Strategic Retirement Planning
Podcast host Candy Messer and I talked at length on her Biz Help for You show about all things retirement plans, such as when a company should add a retirement plan to their benefits package, compliance issues to consider, SECURE provisions to be aware of, and common misconceptions that I’ve encountered in meetings regarding retirement plans. It was a great conversation relevant to any business owner planning for retirement, HR professionals or those responsible for employee benefits, and entrepreneurs.
You can watch the episode on the Affordable Bookkeeping and Payroll website, or listen to it on Apple or Spotify. Check out the transcript below if you’re more of a reader. Enjoy!
—--------------------------------------------------------------------
Introduction (01:24):
Welcome to Biz Help for You, the show that saves you the expensive learning curve by providing advice from industry experts in every facet of the entrepreneurial journey. Too many small businesses collapse according to the US Census Bureau. 20% fail within their first year and less than 35% make it to their 10th anniversary. The goal of this podcast is to change that statistic. So if you are interested in learning more to be a successful entrepreneur, tune in today.
Candy Messer (01:56):
Let me tell you a little bit about my guest today. Courtenay Shipley is the founder and Chief Planologist of Retirement Planology, a consulting and registered investment advisory firm that focuses on corporate sponsored retirement plans. With extensive experience in the retirement plan industry, Courtenay offers expertise in investment analysis, plan design and employee education. She helps businesses leverage their employee retirement plans to align with both company and employee financial goals. Courtenay has worked extensively with qualified retirement plans and has conducted over 10,000 educational meetings. She holds several professional designations including Accredited Investment Fiduciary, Chartered Retirement Plan Specialist, Certified Plan Fiduciary Advisor, and Certified Exit Planning Advisor. She's also the president of the Retirement Advisor Council and has been recognized with honors like Top Women Advisor and FT Top 401k Advisor. Listen to today's episode to learn how to strategically design and leverage employee retirement plans to help meet your financial needs, ensuring compliance and enhancing employee participation. So Courtenay, welcome to the show.
Courtenay Shipley (03:07):
Thank you so much. It's great to be here. Thank you for having me.
Candy Messer (03:11):
I'm glad to have you here. I know people will find this an interesting topic and especially now that sometimes the states are requiring plans to be in place and wanting to know what their options are. So I'm glad that you're here. But before we get into the topic, I would love for you just to say what motivated you to even establish your own company?
Courtenay Shipley (03:31):
Oh gosh. So I was a music major in college and when I left college I wanted to get a job and I fell into the 403b space, which are for nonprofits basically, and retirement plans for folks who are working in that area. And then I had a series of really interesting bad bosses, and so I decided to go out on my own, and I figured if those people could do it, then I sure could. So here I am…what are we, 15 years later, or close to, I guess now? Yeah, so it's been a wild ride, but certainly a lot of fun.
Candy Messer (04:08):
Perfect. Well, not taking into consideration anyone that would have to have plans in place because California and everything is changing of course in 2025, we know, which I could talk more about that later, or I do have episodes specifically on that too. But outside of that, from your own experience too, when is a company ready to add a retirement plan to their benefits package? And what factors should entrepreneurs consider before making this decision?
Courtenay Shipley (04:37):
So I would say there's three points where it becomes really important. The first is for recruiting purposes. If you're having a hard time hiring people because you don't have a retirement plan or they have the expectation that you would have one. The second is if you as the owner are having some tax advice given to you like, hey, you've had a lot of profits, you might consider doing this. And then the third would be if you are trying to give back to your employees in a tax-efficient way, then the retirement plan is a good benefit for that as well. So it really comes down to profitability and then recruiting and retention.
Candy Messer (05:16):
And those are great reasons to have it. I know a lot of times people don't necessarily think of having a plan because, well, I'm just a small business, I only have a couple of people and it might make them happy, but at the same time there's a lot of work. So do you want to talk about maybe some of the different plans and the pros and cons even that will help them make a decision on, at least, yes, it might be a good idea to start one, and it doesn't have to be as difficult as you think?
Courtenay Shipley (05:42):
Right, so for smaller businesses, under a hundred employees, that is, you have a few more options than just probably the one you've heard about, which is the 401k plan. So the other options you would have would be a SEP IRA and your accountant would be the one to help you on that. The pros are you can stock some money away for retirement. The cons are whatever you do for yourself, you also have to do for all of your employees. So it has to be the same as far as the benefit is concerned. And in some cases, that's not what everybody has in mind. It's also only contributed to by the employer, so the employee doesn't get the ability to put their own money in. So moving up next is the SIMPLE IRA. And so it's kind of what it sounds like. It's pretty simple. Everybody sets up their own IRA, it's got higher limits than a regular IRA.
(06:29):
The business does have to make a contribution of some sort. They can either do a match up to 3% or they can give everybody 2% of their pay into the plan. There's some caveats about that. The IRS website actually is excellent when it comes to describing the SIMPLE IRA and all the rules associated with it. So that can be a really useful one because it allows the employees who want to save in the plan to go ahead and save, and it's a minimal employer contribution. So if you just think of it as being a raise, a very small raise, the next one would be where maybe you want to do something a little different or have more flexibility or have some eligibility requirements that go with it. Like you have to work here for six months or a year before you can get into the plan.
(07:12):
And that would be where you crossover into 401k space, where 403b is an option for those who are nonprofit. But 401k is a tax code. That's it. It's the worst marketing for a retirement plan I've ever heard. But that's what it is. And it allows businesses to set up eligibility criteria for how a person can get into the plan. And then there's a lot of flexibility as far as whether or not the employer wants to put money in. So you can decide that from year to year you can guarantee everybody a match or just give everybody a profit sharing contribution if you want to. So you get a lot of flexibility as the employer, provided you pass all of the non-discrimination tests. So that's the hard part about the 401k. You get all this additional flexibility, you get much higher limits for your employees to contribute to the plan. So it's $23,000 this year if you're under the age of 50. And with that comes strings attached. The IRS says we've got to make sure that this is still something that benefits everybody, the higher paid, the owners as well as the lower paid non-owners. And so there are some tests that they require that you do at the end of the year just to make sure that that's all good.
Candy Messer (08:20):
And can you touch on maybe some of the compliance issues that they have to consider when they are implementing a retirement plan? And I know the SECURE Act was passed and there's a lot of confusion around all of that too, so can you maybe touch on all of that?
Courtenay Shipley (08:36):
Oh my gosh, all of that. Okay, here we go. Let's start first with compliance when it comes to retirement plans. So the minute that you start providing this benefit to somebody else is when you have to make sure that you are looking over their money like it's your grandmother's. So in a SIMPLE IRA setting, you have to make sure you get that check cut and over to whatever the SIMPLE provider is, whoever the financial institution is, in a timely manner. And then from there, that's kind of where your liability ends, but you gotta to make sure that that's set up and functioning well and the money actually gets there and is accounted for. Now on the 401k side, you get a lot more things, a lot more hoops you have to jump through. So in addition to making sure that that operation side of things is streamlined and working functionally well and the money is coming from a person's paycheck and going directly into their account, but the 401k plan, you also have tax filing that has to be done at the end of the year.
(09:29):
We call that a Form 5500. You also have the non-discrimination tests that have to be performed that we mentioned earlier, or you have to set the plan up with a design that gets you out of that, which is called a safe harbor plan. So as far as the 401k is concerned, do you have a plan document that spells out exactly how and when people are allowed to participate in the plan, what types of compensation are considered for…eligible for putting in the plan, things like that. And so it really comes back to whatever you put in that plan document you have to follow. That's real easy, but it's not easy because you're a business owner and you have 10,000 things that you're doing. So we try to keep things simple for most employers and also take into consideration who does your payroll company work with so that you can take a lot of that operations, heavy lifting off of your plate. Those are the main things for compliance.
Candy Messer (10:19):
Well, and I would say it's become a little bit easier too to even make those contributions. I remember in the past it used to be like, here's a little form and here's a check because we're a payroll company, too. And we would have people that would send us their document, we'd issue a check and it would go in the mail. And now there's portals. You just log in and you say debit on this date and put in how much each employee has. And it's a lot easier to do that and stay in compliance and just putting an extra task on your to-do list when you run payroll, then just go submit it, right? So it's easy. But I think too, this whole SECURE Act, I know I've heard a lot of people are confused. There's required distributions and all of that, too. So do employers have to worry about any of that, too, or do they just tell their employees if you have questions regarding these changes, you need to talk to a financial advisor? What should they be doing regarding those changes?
Courtenay Shipley (11:13):
So employers who sponsor a plan right now - who sponsor 401k plans - are going to need to take a look at the SECURE provisions. So there's a few that went into place that are really important. One is you have to start covering part-time employees. So if someone has worked for you for two years or more and they work 500 hours each year during that time, then you have to let them put their own money into the plan. You don't have to match them or provide any employer contributions to their account, but you do have to allow them to at least use the account if they want to. So that's the first big change. And what does that mean? When you take a step back from an operation standpoint, that means you need to be tracking hours for all of your employees. So if they are considered part-time, if they hit that threshold or more and are below the thousand hours that's typically required to get into the 401k plan, then they fall in that range where they do need to be allowed to use the plan.
(12:06):
Next we have the force out provision. So if you have someone who terminates from your company and they have a small balance in your 401k plan, let's say it's under, well, it was…$5,000 was the threshold or less, then you could force them out. You could say, hey, you need to take your money out of the plan, or we can move it to an IRA for you, but we've got…we're equipped to do something with it. It's not going to stay here. That threshold has now gone up to $7,000. So $7,000 and below, terminated employee, left their money behind, hasn't done anything, not responsive, then they can be forced out. So that's a big one to help keep things tidy. You may not want to have relationships with those terminated employees any longer. You certainly don't want to have to keep up with their address changes so that you can send them the proper notices, things like that.
(12:55):
So it's a good idea. The required minimum distribution age went up, so mostly people who are above that age know, but just generally speaking, if you're over the age of 70, you need to pay attention to that provision and just see when your required minimum distributions should start happening after you stop working. Let's see. So those are the three main ones that I think everybody needs to be aware of. Now going into 2025, we have some different provisions that will come into play here as recordkeepers are building them out. So some of them are optional provisions and some of them are, you should really consider this or you should definitely add it. One is that you can now, between the ages of 60 and 63, I believe it is, you can put additional catch-up money into the plan for 2025. So that's a big change and that's only if your payroll company can support that as well, and your recordkeeper can support that.
(13:54):
So that's something that we're seeing on everyone's radar. There are some different distributions that are allowed. So if you were in a federal disaster area or anyone…take money out for your house, birth or adoption, domestic abuse. So some of these are optional provisions that employers can take advantage of and have different effective dates, and there will be more to come. The interesting thing about it is like anything, when the regulation is written, it trickles down and then the people who actually have to do the programming for it or ask the questions or figure out how to make this in compliance, we come back with questions and Department of Labor usually has to weigh in, and in this case we have even Treasury that needs to weigh in on some of it before the provisions can actually take place. So one of those was pushed off to 2026, and that is the people making above a certain threshold. If they're doing a catch-up contribution, it has to be after tax. So there's more to come on this, but I would say for employers, you're going to work closely with your recordkeeper and then inform the employees on what you're allowed to do or what you've decided to do in the plan.
(15:02):
So I would not say that they're going to be asking many questions about this. Maybe that new catch-up contribution is probably the biggest one, maybe long-term part-time employees…they might be asking about. The rest of it, I think, is not really on most people's radar. So as an employer, lean on your advisor - like someone like us, for example. We're helping all of our clients through all of those conversations right now and knowing what the limitations on the recordkeeping systems are and also whoever your relationship manager is at your recordkeeper will be a help as well.
Candy Messer (15:32):
One thing I read about on the SECURE Act recently, maybe within the last few weeks, was saying, if you are making an employer contribution, that is an after-tax contribution that now has to be listed on the W2. And a lot of people might be like, wait, why would we have to do that? We didn't even really get the money in our pocket yet, but do you want to maybe even touch on that and how employers can make sure they're in compliance regarding that rule and is there something else they could do? Can they make, instead of, even if an employee does Roth, can they do pre-tax so they can avoid that? Can you touch on that part of it?
Courtenay Shipley (16:11):
Sure. So employers were given the ability to contribute their employer contribution pre-tax, which is the way it's always been, or they could change that over to being post-tax or Roth dollars rather. I have not had any clients take us up on that. They all would prefer to have the employer contribution be counted as a business expense and benefit the business tax. Having said that, it's not impossible that a participant could elect. They would allow it, that a participant could elect that provision where they want to have the employer matching be a Roth contribution instead.If that's the case, the employee needs to pay taxes on that money as though they received it this year and therefore it will show up on the W2. So any Roth money in general, whether you're putting it in as the employee or you're converting your employer dollars to it, that will show up on your W2 and it will be something that you pay taxes on this year. And of course, the benefit is in retirement down the road someday after the age of 59 and a half, you've had the account open for five or more years, then you would be able to take that money out tax free and the earnings and everything. So pay your taxes today, pay them in the future. This conversation…we have a lot of employees who are trying to make that decision, but it's great when employers can offer those types of contributions. I don't have a whole lot of experience with the employer money going that way automatically, though.
Candy Messer (17:44):
Right. I mean, like I said, I had just recently seen that, but I was thinking, well, that just adds more work on the employer, too. Now you have to keep track of who did you pay as a Roth and then you have to report that on the W2. And a lot of people don't even know that that's what they have to do. And so I figured since we were talking compliance, that's probably something good to touch on so that they know it might just be easier, to just do pre tax and then not have to worry about it.
Courtenay Shipley (18:10):
Yeah, and that's something to talk with your tax advisor about, honestly, and see how it shakes out with the benefit to the employee and the employer.
Candy Messer (18:18):
Exactly. We just don't want employees to be saying, why do I pay tax on something I didn't get yet? Right. Yeah, it's sometimes confusing. So I would love for you just to touch on, I read in your bio that you have done 10,000, more than 10,000 really educational meetings. What are the common misconceptions that you have encountered in those meetings regarding retirement plans and what do you say to those misconceptions to give them the honest truth about it?
Courtenay Shipley (18:49):
Yep. Alright, here we go. Ready? The first is, I can't afford it and I just don't know anybody that can't. I've never met anybody who can't. At the end of the day, can you put $5 in? Can you put $10 in? 1% of your paycheck is one penny out of every dollar that you make. And most people can do that. So even just putting a little bit in is helpful. The second is, everyone is obsessed with the investments, which investments, which ones, which should I pick? At the end of the day, the thing that matters the most to how much you will have in retirement is how much you can contribute to the plan. So focus on figuring out your cashflow at home, your spending, and getting as much put towards your retirement as makes sense for you, because that is what is going to make the most impact.
(19:39):
Do investments help? Sure, but they are not magic. At the end of the day, it's how much did you put in and how much time did you have to continue to save for retirement? So if you're getting started later in life, put in as much as you can. Obviously if you're earlier, you can afford to put in just a little bit and keep on saving over time. So those are probably the two top ones. I would say, too, that it's hard to decide where to put your benefits dollars. People have to choose about their health insurance and their disability and their life insurance and their retirement plan. And so I always try to make sure that I give employers credit because they are setting the employee up for financial success. First off, they're providing that paycheck, that very important thing. The earning potential of that person is their most valuable asset.
(20:29):
The second thing they're providing is some sort of disability or life insurance policy in case something happens, right? This is the protection part of things in case you can't show up at work because your health is not good, or because you are not around anymore and someone else needs your paycheck. And then the third part is having that paycheck for the future. And that's where retirement comes in. And depending on your personal situation, you may want to stack dollars more towards one thing or another. And so it's important when sitting down with employees that we talk through what makes them unique, what their situation is.
Candy Messer (21:05):
Right. And can you touch on maybe the relationship between when you have a 401k plan, having the financial advisor that helps also with just, kind of the interactions, answering your questions, but also the third party administrator who is doing that 5500 report and how those coordinate together?
Courtenay Shipley (21:26):
So there's usually three parts to a retirement plan. There is the recordkeeper - so that's the company with the 800 number on the website and you're going to access your account through that. That's part one. Part two is, someone has to do what's called administering the document and all of the IRS compliance. And so in some cases it is the recordkeeper. In other cases it's a third party administrator. So their job is to oversee the functioning of the plan from a rules standpoint. So if you left the company and you're unsure of your vesting, they're going to be the ones who double-check it and say whether or not you're allowed to have a distribution or if you are enrolling in the plan for the first time, they're going to make sure that the eligibility criteria has been met. So they're kind of the stop gap there on the compliance as the year goes on. And then they perform the testing as well as the 5500.
(22:21):
And then the third piece is the investment advisor. In our case, we're specialized, where we only work with retirement plans for companies. And our job is to help choose and monitor the investments that are in the plan. That's one main part. The second is helping employers with their fiduciary responsibility and making sure they're keeping up on what they're supposed to be doing - coordinating with those other two vendors I just talked about, the third party administrator as well as the recordkeeper, to make sure the plan is designed right and functioning and moving well and the services working. And then the last piece is on employee education, because here we are spending all this time and money on this retirement plan. You definitely want your employees to get something out of it to appreciate the plan, understand it, how to use it.
(23:12):
And so that's where we come in as an independent, off to the side here. We're not affiliated with the recordkeeper where we can talk about how to best use the plan or how it works or just answer those general financial questions that people often have that they don't necessarily want to ask in group meetings, settings. But we're there as extra support and as another financial resource or educational resource for folks. Like, hey, I heard about I'm supposed to be planning for my child's college. What does that look like? What do you think about this? Or, I'm really struggling with trying to pay off my debt - can you point me towards some resources that make sense for me? So those are the types of questions we get.
Candy Messer (23:53):
And you did mention a little bit earlier, there are a few times when you can take funds out of your 401k when normally you wouldn't be able to as the participant. Can you just touch on that to explain for the person who's listening or if it's the employer who's listening, but maybe educate them on what their employees can do in those times of need so that they're not penalized and they can get the cash that they need?
Courtenay Shipley (24:18):
Okay, so this is a retirement account, therefore it is for retirement. So the IRS doesn't love it when you take money out early - let's start there. If you were to terminate employment, you could access your retirement account. It's yours to either rollover or take in cash. We vehemently tell people not to take it in cash because you'll pay a 10% penalty and you'll pay income taxes on it. So whatever you pull out of your plan gets added to how much you made this year, and that's your new tax bracket. So be careful with that. And I would say keep it for retirement if at all possible. So that's number one. Death, disability, termination of employment, those are times you can access your funds. Next would be if your plan offers loans, and not all plans do - you could take a loan against the plan; not recommended, but you can.
(25:10):
The third would be what we call a financial hardship and the SECURE Act kind of changed this a little bit. So there are some different provisions that are now allowed versus what was in the past. But basically the IRS - until the SECURE Act came along - had six allowable reasons for you to take money out of your retirement account, and you had to prove that you qualify under one of those definitions. So these were things like taking money out because you have medical expenses way above what insurance would pay. You're preventing eviction or foreclosure on your residence. You are paying for a dependent’s, education expenses, things along those lines, like the tornado came along and blew away your house. So as long as you fell under one of those criteria, then you could take money out of the plan early. And of course, taxes, that sort of thing that's going to be on you at the end of the year. Between you and the IRS, there are some additional options now for what employers can offer in the SECURE Act. And I hesitate to even go down the whole list because we don't have everything out right across all vendors. I can tell you that for sure. But they're the ones I mentioned before, birth or adoption. There were some CARES Act provisions that they put into place during Covid. So those were other times. And then some of the federal disaster related types of distributions, as well.
Candy Messer (26:31):
Perfect. Well, I know we're coming close to the end of the time that we have together, so I wanted to ask if you have an offer that you would like to extend to our listeners and also how can they contact you if they want more information?
Courtenay Shipley (26:42):
So it's kind of the same place to go. It's retirementplanogy.com/learnmore, and there you can get a little bit more sense of who we work with, but it's small to medium-sized businesses who need help navigating retirement plans. But it's got a place where you can set up a call if you have any questions that you want to talk through, and also our resources to our blog and all the other places you can find us. But you can find me there or on LinkedIn at linkedin.com/in/cshipley/.
Candy Messer (27:14):
Perfect. Well, thank you, Courtenay, for being a guest on my show. I really appreciate your taking the time to have this discussion with me today.
Courtenay Shipley (27:21):
Sure. Thank you so much for having me. I appreciate it.
Candy Messer (27:24):
And to the listener, I hope you enjoyed today's topic and if you want to hear additional information, you can find access to exclusive content in the show notes. Thank you for tuning in today. Would you please share this episode with others and leave a review on your favorite platform? And if you find our show informative, would you consider being a financial sponsor to help me continue my mission to educate business owners? A link is located in the episode description and no amount is too small. I'd really appreciate your support. If you are interested in connecting with our guests and receiving the offer they had to share, a link to our resource page is in the show notes. Finally, if you have any bookkeeping or payroll needs, reach out to us at 310-534-5577 or contact@abandp.com. My team and I are eager to assist you. Until next time, have a great day.
Extro (28:21):
Thank you for listening to Biz Help for You. Please join your host Candy Messer again next time. Have a terrific day.