How did we get to a retirement crisis in the U.S.? There was a time where you could hang your shingle as a small business, reinvest in your business, advertise word of mouth, hire the best staff, then either pass to your children or sell. It all seems idyllic now.
Susan Scott author of Fierce Conversations and CEO coach says, “We either succeed or fail gradually . . . then suddenly.”
Gradually, there were market forces at work for the last 20 years that are suddenly too evident now.
Though the S&B 500 index has increased on average 7.5% per year, it is only 5.3% adjusted for inflation (2000-2020). Note, the 5.3% inflation does not include the highest U.S. inflation rates in 40 years -this year. You can easily feel the exponential rise in the biggest expenses cars, healthcare, education, and real estate. The exponential costs in new employees, equipment, building materials, and real estate makes re-investing in the infrastructure of your business a much slower return on investment than even a year ago.
Then there is the problem that only 32% of Americans invest in a 401K (Personal News Capital, December 2021). NC Services for Dentistry surveys of healthcare businesses revealed that only 35% of employees offered the benefits of a 401K to their teams. Understandably, small, and growing businesses saw the regulation, administrative costs, and fiduciary liability outweighed their desire to offer a plan.
The impact of the benefit crisis directly connects to the labor shortage we face today. The smaller generations replacing Baby Boomers in the workforce watched their parents struggle with work-life balance and end in a retirement crisis anyway. Combine that with access to credit products and technology-based spending that did not exist 20 years ago, and danger lurks. Stir in the desire for team members to have gig-like flexibility working that rarely offer benefits, and you have an existential crisis.
The “Great Resignation” or “Great Reshuffle” is a phenomenon that means you are losing qualified staff not only to other businesses in your industry. You are now competing with Fortune 500 companies in all industries who offer better benefits. McGill-Hill states that U.S. unemployment dropped from 6.9% to 4.2% in the past year (January 2021). In 2022, a number of markets are below the 4% underemployment mark. To counter the phenomenon McGill recommends offer better benefits, review market relevant pay, and invest the time to review total compensation with your teams.
Enter the Secure Act of 2019. This legislation has been in process since 1986, and the Act reduced the administrative burden to programs like a Pooled Employer Program (PEP). The goal was to reduce the barriers of entry to a 401K for both associations, businesses, and the employer’s team. The SECURE ACT enables private employers to pool their 401Ks to lower fees, reduce administration burden, while having lower fiduciary liability. The Secure Act also facilitated trade associations and membership organizations to research, vet, and sponsor these plans and offer them to their members. With the best PEP for your business, you can benefit from the lower fees, lower administrative burden, reduce fiduciary responsibility while offering tools to employees that impact their wealth curve.
The best PEPs even allow you to choose your own Certified Financial Planner, choose from a trusted list of planners, or manage it yourself. They also offer the benefit of not having to sign an individual 5500 tax filing, a wide menu of financial products, and simple, online tools for transactions. Choose a PEP that offers you the freedom to offer individual plan designs and eligibility requirements unique to your business and your team. Act quickly and you can receive a Secure Act tax benefit for starting a plan.
As the financial planner of Dr. Catherine Bickley, DDS, Mooresville told her, “You can choose to pay the government in extra taxes, or you can reward your employees with that money instead.”
If you already have a plan, you can easily convert to a pooled plan and increase the employee match to better compensate tenure, better retain your staff, and to encourage team members to invest in their generational wealth.
As a member of an organization who sponsors a PEP and as a practice owner, you can now afford to compete in benefits with bigger more resourced companies.
If you are an associate, 1099, or owner you also have other solutions to consider (better SOLOK’s, IRA options, cash balanced plans or defined benefits) to lower your tax burden and invest more aggressively. Create a plan and you can better invest in your future, increase benefits, and keep the best team members – all while lowering your fees and taxes!