John: Thank you for attending today's webinar: Encouraging Small Business Retirement Plan Creation. My name is John Faustino and I serve as head of Broadridge Fi360 Solutions. Before we begin, I have a few housekeeping items to cover. At the bottom of your screen are multiple application engagement widgets you can use. All of these can be moved, resized or minimized. So feel free to customize your desktop face as you see fit. Additionally, today's session has been accepted for one hour of continuing education credit by Fi360, IWI, the conveyors of the CMA designation, and the CFP board. To receive CE for this live webinar, it is important that you join the webinar using the email address associated with your Fi360 account and using the link that was sent directly to your email. You also must be in attendance for at least 50 minutes in order to qualify for CE credit. For those who do qualify for CE credit, there's no additional action required on your part. You will receive an email confirmation as soon as your CE is processed. If you have any questions during the webcast, you can submit them through the Q&A widget in the application that we're using. If your slides are behind, which is a common issue that we have come in when we're doing these webinars, If you push F5 on your keyboard, that will refresh the page. The on-demand version of the webcast will be available about a day after we finish up and can be accessed using the same audience link that was sent to you earlier. I am now going to turn things over to our featured speakers who I'm really excited to be here with today. Annie Messer and Pete Swisher.

Pete: Thanks, John. Well, and I think a little bit of background. Some of you, if you've ever seen any of my writing or speaking, you know, it's usually about fiduciary topics or multiple employer plans. But today, the part of my background I want to share with you is that I started in this business as an advisor and I was with a life insurance agent selling life disability annuities. Got my series 7 and 66, you know, all the different licenses and out there running the gantlet trying to build a business and gravitating very early on to qualified plants and to employee benefits. And when I started simples new - safe harbor 401ks were new and I was helping start plans. And so, it's exciting to me that I'm at a point in my career where we're getting serious about closing coverage gaps. So today we're here to talk about selling start up plans, how to help double the number of retirement plans out there - close the coverage gap by creating new plans. And Annie I’m going to hand it to you.

Annie: All right. I'm Annie Messer. In my prior role as ERISA compliance at a broker dealer/RIA, I spent much of my time consulting with advisors and talking them out of working with retirement plans so that I could then talk them into working with retirement plans. Hear me out. Basically, if they made it past my sermons on fiduciary responsibility, liability and the complexities of working with a plan, then I knew they were serious about it and we could work on building a book business. Thankfully, while plans have their complexity, there are solutions out there to make it easier to work with plans, including some pooled plan structures and solutions brought to you by the Secure Acts. So today we're going to spend a little bit of time talking about those. Secure 2.0 and its predecessor of 2019 are more than rule changing legislation. They are a movement toward expanding the retirement savings system in the US. It's a clear trend and there is an expectation of more to come to move our retirement system to something closer to that of many countries where all workers are included and covered by retirement plans. The 92 provisions of the SECURE 2.0 we will not talk about all of them today, in fact, we will really only talk about a couple that can be categorized into three buckets. Expanding coverage for American workers without access to retirement plans at work, increasing savings rates for those with access to plans, and simplifying plan administration to make plans easier for employers to offer. I believe the rules will expand coverage and savings. I tend to be a little bit skeptical any time the government says that they are going to simplify anything. In my experience, adding rules rarely simplifies, but we'll see. These three goals will have a profound effect on the retirement plan system as we know it and encourage new plan creation. Only 1% of employers in the US have greater than 100 employees, so 99% of businesses are small businesses for purposes of this rule. And it's estimated that over 70% of small businesses don't offer a retirement plan. So that's our market here. SECURE 2.0 is meant to move the needle on that. Pete.

Pete: So if you look at startup plans - and if that's our focus - so what Annie just said, 99% of businesses are small businesses. Another statistic that's interesting is something like 50% of all employees in the United States are employed by less than half a percent of all the companies in the U.S. So there are some very large corporations, but there are about 700,000 retirement plans in the U.S. And I'm rounding off it's 835,000 if you include certain types like defined benefit plans. But, you know, somewhere in that ballpark is the number of plans we have. And the number of businesses out there is in the millions. If you exclude self-employed individuals, you still have something like six or seven million businesses, most of them with fewer than five employees. And so there's this movement to bring retirement plans to those small businesses. So that's what we're talking about. When I say we're talking about doubling the number of retirement plans, there is a movement to close this gap of coverage. The fact that too many businesses, mostly small businesses, don't cover their employees with a retirement plan. And therefore, we have state mandates that are emerging. So more than half of the states have rolled out some kind of legislation that's in various stages of being proposed or enacted with four states actively running mandates. What the mandates mean is the state is telling US small businesses, you must have a retirement plan. But I'll tell you what I see. I see a ten year path that's going to be followed by another ten year path where we're on the way to saying, hey, let's have everybody have access to these things at work and we need the help of advisors to make that happen. So we got our current 700,000 plans because advisors went out and talked to small business people. We knew we need to do that again. We need another 700,000. That's what this is about. And when you throw tax credits in with a mandate or simply the motivation to close the coverage gap, and if we have the ability for distributors, for advisors to go out, sell these things and actually get paid for it, I think that combination is rocket fuel for startup plans.

John: I'm going to jump in here and maybe make another comment on the rocket fuel for this. I see a real opportunity for wealth advisors, for non-retirement plan specialists to engage here. So we know that there's a need, we know that there's a coverage gap and that there's just not enough retirement plan specialists to create all of the start up plans that are required to address the needs of the working Americans that don't have a retirement plan today. One of the real benefits that I see for generalist advisors to engage is both opportunistic and also a bit defensive. Perhaps the best or some of the best prospects that wealth advisors have is with small business owners. So if you live in California or if your clients live in California, Illinois, Oregon, Washington, Colorado, I believe there's actually six states now that have mandates for retirement plans in addition to the folks that have stuff kind of in the works. If you don't help your small business owner, client, or prospect with their retirement plan need, someone else is going to do it. And if they win that retirement plan, you can bet that they're going to focus on their business owner’s wealth also. So there absolutely is an incentive for generalist advisors to engage here and to become active with this emerging opportunity.

Pete: All right, so how do you do it? Yeah, that's what we're really here to talk about today is how do you go about doing this? So if you're interested in selling startup plans, how do you do it? How do you make money at it? Because if you can't get paid for it, that's always been a problem of how do we go about doing this? So, there are pieces of the puzzle that we've broken down into three. There are certain things you have to know. You got to get your pitch down. You have to have the value proposition down and you've got to have a team of people supporting you. So on the basic side, you do have to know a little bit about the tax credits because the tax credits like, you know, we call it rocket fuel tax credits, are a game changer. Those of us who have been doing plan design for a number of years and talking to small business owners, you'll see the math - we will actually go through this and go through a conversation of how do you talk to a business owner. It's very powerful and it makes it to where an awful lot of business owners really are in a position where how do you say no to that? So you got to know the basics of the tax credits. You got to know the basics of the plan types. You got to be able to do some simple design concepts and you need to know how to talk about it.

And I'll give you a story of how I learned how important it was to be able to talk about it. One of the first, it might have been the first 401k cases I did, was a friend of mine and he came to me. He's an electrician. He had about 15 employees, never had a retirement plan, knew he needed one, and wanted to do it for his people. Wanted to save some money himself. So he's like, all right, Swisher, I want to do this. I want to do it with you, but I need you to tell me why. I've had people harping at me for years. I need to tell you why. And I was new at the time. I didn't know the rules. I was still learning. I went out and spent some hours, got to talk to a local TPA, who gave me an illustration, had 15 pages of stuff to take back, and started talking to him about, hey, you can save taxes, you can recruit and retain employees. So he's like, hey, I've heard all that. I want to know why I should do it. Well, what he was talking about was he wanted me to go through the math and be able to say, hey, you're going to be able to put away $25,000, which is the number you gave me that you wanted to put away. And even after paying for your employees and paying the expenses, you're going to save $4,000 on taxes. That's what he wanted. He's like, okay, I don't care about the rest. And that was the answer to the question. So that's part of the value proposition. And getting there is, again, something we'll talk about a little bit later.

Annie: The other part is knowing that your retirement plan business is going to be different and your value proposition as a retirement plan advisor is going to be very different than it would be for a wealth management client. And that's okay. Being confident in what it means to be a retirement plan professional is part of the value. You don't need to be the person picking the investments. You need to be the person who can provide the easy button, and who can work with the employer to build a strong team. You don't have to do it alone. In fact, the more you can help the plan sponsor to outsource to dedicated experienced plan service providers, the more you protect yourself and the business owner client from liability potential for error, and you bring value to the plan. So you bring together the team and become the trusted facilitator or if you like, sports analogies, the quarterback. So the second piece of it is looking at the plan types and what business owners are really looking at. What do they care about? They want to ensure their employees have a timely and dignified retirement. They want to offer benefits to their employees as they compete for talent in today's employment market. Of course, those are great reasons, but let's face it, the main drivers for start up plans: they want to save on taxes. They want to save for their own retirement. And in today's world, perhaps the state told them they have to, but maybe they don't really want to use the state plan. What are they concerned about? They're concerned about cost, whether because they've seen in the media that plan sponsors get sued for high costs or because they just don't want to pay more than they should.

Costs are a big concern. They are concerned about administrative complexity. How much time is this going to take for me or for my staff? That's also a cost. And they care about their own liability, or at least they should if they understand the ERISA fiduciary responsibilities they take on when they sponsor a retirement plan. So what kind of plans are we really looking at for small businesses? The tried and true old fashioned simple IRA. This is a low cost, low maintenance plan design. Employers do have to contribute either the 3% match or 2% not elective, but it has no testing, no 5500. It does have a lower contribution limit than a 401k, so that's kind of the downside there. The new starter 401k coming next year created through the SECURE 2.0 is similar to a payroll deduct IRA. They have no employer contributions, just employee deferrals. IRA limits. This plan will not move the needle on retirement readiness, but it will meet state mandates if that's all the employer wants and they don't want to do the state plan. Then you have the single employer for a 401k more complex in most ways potentially higher cost, but more flexibility. It's possible that this has the highest fiduciary liability for the employer if they don't outsource. But it all depends on the service providers that they they engage. It does have higher contribution limits. Finally, pooled employer plans. We will talk more about the different types of group plan solutions and pooled plans later. But we'll focus a little more on the PEP today because that one really rises to the top of the list for simplicity for the plan sponsor, ERISA fiduciary support, possibly lower costs and high contribution limits.

Pete: Annie, before you move on from this one, I thought I'd just let me point out just a little bit of color on the starter 401k, because I know that that's something people have questions about. So John mentioned earlier on our on our rocket fuel slide that there's an opportunity and a need for wealth managers for those who don't normally do retirement plans. There's now an opportunity for them to do it profitably. And it's part of this discussion about closing the coverage gap and part of the starter 401k. Part of the reason that was introduced is to match the state mandated plan. So in the states that have a mandate, John mentioned Colorado. Colorado's mandate goes into effect this year, it's just started. And so what are you going to do in California under five employees? What are you going to do if you if you don't start your own plan, you go into the state run plan. And in California, it's an IRA based plan. So for the starter 401k, the advantage of it - so you might say when it becomes available, if it's available, what will it look like? It'll just be deferral only and it'll match the IRA limits more or less. There's a technical correction needed on that, but it could be something that is easily upgraded to a full 401k without having to do a conversion. And that's one of the reasons it was introduced the way it was introduced. So they don't exist yet. It's unclear how popular they will be, but that's that was the thinking is that it's an easily upgradable base level 401k.

Annie: Right. So at the end of the day, employers are likely the most concerned with their own retirement, and that will be a major driver for their decision of the plan type. As Pete said, the starter 401k only allows for $6000 and deferrals plus a $1,000 catch up. There's no employer contribution - that's not going to do much for a business owner. A simple allows for $15,500 plus the $3500 catch up. If they're over 50, you get the 3% match or the 2% non-elected, that's a little better. But for a 401k and pooled plans and pooled 401k plans will have options that allow business owners to maximize their own retirement savings as well as that of employees.

Pete: Well, there's, you know, another story of one of my early cases. And I am dating myself a little bit, - SBJPA, Small Business Job Protection Act of 1996 created simple IRAs, and it also created Safe Harbor 401ks. And I started in the industry right after that. So I was out doing simples and some safe harbors. And so exactly what we're talking about, selling small business owners and doing start up plans. That's what I did for several years. And I probably sold a couple dozen of these things. And there was a dividing line there was this a question. And that question might have been the most important plan design question. And it's just how much do you want to save, how much do you personally, business owner, how much do you want to save? I have one business owner who is a custom cabinet maker, had like 15 employees and said, hey, these guys, these guys don't care about this plan. This is just for me. I just want to do this, here is how much I want to save. It turned out to be wrong. We got 70 plus percent participation. I was proud of that. That's part of the impact an advisor can have on a plan is to get those folks involved. But the question for the business owner was, I want to put away about $15,000 a year and at the time he could do almost that much in a simple and that basically ended the plan design discussion. It's probably very similar today. The alternative though, so why do a 401k instead? A couple of reasons but mainly the contributions but also it's so recognized. If you say 401k, everybody is like “okay your’re a real company you've got a benefits package, you've got a 401k” and it's recognized versus saying simple IRA. That's my experience with that.

Annie: One of the biggest pushbacks I received from advisors over the years when discussing startup plans was the payment issue. Startups aren't worth my time and small business owners don't want to pay out of pocket. This argument is greatly reduced based on the startup tax credits for many employers. You have options and a good story to explain to an employer why it makes sense for them to pay you for your services directly. However, you need to be upfront with the plan's sponsor that even after the first three years, the plan might not be big enough to support an asset based fee. So this slide is showing, you know, plans grow, but they might not grow really, really fast. And when you start with a very small plan, it takes some time for that plan to get big enough that it can support the fees. So you might have to start with a flat fee for service. Per capita fee. Hourly fee. Some financial professionals set a minimum fee and are paid from plan assets and then the remainder is invoiced to the plan sponsor. There are a lot of different ways to set these fees, and now that there's an offset for some of that based on the tax credits, it helps. But don't let the plan sponsor be caught off guard in year four when the tax credit stops and is no longer applicable. And they still need to pay for some or all of the fees out of pocket.

There are a lot of recordkeepers today. That's kind of my, things to watch out for, that have asset value based fees that are set based on their minimum asset values in the plan. So you can't get paid from plan assets until you hit a certain threshold. This means that the plan sponsor might be required to pay certain fees, including yours out of pocket, until the plan reaches an asset level that can sustain the fee reasonably for your services. In some situations, I’ve seen the plan can be set up with an asset based fee that will kick in after the plan hits that threshold number. Be careful you are on top of that, so you don't end up getting paid from plan assets and then billing for the same fee. That's a conversation you don't want to have with the plan sponsor client - a correction you don't want to make. And also make sure you understand your firm's policies and procedures around setup fees and plan consulting fees, as well as invoicing for direct billed fees to ensure that you are appropriately compensated for your services and importantly, to stay on the up and up with compliance, because we all want that. In this example, this employer would be invoiced the $3,000 recordkeeping TPA base fee, $3,000 for your advisory fee, and they'll need to write a check and pay for those fees out of pocket, even though the tax credit will later cover some of it.

Pete: So when I started, I started with an insurance company. I had life, health, disability license. I could do annuities, I could do mutual funds. I could technically do stocks, with a Series 7. But I never did. And my company told me, go sell 100 lives. And what they meant was go sell a life insurance policy to 100 people, sell a disability policy, sell an annuity – each of those kind of as a as a life and sell 100 lives. And the concept was for a new life insurance agent. If you do that, you’re going to have a great career. You’re going to have a great foundation of clients, brokers, stockbrokers, similar experience, get handed a phone book. Back in the days when phonebooks still existed. And get on the phone, make 100 dials so that you can get six conversations, so that you can have two meetings and or whatever, get six meetings, sell two clients and place some trades. And this was just kind of the old days of how you got started in the business. It's a new world today and we have more of an apprenticeship model. I think we've come a long way, but there's still a need for new people to get out there to learn the business and to get clients - get a foundation of their own clients. I love this market. I love the small business market, and I've always had so much fun selling to these customers. So I have a new challenge. Instead of 100 lives, make it a thousand. Go sell ten plans, 50 plans, 100 plans, get them started up and help a thousand people save for retirement. You will have an incredible foundation of both customers and experience, and those customers will have other needs. And I just think it's a great way for us to bring new people into the business and for us to close the coverage gap at the same time.

John: I love that. I love that Pete. I think that's a that's a wonderful way to think about it, a wonderful way to position it. And it's really cool to link what you were tasked with before in your in your career to what you're seeing.

Pete: Well, thank you. I remember at the time thinking how hard it was, you know, to get started at going out and getting clients waiting to get paid, you heard Annie talking about the fee. I couldn't make any money at the time, and even that was even with A-Shares. So this, the feet of lemons is very real. How do you get paid for your time? And the SECURE Act lets us do that with either a flat fee or a minimum fee. And that's what makes it viable for an advisor to do this work. It's a very important point because otherwise, unless you're doing other work for the client already that you can afford to be there. It's just never been possible for advisors to get out and do this work meaningfully. And now it is. So what I want to do now is walk you through the math. So the idea is you buy in and you want to go sell a startup plan. You want to go get small business clients, how do you have the conversation? And it is complicated. And so what I want to do is try to break it down into a simple formula of how you would do this on the back of a napkin over breakfast or lunch or a cocktail or a cup of coffee or the internet or a yellow pad, because those are the most effective conversations. So as we said earlier, you've got to know the basics. So we'll start with the tax credit. A simple formulation of it is it's 250 bucks per non highly compensated employee NHCE. And the you know, the definition of that is more or less about $150k I can't remember the answer this year, but non highly compensated employees are the only ones who count for this purpose. And remember that number changes. I'm going to come back to that concept in a minute but 250 times those folks, that's the limit of what you could get as a credit.

And then it's capped at $5,000 and you get 100% of that as long as your 50 employees or less. So when we're talking about this, the full benefit of the credit is at 50 or less, but there's still a credit up to 100 employees. So this is, Annie said earlier, 99% of businesses have under 100. Those businesses are all eligible for the credit. The ones 50 or fewer are eligible for the max credit. There are two pieces to the credit, and one of them is the start up costs. And that's that first portion, the 250 bucks. The second is a credit for employer contributions. The contributions tend to be the most expensive part of a plan. So if you're going to give your employees a match, it costs you money - if you're going to give them a nonelective contribution. So a contribution that the employee doesn't elect to put any money in, they don't defer their own salary. We call it a nonelective contribution. It's just an across the board amount of money that the employer puts in - that's expensive. So if you do a 3%, which is a safe harbor, you know, kind of a good number to use, costs a lot of money. Well, you can get up to $1,000 for the first two years and for year three, four or five, it goes down by 25% every year. On year six, there's no more credit. But that's five years of a lot of money. And I'm going to show the impact of that money. But more importantly, here's what the business owner wants. You sit down and talk to them. They're busy. They're trying to do their work. It's like, what do you think I should do? Why should I do it? What's it going to cost me? I don't want to hear a sales pitch. Just tell me what's in this for me? So as Annie said, that is the bottom line for a lot of them.

“What's in it for my business,” is another way that they might frame it, but you've got to be able to answer those questions effectively. And there are a couple of questions you can ask to probe to make sure you know where you're starting. One easy one is how many people do you have? So, do you have any employees? Because again, zero, you don't qualify for the tax credit. You can still have a conversation about having a plan. But you need to have at least one common law employee, someone who's not a family member roughly, or you're not eligible for the tax credit. You have to have under 100 employees, and you can't have an existing plan that you've contributed to substantially for this group of employees. And so this is actually complicated. And what I'm going to recommend, get a cheat sheet. You as part of your assembling your team, you want a handful of people who can help you with plans and a TPA/recordkeeper, maybe some of the investment folks you deal with, they have these things. So get a cheat sheet for the tax credits and it'll show you that there are some complications here about who's eligible. But do you have an existing plan? Basically, they might have a plan, but if they didn't make a lot of people eligible for it.

Might actually be eligible for the credit. So don't completely rule them out without checking the rules out. But simple version, no plan, no existing plan, haven't made any contributions for three years. You're eligible. And of course, a tax-exempt organization doesn't qualify because this is a tax credit and it is a credit against taxes. So if you don't pay any taxes, you don't get the credit. I regret that personally, I hope Congress fixes it. Nonprofit employers also need help with coverage, and I would love to see that change. But not yet. So here's a sample of a tax credit cheat sheet. This particular one's from July Business Services who is a recordkeeper that does a great job with micro plans, is willing to embrace micro plans. A third party administrator could be a source of this, an investment firm. You need something. I'm not going to go over the math. That's not the point. It is that instead of trying to do it all yourself, it just helps to have, you know, a little cue card, basically, and it helps to go into the conversation already knowing what the math is going to look like a little bit. The next piece of help that you need to prepare for the conversation is more complicated. And you do need somebody to run it for you. But it's a plan design illustration.

Again, you can get this from some recordkeepers. Not all recordkeepers will do it. A TPA will do this. And you can also just get samples and again have a cheat sheet, but you need some kind of idea of how to pull certain numbers out of a document. Now, you're looking at this. Probably going to this is complicated. Yeah, it is. But financial planning is complicated, and taxes are complicated. And that's why these people hire us. If you can go in and simplify this complicated stuff, that's the win. That's how they make the decision. “I'm going to start a plan.” So let me walk through this a little bit and show you that what you're trying to do is not necessarily know how to replicate this, but to pull out the right information. So you're going to get an illustration from somebody who's good at this stuff. They're going to need to know how many employees and what they make and probably their ages to get really specific – ideally a census. But again, you can use some approximations here. But in this example, if you look at that second bullet, we use a 3% contribution. So the owner is saying, “I'm going to give 3% of my employees pay to them automatically in their plan non elective, and that's going to cost me 24,000 bucks.” That's about $1200 per employee. Well, go back to the tax credits, the tax credit for employer contributions, caps at $1,000 for the first two years. So for two years, I can give $24,000 to my employees. I can give $1,000 to each of my employees.

And I only have to pay 200 bucks. Now, I don't know about everybody else, but if I have to pay one of my employees money, then it costs more like $1.50 to deliver a dollar of compensation. This is pennies on the dollar. After deductions, it's $0.10 on the dollar. That's really hard to turn away to be able to give that benefit to your people. A way of framing that is to say, yeah, I'd rather give that money to my people than to Uncle Sam. So scrolling on down, the owner can save up to $66,000. If you're a TPA in the audience, you may be looking at this going “Swisher what are you doing?” These numbers are highly dependent on demographics. They will only work a certain way with certain demographics. But this what I'm showing, is a perfectly common scenario, and it can work this way, but I'll flip through that a little bit. But if you look here, cash flows, so this is what you're trying to pull out. You're going to have to write some checks. You're going to have to write a check to your own account. So if it's a 401k, you're putting $66,000 in your own account. You're making a contribution for your employees. For $24,000, you have to pay fees. And the good news is you get credits. So in this example, we have almost $100k worth of checks to be written, but we have over half of that coming back in credits. So the net effect is, hey, you're going to end up with $66,000 in your account - tax deferred tax efficient and you still save $23,000 in taxes. It's really kind of a no brainer when you talk about it that way.

Now that's years one and two, the tax credits expire. So long term, you need to make sure they understand, hey, this does go down. You're still going to end up having to pay something. But in this example, net of taxes, it's the worst case scenario. It's a wash and they basically get to use tax deductions to feed their employer employee contributions in this example. All right. So how do you have the actual conversation? So you've gotten the illustrations, you've pulled the numbers out and you're working on simplifying it. You want to be able to do it on the back of a napkin for the employer. So you're going to get a design illustration and you're going to get numbers that look something like this from that last document. You get to put away $66k and you're going to have to pay $7000 of expenses plus $24,000 of employer contributions. You're going to get credits and deductions. You get the pocket $23k. That's what they want to see. In my example earlier, where my friend just wanted to know when he was asking, why should I do this? He just wanted the bottom line, “hey, you're going to save 23,000 bucks and you're going to end up with 66,000 in your account and you're going to get to give 24,000 to your employees.”

All right. So here's the formula to break it down even further. So, step one, you get to save this much money. Step two, you get to give your people this much money, $24,000 in this case. Step three, here's what it costs. And in this case, $7000. You're paying me the adviser $3000. You're paying the record keeper $4000. And that cost goes on. So after three years, the credit for that piece is gone. You're still going to be writing the checks. The assets may be large enough to pay the fee at that time, and they might not. But long term, you know, that's it. We'll reevaluate in four years, but just expect that that will be there. I think it's very important not to mislead people and not let them get surprised if you want long term clients to be happy. And then finally you're going to get credits and the credits are going to cover a lot of this stuff. And in this example, you still get some money back. So important caveats. Again, the demographics matter. So when you get into the details of plan design coming up with these numbers, it's complicated. You need an older owner, younger employees, a certain amount of compensation. And these numbers can really vary. And it's important to recognize that they will also vary within an employer. So you get this math, and even if it's correct today, it'll be wrong tomorrow because it's a changing picture. So as long as you're careful to frame it, you're okay. But let's flip this around. Let's say the numbers aren't that good and they're the numbers. Instead of getting back $23,000, you're paying $23,000. It costs you $23,000. So in that example, though, are you really behind? What does the business owner get in that example? Yeah. You're writing checks net of taxes. You're writing checks for $23,000. Your people are getting $24,000. They're saving for their retirement. They're not doing that now. They need to. You're saving for your retirement. That money is in an account protected from your creditors. It's tax deferred. Even if you have to pay, it's a heck of a deal. So those are just some of the conversations you can have. And again, always make sure that you say the credits do expire. You know, part one of the credits goes away in three years. Part two goes away at six years. But in this example, even in year six, net of taxes, net of deductions, you're still coming out a little bit ahead.

Annie: All right. So when you are working with your business on our clients, on a startup plan, your value is helping them see the importance of the plan, the incentives available as Pete outlined, but also ensuring they understand their fiduciary obligations to the plan and how to outsource those obligations for the most efficient, low maintenance and beneficial plan for their business. While business owners tend to want to retain some control, that control comes with liability. The more decision-making power you retain, the more liability you have. Day to day retirement plan decisions are not the business decisions a small business owner should be spending their time on. Pete. We talked a little bit about PEPs what other group plan solutions will people hear about on the street.

Pete: Oh. Oh. We both clicked.

Annie: We clicked too far.

Pete: So a couple of different plant types that you'll hear about, but we give them a heading group plans or pooled plans generally, but multiple employer plans just mean there's one plan document and the job of plan sponsor is centralized. So when Annie says getting out of the middle of the street. That's kind of what we're talking about is being the sponsor carries implications. You're signing 100 page legal document that means something and it says you're supposed to do a bunch of stuff that means something. It's a clean way of centralizing that legally. But you can replicate some of those benefits in an arrangement that isn't a single document, single plan. It's not a multiple employer plan. It's just a collection of individual plans. But I think what you're looking for is the easy button that Annie mentioned earlier. Something that goes as far as possible toward taking responsibilities off the employer. The newest version is the pooled employer plan, the PEP. You hear a lot about those going forward. They're growing. I think they will take up a growing part of the market, but they will just be part of the landscape. But they're one variant of these easy buttons.

Annie: And that's a lot of acronyms. I actually had somebody last week. I can't believe how Pete can just rattle those off second nature. I don't know how he does it and I know how I do it. I think of these guys: “MEP, PEP, MEAP, ARP, GOP.” I got to have some fun somehow. I talk about ERISA all day long. So these guys. You won't forget it. It's a good way to remember. So it's helpful to recognize that other pooled plan types because you will hear about them. And we are focusing more on PEPS today because, as Pete said, they were new under SECURE 1.0 and have been the word on the street. They're the fastest growing plan type or structure. And companies like Aon have estimated that over the next ten years, more than half of 401k plans might move into a PEP structure. I don't know the validity of that, but it it's very clear that it is becoming a very popular plan type because it can be very efficient, highly outsourced, competitively priced, and can meet the goals of many business owners and their employees with some flexibility. But you can't have a PEP without a good team. So the key there is once again, building that team. You might be helping a plan sponsor to identify the plan type they want to work with, but more than likely your value is going to be bringing together a team of experts in the plan space to ensure the plan fiduciary is set up for success and knows what to look for. A request for proposal process will help them to make sense of the service providers.

They retain a fiduciary obligation to select and monitor the service providers, but hopefully they'll hand off the rest of those fiduciary obligations that come with sponsoring a retirement plan and they'll be able to focus on the stuff they need to do as a business owner. You don't sell a startup on administrative and investment fiduciary obligations. You sell a plan based on tax savings, employee benefits and personal savings. But you definitely can win an established plan by notifying a plan sponsor of all of the obligations that they have. So you want to be able to talk about it upfront and let them know. Plans come with fiduciary obligations. Here's how we can help mitigate some of those. Hopefully, you bring to the table the ability to build a team to protect the sponsor client from the daily grind of running a retirement plan and let them focus on the things that matter to them, like building their business, being profitable, developing their employees, not administering a retirement plan. There are over 400 administrative duties in a plan which very few people other than Pete enjoy. Even if the plan hires an outsourced 316 to make sure that you really need to make sure that that service provider doesn't have an only agreement, as Pete refers to them, which just have a short list of the duties that the 316 will take on because the rest of those duties are left up to the employer. Look for an administrative fiduciary with an except-for agreement which says we will do everything except for this short list. Even when working with a pooled plan provider in a PEP, the services administrative fiduciary accept very widely. So you want to make sure you have a good pooled plan provider, good TPA, good recordkeeper, and comprehensive delegation of duties.

On the investment side, perhaps you are acting as a 338 or a 321. The plan sponsor might want to keep some of their fiduciary liability for investment selection, but likely if they're working with a 321 and sharing in that fiduciary obligation, they don't realize how much of the fiduciary liability they're keeping. So a 338 solution will allow them to offload the investment decisions completely, while only retaining the liability for selecting that 338. For a busy small business owner, that's an important distinction. If you aren't a 338, that's okay. You can still bring value to the plan without being the person who makes the final investment decision. Just help your client know their obligations and how to select their service providers. Recap. Once I do that, there we go. Recap. Even with maximum outsourcing through a PEP, they will still have a few obligations. You can help them to build a process to evaluate fees. Look at service providers, what they will accept as fiduciary duties, review services, inquire about service provider policies and procedures, continue to monitor any changes in the service provider, review any reports provided or notices, outline and document a monitoring process and stick to. You’re their coach. Make sure they stick to it. Your value proposition for these small plans changes from being the wealth manager or investment professional to being the guide to evaluating and monitoring the service providers. Help them build a process for limited decisions that they must make and outsource the rest. And you know, some of the plan types we talked about today have more ability to do that than others. With that. I think we have questions. Thank you.

John: Well, that was that was really wonderful. The combination of experience that you both have. Annie at the home office for a broker dealer and RIA and Pete, you as a practitioner, in addition to everything that you've done since being an advisor. I always learn when I listen to both of you. So thank you both very much for your time and with that. I will kick in this question. Did I stop for a second there?

Annie: Yeah, but you're good.

John: Okay. Okay, First question. I'm going to direct to Pete. Someone said just got back from the NAFE conference and attended Pete's presentation. Would like to hear about more about MEPS and PEPS. And I think we actually we accomplished that a bit. I don't know if there's anything that you want to expand on. Pete, from what we shared.

Pete: I would say obviously we're fans, but lots of people aren't. No, not everybody thinks this is the right fit and there are those who are employing them more for the middle market, larger plans, audit plans, and there are others doing them for plans. And there are those who say it's not the right fit for a micro plan for a couple of different reasons. So I think there's a diversity of product that is out there to fit these things. We just happen to, you know, there are things about them we like and we like the ability of them to centralize the plan, sponsor role and the implications of that role with backup from the statute. But there are other ways to get it done.

John: And I think to that point, we you know, we'd love to have you on another webinar and maybe we can have folks debate the pros and the cons of MEPS and PEPS so we would certainly welcome you back to do that.

Pete: I look forward to it.

John: Awesome. I'm going to I'm going to ask another question here, which is…. Let’s see. Sorry, the question just moved on me here. Will state run programs like Colorado interfere with personal IRA funding? I believe the state program is a Roth.

Pete: The simple answer is yes. It's an IRA based program, and the IRA limits apply. You can't do it twice.

Annie: Okay. Unlike the simple. So we do have a question about the simples. The simple deferrals do not impact traditional or Roth IRA contributions. Also, with that same simple question, if you have a simple IRA today, if you have any type of just IRA, personal IRA on traditional or Roth that is not treated as a prior plan for the credit. So that question came up when Pete was talking about having a plan or contributing to a plan. If you as a business owner are contributing to a Roth IRA, that is not going to be treated as a prior plan for purposes of the start up tax credit.

Pete: Very, helpful.

John: What? Pete., I think you addressed this one at one point during your comments, but we'll will ask this one to get some clarification. Do the startup credits help nonprofit 501c3 Orgs?

Pete: They do not, sadly. And that's just because the way that the original credit was written and this goes back to, I'm not even sure when the first one came out, prior to SECURE 1.0, it was originally just a $500 credit and it is a tax credit. It was written as a tax credit and so SECURE just expanded on that credit. So in order to make it applicable to a not for profit, Congress would have to come up with basically a nonrefundable credit or something that is specifically allocated to not for profits. So, I for one would love to see that. But it's not something that's out there.

John: Not addressed today. Thank you. One. One more here. Does the startup tax credit apply to defined benefit plans?

Pete: I don't remember. I would have to look into that. Annie do you remember?

Annie: I don't. Let me look. Sure I have this. I have this close by.

Pete: There are quite a few provisions that that defined benefit plans were affected, and they were affected in different ways. And I don't remember how this one so. We may have to follow up on that one.

John: Yes, we can follow up. There's quite a few questions here. I'm going to try to get through as many as I can and we can follow up to the attendees with responses that we can't get to or things we just don't have the answers to the questions now. So that's a good plan for us. There's one question here. Do you see the major recordkeepers offering starter 401ks?

Annie: Well, definitely not till next year when they become a thing. I anticipate they will.

Pete: And I've I have my own conversations on this have been all over the board, but I don't see anyone racing to make it happen. You know, if you think about it, the premise is going to be here's something that will be simpler. And the implication is that it will be less expensive, meaning less revenue for the recordkeeper. Nonetheless, I think that they will support it and they will roll it out. And I think you'll see it built into products. But a lot of the costs of recordkeeping in administration won't go away. And that structure, it's more of the administrative cost. So probably affects the TPA more than the recordkeeper. But I do expect that we will see it supported but I don't see people racing to do so.

John: You know, and I've seen different perspectives on startup plans just in general. And one large recordkeeper that I was at an event with last week, they made the comment that after five years they see about 40% of the startup plans actually go away. So whether the companies go bankrupt, go out of business or they get bought out and it's challenging for, I know certain recordkeepers to see a lot of profit in the startup plan. So there's some things that are addressed for advisors certainly with SECURE 2.0. But the infrastructure and the challenges on the recordkeepers I think are addressed differently. We see some recordkeepers. You mentioned July Pete, that, you know, focuses on those, on those micro plans. Paychex does a lot of startups, I think more than anyone else as well. So I think there is going to be some selectivity among recordkeepers in terms of how hard they they push these offerings.

Annie: We do have a couple of questions about the deductibility versus credit. And I think that's an important distinction. So some of these costs historically, if you are paying out of pocket, those costs can be tax deductible to the employer. That is different than a credit where they receive that back versus just being able to deduct what they send. There is one specific question regarding if they have costs above and beyond the credits, what will that do? Well, that could be treated as deductible if it's above and beyond. So in the example of a $7,000 out-of-pocket expense where only $4000 is covered, the excess 3000 could be a deductible expense.

John: Right. Anything else you two, want to want to jump on in terms of the questions. I will let you know, Annie, that a comment came in at 2:44. The comment came in at 2:44. LOL. Well, I'm assuming that's when you were going over the Sesame Street slide. So congratulations.

Annie: I thought that was probably based on Pete's. Pete's calculations.

Pete: For the TPA geeks in the audience who are asking about the 66,000. The answer is one third gateway. I'll leave with that cryptic comment.

Anni: I bet everybody here got that one.

John: Well, we are we're at the end of the hour. And Annie and Pete, I want to I want to thank you both for giving us your time and for educating me in addition to the audience. A lot of great information on what folks can do to really take advantage of this opportunity and help the investing public. I think it's a great example of aligning a great business opportunity with a great and a broader goal of helping folks save for retirement. So very appreciative for your time. We'll definitely have you both back again soon. And to the audience, we will answer any of the questions we didn't get to and send those out in a follow up to the webinar. So thanks. Thanks, everyone for your time and we'll talk again soon.

Pete: Thanks, John.