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Don’t Settle for State-Run Retirement Plans   

 

Over the past decade there has been a trend among states to create state-sponsored retirement plans. A move is underfoot in many states to mandate participation. 1

What is a State-Sponsored Retirement Plan?

A state-sponsored retirement plan provides employees with a public option to enroll in a retirement plan. It aims to increase coverage, thereby reducing the coverage gap.

What is the Coverage Gap?

For most Americans, an employer-sponsored 401(k) plan is their only source of retirement income outside of Social Security.

But many employees of smaller companies lack access to a retirement plan.

The coverage gap is made up of the small company employees who do not benefit from an employer-sponsored 401(k) plan.

Why do some businesses not offer employees a 401(k) plan?

According to SCORE, the smaller the business, the less likely it is to offer a retirement plan. Why? Cost and lack of resources to administer the plan. 2

Retirement Savings Crisis

The coverage gap has led to a retirement savings crisis, which the COVID-19 pandemic has worsened. 3

Legislative Developments/Trends

To address both the coverage gap and decrease reliance on government assis-tance, some states have taken the step of mandating employers provide em-ployees the option to enroll in a retirement plan.

California Example

The biggest and most prominent example is California’s mandated retirement program, which was signed into legislation by SB-12344 in 2012.

It mandates employers with five or more employees enroll in the state-run retire-ment plan option named CalSavers5 , or a private retirement plan.

CalSavers Deadlines

California takes a phased approach to mandate employers enroll in CalSavers or a private retirement plan:

September 30, 2020 – Companies with 100+ employees

June 2021 – Companies with 50+ employees

June 2022 – Companies with 5+ employees

Employer Benefits

Companies in California and other states with these upcoming deadlines will want to begin researching what plan to offer their employees.

The good news is that offering a retirement plan to employees – mandated or not; state-run or private – has several benefits for small business owners:

1. Demonstrates They Value Employees

2. Shows Their Vision

3. Allows for Their Participation

But how do you decide between offering a state-run or private retirement plan?

State-Run or Private Plan?

Whether or not you are in ideological agreement with them, state-run retirement plans grant some benefits to participants. Employees are automatically enrolled in a plan and save for retirement, much like they would in a private retirement plan.

But what do employers and employees sacrifice for this convenience?

As it turns out… a pretty high cost over time!

Private Plan Benefits

The two biggest benefits of a private plan are that it is low cost and easy to ad-minister.

Low Cost – Employees enrolled in CalSavers pay high fees.

More Flexibility – Private retirement plans offer more flexibility than state-run retirement plans. This often allows participants to benefit from lower fees and services more tailored to their needs.

Easy to Administer – State-run retirement plans like CalSavers still require time and effort despite automatic enrollment.

The Gift of Time – Tracking employee eligibility and keeping accurate pay-roll data, among other duties, are a drain on small business employers’ time.

Leave it to the Experts – Private plans can offer more enhanced 3(16) ad-ministrative fiduciary services that allow small business owners to focus on growing their core business.

JULY is Advisor-Centric & Participant-Friendly

JULY’s private plan options benefit the advisor and the participant.

Our private, small business 401(k) retirement plan solutions like our upcoming PEP solution and Launch401(k) are low-cost and easy to administer.

Contact your Regional JULY Sales Director to get started on your journey to making small business 401(k)s a key part of your practice.

 

1 https://www.wsj.com/articles/states-take-aim-at-people-with-no-retirement-plan-11593945474

2 https://www.score.org/resource/infographic-small-business-retirement-investing-your-future

3 https://www.nirsonline.org/reports/growingburden/

4 https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201120120SB1234

5 https://www.calsavers.com/

6 https://connecteam.com/ state-mandated-retirement-plan/#:~: text=A%20state%2Dmandated%20retirement%20plan, systems%20for%20public%20sector%20employees.

 

About JULY:

JULY is a 401(k) services company specializing in hi-touch, tech-enabled re-tirement plan services. Our employees have served as plan experts to advisory firms, advisor and employers in the small and micro 401(k) plan market for over 25 years. Over the last decade, our in-house software development team has built a host of proprietary technology solutions to streamline, automate and sim-plify all facets of retirement planning to make processes rewarding and easy for our clients. For more information about JULY, visit our website https://www.julyservices.com.

 

Grow Your Practice with Small Business 401(k) Plans   

 

Grow Your Practice with Small Business 401(k) Plans

There is a wealth of opportunity on the small business 401(k) space. Nearly 90% of US businesses have fewer than 20 employees1. And with state-mandated retirement plan coverage for small businesses a growing trend, building these plans into your practice today will position you as a knowledgeable leader as more states move to require coverage.

1. Room to Grow

The small business 401(k) market is underserved.

For most Americans, an employer-sponsored 401(k) plan is their only source of retirement income outside of Social Security. However, many employees of smaller companies lack access to a retirement plan.

According to SCORE, the smaller the business, the less likely it is to offer a retirement plan. Small business owners cite cost and lack of resources to administer the plan as reasons for not offering retirement.2

Your firm can help fill this niche area.

2. Stand Out from the Crowd

Servicing small business retirement needs gives your firm wider appeal

You already advise clients how to scale their business, manage cash flow and plan for business taxes. Offering small business 401(k)s can be another arrow in the quiver of ways you help clients save. And with more states mandating small business owners offer their employees a retirement plan, you will want to be able to advise employers when/if this need arises.

3. Assets Add up Quickly

The most compelling reason to offer small business 401(k)s is that it is a dependable way to grow your assets under management and reap the advisory fees that come with them.

As shown in the graph below, adding just two new retirement plans per year can add up quickly.

 
 

Offering small business 401(k)s – a product financial advisors often overlook – can help you accumulate assets and the dependable fees that come with them.

Learn more by contacting your Regional JULY Sales Director. Also, check out 4 Ways to Make Small Business 401(k)s a Key Part of Your Practice.

 

About JULY:

JULY is a 401(k) services company specializing in hi-touch, tech-enabled retirement plan services. Our employees have served as plan experts to advisory firms, advisor and employers in the small and micro 401(k) plan market for over 25 years. Over the last decade, our in-house software development team has built a host of proprietary technology solutions to streamline, automate and simplify all facets of retirement planning to make processes rewarding and easy for our clients. For more information about JULY, visit our website https://www.julyservices.com.

 

1 US Small Business Administration

2 https://www.score.org/resource/infographic-small-business-retirement-investing-your-future

4 Ways to Make Small Business 401(k)s a Key Part of Your Practice   

 

4 Ways to Make Small Business 401(k)s a Key Part of Your Practice

Many advisors will look to 2021 as a year to expand their advisory business to include more Small Business 401(k)s. Here are 4 steps to help you further your goal:

1. Take a few hours to learn more about retirement plans.

Looking for a place start?

Educate yourself on the retirement plan landscape and plan differences with help from the retirement plan type overview.

Watch helpful webinars to learn about 401(k) marketing, prospecting and plan design.

2. Know that retirement plans do not have to be complex to sell, set up or service.

You do not have to be a retirement plan expert to sell retirement plans. Your relationships with clients are more important than how much you know about complex retirement plan design.

Turnkey solutions that are easy for you to pitch and simple for clients to enroll and participate in are available. Products like Launch401(k) are low-cost and easy for small businesses to set up and operate.

3. Trusted business relationships matter.

Just as client relationships are crucial to your success as a financial advisor, retirement plan provider relationships with financial advisors are key to our success as a 401(k) services company.

Look for a partner with credentialed team members and years of industry experience. A solid retirement plan partner will put your mind at ease that your clients are in good hands.

We have a large number of licensed professionals to help advisors through every step of the sales process.

4. Find opportunities inside your current practice.

You are already working with business owners. Leverage these contacts by offering them retirement plan solutions tailored to their needs.

Is your client a high earner who wants to maximize retirement savings? A cash balance plan or SOLO 401(k) might appeal to them.

Are simplicity and ease top of mind for your client? Tell them about Launch 401(k).

Consider enhancing current SEP and SIMPLE clients to a 401(k).

Partner with JULY

These are 4 ways you can begin to make small business 401(k)s a key part of your practice. Contact your Regional JULY Sales Director to get started.

 

About JULY:

JULY is a 401(k) services company specializing in hi-touch, tech-enabled retirement plan services. Our employees have served as plan experts to advisory firms, advisor and employers in the small and micro 401(k) plan market for over 25 years. Over the last decade, our in-house software development team has built a host of proprietary technology solutions to streamline, automate and simplify all facets of retirement planning to make processes rewarding and easy for our clients. For more information about JULY, visit our website https://www.julyservices.com.

 

Simplify with JULY’s 3(16) Services   

 
Complete Your Plan Offering: Take Advantage of JULY’s Expanded 3(16) Services

While business owners are driven, focused and thoughtful when it comes to their work, they need help keeping their retirement plans in compliance.  The rules outlined by the IRS and DOL can be overwhelming to a company (plan sponsor) who is focusing on growing in their small business. Often times administrative duties are a deterrent to a company owner sponsoring a retirement plan or the owner does not fully realize number of tasks and responsibility required to stay out of trouble.

What is a 3(16) Fiduciary?

A 3(16) fiduciary is a provider retained by a company (plan sponsor) to manage the daily administrative tasks for a retirement plan.  The 3(16) fiduciary services may be offered through the retirement plan provider. Tasks may include managing ongoing payroll files to ensure data accuracy, filing government forms, distributing participant notices, maintaining required plan documents, and calculating employer contributions—there are literally hundreds of tasks to monitor. All things needed to stay in compliance with the law. And all things that take precious time for the business owner if a 3(16) fiduciary provider is not hired.

Benefits of a 3(16) Fiduciary

Transferring the administrative tasks to a 3(16) fiduciary allows the business owner to focus in areas of their expertise.  JULY’s comprehensive 3(16) services include:

  • 1. Maintain the Plan Document and Amendments
  • keep required governing documents current
  • 2. Plan Management
  • sign and submit required DOL filing documents
  • approve IRS compliance testing
  • manage fidelity bond vendor
  • coordinate a plan review with the employer
  • 3. Employee Management
  • provide all required notices to eligible participants
  • monitor timely data submissions
  • validate data as received for accuracy & missing information
  • calculate employer contributions
  • track employee eligibility
  • manage employee deferral & election changes
  • 4. Distributions and Withdrawals
  • verify participant eligibility for withdrawals
  • approve participant withdrawals

For a comprehensive look at our 3(16) services click here.

What could happen without 3(16) fiduciary oversight?
  • 1. Ineligible employees begin participating in the plan.
  • Costs and penalties add administrative issues for the employer.
  • Adds frustration to employees.
  • 2. Plan Documents are not updated when required
  • A correction filing with penalties must be submitted to the IRS.
  • 3. Wrong definitions are used for determining employee and employer contributions
  • Costly and complex correction measures must be undertaken.
Data Integrity is Key

The most important advantage of using a 3(16) administrative fiduciary is that a plan has better, more reliable data.  There is significant value in receiving comprehensive data with each payroll and JULY validates several points to ensure accuracy.  JULY’s 3(16) services keep a plan sponsor’s risk low and service level high.

About JULY:

JULY is a 401(k) services company specializing in hi-touch, tech-enabled retirement plan services. Our employees have served as plan experts to advisory firms, advisor and employers in the small and micro 401(k) plan market for over 25 years. Over the last decade, our in-house software development team has built a host of proprietary technology solutions to streamline, automate and simplify all facets of retirement planning to make processes rewarding and easy for our clients. For more information about JULY, visit our website.

He Did Not Know He Couldn’t Fly and So He Did   

 

The following in an excerpt from the November 10th JULY Team Connect Newsletter, written by JULY’s CEO, John Humphrey.

Over the last 5 years, and especially this past year, the Texas / Americana / Folk country music scene has taken a hit with the deaths of iconic singer songwriters like Jerry Jeff Walker, Waco native Billy Joe Shaver, John Prine, and Guy Clark, among others. 
Whether or not you like “country music”, I would encourage everyone to sample the music of some of these non-traditional, soulful artists.  They were colorful characters, and their sound and lyrics combine wit, history, humor, sadness, joy, and anger to make interesting and engaging stories that are relatable to life’s ups and down.

A few of my favorites include :

That Old Time Feeling – Guy Clark”

Mr. Bojangles – Jerry Jeff Walker”

She is My Everything – John Prine”

Ragged Old Truck – Billy Joe Shaver”.

And why am I writing about the Americana music scene in Team Connect?  Well … I recently came across a song called “The Cape” by Guy Clark which struck me in both a personal and professional way.  It starts out about a confident child with his “cape” and tells the story about him climbing on his garage thinking he could jump and fly.  The song follows the unnamed character through adulthood and old age …

“Well, he’s one of those who knows that life is just a leap of faith.  Spread your arms and hold your breath and always trust your cape”. 
“He did not know he couldn’t fly and so he did.”

Personally, this song made me hope that my children and grandchildren will always trust their cape.  And at JULY – we have a lot happening, and we face challenges, large technology projects, competitors, fee pressure, and an ever-changing industry that is complex and difficult.  One thing we should never face is our own doubts.  We have a tremendous team of people at JULY with expert-level knowledge and strong talent, and I am very proud of each of you.

We are working in an industry with a noble purpose – to help people achieve financial freedom – and our clients and participants need us to give our expertise, talents, and our best selves every day.  As we move forward with growth, innovation and our company’s mission, I want to challenge each of us to have confidence in ourselves and in one another and let’s always remember to trust our cape

 

About JULY:

JULY is a 401(k) services company specializing in hi-touch, tech-enabled retirement plan services. Our employees have served as plan experts to advisory firms, advisors, and employers in the small and micro 401(k) plan market for over 25 years. Over the last decade, our in-house software development team has built a host of proprietary technology solutions to streamline, automate, and simplify all facets of retirement planning to make processes rewarding and easy for our clients. For more information about JULY, visit our website https://www.julyservices.com.

 

JULY Honors Veterans   

 

In honor of Veterans Day, JULY proudly acknowledges the service and sacrifices of its employees and employee family members who have served our country within a branch of the U.S. Armed Forces. Following is a listing of those we celebrate and honor today.

JULY Employees

Name Branch of Service Details JULY Job Title
Anabel Figueroa U.S. Navy Chief Petty Officer, 15 years of service Fee and Billing Coordinator
Julie Gale U.S. Navy Petty Officer 3rd class Client Service Manager
 

Relatives of JULY Employees

* Deceased veteran

 
  • Eugene Edward McNamara

    Eugene Edward McNamara

    Specialist, Vietnam War
    Father of Kelli Pledger, Internal Sales Consultant

  • Mike Shumaker

    Mike Shumaker, third from left

    U.S. Army, Sergeant Major, 3rd Brigade Combat Team, 1st Calvary Division at Fort Hood Husband of Shelly Shumaker, Accounting and Payroll

    Additional Details:

    Mike has been on active duty for 24 years. Mike, Shelly and family have endured two deployments to the Balkans, three to Iraq, and one to Egypt (time totaling over 5 years).

    About the photo:

    Mike’s job at the time this photo was taken was in Egypt as part of the Multinational Forces & Observers Team. They were based with soldiers from all over the world. Their mission was to supervise the implementation of the security provisions of the Egyptian-Israeli Treaty of Peace and to prevent any violation of its terms. There were 14 countries represented in all. Mike made a ton of friends-his favorites were the soldiers from Fiji- and Genero, one very outspoken Italian soldier.

  • Great Uncles of John Humphrey

    Great Uncles of John Humphrey, CEO

  • Wayne Rockwell

    Wayne Rockwell

    U.S. Navy, WWII
    Grandfather of Michelle LeCates, VP of of Marketing & Relationship Management

  • Sammy Humphrey

    Sammy Humphrey

    North Korea, 1952
    Uncle of John Humphrey, CEO

 

 
  • Ray Johnson

    A newspaper clipping on Ray Johnson’s early military career

  • Ray Johnson

    A citation from the Secretary of the Navy for Ray Johnson’s division highlighting bravery and determination.

  • Ray Johnson

    Ray Johnson with his plane

  • Ray Johnson

    Ray Johnson in uniform

  • Frank Johnson

    Frank Johnson as a brand new arrival in the tropical land of Vietnam

 

 
  • michael giovenazzo

    Mike Giovenazzo, Uncle of Brian Smith, Regional Sales Director (Plaque is at Mt. Soledad National Veterans Memorial in La Jolla, CA)

  • Mike and Joe

    Mike Giovenazzo, Uncle of Brain Smith, Regional Sales Director, in Pearl Harbor days before the attack

  • giovenazzo brothers

    Uncles of Brian Smith, Regional Sales Director

  • jack smith

    Jack Smith, Uncle of Brian Smith, Regional Sales Director

  • jack

    Jack Smith, Uncle of Brian Smith, Regional Sales Director, aboard the U.S.S. Stonewall Jackson

  • Bob

    Bob Jones, Uncle of Brian Smith, Regional Sales Director, in Vietnam. At the time he was a Major, retired as a Colonel. He was a helicopter pilot in U.S. Army 1st Cavalry Division.

  • Frank Johnson

    Robert Casagrande (right), Grandfather of Brian Smith, Regional Sales Director, during WWII. He was a Staff Sargent in Patton’s Third Army.

 

 
  • Mel Mai

    Mel Mai

    U.A. Air Force – Served in WWII – Grandfather of Doug Mai, Director of Information Technology

  • John O'Neal

    John O'Neal

    U.S. Navy – Served in WWII – Grandfather of Doug Mai, Director of Information Technology

  • Fredrick J. Kroger*

    Fredrick J. Kroger*

    U.S. Army – Served in WWIIPOW in France – Grandfather of Megan Knapp, Marketing & Institutional Relationship Coordinator

  • Steven B. Bogner Steven B. Bogner

    Steven B. Bogner*

    U.S. Army – WWII, Wounded on Omaha Beach, Normandy, France – Step Grandfather of Megan Knapp, Marketing & Institutional Relationship Coordinator

    Details

What’s New At JULY   

 

 
 

Disruption → Innovation

Even in the wake of so much uncertainty as a result of the COVID-19 pandemic, JULY believes our mission to build retirement security is more important than ever.

Over the past few months, our team continued to create innovative retirement plan solutions including:

  Expanded 3(16) Services

  Easy Enrollment

  JULY PEP

Expanded 3(16) Services

JULY has years of experience serving as a functional 3(16) fiduciary through Launch401k – our low-cost 401(k) plan solution.

As a 3(16) fiduciary, we perform many duties each year for these plans, which can consume small business plan administrators’ time such as:

  Helping to Monitor plan providers and ensuring fees are reasonable

  Maintaining the plan document

  Approving distributions and loans

  Tracking employee eligibility and contributions

  Distributing notices throughout the year

  Signing and Filing government required returns

But we repeatedly heard from advisors with clients in plans outside of Launch401k that plan administrators, plan sponsors and small business owners desired for someone else to take on ALL of their 3(16) fiduciary needs

JULY gladly responded to their call with a solution. We are expanding 3(16) services to Liberty401k – our bundled, customized retirement plan offering.

Easy Enrollment

JULY’s new, proprietary enrollment software simplifies how participants enroll in and interact with their retirement plan.

Short, professional videos in our Learning Library guide participants through the enrollment process and address participants’ questions like:

1. Why Should I Participate?

2. How Much Should I Save?

3. How Do I Choose Investments?

This takes the guess work out of enrollment and enables participants to make informed decisions quickly.

Our Quick Enroll option has pre-configured elections. A plan may have one Quick Enroll choice or up to three choices (i.e. deferral rates at 6%, 8%, and 10%). Participants simply confirm their personal information and begin their retirement savings journey with one quick election.

 
 

 
 

JULY PEP

The SECURE Act expanded Americans’ access to retirement savings. One of its provisions created an entirely new type of multiple-employer plan (MEP): the pooled employer plan (PEP) and JULY will be taking on the role of Plan Administrator in order to ease the burden from small businesses.

A PEP allows unrelated small businesses to band together under one retirement plan, hopefully creating economies of scale, which must be governed by a pooled plan provider (PPP).

JULY intends to register as a PPP once final guidance is issued by the Department of Labor.

We will offer a competitively-priced PEP solution.

Also, conversations have begun with some of our institutional partners about creating a PEP for their advisor channels. Each version will include a level of customization to meet the partner’s requirements. We expect to continue creating institutional solutions throughout 2021.

2021 & Beyond

2021 will be a year for small business owners to rebuild their core business.

JULY wants to remove the barriers to retirement plan adoption and administration that lie in their way.

There’s more on the horizon:

– Notice Delivery – proprietary technology to manage notice delivery for 3(16) service clients using the new electronic delivery regulations

– Online Plan Setup – end-to-end plan setup with JULY support available on-demand

– 401Pay Suite of Tools – payroll integration available on even more platforms

– Online Proposal Center – advisors can produce plan proposals for 401(k) and cash balance plans, perform total cost analysis, benchmark fees and more

Replay Our Recent Webinar to Learn More

For a more in-depth look at what’s new at JULY, watch our webinar.

 
 

About JULY:

JULY is a 401(k) services company specializing in hi-touch, tech-enabled retirement plan services. Our employees have served as plan experts to advisory firms, advisor and employers in the small and micro 401(k) plan market for over 25 years. Over the last decade, our in-house software development team has built a host of proprietary technology solutions to streamline, automate and simplify all facets of retirement planning to make processes rewarding and easy for our clients. For more information about JULY, visit our website https://www.julyservices.com.

 

Financial Advisor Marketing & Prospecting During COVID   

 

It can be done!

The pandemic has limited traditional in-person networking. But forward-thinking advisors aren’t discouraged…

Here are 5 Ways Advisors Can Meet Clients Where They Are Today:

Expand Your Social Media Presence

Pair High-Tech with Low-Tech

Play the Long Game

Increase Your Industry Knowledge

Clarify Goals & Message

Expand Your Social Media Presence

Meet your clients where they’re spending the majority of their time: online.

Think beyond the confines of a Zoom meeting. Let clients come to you: Regularly update your business existing social media accounts. Utilize platforms new features like Instagram Reels. Hesitant in the past to advertise on Facebook? Run an ad and see the results. Or even consider gaining exposure through a new platform.

Keep the tone light, message concise and info helpful. Let clients know you’re there for them during this difficult time, whatever form that may take.

Pair High-Tech with Low-Tech

While technology has enabled many industries to continue conducting business during the pandemic, technology fatigue is also a very real phenomenon.

Send clients a handwritten note or suggest a socially distant “across-the-parking-lot meeting” if your client prefers a face-to-face meeting. Flexibility and versatility are key.

Play the Long Game

While the pandemic may require your clients to shift their focus to the short-term, retirement security is still a long-term priority for Americans.

Be available for your client’s immediate needs while anticipating their future ones. Once they’ve weathered the pandemic, how can you be of assistance? Come armed with an answer whenever they’re ready to have the conversation.

Increase Your Industry Knowledge.

Use this time to learn. Become a subject matter expert. JULY has many resources for you to brush up on plan-specific knowledge. Not sure where to start? Here’s a few suggestions:

1) Read our previous article on The SECURE Act

2) Check out JULY COO Blake Willis’ Prospecting with Total Cost Analysis webinar

3) Explore our Cash Balance Plan Calculator

Clarify Goals & Message

“Story is the most powerful tool on the planet to captivate the human brain,” Storybrand CEO Donald Miller says.

How are you leveraging this tool to its full potential?

What story is your advisory business telling?

Most importantly, how can JULY help tell it?

Take this time to refine your pitch, clarify your professional and personal goals and perfect your messaging. Need help? Register for our upcoming advisor-centric Storybrand Virtual Event.

 

Partner With JULY

JULY empowers advisors. We’ll partner with you to help locate new prospects in your area, prepare plan illustrations and cost analyses, provide educational information on plan design features, build your center of influence in your community and help your business tell a compelling narrative.

 

About JULY:

JULY is a 401(k) services company specializing in hi-touch, tech-enabled retirement plan services. Our employees have served as plan experts to advisory firms, advisors, and employers in the small and micro 401(k) plan market for over 25 years. Over the last decade, our in-house software development team has built a host of proprietary technology solutions to streamline, automate, and simplify all facets of retirement planning to make processes rewarding and easy for our clients. For more information about JULY, visit our website https://www.julyservices.com.

 

Adjusting marketing and prospecting techniques.

5 ways advisors can expand business during a pandemic.

Register for our webinar.

retirement plan, customized retirement plans, cash balance plan, 401(k) plan, 401(k) services, SECURE Act, retirement

What is a Pooled Plan Provider (PPP)?   

 

The SECURE Act

The Setting Every Community Up for Retirement Enhancement (SECURE) Act expanded Americans’ access to retirement savings. One of its provisions created an entirely new type of multi-employer plan (MEP): the pooled employer plan (PEP).

A PEP allows unrelated small businesses to band together under one retirement plan, hopefully creating economies of scale, which must be governed by a pooled plan provider (PPP).

Pooled Plan Providers (PPPs)

The SECURE Act stipulates pooled plan providers (PPPs) will serve as a PEP’s named fiduciary, plan administrator and perform all associated administrative duties.

PPPs are responsible for all oversight of the plan. This builds upon the past decade’s trend whereby providers began taking on more 3(16) and 3(38) fiduciary responsibility.

 
 

Requirements to Become A PPP

1. Register with Department of Labor & Treasury – The DOL will issue more guidance.

2. Provide Written Acknowledgement of Named Fiduciary & Plan Administrator Status – The DOL will issue more guidance.

3. Maintain ERISA Fidelity Bonding – An ERISA fidelity bond is a type of insurance that protects the plan against losses caused by acts of fraud or dishonesty. It protects the plan, NOT the fiduciary. This is another level of protection for small businesses.

4. Hire Trustee to Collect Contributions – This approved custodian will be responsible for collecting employers’ contributions in a timely, consistent and integrated manner.

Likely PPP Candidates

Although there are no imposed conditions on who may serve as a PPP, because of the above requirements, financial service providers are most likely to serve as PPPs. These include:

  Banks

  Insurance Companies

  Registered Investment Advisor Firms

  Third Party administrators (TPAs)

  401(k) Recordkeepers

 

The Department of Labor will release more guidelines regarding what entities may act as a PPP.

PPPs Shift Fiduciary Responsibility

While small business owners participating in a PEP will still have a fiduciary responsibility to: select a prudent advisor, ensure said advisor’s continued prudence and retain responsibility for the selection of monitoring of the PPP, the pooled plan provider dramatically reduces their exposure to liability.

PEPs shift the real risk and administrative burden from employers who lack the time, industry-specific knowledge and resources to the PPP.

 

About JULY:

JULY is a 401(k) services company specializing in hi-touch, tech-enabled retirement plan services. Our employees have served as plan experts to advisory firms, advisors, and employers in the small and micro 401(k) plan market for over 25 years. Over the last decade, our in-house software development team has built a host of proprietary technology solutions to streamline, automate, and simplify all facets of retirement planning to make processes rewarding and easy for our clients. For more information about JULY, visit our website https://www.julyservices.com.

 

The Cash Balance Catch Up   

 

AUTHOR: Blake Willis, COO of JULY Services

I am grateful for the American small business owner, and I admire their grit, tenacity and innovative spirit. Small business owners account for over 50% of American employment and create more than 60% of new jobs . They put their money where their mouth is; more specifically, into their practices, firms and ventures.

But at JULY, we don’t want to just pay lip service to the vital role small business owners play in our economy. We want to equip these cornerstones of the economy with a tangible way to build retirement security. So, how do we help those who often spend decades plugging their profits back into their businesses and writing excessive checks to Uncle Sam at the expense of their 401(k)s? Cash balance plans.

Cash Balance Plan

A cash balance plan is a type of qualified retirement plan that enables business owners and highly compensated employees to maximize tax deductions and accelerate savings. A hybrid plan, it combines the best of both a defined benefit and a defined contribution plan.

JULY’s Regional Sales Directors provide expert field support for retirement plan-focused financial advisors and third party administrators. They organize and host educational events, coordinate plan design illustrations, prepare and present proposals, and are speakers on topics relevant to industry professionals. Geringer will be responsible for working with advisors and other JULY relationship partners in the West Central Region and will be based in Denver, Colorado. See JULY’s national sales map for more details.

Essentially, it’s a way to save more, faster.

Best Candidates

Healthcare industry professionals, lawyers, dentists and CPAs who own their own practice, or other types of businesses that have steady cashflows and high profits and are already maxing out their 401(k)s are likely to benefit from a cash balance plan.

 
 

Advantages

  Maximize Tax Deductions

  Accelerate Savings

  Provides Measure of Certainty

  Flexible Plan Design

  Easy to Understand

  Small Employee Benefit

Maximize Tax Deductions

Cash balance plans are one of the last, best tax deductions available to the American small business owner. Even the most aggressive small business 401(k) plan cannot replicate the financial benefit these plans offer.

How? Cash balance plans are uniquely structured to allow the business owner(s) to receive an outsized percentage of funds contributed to the plan compared to their employees. Paying a few thousand dollars to employees and an administrative fee that begins at four to five thousand dollars is quickly recovered by the gargantuan-in-comparison tax deduction the business owner receives.


Accelerate Savings

It’s not too late to save big. And quickly. Cash balance plans dramatically accelerate retirement savings. Yearly 401(k) contributions are capped at $57,000 for those under fifty and at $63,500 for those fifty and over. This level of savings is often not enough for high earners to maintain their lifestyle in retirement.

When high earners combine their cash balance plan with a traditional 401(k)/profit sharing plan – which almost all cash balance sponsors do – they can set aside $100K+ more per year.

Cash balance plans also offer an effective diversification method for owners who have too much money tied up in their firms or would like to hedge against some higher-return, riskier investments.

Provides Measure of Certainty

Cash balance plan contributions are typically invested in a conservative manner, but participants receive a set rate of return (normally 3-5%, which is defined in the plan document) regardless of the actual performance of the funds. Remember, since a cash balance is, in part, a defined benefit plan, the amount the owner will receive is defined no matter the gains or losses the investments yield.

A cash balance plan is not focused on huge gains from the market, which may make this seem like a less-than-flashy investment. And it is. But a cash balance plan not being subject to the whims of a highly volatile market is freshly compelling in the light of COVID-19.

Just this past March, the Dow dropped more than 35%, and the CBOE Volatility Index “VIX”, commonly known as the “fear index,” reached an all-time high. While the market has since recovered most of the ground it lost, the near and medium-term outlook remains highly uncertain, per Fed Chair Jerome Powell . Cash balance plans offer a refuge from market turbulence in the form of set, predictable returns for participants.


Flexibility in Plan Design

Cash balance plans offer a high degree of flexibility in plan construction.

A Tale of Two Partners – Consider an ENT practice with two partners. Think about these highly compensated professionals’ educational and career trajectories. The first partner just turned 35. The second partner is 55.

Both partners completed extensive schooling (often 8 or even 12 years of postsecondary education), studying hard in undergrad, medical school and in residency. Both partners worked to establish their practice. They assembled a great team, built their book and established a solid infrastructure. But that’s where their paths diverge.

The 35-year-old is still paying off student loans (often $100K+ for specialty doctors), is building a new home for her expanding family and saving intensely for her children’s education through a 529 plan. She is likely not interested in a cash balance plan.

The 55-year-old has raised a few kids, put them through college and paid off his daughter’s recent wedding. He is comfortable in his career, has no debt and few expenses and is rapidly approaching retirement age. He is a prime candidate for a cash balance plan.

A cash balance plan can help the 55-year-old understand his financial goals and create a plan to rapidly meet them. We can adjust the plan to exclude the younger partner, or bring them in at a much lower, but equally beneficial contribution level.

Easy to Understand

Like a 401(k), cash balance plan statements are easy to understand. Contribution and interest credits are clearly delineated in an easy-to-read, lump-sum format. Participants know exactly where their money is, how it’s being invested and what their account balance is.

Simply put, clarity + transparency = happy participants.

Employee Benefit

While cash balance plans require some pay-in to employees’ accounts, it is a small tradeoff when you take into consideration the enormous tax break employers reap because of it.

But even this small contribution can increase employee morale, help retention rates and attract new talent.

The Cash Balance Impact

I’ve become a champion for cash balance plans, because I see firsthand the outsized impact they have on individuals’ ability to save quickly and smartly for retirement.

The combined benefit of shielding a quarter million dollars from a 37% tax rate while earning a respectable three to five percent return on that investment makes a compelling argument.

As with any retirement plan, there are drawbacks. Some factors for small business owners and financial advisors to take into consideration before proceeding with a cash balance plan are: the IRS’ permanency requirement (plans are not to be altered often), an excise tax can be levied against the owner for failing to make yearly contributions and census data can affect the level of employer benefit.

Partner with JULY

Cash balance plans are the fast-growing segment of retirement plans. Financial advisors have an opportunity to partner with JULY to seize upon this trend.

Our advisor-centric approach provides support to educate advisors on cash balance plans, craft a proposal and design a plan for their clients.

For more on how cash balance plans work and the advantages they offer: https://www.julyservices.com/plan-types/cash-balance/

 
 

About the Author

Blake Willis is a highly recognized thought leader and event speaker within the retirement and financial services industry, and a domain expert in cash balance plans. He is one of the nation’s leading authorities on all aspects of retirement plan governance, plan design and 3(16) plan administrator roles, but also practical aspects of retirement plans such as product development and distribution strategies.

 

1 https://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf

2 Some plans may elect to credit the actual rate of return.

3 https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20200429.pdf

4 Assuming the highest tax bracket.

 

About JULY:

JULY is a 401(k) services company specializing in hi-touch, tech-enabled retirement plan services. Our employees have served as plan experts to advisory firms, advisors, and employers in the small and micro 401(k) plan market for over 25 years. Over the last decade, our in-house software development team has built a host of proprietary technology solutions to streamline, automate, and simplify all facets of retirement planning to make processes rewarding and easy for our clients. For more information about JULY, visit our website https://www.julyservices.com.