“Benefits on a dollar basis buy more goodwill than dollars do.”

In episode #106 of Mission to Grow, the Asure podcast that serves as small business owners’ guide to cash, compliance, and the War for Talent, Director of Plan Design Consulting at Vestwell, Kevin Gaston, sits down with host Mike Vannoy to discuss the benefits and effects of Secure Act 2.0. Kevin discusses the different types of tax credits available to employers, the way to use vesting periods to your advantage, and why benefits are better for retention than pure salary alone.

• Secure 2.0 modernizes retirement rules by making it easier for individuals to save by encouraging employers to implement 401k plans and offer matching contributions through tax credits.
• To maximize startup credits under Secure 2.0, ensure your company benefits from the increased credit of 100% of costs for companies with fewer than 50 employees and consider making contributions to employee accounts.
• For qualifying businesses, Secure 2.0 offers a credit for qualifying employer contributions. The first two years are matched at 100% through credits, the 3rd year is 75% match, the 4th is 50%, and the 5th is 25% before expiring.
• The primary concern for small businesses regarding automatic enrollment in a 401k is the potential for employee backlash. To avoid this, small business owners should proactively communicate any changes to payroll.
• To enhance employee satisfaction, shorten vesting periods to one to two years and consider offering end-of-year bonuses for immediate incentives. Streamlining these benefits can make them more appealing and ensure employees value them more highly.
• Employees with student loan debt can benefit from student loan matching, where repayments are counted as retirement plan contributions for matching purposes. This allows individuals to build their retirement savings while still making loan payments.

Explore our Payroll & HR solutions that boost back-office efficiency to enable your business to scale.

 

Read the Transcript:

Kevin Gaston:
Benefits on a dollar basis buy more goodwill than dollars do. Um, and what I say about that is if you had a job where they said we cover your health insurance or a job that paid you the cost of the health insurance and you had to give it back to get it, you’d feel.

You saw it and then you didn’t. You see what I’m saying? There’s a psychological feel to that. So like if someone said, we’ll pay you more, but not give you a benefit in your retirement plan, or we’ll give you a big benefit in your retirement plan, it feels more generous. The Secure Act 2.0, what every small business needs to know about 401k and how to get it maybe kind of sort of for free. I’ve got a great guest today to unpack this topic. He’s been in the industry for 20 years, holds pretty much every title and certification, uh, two, three, four letter acronym you can probably think of, uh, saying this guy knows it all.

Mike Vannoy:
Uh, in his 20 years, he’s been in the advisory side, the admin side, the record keeping side, the investment side. Today, he is the director of plan design at Vestwell. Welcome to the show, Kevin Gaston.

Kevin Gaston:
Hey, thank you very much, Mike. Thanks to be, thank you to be here.

Mike Vannoy:
So I’m guessing anybody who joins today, they saw the title Secure Act 2.0, whatever small business needs to know about 401k. But in case people don’t understand what Secure Act 2.0 is, let’s, maybe back up and explain. So so spoiler alert, it’s a law that’s passed by Congress and it’s a tax credits that’s available.

We’ll get into all the details, but maybe let’s back up. Why does this law exist? When did it pass? What were the, what were the events that led up to the, to this, the 2.0 Act?

Kevin Gaston:
So that’s a great question. And what happened here is one, we did have a secure 1.0. Um, it’s almost been lost in the shuffle because it happened in December of 19. And before you could blink, we had this weird thing happen in the country where our minds were elsewhere, but secure is actually an acronym.

Our legislators love to acronym their bills. So it is the setting up every community for retirement. That’s basically how they called it. Then that’s not how it started, but

Mike Vannoy:
That’s great.

Kevin Gaston:
yeah, they, they accretive all of them. So it’s got a house bill number, but it’s now called secure. But what’s come to pass is we’ve realized that fundamentally workplace is where people are going to retire.

So here’s a fun stat. If you have a workplace retirement plan, you’re 15 times more likely to use it to retire than an IRA. And look, that makes perfect sense. Someone says we take 10 out of your paycheck before you see it and put it away somewhere. That’s a lot easier than here’s your money. Now give me 10.

Um, so it’s almost a just behavioral finance habit piece that money you never saw is money you do better things with. Yeah. So that’s one piece they recognize. Second is the 401k or the workplace retirement has become the majority of people’s wealth in this country. If you have money for retirement, it’s probably through a workplace savings vehicle.

So It’s been around, the 401k came out in the early 80s, that portion where you could save your own money and honestly, like many things, our demographics, our society has changed and they said it’s time to tune this up a little bit. So Secure 2 follows a history of legislators tuning it up as they realize things have changed, as they realize how we look at our savings at work has changed.

So what Secure 2 Did is modernize the retirement rules to basically understand what we’ve observed in 40 years of the 401k plan If you’d have to go get in your plan yourself You’re less likely than if someone opts you in and you have to choose to opt out So that became the law of the land for new plans If you sign up at five percent and you forget to ever come back, but you made more money over your career Maybe it made sense to go to six to seven to eight if you can afford it Making that opt out instead of opt in makes it easier to again behavioral finance It’s there’s a great book written a while ago called Nudge.

And one of the things that I was stuck with me, it’s a great book. And if you haven’t read it, it’s older now, I think it was 08, 09. But one of the things they did is all they did at a dessert counter is move fruit to eye level and more people bought fruit than a brownie. And obviously if you go to the grocery store, they’ve done the opposite.

They put the Snickers right where you could see it and the fruits way on the other side of the store. But they, they noticed that the smallest nudges. Get people into better outcomes. So Secure 2 has a lot of participant nudges to get folks to really do more for themselves. And if they don’t want to do it, they can always say, I don’t want to do this.

I’m not ready to do this. But for the folks who wouldn’t get off the couch, it helps them. Uh, and that’s, and it’s give you an idea of how important this is. This isn’t, uh, this, when you say bipartisan in this country, usually that still doesn’t mean very bipartisan. The original SECURE Act that went through Congress passed, and I’m going to get the number wrong, but it was over 400 yes and about a single digit number of no’s.

I think it was 410 to 8. But that’s something you never hear of. If you said, I heard of something that passed, and basically everyone but eight people said no or said yes. I mean, that, that’s, that’s compelling.

Mike Vannoy:
It’s interesting. Uh, we talk a lot of, to a lot of guests in the show, just HR laws, small business finance, and what, and just in general, I just see this as part of this, of this massive continuum of the federal government, I’m not going to say good or bad taking action, not taking action, but pushing things down to the businesses, uh, to the States, to the locals, to the, To, to, to, uh, uh, step out for a second.

You know, there’s only one federal minimum wage and hasn’t been changed in forever. What? It’s 7 65, but most of the places in the country, it’s states and it’s something like a hundred and fifty, a hundred fifty five jurisdictions with states, counties, cities, local municipalities, like the local areas are taking care of the minimum wage thing.

The federal government not having to dare I say, be brave. I think same thing has happened here with 401k and, and not just four one k, but retirement in general. Right. I remember. It’s 15, 20 years ago now, but presidential politics, it was really like, should we privatize social security, uh, uh, uh, commercials with, you know, politicians pushing old ladies off, uh, in the wheelchair off cliffs.

It was, it was a, it was a very ugly public debate, right? And you don’t, you don’t seem to see that anymore. It seems that the federal government has taken the position of, okay, we’re going to push the mandate to, because we clearly have a retirement problem in the country. But we’re going to push the mandate to the employer and we’re going to incentivize with tax credits.

That seems to be a model that just keeps on catching steam. Is that how you see it?

Kevin Gaston:
Yeah. And I see, to me, I look at it like, Inertia is a major thing. If you say like, I’ll give you the best example. We’ll talk later about this more, but a number of states, the most recent this week, Rhode Island became the 20th state to sign a state IRA law. You’re going to have to offer based on the size of your company, some sort of retirement.

And if you don’t privately do it, you’ll have to do it through the state and do auto enroll IRAs.

Mike Vannoy:
Yeah.

Kevin Gaston:
But you know what we found in every state that does that? The number of private. Plans goes up. It’s the shock people need. It’s just, it’s you’re a business donor. You’re incredibly busy. Businesses are incredibly hard to start in this country.

The success rate. I think I’ve, I’ve always heard this in the nineties. If you make it five years, you are, you already have made it out of just the jaws of hell. If you’ve made it five years of the small business, it’s incredible. And that doesn’t mean your life’s gotten easier. It just means you made it.

And at that point, what’s on your mind? And I can probably tell you thinking about the retirement might not be there. And what I’ve heard many, many, many times talking to small business owners is I’ll get there eventually. One, I’m stable. One, something else. And that win, you know, I, I think there was a little self help books.

It gave you a little coin. It was called around to it. I’ll help you when you get around to it. You. You pick it up and say, I got around to it, but it’s that thing. They’re going to get around to it eventually, but when is that going to be? And meanwhile, there’s folks working there who are missing out on a chance to possibly help secure their retirement and same for the owner.

Um, so I think they, I think what they’ve done federally in these states, these 20 states that have signed state requirements to offer retirement is they’re just hoping to get action. They’re hoping to get something to get you to move. Oh. And I think that, I, I think, like you said, to your, to your initial kind of premise, that has changed that belief of, we need to kind of do a little more to, to, to, to jolt people into action.

It used to be, well, you don’t, that’s not even a thing. And even to this day, you’ll have people say, I don’t want to get involved in their personal business. And I’m like, but your business is their personal business.

Mike Vannoy:
Yeah.

And honestly, I think there’s, there’s something, you know, you, you mentioned something really big happening in 2020, uh, and obviously tongue in cheek, we’re talking about pandemic. There’s something else really big and people who watch the show regularly know that I talk about this a lot. Something else really, really, really big happened in 2020 is that there are more work, the United States, more people over working age of 65 than under.

And that crossed for the first time in U. S. history because of birth rates 30 and 50 years ago, the labor supply is flattening, right? And so, Um, my claim is that, you know, this unemployment rate of, you know, it just finally got up to 4%, but it’s been sub 4 percent for two years, longest since the Nix administration.

Um, it’s easy to blame that stuff on pandemics, presidential politics, uh, wars, uh, uh, market bubbles. I contend that this is based on birth rates, 30, 50 years ago, and the growth of the U. S. economy, and this war for talent is here to stay. So, to me, you know, we’re going to pivot back and spend most of our conversation today on Secure Act 2.0. But to me, there are three forces at play here. There’s the carrot, which is tax credits. There’s the stick, and you mentioned it, Rhode Island being the latest to the list, states are mandating businesses of different sizes, depending on which state, that they must legally, they must offer retirement plans.

So that’s the carrot, that’s the stick. And then the sword, it’s the war for talent. Um, we just did a survey, uh, uh, over 1000 small businesses, And, and, and, uh, I’ll invite people to, to tune into a, to, to a future show where, where we’ll talk about this, but we asked a bunch of different questions. One of them was, do you offer a 401k to your employees?

Uh, the final question in this survey, Kevin, was what best describes you last year? Were you a fast growth company? Were you a slow growth company? Were you flat or was it a down year? And it’s about a 22. Almost 23 percent spread between fast growth companies and companies that didn’t grow that offer 401k.

So the fast growing companies that now that doesn’t mean they had great products. That doesn’t mean that they had terrible competitors. sample size that big, just by simply offering 401k, the correlation was, was massive because they, those organizations understand if you’re going to attract and then retain talented people to build your organization, you’re going to need this stuff.

We’ll come back to maybe stick and sword later. Let’s focus back here on the carrot. So, I think we, we talked a little bit about the events and maybe the last couple of decades leading up to. the need for more savings. We have a savings crisis in the country. Federal government said, okay, we’re going to do, we’re going to push this to the employers.

It’s in the form of tax credits. Um, now let’s just talk about more meat. What is the Secure Act 2.0? Maybe, maybe talk, what, what was 1.0? But we’re maybe at shortcomings. What is it about 2.0 that’s so magical? And I think I want to probably parse the conversation into the employer advantages and the employee advantages.

Kevin Gaston:
0 is fascinating to me, because 1.0, while we almost, and when I say, so to give you an idea, to give you a framework, Secure 1 in pages is at about 50 to 70 pages long. Secure 2 is pushing 500. Just as a point of reference, ERISA, the Employer Retirement Security Income Act of 1974, which governs these plans, is also only about 450 pages.

So like, They wrote enough new code in one act to be as big almost if not slightly bigger than the entire thing that we use to define the fiduciary rules. Um, that’s the bedrock of Secure 1 was long term part time and they started the tax credits. So a lot of the tax credits started in Secure 1. They were beefed up in Secure 2.

So they didn’t not exist. They just weren’t as needy that they were there. In Secure 1, there was the startup credit. And the startup credit is, I don’t have a plan for my company. I’ve got 20 people and the rules are pretty easy for every non highly compensated person that was eligible, meaning they were not an owner and they didn’t make over 150 as of current year, then you got 250 and a credit back up to that 5,000.

However, it was 50 percent of your cost up to five. Secure 2 change it from 50 to 100 if you have less than 50 employees. Well, that’s the biggest startup group is I have less than 50 people. I’m starting to plan. So now you can look at each person in your company who is not a highly comp, not an owner, and you can say each one of them will offset 250 in costs to start this plan up for the first three years, then new for Secure 2.

If you make a contribution to their account and they make less than a hundred grand a year, you can credit up to the first grand. And now let me just put this in perspective. Any employee benefit you put into a retirement plan for an employee is deductible as a, like an expense of your company, but this is a credit versus a deduction.

The amount that you can’t credit, you can still deduct. So it’s not take one, take the other, you can stack them up to.

Mike Vannoy:
A really good point.

Kevin Gaston:
So as a point, someone makes 100,000. Let’s say they make, they make $90,000 and you give them a 3 percent credit. So that’s 2,700 $1,000 is creditable. The $1,700 on top of that is it’s still a deduction.

So you’re not losing that out. And that one has a five year tier and it tiers out. It has some breakdowns where it’s a hundred percent in the first two years, then 75, 50, 25, and then it goes away. But what they’re trying to say is, Hey, we’re going to make it inexpensive, possibly free for you to start your plan and set it up the first three years.

Then for the first five years at a grading downscale, we’re going to make it, we’re going to credit you back for giving a contribution, whether that’s a match, whether it’s non elective. If you put money in their account from your company till, you can take credits up to the deduction, up to the credit limit and then pass that as a deduction.

So, CMO. The third one is the auto enroll credit. That one’s actually been around for a long time. If you use auto enrollment, which again, since 1 the law of the land basically coming into next year, but they just give a flat 500 a year for the next three years that you do that. And again, they recognize that auto enroll is a great way to get people who might not have bothered to go online and sign up to get in.

The, the, the biggest meat of that, that credit to putting in a match. Is incredibly inducive if you’re a small business. Hey, I can’t afford a plan. I certainly can’t afford to match. Hey, the plan could be free for the next three years and, and you can even give them a match and take a credit on that as well.

The auto enroll credit is nice, but most plans are choosing to use auto enroll anyway. So it’s just another kind of easy 500 bucks. That’s

Mike Vannoy:
Kevin, I’m going to try, I’m going to see if I took good enough notes. Uh, I don’t know if I’m fast enough to us, cause I want to make sure we capture it. So I got three buckets of tax credits as part of 2.0. Some of it was in 1.0, but it just got beefed up in 2.0. First is admin fees.

Kevin Gaston:
Correct.

Mike Vannoy:
Startup and so I think this includes anything from, from training to paying a vendor, anything that any administrative fee that’s included in starting up a plan, a credit is up to 250 per employee, a hundred percent up to 250 of the two 50 up to 5,000 total, right?

Kevin Gaston:
So to get that max, you need, if I’m doing my math right, 25 non highly compensated or 20, it’s one of those two would make 5, 000. I think it’s, I think it’s 20 would do it.

Mike Vannoy:
20.

Kevin Gaston:
Yeah.

Mike Vannoy:
Well, so you could have, you can be a 20 employee firm

Kevin Gaston:
21 because you’re the owner. And as, as the owner or non highly, you don’t get a credit. Other 20 folks will get you a credit each.

Mike Vannoy:
So, so I, I’m employee number 21, uh, in my company, but I got 20 employees. Uh, I don’t, uh, uh, uh, they, they don’t break the highly compensated rules. And so 250 times 20 of them, that’s a 5, 000 credit to me up, up to a 5, 000 credit for just simply setting up the plan.

So. Which I’m not going to say across the board, but generally speaking, just knowing the space well enough, most people aren’t charging 5, 000 to set your plan up, right?

Kevin Gaston:
You’re not, it’s going to be challenge. And I just want to put a little thing in there on your notes that that includes if you hire an advisor to help come educate and help you build out the portfolio, you’re going to use that’s included anything considered a reasonable, and this is the legal definition, reasonable costs associated with starting up a company retirement plan.

So it could be like you said, it could be setting up the payroll. It could be the vendor. It could be the advisor. It could be any of those.

Mike Vannoy:
Really, really good point. So, so this is more than just say what your 401k provider, so to speak, would be charging you, which it’s almost as always significantly less than that, but anything else you bring in, you want to just hire somebody off the street to be a face to face trainer and help enroll your, all that.

Up to 5, 000 because of all those costs normally being less than that. The setup of a new plan, dare I say, is free. Is that, is that fair to say?

Kevin Gaston:
Yeah, it’s going to be credited back down. It’s going to, the credits will easily exceed what you’re going to pay. 100

Mike Vannoy:
Right. Okay. So that’s the administration upfront. Then there’s matching. So, uh, and you talked about a five year scale, so. Every dollar that the employee contributes, I could match, which is kind of what anybody who’s worked in a big company is, is used to in a 401k. And I’d say maybe been one of the big things that’s been prohibitive for small employers that they, at least they think has been prohibitive.

But year one and two, uh, the tax credit is 100%. So if the employee puts in 2000 bucks and I put in

Kevin Gaston:
cap. To 1,000 cap per employee.

Mike: 2000, thank you very much. So that the employee. The employee puts in a thousand, you put in a thousand, you get all one thousand of that back as a tax credit, right?

Kevin Gaston:
That’s right.

Mike Vannoy:
That’s year one and year two, you get 75 percent of that back year three, 50 percent of that back year four, 25 percent back year five. By year six, any matching, you are going to pay out of pocket as an expense, but this allows you really a five year ramp where it’s free up front for the first couple of years.

And then you can kind of budget yourself into this plan. Am I saying that right?

Kevin Gaston:
That’s right. And, and, and. Again, anything past 1, 000 is still deductible as a business expense. And after year five, you can use those as deductions, but the credits will have rolled off. So that’s perfectly accurate.

Mike Vannoy:
Got it. Got it. And I want to come back to that, uh, about the rolling off. Cause I could see how that could give some heartburn to some folks, maybe uncertain about the future, maybe wanting to do this, but what that means. And then the third one, uh, the, I think you mentioned this has been a tax credit, even the secure 1.0, but a lot of people didn’t even know that was a thing. I think there’s tons of people that don’t even know secure 2.0 is a thing yet. Um, and that’s. That you get a 500 credit if you auto enroll. I, if I understand it right, auto enroll just means instead of going one person at a time where employees have to opt in.

You essentially go one at a time and say, would you like to opt out? Everybody’s automatically opted in. ’cause the goal of the Secure Act 2.0 is to drive participation, to get employees to start funding their own retirement because the Fed knows darn well how insecure social security probably is. Am am I overstating that?

Kevin Gaston:
No, um, they, the current, the current known number, and it’s been published by the, it’s OMB, the Office of Management and Budget, Is that Social Security will have a severe funding issue in about a decade, about 2033 to 2035. There’s going to be more out than in. That’s the easy way to do the math. If you remember your piggy bank, more coins, leaving less coins entering, someone’s going to have to do something.

And what this always means, this is what they’ve always done is there’s three levers they can pull. And there’s only three levers. Lever one is start someone later. And they don’t ever do it to someone in, and I always point this out. They don’t do it to people in social security status. A, people in social security status are the best voting bloc in this country.

So that would be politically a poor choice, right? It’s a poor choice. So they will either start you later, which would, they’ll do is they’ll say anyone born after this date, who is not maybe even a voter yet. Like they’re 10 today. We say your starts at 78 instead of 60 or 65. The second thing they do is just give less benefits per dollar, and the third, what they’ve been extremely reticent to do, which is what they are hoping not to do but might have to, is raise the actual taxes on payroll, which is what funds Social Security.

One of those three levers will have to be pulled by 2033 or 2035, somewhere in that neighborhood.

Mike Vannoy:
One, one or more than one

Kevin Gaston:
Yes, correct. One, two, or all levers will be pulled.

Mike Vannoy:
Kevin, you probably know it off the top of your head. I, I, I know the concept, but I don’t remember the exact numbers. When, uh, uh, when FDR first put this in place, what was, so you retired at age 65, What was the average life expectancy? Low mid 70s? So

Kevin Gaston:
That was kind of amazing. 60 was much more common and the life expectancy was in the upper seventies. It was not now one in four people. And I heard this stat when I started in the industry, at that point, they were saying one in four will live to 95. That was of me talking to people born in the sixties and fifties.

I would imagine if you move that forward to the seventies, eighties, nineties, aughts, teens, you know, It’s going to get to a much higher number. The, the ease of making it into your nineties now is substantial. And that’s a lot. If you think about someone born today, it is not unlikely that they could work and live equal, they could be equal time in and out of the pay system.

40 years working would take you from 20 to 60. And that’s an early retirement is when we consider that fairly early.

Mike Vannoy:
The point is people, when they retire, they live a lot longer and have to live on that income. And because of the, it used to be a population pyramid, lots of young people, not so many old people. But I talked about in 2020 that that crossed the chasm, used to have four some kids per family. Now it’s like 1.8. So there aren’t the replacement workers, which means. Not only do you have to live on social security longer, there aren’t as many workers to tax to pay for it in the first place, right.

So the whole thing. It’s an unsustainable mathematical model. Something’s got to give, Right.

So, I mean, we’re back to why the Security Act 2.0 in the first place. Um, but, but really I think it points to auto enroll. What, let’s stick on auto enroll for a minute. What do, what do employers need to understand about the rules around auto enrollment?

Kevin Gaston:
So it’s, to me, it is something that I find it always found it fascinating because most places that offer health insurance anywhere in corporate America that I’ve ever seen, if you take no action, they’ll put you into some sort of healthcare. They will not let you just roll, roll free. If you go to a new job, they’ll say, this is our basic health.

This is our high deductible. This is our, maybe less expensive, but if you do nothing during open enrollment, we’re still going to put you in healthcare. We’re not going to let you just break a leg and say, I can’t come to work anymore. That’s where I think retirement ought to be too. If you do nothing.

Yeah. You can remember, you can opt out of healthcare. My wife has it, my blah, blah, blah. I have it through another company. I don’t need it here, but you have to make a choice out, not in.

Mike Vannoy:
Right.

Kevin Gaston:
Health care, and I think retirement is the way so here’s what happens 30 days before they’re eligible Um, a record keeper is going to reach out our third party administrator is going to tell that person Hey in 30 days We’re gonna start deducting some percentage of your pay out and putting it into a retirement plan And if you don’t pick an investor, we’re gonna pick an investment appropriate based on some mini metrics But we’re not gonna dig super deep.

But basically we’re gonna pick a fund that’s appropriate for you That’s good for most people your age and your horizon You You have 30 days to decide to do more, do nothing, or say, I don’t want to do it. And if you don’t do it in 30 days, we’re going to start taking money out. Now, here’s the funny part.

With the new auto enroll rule, then after there’s 90 more days after, where if you found out that your money was leaving your paycheck, you can get it back. That’s called EACA. It is a Enhanced Automatic Contribution Arrangement refund, where you simply go to that record keeper and say, I I wasn’t paying attention last month.

I was in Sweden. I was enjoying a vacation and you started deducting my Retirement. I didn’t want to do that. Please give it back and they do For 90 days after 90 days you can still stop but those that money can’t just be refunded right back out So the way I tell a sponsor or an employer, do you know that person has a 120 day window?

30 to figure out before it happens. And 90 to stop it and get the money they put in the plan back out without any penalties, no anything. And anyone not paying attention for that type of time period about their own paycheck probably is the right person for this because it’s helping them save for retirement and it didn’t bother them.

You know, it’s almost like if it didn’t, if you didn’t notice that come out of your check and it’s something you save for retirement and potentially you’re using your enhanced savings. Credits from Secure 2 as an employer to give them a little more on top of it. It’s a good thing.

Mike Vannoy:
Kevin. As, as a, as a director of plan design at Investible, which is, you know, a highly reputable firm and full disclosure, it’s, it’s who HR partners with to provide 401k services to our clients. Um, what challenges do you see, maybe it may, challenges even isn’t even the right word. Do, do you, do small business owners struggle with this open enrollment concept?

Or is that something that pretty much everyone says, oh yeah, that’s a no brainer. I’m, I’m gonna do that. Mm-Hmm.

Kevin Gaston:
It’s, I don’t think they struggle with it. I think that they fear the backlash because all it takes is one person running into your HR office and if you’re a small enough business, you’re the HR office. One person comes up to you and says, my paycheck’s wrong. What did you do to me? And now you have to take off your work hat and put on your 401k administrator hat and say, actually, we have an automatic enrollment feature.

I did this for your benefit. I’m angry. I don’t want that. They, they fear that. And I, and I, and I understand that because again, you know, the last thing they want is someone coming in and saying to them, you know, Hey, I’m really upset about something you did that I didn’t know was happening. It happened. Um, Out of nowhere.

And I want my money back. So I think that’s their biggest fear is that they’re going to get an unexpected, angry participant. And honestly it comes from folks who are living very close to that paycheck, right? If every dollar that paycheck is necessary for your wellbeing, missing 5 percent of those dollars will be an immediate, for us, even if it’s one pay cycle,

even if you’re getting the money, you see what I’m saying?

Like, go

Mike Vannoy:
An education process for employers who might have that fear. Um, the benefits are clear to them. Auto enroll everybody. You’ll be happier. Employees will be happier. But there’s a protection and secured at 2.0 that they can use. You said then they have the 90 day window that they could withdraw and get their money back, right?

Kevin Gaston:
Right. Without a penalty, no tax issues. They can just like, like it just comes back through payroll because it was payroll. It just comes back and they’re, they’re back in the, they’re back in the green. If that’s a problem for them, I just think, and again, it’s, it’s a touchy subject because I can understand fully what it might feel like to have that angry person in your office steaming that, that, feels like you took their money and you didn’t take their money, but they don’t see it that way.

Mike Vannoy:
So, so when, when you survey employees, what’s the, what are the, what are the big important things to them when they choose a job? 401k and retirement plans is right at the top. Uh, uh, certainly everybody cares about their income and what, you know, what their salary or hourly hourly rate is or commission rates.

I think that’s, that’s the obvious part, but 401k and health benefits are right, right, right up there. Right. Um,

Kevin Gaston:
Um,

Mike Vannoy:
So this is going to be something that I think most people want. You’re going to want to offer if you’re a business owner just to compete in the, in the war for talent anyway. But, but that’s an important box that I think that I want to make sure we addressed, uh, that, that even if you go the open, the, uh, auto enrollment route, there is still a safety valve for your employees.

I think probably the most important thing here is, is just education, right? That the employer is properly educated, the employees, Um, just cause you auto enrollment, auto enroll people, it doesn’t mean you shouldn’t be telling them and talking to them and educating them. What, what, what would be your guidance there?

Kevin Gaston:
I would say that you make it part of your things that you communicate to employees, whether it’s an internal site, whether it’s something, Hey, we, when you, when you’re, let’s say the plan has a three month auto enroll, you’re there for three months and then we put you in the plan at 5%. You make it clear to them, Hey, look, if you don’t want to do this, you don’t have to.

And you have, you’ll get an email from your provider. You’ll get an email or you’ll get a note and you know, and you’ll have a month. To say no, thank you or pick a lower number. That’s more comfortable for you or pick a higher number If that’s what you want to do and I feel like they just it just has to become part of the same cadence like I I say, you know, most companies have OSHA cadences Most companies have safety or the rules of their company.

Just this is one of the things You know, like again companies are very good about open enrollment is exactly this month once a year You better figure out what’s going to change because If you think about the world of 401k, we allow people to change their deferral rate. Not, not we, we as an industry. And basically very often, if they take it, so I’ve known, I’ve talked to folks who say, I save more in January, February, March, I expect a tax refund.

I’m going to have a higher deferral rate in the 401k. And I turn it off in December so I can save up for gifts and then turn it back on. We, it’s very flexible. Then let’s compare it just for a thought process to most Most other benefits are you lock it in for a year, unless you have a life of it. So if you decide you don’t want healthcare company in October and June, you’re sick, you better get married, have a kid.

Like there has to be something in the life. You can’t just call it. I’ve changed my mind. Like that’s not how it works. So I think just letting them know, and you don’t, and you don’t have to become a plant expert and say, look, it’s very flexible, give it a shot. If you don’t like it, you can stop. Uh, but I think it’s just part of the cadence of the people to let them know what’s going on.

Mike Vannoy:
All right. I think we covered auto enrollment. So we covered admin, uh, in great, great depth, admin and setup. It’s for most employers watching, listening today, it’s going to be free with the tax credit. The auto enrollment, another 500 kicker. Let’s talk about the matching. So

Kevin Gaston:
Mm-Hmm.

Mike Vannoy:
How do you take a new employer through setting up a plan On one hand, I would think that folks would want to take advantage of every penny.

So if I can, if I have a tax free way, not a tax free way, if I have a free way to give a thousand dollars to each of my employees, gosh, I would, I would want to do that. right?

Um, if I know it’s literally free to me, why wouldn’t I, why wouldn’t I help them out? Um, I can see how that could be great for attracting and retaining talent.

Kevin Gaston:
Mm-Hmm,

Mike Vannoy:
But, uh, but at the same time, I gotta be thinking, okay, It’s free for the first two years, then it’s 75%, then it’s 50%, then it’s 25 percent in five years from now, six years from now, I do, I do have to be paying for this. So what, what, what’s your guidance? Can the employer, what, what if I come in across hard times and I can’t afford a match anymore?

Kevin Gaston:
So you can amend it any year. There’s a type of match called discretionary where you pick at the end of the year basically what you’re gonna do for that year based on conditions. Um, so you could say, Hey guys, go on the plan. Contribute what you feel is appropriate. And at the end of the year, based on how we did, I’m gonna put a match in and maybe it’s dollar for dollar up to three or five, or it’s 50 cents in the dollar.

You know, you could pick the formula. That makes sense based on what people have done in the plan. And that, and honestly, what makes plan design fascinating to me is every company is different and the rules are so wide to allow to accommodate. So if it’s a law partner firm, you probably have a higher deferral rate, you know, in general than if it’s a lot of maybe folks who are working hourly, like manufacturing and that manufacturing place, you might want to give a bigger benefit on a smaller amount of deferrals because they’re not going to defer as much.

So if you said that. 1 for 1 to 10, that’s not going to be much use to someone who can only put away 3. Like you’ve just told them you’re not getting 7, right? And I’m throwing these numbers out just to give more illustrative ideas. 10 is a very rich number for anyone. Um, whereas that law firm, it might be to 6 or maybe you stretch it and say 0.

50 on the dollar up to a higher number because you expect more people to put more money away. So there’s a design element of taking this wide set of rules and then customizing it down to the plan. And how does it fit that demographic? But It’s very flexible to the business’s conditions, whether they do, do not want to do less or more in a particular year and can do that.

But to your point, and here’s what something I’ve always noted about benefits in general. Benefits on a dollar basis buy more goodwill than dollars do. Um, and what I say about that is if you had a job where they said we cover your health insurance or a job that paid you the cost of the health insurance and you had to give it back to get it, you’d feel.

You saw it and then you didn’t. You see what I’m saying? There’s a psychological feel to that. So like if someone said, we’ll pay you more, but not give you a benefit in your retirement plan, or we’ll give you a big benefit in your retirement plan, it feels more generous.

Mike Vannoy:
Yeah.

Kevin Gaston:
Know, if I come to your house with a pizza, you’re like, man, Kevin always brings pizza and beer.

If I come over with a 20 and say, order your own pizza and go up to the gas station, I gave you the same benefit, but it doesn’t feel quite as generous. And I don’t,

Mike Vannoy:
You actually gave me more flexibility, but I thought that rat bastard, Kevin, he doesn’t give me pizza and beer like he used to, right?

Kevin Gaston:
If I take that away and hand you a 20 instead, and I say, look, I’ve given you the ultimate tool to get the thing that’s most, but it still doesn’t have the same generosity. If someone came to my house at a housewarming and their housewarming gift was cash, I’m going to take it. Don’t get me wrong. I’m going to enjoy it and be like, thank you very much.

But it would, it doesn’t have the same feel. For years, I think, and we’ve changed now. And if you talk about things that have changed, both pre and post those interesting 2020 days, as a kid, I remember gift cards were considered the lowest form of gifting. Like you don’t know that person, you know, you can’t even figure out what they like.

So here’s, here’s money, even though it was the most useful way for them to self choose. So I think when I think about benefits, even health, any benefit, but I think about retirement benefits in particular, Let’s say you do a dollar for dollar up to 3%. So that’s the maximum you’ll spend as an employer is 3 percent over your payroll.

Whatever your payroll is, multiply it by 1.03. But going to every person when they interview with you and say, I’m offering a 3 percent match on what you put away or your 401k sounds like they care about you more than, I’m going to just pay you 3 percent more than you thought I was.

Mike Vannoy:
Yeah.

Kevin Gaston:
And I can’t put my finger on why that is, but I would say it’s the same, You always bring something when you go over to like I was always taught you bring something when you visit someone’s house It’s and not a 5 bill.

Like that just seems weird. Okay. Thanks for letting me come by and watch football at your house Here’s a 10 Something about it

Mike Vannoy:
It seems to me like you’re talking about all kinds of different options. Um, when I first entered corporate America a long time ago, uh, and it

only, you know, I, I’ve had long stays at the companies I’ve been with, but it, it, it seems like they’re all relatively the same, it was 50 cents on the dollar, uh, uh, up to a certain percent and then ex vesting periods.

It seems like. Seems like things have changed a lot where, where plan sponsors, AKA employers, are getting a lot more creative, uh, uh, around the matching and maybe making it lump sum and, and, uh, the trend, I think because the war for talent is so, it’s so competitive to try to find good people. The vesting periods are a lot shorter.

What, what trends are you seeing?

Kevin Gaston:
Vesting periods so the legal maximum is three year cliff or six year graded Basically meaning little bits over six years or nothing for three years than everything My rule is always the bigger the benefit, the longer, the best makes sense. So if you’re a company, so in a prior life, I had a company that gave a 10 percent profit share every year, 10 percent of your pay going into your retirement plan, six year grade, it was totally appropriate, big benefit.

We want that for folks who stick around and guess what? Average tenure of that company was 19 years. And by the way,

Mike Vannoy:
So meaningful chunk of your pay, it’s tied to profit. You’re going to be here a long time because you care about that.

Kevin Gaston:
And just for sake of argument, The most expensive thing an employer looks at today is replacing someone. If you lose someone with 10 years of veteran tenure at your company, if they make 75 grand, I can almost promise you, you’re going to spend nearly that much getting another person. That could be recruitment cost, A higher offer to get them because the other person had been there longer.

And now the market has gone up in price for that same skill or talent, or just the fact that the next person you hire, isn’t a great fit. And so they’re kind of okay for six, eight months. And then they mosey on and you start over. So to me, if you can take a benefit and buy loyalty, which is kind of what you’re doing with a big profit, share like that, you can look at it as a balancing act of, I can replace this person seven times in 20 years, Or not and pay a little bit more of a premium and have them stick around and train the next person, which is super critical too.

Mike Vannoy:
So those are the legal, the three and six year, depending on the type. But are you seeing what I’m seeing? Some folks don’t even have vesting periods like that. Maybe there’s just a year end flat match. Uh,

Kevin Gaston:
I’m seeing a big decline in the longer end of those vesting periods. The ones I see typically now are within one to two years. And that also reflects the fact that what’s the average tenure of an employee at a company these days. It’s not six. I know that. I don’t know the number off the top of my head, but I think it’s between two and three.

I don’t think it’s anywhere near six. And so what I think happens is the longer you make that benefit, you have to wait for it, the less they value it. It’s like if I say it’s a four year graded schedule and you don’t think you’ll be there four years, or even, It just doesn’t sound as appealing. If you say, look, if you’re here for six months, I start matching you.

I’m going to put a little something like, if we go back to that thousand dollar, uh, maximum, just for the credit itself for the first couple of years, easiest way to do it the first two years is at the end of the year, do a holiday bonus. Hey, everyone gets a thousand dollars. Here you go. And then just credit it off.

Cause you can put that in after the end of the year. You can actually do that. You can, you can take the credits up until the time you file your business taxes. So you could let the plan year end, let’s say December 31st, file your taxes. Let’s say in March or February, whenever you’re going to file a week or two before you can say, I’m going to deposit a grand in everyone’s account and then just turn around and apply for the credits and keep it moving.

And they’re going to look at it. Like you gave them a thousand dollar bonus.

Mike Vannoy:
Let, let, let me, I’m going to take that pivot there. Uh, and we’ll wrap on the employer side. Cause I want to move to the employee side for benefits of Secure Act 2.0. Uh, you alluded to it. How do people get the tax credit? So different types of tax credits, you get it in different ways. How do employers get this tax credit?

And Just, to recap up to 5, 000 in setup. So that’s going to cover your costs. So essentially you’re going to get the plan set up for free. Matching 100 percent year one, 100 percent year two, 75, 50, 25 percent years three through five. So for the, for the beginning, all the matching is free. And then another bonus on top for, uh, putting an auto enrollment.

The punchline is you can get 401k for free and doesn’t cost you much for their first five years. Then you, then you have a, have a, have a 401k plan that you will have normal cost. But you’ve got the plan. It’s all set up for free. You got happy employees. How does the employer get their money back?

Kevin Gaston:
So, um, here’s what I enjoy. Most of the time, one of my favorite words about the tax code is Byzantine, like the Byzantine Empire, which actually is an adjective meaning full of administrative rigor. It is very difficult. The form to get your tax credits is called the IRS Form 8881. It is one page. I was curious how few, how many tax credit forms, so many of our, many of the people listening to your podcast have bought an electric car.

How Any of them that bought an electric car will find that the tax credits to get back for buying an electric car federally is three pages. So getting your 401k is 33 percent less paper and 60. It’s One third the paperwork of getting the credit for buying a tesla

Mike Vannoy:
And that’s the number of pieces of paper. I’ve seen the form. It’s like the top half. It’s like, there’s not much to it.

Kevin Gaston:
Right the IRS 8881 form is instructions and then basically what did I spend how many non highly comps did I have? You know, obviously they should take it to their tax person Like please do not I mean you could do it yourself, but if you have a tax person This is exactly the kind of thing that they probably would be the best to ask

Mike Vannoy:
And so Kevin, to be clear, like other types of tax credits, uh, for employers, you know, like the employee retention tax credit. That was a quarterly 941X. Everybody files a 941, their employer taxes. 941X is just an amended return to your quarterly employee taxes. And that, that was the mechanism that the IRS got you your tax credit.

The tax credit for Secure Act 2.0 is, is on your income tax, right? You, you attach this to your income tax, business income tax return, right?

Kevin Gaston:
That’s right, it’s your business it’s part of your business tax return because these are business expenses you’re getting credits for

Mike Vannoy:
Right

So it’s once a year. At the end of the year, you file your, the business’s income tax. It’s the Form 8881, just attaches to that return, but you get all the money back. I think we would advocate very strongly that employers, it’s like, hey, why wouldn’t you offer 401k if it’s, if it’s free? Um, if you’re, set up is free, matching’s free, auto enrollment is, is, is, is bonused, and if life happens and your business is struggling, you can adjust the plans so that you don’t continue the matching if you can’t afford it.

It’s not like, there’s really not a scenario where you can get hurt here. So kind of a no brainer on the tax side to, to do this. On the recruiting and retaining talent in this war for scarce talent, Uh, when, when unemployment is, is so low, I really think it’s more than just being a good human. There’s some really good business reasons, just being practical to understand what some of the benefits Secure Act 2.0 brought to employees. Can you, can you spend a few minutes unpacking that?

Kevin Gaston:
Absolutely. So again, back when you think about Congress and rewriting the rules of retirement and saying what has changed in the 20, in the 40 odd years since 401k was passed. They’ve realized, Hey, it used to be locked up money. You could set up a plan where there was no way to get the money out, like until you retire, because it is a retirement plan.

And that does make intuitive sense, but they realized life happens. And the more someone feels like they can feel safe, putting money away in case an emergency happens, there’s ways to get access to it. And the more ways that you can credit folks who might not be able to save, the more likely they are to save in general.

So, a couple of big ones for employees they added. They added something called the Plinching Linked Emergency Savings Account. And what that means is you can set up an account inside of a retirement plan for emergencies. Where it’s a penalty free withdrawal up to four times a year. That is a way to say as an employer or an employee that they can save a sidecar in that plan that says, this is earmarked.

If something goes wrong, I can take some of this money and take care of the emergency. You’ve probably read the mini stats of how many Americans can’t pay 400 in an emergency or a thousand. It hovered around half. Which is a frightening, frightening

Mike Vannoy:
Yeah. It’s, it’s a terrifying statistic. That’s right.

Kevin Gaston:
And I don’t think about it when I’m talking to people in the industry.

I think about it in an airport. I was walking through the, the, uh, Hartsfield airport today all the way. And I’m looking around, I’m like, not you, but you, not you, but you, not you, but you are in this situation, statistically speaking, and that’s wild. Cause it’s a lot of people in the airport.

Mike Vannoy:
Yeah.

Kevin Gaston:
So that’s a way to secure the secure to said, why don’t we offer an avenue?

There was an avenue open for a 1, 000 kind of no question to ask the emergency withdrawal. And they picked that number on purpose based on that statistic we’re kind of talking about. That’s one to give more sense of safety to an employee who says, what if my money’s locked up in this thing and I have something happen?

I can’t save there yet because I’m worried that. What if I need it and you won’t let me have it? So they offered a few more ways to get money out. But the one I think is really great for employees is what’s called student loan matching. And again, we, we know the stats on student loans and it’s in the trillions of dollars of money.

If you talk to someone today who is between out of college and maybe 35, if you ask them, are you saving for retirement at your workplace plan? Assuming they have one and they say, no, The number one answer they’re going to give you. And we did a, we’ve done some studies as with our participants. The number one reason they’re not participating, I have student loan debt to pay down.

So what it does is for every that you can take the money you put in a loan repayment over the year and count it for matching purposes as if you’d put in the plan. So I’ll explain how that works. Mathematically, the plan has a dollar for dollar match up to 5%. Nice match. Sounds good. They’re taking advantage of it.

Everything’s good. Unfortunately, I’m 30 and have student loan debt and cannot use the plan. I believe I cannot afford to use the plan. I am putting 5 percent of my pay into student loan repayment. Now you can match that as if I put in the 401k in there. So you’re basically matching on what I did in a student loan elsewhere.

And why that’s so important is I’m starting to build retirement while still paying off my obligation, but I’m not having to pick this up. I’m not missing this and I think that just feels rough to think you have a great benefit. You can’t afford to use

Mike Vannoy:
Kevin, when you say you’re still funding retirement, are you saying the match? Cause I think I, maybe I misunderstood this. Does the employer match go to paying the student loan debt

Kevin Gaston:
It goes with 401k

Mike Vannoy:
Got it. So, so the employee could pay a thousand dollars of student debt and you’ll match that thousand in their 401k

Kevin Gaston:
Right and now mind you this is an optional provision So the employer picks they get to choose whether they offer this to their people so they’re not required to do this So and not every employer does this make sense for them? talk

Mike Vannoy:
What? Why wouldn’t it make sense? That sounds like a no brainer.

Kevin Gaston:
Oh, maybe you don’t have a population with a lot of kids with a lot of college debt, you know, I, or maybe you just don’t want to offer it.

I mean, I, or maybe your budget doesn’t allow you to offer it. Or maybe you really do feel like they have to do it through the K plan. And again, I like that security gives that optionality. So if it’s not right for that business, it’s not right for them. But if you have a lot of folks, especially ones who require a master’s degree or higher or specialized education.

To get, to even get the job you’re about to offer them. Offering this is a no brainer for that war of talent. Like saying to you, look, I know I’m bringing you in. I know you have a big debt pool to pay down for the job I’ve given you. And maybe you can’t afford to use my retirement plan yet, but I’m going to let you participate as if you’re in it by paying your student loan debt down.

Mike Vannoy:
Yeah, yeah. I I feel like I don’t have a stat on this, but I just know, I know people that are, I know people that have student loan debt that are way older than you would think someone should have student loan debt because you know how long it’s been since they’ve been in school, but maybe they participated in deferment plans during hard times, made the minimums and the interest just keeps ticking. I suspect this is one of those benefits that you could offer people that they might be embarrassed to admit that they still have student debt that would love to have this as an offer.

Kevin Gaston:
Absolutely. And I will, I will tell you about something you probably remember, or maybe the sands of time because it’s, it’s, it’s longer ago than I think it’s 08, 09, but if you remember, there was a big push for people who were affected by the financial crisis to go back to school.

Mike Vannoy:
Yeah,

Kevin Gaston:
And a lot of those folks weren’t college age.

They were already working. They were deep in their career, 40, 50, and they said, oh, crap, my career. I need to get more education. So there is a large, and actually I was reading an article on this recently because some of those folks were in their fifties in LA, they’re headed towards retirement and still have student loan debt.

And so to your point, they did it. And it was, and if you, and it’s weird because we have such a fast news cycle. Now we tend to forget the things that I say just happened. No, it didn’t just happen. It was quite a while ago, but that was a huge push for reeducation of impacted industries. And people spent and borrowed heavily to go get new education.

They haven’t paid that off yet.

Mike Vannoy:
Really good point. I, which makes, it just makes me think if you’re an employer listening, thinking, ah, this one doesn’t apply to me. I’ve got a, I’ve got a bunch of trades people. They’re older. Um, you know, I’ve got a, I’ve got a working population that, you know, they’re not fresh college grads. Don’t, don’t over assume this one.

You, you might have employees That, you know, Maybe they’re embarrassed that they still have student debt. Maybe, maybe during a career change, they just went back to school and they, and they pivoted their career. There’s a million reasons why they might have student loan debt that you are not thinking about.

Kevin Gaston:
Maybe they borrowed money for their child. That is the easiest way to have some student loan debt is you refuse to put it

Mike Vannoy:
That’s brilliant. That’s brilliant, Kevin.

Kevin Gaston:
45 and you send your kid to college and you say, I’ll put it on my shoulders. I’m not gonna saddle it with you. Now you do have student loan debt. It isn’t your education, but it’s

Mike Vannoy:
And that, and that qualifies under Secure Act 2.0?

Kevin Gaston:
It’s qualifying student loan. Yes. If you pay a qualified student loan, I would say that might be one where you have to check a little bit, but generally speaking, if you, if it’s in your name, it’s your debt. If I signed, right, if I borrow, if I borrow 40,000 to send you to get a master’s. What I do, if it goes to your tuition, it’s still my name on the, on the dock.

I’m still banking the payments. I don’t see why that wouldn’t be the same student loan debt as if I went. That’s Now, you did say something, and I’m sure that Secure Act 2.0 spells this out specifically. It’s got to be qualifying debt, right? So it’s got to be part of a federal assistance program, qualifying student loan. It can’t be just like a loan from Aunt Betty or just a line of credit from your local bank.

It will. So it had to be a loan for qualified secondary education and they spell out, there’s an actual code that references it, but for sake of clarity, it’s almost anything that’s trade. That’s college. That’s grad school. It could be beauty school. I mean, it can literally, it’s a very wide thing.

It just cannot be high school or down. And it can’t be like what I would call like flagrantly hobby. Like if there’s cornhole school, like I’m pretty sure, like you’re not going to be able to get a credit for that, that I know of, but a lot more than most. But

Mike Vannoy:
We’re not talking just people going, getting, uh, you know, getting, you know, their bachelor’s, uh, Uh, or, or master’s degrees here. Uh, you know, it’s certainly people coming out of law school and getting their MBAs and doctors, you know, people with very serious debt that might really, really appreciate this. You could have gone to trade school to be a welder or cosmetologist, right.

Uh, uh, and rack up some serious debt there as well.

Kevin Gaston:
To me, the biggest war and what was probably exposed more than anything during the, during the pandemic was the healthcare industry. And to me, if you’re a hospital or any sort of health business, if you’re a small business that has healthcare or home health or something like that, and you’re bringing in people who have to get education, whether it’s nursing, whether it’s physician’s assistant, whether it’s a, even if it’s a phlebotomist or a CNA, they all spend money to go to those programs.

To me, a way to attract them into your door is say, I’m paying a competitive rate, but I’m going to actually make sure you get the retirement benefit of our company Because I know you have a big debt from nursing and I think nursing is if you talk about the war for talent the the nursing war is very serious

Mike Vannoy:
Yeah, you bet. You bet. Um, okay. So if you’re an employer. Up until now, you may have thought, uh, 401k was out of reach. You thought that was something that big companies did. It was complex. It required probably some technology that you weren’t comfortable with or had resources to support. Um, and you thought it was probably too expensive. All those things that we kind of evaporated. I think the technology and complexity has evaporated as firms like Vestwell and others, certainly we’d advocate for, for Vestwell. Um, but I think the plan design and the way these things are packaged and the way, uh, you can access stuff over the internet and, and through your mobile device, the mysteries kind of come out of this.

But now the big remaining thing for small businesses, the expense.

I think so many small business owners have just assumed this is out of reach. And maybe if you’re living on the edge financially, maybe it was. With, with the Secure Act 2.0, it is no longer on the edge. It is literally, I gotta be careful with that word.

I’m not a regulated industry like you, you probably can’t say the word literally. Uh, but, but it’s almost literally, uh, free to set up a 401k plan and, and, and provide it to your, to your employees. So if you’re an employer, it’s kind of a no brainer. You should be really thinking hard about setting up a 401k plan.

And if being a good human, wasn’t enough just for altruistic, Hey, here’s all these things that you can do. You know, you can set your employees up with, uh, Hey, if you contribute, don’t worry, there’s a new provision for an emergency savings plan. So you can pull money out without being penalized to pay a bill because you don’t have deep pockets you’re you’re early in your career, or I could match to your retirement and you for every dollar up to a thousand that you stick Student loan, uh, repayment. There’s a lot of really good practical business reasons to recruit people, to retain people, newer entering the workforce, especially, but you know, not, not only. So this just seems like goodness on both sides, the employer and the employees. 450 some pages. I’m sure there’s a heck of a lot more to it than that.

But are there any other big buckets that we’re not talking about here, Kevin?

Kevin Gaston:
Um You know a lot of its optionality. It’s changing features. So some of the things in there for instance perfect example Um, there’s something called a required minimum distribution. It’s when you have to start paying, taking money out of a retirement plan because the IRS knows it’s been tax deferred.

They keep moving that. And it’s funny because we talked about people are keep living longer. RMDs have gotten started later and later because they’re recognizing that people are living longer. RMDs used to start at 70 and a half. Why the IRS loves half years

Mike Vannoy:
And when you say R& D, that’s a, what do you

Kevin Gaston:
RMD, required minimum distribution.

In other words. The IRS said you’ve saved up 100,000 in your nest egg. It’s been tax deferred this whole time We’re gonna make you pull some out pay taxes on it. So that we’re getting we’re getting our tax money eventually out of this thing But what’s interesting is they keep moving that age They used to say you had to start at 70 and a half now.

It’s moved to 73 It’s going to eventually move to 75 and it’s going to keep going as they say, well, folks are not needing this yet longer. So there’s lots of little pieces of things like that in there. There’s actually a credit that it’s a little lengthy, so I’m not going to really go into it here, but we could do it maybe on a different podcast.

There is a credit, another crisis that, and again, it’s, it’s one of those you wouldn’t know if you didn’t know. But there is a 25 percent unemployment rate in military spouses, the spouses of our armed forces of active military. There is a specific fourth credit, and I know he said there was three, I lied, there’s a fourth one.

There’s a specific credit for employing the spouses of military, active military, where you get money for putting them in and giving them kind of accelerated benefits. And again, that’s enough of a dive that it really, it’s a different venue because it’s lengthy and it’s a little complicated.

Mike Vannoy:
Sure.

Kevin Gaston:
But it’s, that’s what makes this law interesting is that what you have is you have this broad group saying there’s lots of retirement issues we want to fix.

People should auto enroll. People should auto escalate. We should give credits to encourage businesses to start these plans. Then there’s lots of little pockets where they said, hey, you military spouses, which is a fairly, it’s a notable demographic. We have a lot of active military in this country and a lot of spouses.

But they recognized an unemployment rate that was really high there and that they weren’t getting a chance. Cause if you think what we talked to her about vesting, imagine every time you move from base to base, every time you enter a retirement plan, you’re never eligible because the eligibility is one year to get the plan.

And every time you switch locations, you never hit eligibility. So the credit actually by saying, let’s make you eligible sooner. And if you do. Employer will give you a credit for being nice to our, our, our active military spouses. There’s lots of nuggets in there like that, that are just little groups that they’re trying to help.

Um, they have some rules and what you’ll see it across the whole thing. And here’s a question that probably I would say that we didn’t touch yet. And it’s why, why, why would we give so many dollars to small businesses to start retirement just to be nice? And the answer is what they added a lot of and all of secure to is Roth optionality.

And I’m going to give you a fun fact. Roth is named after this gentleman, Senator William Roth of Delaware. He has since passed. He’s the guy who came up with Roth. And I think it’s fascinating that there’s two ways to put money into a plan. Generally speaking, one is pre tax. You take a deduction today, the money grows tax free, you pull it out, and it’s taxable income.

The other is Roth. You take it as income today, you pay the tax today, it grows tax free when you defer it, and when you pull it out, it’s completely tax free. He came up with that idea, and those are our big money savings buckets. But what they’ve done across a 2 is encourage a lot more ways to save with Roth.

And the reason that 410 odd congressmen said this is great and only eight said no is this was a, what’s called a budget neutral bill. The expected income from people choosing to pay taxes today on Roth deferrals was thought to offset the amount of credits they’re going to be handing out. For uh, all these new plans that are starting up So I find that fascinating because when you say how do you get a bill through legislature with so many people liking it one Have it be something everyone understands.

I don’t care your political leanings. You have to say there’s a retirement crisis to Make the bill not cost anything to the taxpayer. That’s lovely I don’t know what three is but those two definitely pretty much grew it.

Mike Vannoy:
Kevin, I think, I think you picked a good place for us to stop. I’m sure we could keep going through 450 pages, but I, but I think, but I think we got the biggies. Um, I’ll give you maybe a 30 second closing word here.

Kevin Gaston:
Okay. Um, I I do think that You know, as we talked about, this is the carrot. I think that this is, there’s never been a better time to start looking into this and start kind of taking advantage of this. And I think that what it does, especially when we talk about the war on talent, the war for talent, not on talent.

For talent. It’s, it’s, It’s giving such an opportunity for a small employer to fight like the big employers. You can offer something like the next company. That’s big across the street that, you know, people interview at instead of you or at the same time. And I think that’s just such a leg up. If you’re trying to get the right people to grow your company.

And as you pointed out, I think that’s a fantastic stat, the growth rate of companies that offer corporate retirement versus the ones that don’t almost, Is the most compelling stat you can say for why, what’s the case?

Mike Vannoy:
Yeah. Yeah. Well, well said. Kevin, thank you very much. Enjoyed talking to you

Kevin Gaston:
Definitely. Thank you.

Mike Vannoy:
And thanks to everyone else for enjoying, uh, for joining us today. If you got value from today, if you, if you want to, Uh, learn more about 401k. I invite you to, to, to listen to some of our other shows on this same topic, but I encourage you to like, comment, share, and subscribe, whether it’s on YouTube or your podcast platform of choice, Kevin, thanks again,

Kevin Gaston:
All right. Thank you.

Mike Vannoy:
Have a great day.

Everybody until next week, join us on your mission to grow.