge or maybe ability to actually go in depth like what you’re saying, and really provide all the options beyond the basic of - do you want to offer retirement matching to your employees? Do you want it as a 401(k) or as a SIMPLE IRA? Do you want to match 2% and then just sort of…case shut?
Can you let my audience know - what is your suggestion for when you are wanting to either change your retirement plans or really look deeply into them, or if you don't have any retirement plans but you're thinking about it, what the good first step is? Because I think maybe using things like Gusto might not be the best.
Courtenay Shipley (00:10:16) - Well, if you're just getting started, Guideline and Vestwell, I think are both vendors that Gusto has already built out an integration with, and I think that they've got several others that are coming online here very soon. And the reason that's important is that your payroll information is the same information that goes into your 401(k) plan. So, your employees, their date of birth or date of hire, like all that information has to get over there. And then when you run payroll, the contributions to the retirement plan have to get moved over into the 401(k) plan. And the file that says how much everybody put in has to go there too. So I don't see anything wrong with it as a place to start. Use the decision tree if you will. Do you do a SIMPLE IRA? Does anybody want to save more than $17,000-$18,000. And if the answer is yes, then go to the 401(k).
There's some pretty good basic building blocks in there that can help you make those decisions really quickly. And of course, I will talk people out of the 401(k) all day, because the SIMPLE IRA is just that. It's simple! There's no final tax filing every year. There's no nondiscrimination testing. It's a great way to get started. And for a lot of businesses, that's a good way to go. But once you've gotten to the place where you want to do some of those optional provisions I just talked about, or you've got people who really want to max out their retirement plan, then the 401(k) is the one with the highest limit for what you can put away. So those are kind of some major differences. And when you go to look at, okay, our payroll is with Gusto, who do we have an integration with? For small businesses it should be a question that's asked. Right. Because you just don't have bandwidth.
Maureen Werrbach (00:11:52) - As you're talking. And like my financial planner, Mary Beth has for years now been like, because I personally maxed out all of my different types of retirement. And she's like, you need to do a 401(k) because you need to put more away than what is allowed through the different retirement plans I have. And all I know is that it feels like it's a lot of work and like you said, and I just keep pushing it off every year and being like, “Next year, Mary Beth.”
I know a lot of listeners already have retirement plans and likely SIMPLE because it's like you said, it's the easy starting point. What is the process like to shift to a 401(k)? I think that's one of the big reasons why I haven't; it feels like a lot of work and [based on what we know about] human behavior in the workforce, we know that change is hard for employees, even if it's a potential positive change. And so I have like 60 something employees. And all I think of is that I'm going to have to have conversations with so many people and there's going to be people who don't understand why we're changing it or who might like it simple. And, my mom, who does our payroll, has to manually take all the payroll numbers, plop them into Vanguard every single time we do payroll. I know that also would be a nice thing to be able to simplify. But what is your recommendation when you work with business owners who are making a change? What are some of the common things you see around hiccups or concerns maybe.
Courtenay Shipley (00:13:27) - So if you have the SIMPLE plan in place already, then you can convert to a 401(k) so you can stop the SIMPLE and start a 401(k). But there is some timing associated with that, and I'm feverishly looking for it on the IRS website right now, and I'm going to find it. But the important thing to know is that for a 401(k) plan there's no time of year to set it up, but there is a time that you have to end a SIMPLE IRA. The other thing is the education that goes out to your employees. Like you said, we're still giving you a great benefit. We're now giving you more flexibility in your plan.
You can still pick your own options, but we've streamlined the menu for you of investments that you can pick from. So, it's a little bit easier than here, set up your SIMPLE IRA and go to town. So there's a little bit more oversight from the employer. There's going to be a little bit more education. And you know that higher limits are attractive to some people who are trying to save more for retirement. So those are good things. And those are all good things.
On the back end - what does it look like on your end? To end a SIMPLE IRA is not that hard, but basically it's a form that goes to the IRS. But starting a 401(k) plan takes a bit of time. If you give yourself 60 to 90 days before you want it to actually start, then you'll have plenty of runway to be relaxed about it. Now, can you start a plan sooner than that? Yes, in some cases you can. But you definitely want to work with someone like me if that's the case.
So, your considerations were right about your mom having to take the payroll file and upload it to Vanguard. And that's all that would happen if you get a 401(k) plan that does not have any sort of linkage with your payroll system. That’s what it feels like -- every payroll, there is just one more step to it. As far as enrolling employees, most places nowadays do it through online portals instead of collecting enrollment forms, etc. But they will need to be educated about it. Like what is this thing? How do I enroll? How much do I decide to take out of my paycheck? etc. So that will take a minute. I recommend doing it at a different time than when you set up your health insurance or disability, just so there's no confusion. Something else to address is if everybody is paid from the same bank account at the same time. So those are some things that you'd want to be upfront with. And yeah, you're definitely going to get questions.
So when it comes to the 401(k) plan you need a record keeper, the document administrator (sometimes the same company like Vanguard does both as you mentioned a minute ago), and then having an outside advisor like us or even someone like your Mary Beth. An outside advisor can give that level of advice and education to employees that you're out of the middle of. It is very valuable. But typically, if you're hiring somebody who is specifically focused on retirement plans, they're going to help you through all of those steps and make it as frictionless as possible.
Maureen Werrbach (00:16:12) - Thanks for that. I have one last question because I know we're getting towards the end here. You mentioned different options outside of like the regular just retirement percentage matching, one of those being profit sharing. Can you mention a couple of those options?
Courtenay Shipley (00:16:36) - Yeah. Basically think of it as employees put their money in, employer puts their money in. So on the employer side is just how do you want to get that in there.
Do you want it to be something that comes out of your payroll for the whole year, so that from a cash flow standpoint, it might be easier? Do you want to contribute at the end of the year? Do you want to match people, so you're only giving them money if they are also participating in the plan? And then do you want to just wait until the year is over and then figure all of that out? Those are the basic buckets that they fall into.
Now on the profit sharing you could give everybody the same percentage of pay. You could say “Everybody, we did great this year. I'm giving everyone 2% of their pay.” Or you could say “Everybody, we did awesome. I'm giving you $500 into your 401(k)”, or you may look at your employee base and say this subset of employees are, I don't want to say more valuable, but they contributed more to the profit sharing number than the rest.
You could, in theory, put maybe more contributions towards that group. You have to be really careful that you don't get outside of the IRS rules, obviously. Your other option could be to have a plan that integrates Social Security wages so that the people who are above that Social Security wage, they actually get a few more dollars because they don't get as much from Social Security. You could have an age weighted plan, so our older employees, they actually get higher benefits because they're closer to retirement and don't have as long for the money to be invested. So it depends. Like in a dentist group, I often see the age weighted because the dentist is so much older than the rest of the staff or something like that, but it's all over the map. So what matters is really getting the design right for the group that you have.
Maureen Werrbach (00:18:22) - Yeah, thank you so much for that. So if people are interested in getting more support with you or learning more about you, where can they go?
Courtenay Shipley (00:18:30) - Yeah! So they can go to our website which is retirementplanology.com/learnmore. There is a bunch of stuff on the website - you can look at some resources on what we talked about today, our blog is also there if you want to read our nerdy thoughts on the retirement plan industry. You can also find me on LinkedIn! linkedin.com/in/cshipley/
Maureen Werrbach (00:18:52) - Awesome! I appreciate you coming on today and sharing your knowledge. And yeah, I feel like this has been perfect timing-wise because we're getting to that time of year where we're thinking about the benefits that we offer our employees, and also the benefits that we might be needing for ourselves as well.
Courtenay Shipley (00:19:09) - That sounds good. Thank you so much for having me.
Maureen Werrbach (00:19:13) - Thanks for listening to The Group Practice Exchange Podcast. Like what you heard? Give us five stars on whatever platform you're listening from. Need extra support? Join The Exchange, a membership community just for group practice owners with monthly office hours, live webinars, and a library of trainings ready for you to dive into. Visit members.thegrouppracticeexchange.com. See you next week!