VANNOY:

Hi, everyone. Mike Vannoy, vice President of Marketing at Asure. And today we’re gonna unpack a really cool topic why and how small and mid-sized companies should be offered a 401k. I, I think a lot of times people think 401k, that’s something to do with big businesses, larger enterprises, but it’s not something that’s available to the small employer. Well, in, in today’s war for talent where there’s help, help wanted signs up everywhere, regardless of whether we’re in recession or not recession, the reality is in employers are struggling, finding enough people to fill the most basic roles today in any, any, any tool you can have in your tool bag to recruit talent, to retain talent. We wanna explore and unpack with you. So great guest today, Jon Kromphardt. He’s a senior regional director of revenue for a company called Human Interest. Human Interest is a, I’d say a technology oriented 401K company that they deal specifically with 401ks, 4 0 3 Bs. And they really help specifically smaller and mid-sized companies. Prior to human interest. Jon has spent time at TriNet and Paychex, so really knows this small business employer payroll, 401K world. You joins us residing from Arizona with his wife and two dogs named Brody and Hannah. So, Jon, good, good to meet you here about your dogs, <laugh>.

KROMPHARDT:

Hey, great to meet you as well.

VANNOY:

Okay, so let, let’s do this. So this might sound kind of obvious, I think most people would know what a 401K is, but let’s do, just start out legally, technically, what is a 401k? And then let’s kind of start unpacking what’s changed for 401ks that now makes this a viable thing for small employers, small businesses to consider?

KROMPHARDT:

Absolutely. And to keep it as simple as possible, one can define a 401K plan, basically as being a company sponsored retirement account, which employees can contribute pieces of their income while their employer may match those contributions. And so for Americans today, what, really what we are facing and that human interest, we, we have to use this terminology, we’re, we’re calling it a retirement crisis. You know, for the longest time people have had three-legged stool for savings, whether that’s your own personal savings, whether that’s personal savings, employer sponsored savings, or social security. At the end of the day, that’s dwindling. And so many people are looking at options to start saving and making up, you know, where social security may be dropping. And to be completely honest, 25% of Americans have $0 saved for their retirement, 25%. So you can see where we can see that there’s a retirement crisis.

VANNOY:

Yeah, there, there sure is. Can you can explain maybe Jon what’s changed over the last five and 10 years and why is it, why was this something that was really only a thing for big companies in the past? And what’s changed to make this 401k a viable opportunity for small businesses?

KROMPHARDT:

You know, if anything great question. If, if anything, I think it comes down to certain actions that states have started to make, you know, and so when it comes, when, what I mean by that is we have 14 states that currently have a mandate in place that have driven small businesses across the country to take action. Where just in California on June 30th, any company with five or more employees are now required to offer some type of retirement plan for their employees. And they’re, they’re following in those steps. In, in Illinois, in New York, in Connecticut, in New Jersey, states across the country are starting to pick up on this trend. And, but the fact of the matter is people realize we need to start saving and families need to start saving, otherwise people aren’t gonna be able to, are aren’t going to be retiring, and that’s gonna mess up the entire workforce as we know it.

VANNOY:

So, Jon, so a, there’s legislative change of foot, right? So, and this is something we talk around this show on a regular basis where you go back, you know, 50, 60, 70 years, you, we always had big major federal legislation that would impact HR requirements. All we, going back to the Standards Act you know, which first was the child labor laws and overtime laws you know, civil Rights Act in the, in the sixties, OSHA for safety in the seventies all in up to the Affordable Care Act 2008, right? So big sweeping legislation, the, I think the punchline for the last, call it decade in clearly, the pandemic accelerated. This is not just big federal laws. There was some, certainly the pandemic F F C R A and cares mm-hmm. <Affirmative> but it’s the acceleration of stakes and local municipalities adopting their own versions of these, of these laws. So say more about what about these, what these states are mandating in and how what, what’s the trend for more states and, and what are some of the requirements for small businesses to comply, whether they wanted to participate in 401K or not?

KROMPHARDT:

Yeah, and I can come back to California. I can talk about any of the other states or, or follow up with more information, cuz each state does vary a little bit in their own, which way any company, what the states are requiring is that any business is required to offer some sort of retirement plan for their employees to start saving. And so, for example, the state, I would say each, if not all of the states have started offering their own personal, their own personal savings account that employ employers can get signed up for. And so if anything, them driving this is driving action for more and more employees, and they wanna make it as easy as possible for the companies to be able to set these plans up. Now

VANNOY:

Let, let’s, let’s go there to easy to easy to set up. So was there ever a technical or legal requirement that only big companies could offer 401ks? What, what, what is it that prevented small businesses from, from taking advantage of, of of offering a 401K to their employees Up until recently and kind of sorta of you guys,

KROMPHARDT:

I would say they never thought that that’s something that they could do. It’s that it’s gonna be too much of an administrative burden. It’s gonna be way too expensive for the, for the company to be able to take on this benefit. And also, like 401k for the longest time has had a really bad reputation for being a clunky benefit offering super expensive to both the employer and the employees. And so if anything, that’s what, you know, more modern 401K providers have been, right? Really trying to challenge.

VANNOY:

So, so we all kind of get the tax benefits, the tax free growth of your money, the pre-tax deduction. So we get the bene get the idea conceptually in, in whether, you know, we, we stay away from politics in the show. So whether you are all for a free market solution or, or a, a government solution for, for a safety net and retirement accounts, I think the mechanics for the employee are pretty clear to understand, speak to the complexity and costs to administer from an employer standpoint. Cause I, I kind of think it’s two things. One, it’s a little scary to a small business owner. You know, if I’m if I’ve got a a, a kitchen remodeling business, I’ve got three crews, I I’m really good at making people’s homes look beautiful and transforming them. And I know how to buy supplies, right? In managed projects. I, I know what a 401K is, but I, I don’t know how to, I don’t, I don’t know what a TPA is, let alone how to contact one and how they would manage ’em a 401K plan. Can you speak to kind of that administrative process that really is some of the legal complexity of, of 401K plans?

KROMPHARDT:

Absolutely. You know, and, and in the retirement industry, we love to say the phrase, set it and forget it. And that’s referring to, you know, an, an individual’s contributions into the plan. You know, this is one of those things, set it, pick a contribution that you wanna put into your plan, forget it, and just let it grow. Because the whole, the benefit of the 401k for those employees is that compound interest, that growth that you see time over like year after year, time after time, right? And so when, when I say set it and forget it, that’s really one of the whole premises we’ve taken on here with human interest is set up the plan and forget it. Because when it comes to the administrative responsibilities that can go into a 401k, it can get pretty tedious. Who is my tpa, who is my record keeper, who is my fiduciary, who is my advisor of record? So many different pieces involved in just setting up a 401k plan can be really clunky and can be very tedious, and it can be expensive. And so that’s where more mo Oh, go ahead.

VANNOY:

So, so I was gonna say, so up till now Yep. And now being the last few years you would have to do all those things. And I think these are, this is probably new vocabulary for a lot of people watching the show life. So a TPA stands for

KROMPHARDT:

Third party administrator.

VANNOY:

Third party administrator. So by law, there’s a bunch of legal requirements if you’re gonna be the administer of a gonna administer a plan so that you don’t say discriminate in your offering and you don’t discriminate, and who gets to participate, who doesn’t, how you match, how you don’t as an owner using a 401k simply to enrich themselves, but doesn’t there’s no reasonable way for lower paid staff to participate. There’s, there’s all kinds of legal requirements around that that people would use. A third party administrator, the, the, the tpa. What, what, what’s the role of a tpa? What’s the role of, say a fiduciary that I, I know we’re gonna get to what you guys do in a second, why, why that’s not an issue anymore, but I wanted people understand the context of what the before and after here is.

KROMPHARDT:

All right. I’m gonna give you a legal answer as far as the whole, as far as what is the tpa, what is the third, third party administrator’s responsibility? Yeah. Basically, the TPA is hired by the 401k plan sponsor, the business owner, most likely. And their job is to run the many day-to-day aspects of the retirement plan. These include, but aren’t limited to amending and restating the plan documents, preparing employer and employee benefit statements, assisting in processing all types of contra compliance with the irs, non-discrimination requirements, as well as the plan partic, like I could keep going, talking about as well as the plan and participant contribution limits. They will focus on the allocation of employer contributions and forfeitures. That’s their responsibility to calculate participant vested percentages. And lastly, they’re preparing the annual returns and reports that are required by the IRS to that are required by the s IRS for any 401k plans. They’re basically doing anything and all things behind the scenes that most people would have to do on their own.

VANNOY:

So, Jon, is it fair to say, and, and, and, and we’ll get to talking about you guys in your firm in, in a bit here. Sure. Fair to say, in the past, the, the past really hasn’t changed to the present, right? All those same legal requirements, the responsibility of the tpa, the, the fiduciary all the, all the filing requirements, the non-discrimination requirements, none of that’s really changed. What’s changed is the, is that burden have to sit on the employer to figure all that out, which of which is really only larger employers had the wherewithal to kind of do all that and had the staff and the headcount and resources to pull it off, versus now firms like you are really doing a lot of that, doing that, a lot of that heavy lift for the employer is, is that kind of a, a simplified way of thinking about it?

KROMPHARDT:

It’s a hundred percent correct. Keeps coming back to that word, clunky. You know, there’s several different parts to being able to provide the 401k plan. The TPA is just one, is just the very beginning.

VANNOY:

So going back to my small business owner example you know, so let’s, let’s pick, pick a different example. I run a, I run a golf course, maybe I run a handful of golf courses and I know everything there’s to know about golf. I know painter, I know greens keepers. I know all that stuff, right? But in the past, I would’ve had to know what a TPA is know how to evaluate and, and, and, and pick one, know what a plan sponsor is. I would’ve to understand all that mechanics, meaning I probably would have to either be a re a super financially savvy owner, or I’d have to have at least a director of finance, maybe a, a, a cfo, or at least a fractional CFO that really comes with this preexisting knowledge to be able to participate. Where today, you don’t have to know any of this stuff. If you know the benefits of a 401k and if you think it will help in enrich your employees lives to help them save and just be a good human for them, while at the same time maybe selfishly recruiting and retaining the best talent in a, in a super competitive market, it’s now kind of available to everybody through, through, through firms taking this responsibility on, on behalf of small businesses. Is that fair

KROMPHARDT:

Ex? That’s very fair.

VANNOY:

Okay. All right. So, so let’s, let’s go a little bit deeper on, you know, what are the benefits for a a, a business, specifically a small business? Why should, and I’m just gonna say it. Why should I think every business be offering a 401k?

KROMPHARDT:

I think that, you know, there’s one really common statistic out there that matters, and that should matter to a small business owner. And that’s 88% of employees say a 401K is a must have benefit when looking for a job, 88%. So for a small business owner, do you want to not be attractive to this eight group of 88% of the workforce? Right? So for, and I can go a little bit deeper into it, but at the end of the day, every small business has the intention of growing. You know, you want to be able to retain the employees that you have, but you also wanna be able to attract new employees. And for the 401k, it’s starting to become something that’s not just mandated by several different states. And you never know down the road with the, with the national mandate, but it’s expected for employees, especially as a workforce is getting younger and younger, it’s very assumptive that this is a part of it.

VANNOY:

Yeah. And, and I would just hammer this home for, for, for our audience, for, for the small business owners here, especially you know McKenzie and company kind of famously coined the phrase war for talent all the way back in 1998. And, and, and that was really, I don’t know, that was kind of this esoteric you attend an HR conference, when you think about, you know, labor force planning you know, that’s the kind of stuff that Fortune five hundreds did, right? But and, and you throw in, you know, some election cycles and some economy swings a, a war War II in, and we think about unemployment rates and all this, what not having to do with those big kind of macro events, but really based on birth rate, retirement rates, labor participation rates, the, the economists have been forecasting a labor shortage for, you know, the last 25 years, right?

And, and I think we’re, you know, coming out of a, of a pandemic, you know, we can think pandemic, we can think presidential politics, we can think about a recession, we can think whatever we want. The reality is the, the labor shortage has been predicted for a very long time, and I think it’s here to stay, and maybe it’s not a total shortage, but the, the competitive landscape for talent for employees is no longer a large company thing. This is, this is something that hits Main Street. Most anybody listening today, if you go to a restaurant, you, you, you probably experienced it right? Longer than normal weights, and you see empty tables sitting in the back of the restaurant, they don’t have enough staff to serve you and to even seat you, right? So, so this is really hit Main Street. Any what other competitive advantages, Jon, to offering a 401k to recruit and retain people?

KROMPHARDT:

You know, when it comes to the competitive advantage, not just having a 401k, but the different type of 401k or, or structure of your 401k can come into play. You know, I’d mentioned earlier when just talking about the basic definition of a 401k, if your employer chooses to match your contributions. So for a lot of people setting up the plans for the first time, it’s, it’s at their discretion. And we’ll see what the participation’s like, are my employees just grateful that I’m, that I’m offering this coming from a different provider? They’re expecting to have a place to be able to roll over their 401k into, yeah. So it’s one of those automatic assumptions, but then for a business owner to be able to say, well, well, you know what, we’re gonna offer a match as well. Like basically, here’s some, here’s some extra free money to go into your retirement. So many business owners realize how important it is for their employees to, like, they, they understand the importance just in saving. And if they can use a, a match to be able to help that many more employees, they’re definitely gonna do it,

VANNOY:

Jon. So then there’s a lot of small businesses that are, you know, they’re bootstrapped, right? They’re not, they’re not venture backed. They don’t have a big big bankroll. They, and they live, you know, they, they white knuckle it from payroll to payroll. How, how are we gonna survive out of a pandemic? How are we gonna, how are we gonna build this business? And the idea of maybe the match in and of itself, they’re like, would love to do that for my employees. Love them, would love to give them a match. I don’t have the money. I, I, I suspect there’s a lot of people who don’t even explore 401K because they think it has to have a match. Mm-Hmm. <affirmative> can, can you explain about that? Legally, are you required to have a match? If you do, how much can you, what’s the max? And then, and then finally maybe a little bit of what do you see in the marketplace? What do you see small businesses actually doing today?

KROMPHARDT:

Yeah, first and foremost, you’re not required to have a match. There are several 401k providers, A lot of the more traditional providers that do require you to set up a specific plan design with a specific match structure. But for us, you have no, you have no requirements. However, you know, at the end of the year, one thing that you know, and with 401K providers as tpa as co-fiduciary, we are running our compliance testing to make sure that you aren’t facing fines or fees that are gonna be added. Like, for example, if there’s a workforce that does have more highly compensated employees, and those highly compensated employees and management and ownership are setting up the 401K plan just to, at their own advantage, there is testing that is put into place to make sure that that’s not happening. And so, companies like my, like human interest, we run this compliance testing far beforehand. So any necessary changes can be made so you don’t face it. Any fees or fines as far as, say,

VANNOY:

Jon, say more about that. So what, what is it? Wh why can’t, why can’t you? So I, I, I, I have a small manufacturing business. I’ve got a team of five executives all highly compensated, and I’ve got a factory floor of a, a couple dozen people you know, making, you know, $15 an hour. Why, what’s wrong with me and my executive team participating in 401k that none of my employees can’t? What’s illegal about that?

KROMPHARDT:

As, as far as the illegal it being illegal or not? This testing is more com it’s called top heavy contribution testing. And what that means is, when the owners and most highly paid employees own more than 60% of the value that’s in those plan assets, if they’re doing that, if there isn’t the safe harbor match provision, which is another thing that I could talk and talk about, if that’s not imp, if they have the safe harbor in place, you’re automatically going to pass the testing because the same match and this same benefit has been offered to any and all employees. It allows you for you to get past that because okay, that is at the discretion of the employee to sign up, but it just means that the business is again, doing it at the best interest of all of their employees, which comes back to that co-fiduciary responsibilities. A co-fiduciary needs to act in the best, best interest of all employees with the company.

VANNOY:

Because if we think back to what’s the purpose of a 401k, you know, this is, this is legislation that passed, when did 401ks become law of the land

KROMPHARDT:

35 years ago?

VANNOY:

35. So 30 years,

KROMPHARDT:

40 years ago.

VANNOY:

So they 401K becomes law of the land. And, and the purpose is to create a retirement benefit for folks, right? With the acknowledgement that social security is built from a, from a different era, and whether it will be here, or even if it is, regardless if it goes away, if it’s, if it stays, it’s probably gonna be inadequate for most people to retire with life expectancy so, so much longer. So, hey, here’s this new way, new thing to help fund retirement. It was never, it would never would’ve made it through Congress if it was just a way to help rich people get richer, right? Mm-Hmm. <affirmative>, it was meant to help every person save for their retirement. So this is, this speaks to then some of the, the, the testing, the legal requirements that you must provide this as a benefit to all your employees if you’re gonna participate, right?

KROMPHARDT:

Correct. You hit the nail on the head.

VANNOY:

Yeah. Okay. So why else should a business offer 401k? And, we’ll, we’ll get to the benefits to the employee next, but what, what are the other reasons that a business should consider your offering 401k to their employees?

KROMPHARDT:

Any and all, any and all American citizens should be able to, should start saving for their, for their retirement, right? And you have certain advantages as a business owner to be able to do this. And so, just for, for me, when I’m, for me or any of the sales rep sales reps that are on my team, it’s about selling to the whole principle behind sa saving for your retirement, getting compound interest, giving yourself the time to grow. So it’s either, I’m doing this for myself as a business owner if I’m setting a p solo 401k, or I’m gonna be using it to attract or retain employees. And lastly, probably one of the most important features are the tax advantages that go into setting up a 401K plan. So whether, you know, oh, and I can start talking about the secure act and the incentives that have been put in place by the Go Federal government to make this easy. Yeah. So with the Secure Act, basically what happens is for the first three years that you have a plan, if it’s your first plan that you’re offering, you’re eligible to receive up to $5,500 in dollar for dollar tax credits, $5,500 in tax credits each year for the first three years that you have a plan. The whole purpose of this is to offset any cost it takes to, to administer to the plan.

VANNOY:

Jon, is that, is that just a, that’s a flat 5,300 bucks, that’s just an automatic tax deduction? Or, or how does that work?

KROMPHARDT:

So, yeah, so for any company that has it’s, it’s not eligible for companies with a hundred or more employees. So any company under a hundred employees is eligible to receive this. Basically what happens is whatever 401K provider you choose, it does cost something to have a plan. It does cost something to pay the vendor. And what that 55, you can get up to 5,500, but it’s more, most commonly going to be half of what you pay to have the plan.

VANNOY:

So half up to 5,300 is roughly how it works. Yep. Okay.

KROMPHARDT:

So if the plans on every, if the plan costs an employer fi $5,000 to have, they’d then be eligible to receive $2,500 in tax credits back. Got it, got it. If they add a feature called automatic enrollment on there, they’re automatically el automatically eligible to receive another $500 credit. So if they’re spending $5,000 on this benefit, they’re getting $3,000 in credits back from, from the government. It’s making it very, very good, very affordable for people to be able to offer it. Yeah. And this comes back to the acknowledgement that we need individuals to start saving for their own personal retirement.

VANNOY:

Okay, so the, so there still is gonna be a cost there are tax credits available to get half of it back. In your experience, smaller employers call it under 25, under 50 employees. Do, do their costs get much over 5,000 or, I mean, maybe an unfair question, but I’m sure people will be wondering, watching today.

KROMPHARDT:

No, I’d say that’s right around like the 25, 30 employees that is, that should expect for it to cost under $5,000 to be able to set up a plan. And so I’d say that’s right around that, that employee count. Okay,

VANNOY:

So rough order of magnitude. I’ve got 50 employees, I wanna offer a 401k. I didn’t think it was affordable before. I didn’t understand, cause it was scary. Now I, I’m realizing, okay, I can, it’s probably gonna be somewhere in this 5,000 ish dollars to administer the 401k working with the TPA or a a a a a firm like yours. But there are tax credits to get at least half of that back. So I’m probably in the neighborhood of two, $3,000 to administer a plan that could attract employees, of which 88% say that this is a, a really important benefit for them when selecting an employer.

KROMPHARDT:

Right. Not too bad. Not too bad, right.

VANNOY:

Yeah, no, it’s great. What, so what else? So there’s, we know 88% of employees want it, and so you needed to recruit and retain, there’s a tax benefit to help offset the cost. Why else should businesses consider offering 401K

KROMPHARDT:

For the, and, and coming back to the business owner and the tax, the tax side of things? It’s that match that we talked about earlier, completely tax deductible. The rest of the expenses for administering the 401k, completely tax deductible. An additional feature, a really cool feature that’s attached to all 401k plans is profit sharing.

VANNOY:

Yeah.

KROMPHARDT:

So for example, if I’m talking to a prospective business owner, and you know, at the end, end of the year, you’re talking to the cpa, looking back at the profit for the company, and then then the CPA’s making recommendations. You know, you need to put your money here, put your money here. We need to offset the tax liability conversation I had. And so often buying a new piece of equipment, a new vehicle, anything like that, you’re investing in things that are depreciating over time. Why not take this profit and invest it in something that appreciates over time, like an additional contribution to the 401k plan through profit sharing. And so as business owners are learning about this, it’s becoming a very, very attractive feature with the 401k plan. It’s to be able to take that bottom line and reinvest it back into the plan, you can almost treat it as a, as a bonus of sorts for the employees while you’re offsetting your tax liability at the end of the year.

VANNOY:

Jon, I, I, I might be on base here, but been an entrepreneur, own, own businesses, been part of businesses, have a lot of friends own their own businesses. I almost feel like this is the, the, the biggest hidden gem in 401K for, for owners. Cuz on one hand what’s scary about 401K is the, the, the legal requirements in the administration. And part of that administration is in fact discrimination testing, right? You, it’s illegal for an owner to set up a 401k just to, to, to, you know, put a bunch of money in the company matches. They’re kind of doubling down, but their employees don’t get to benefit from it. The law doesn’t allow any of that. But as long as you do it right and you work with a TPA or a firm like yours, who does it right for you? When you’re, when you own your business, you, you don’t have that retirement. Your retirement may be the business, right? And, and is it a sellable asset? And are you gonna be able to liquidate that asset when you actually want the money when it’s comes time to retire? So the, the huge tax benefits of having a 401K for an employee, now you have that as an owner by just simply setting up a plan. Is that, is that, am I overstating that?

KROMPHARDT:

No, understating. If anything, it’s, I I love that you called it the hidden gem. I tr i, I look at it the exact same way and being able to have these conversations about pro profit sharing,

VANNOY:

If I’m understating it, that, that tell me, tell me where I miss where, where, what, how else, how else should owners of businesses be thinking about 401k if they have, if they’re not offering it yet,

KROMPHARDT:

You really hit the, the, the maximum potential that you can have with the 401k when it comes to how much money truly can be put away into the plan, especially as a business owner, if you’re fully maximizing that. And so, you know, just from an individual contribution level in 2022, just from your, like whatever you want to contribute as an employee of the company, even as an owner of the company, you can put up to 20,005, do $20,500 into it. If you’re over the age of if you’re 50 or older, you can actually put $27,000 away. This doesn’t take any consideration into the matching or the profit sharing. That can be on added on top of it as well.

VANNOY:

Yeah. Yeah. Beautiful. Alright, let me recap. Number one, 88% of all employees say that this is hugely important to them. So if you’re, if you’re trying to compete for talent and everybody is you need to be able to offer everything, everything available to you. And 401K is an important tool in your arsenal for attracting and retaining talent. Number two, there’s tax credits available to offset the cost. So this doesn’t have to be expensive. And then number three if you’re in the owner of a business you don’t have, you don’t have the opportunity to work for someone else in saving a 401k. You’re not maybe somebody else’s pension plan. Maybe, maybe your pro, maybe your business isn’t even being super profitable, right? And the business itself could be, and you’re like, how the heck am I gonna save for retirement with my struggling business? Here’s a way for tax, pre-tax dollars money you’re spending anyway to actually go to your retirement. So three really, really big reasons I think for employers, businesses, just just to think about offering a 401k. Anything else before we jump to the benefits to employees? Jon?

KROMPHARDT:

No, I the, the bull, the next point that I think I wanna talk about has everything to do with the employees and how they’re able to contribute. So I’ll wait for that.

VANNOY:

Yeah. Yeah. The floor’s, yours,

KROMPHARDT:

<Laugh>. Yeah, so, you know, the pre-tax dollars, you know, from a business owner, from a business owner’s perspective, that speaks for itself. You know, for, for an employee who’s working in that restaurant who’s making the minimum wage and look at it, okay, this is a great benefit. I’d love to, but every dollar matters to me. And so for the each individual employee, they can decide, do I wanna make a contribution to be pre-tax or do I wanna make it post-tax? Certain benefits that go with both of those types of contributions, you know, for that person that doesn’t wanna see a huge difference, they’re still paying taxes, but they know the importance of starting to save early. That person may opt and start to do a pre-tax contribution or a traditional 401k contribution, however, and then the only difference for that, you’re gonna be paying those instead of paying taxes upfront. You do take them, you will pay taxes upon withdrawal at retirement.

VANNOY:

Mm-Hmm.

KROMPHARDT:

<Affirmative>, the other option that we is also gonna be a Roth contribution or a post-tax contribution where you’re paying your taxes, you’re still paying your taxes now, but when it comes time for withdrawal, taxes have already been paid. So on the money that’s grown in there, the assets in there, you don’t pay taxes at withdrawal. So for employees, we don’t limit how they can contribute. Instead we give them several different ways so that they won’t see differences in their paycheck if that’s what really matters to them.

VANNOY:

So there are, there, there are differences. I, I believe this is a, this is a setup question, I just wanna know how would post-tax contributions, so when I think Roth, I think limits there are much smaller than 401k, are there post-tax, I guess first unpack that, what are the, what are the, what are the IRA and the Roth type post-tax contribution limits in, are there post-tax 401K contributions on top of that?

KROMPHARDT:

So yeah, with the Roth ira that’s, that’s actually what most states are opting to do or opting to set up for the state sponsored plan. And that with that there are contribution limits 100%. So that $20,500 that I brought up,

VANNOY:

Yeah,

KROMPHARDT:

6,000 is the maximum contribution. And so for a Roth, for a Roth ira, that’s a huge, that’s a huge hindrance for people that are truly seeing the value in this and wanna keep maximizing it. 401K is the way to go. It gives you the biggest vessel biggest vessel for you to be able to contribute to your retirement plan when and so many, and for a lot of people, they automatically associate the Roth with the type, Roth is only an ira, this is, it’s a Roth ira. There’s no such thing as a Roth 401K contribution. But you can have both a traditional pre-tax contribution or a Roth post-tax contribution within your 401K plan as well. And you’re still allowed to contribute that $20,500 as an employee.

VANNOY:

Is it an and or an or are you saying you can do the $20,700 or $27,000 pre-tax 401k and the $6,000 post-tax Roth?

KROMPHARDT:

So as far as can you have, so you’re asking if can I have an IRA and a 401k? The answer’s yes. Yes, because that is a per, so one is the 401K is an, an employer sponsored retirement savings vessel, whereas the, the Roth IRA is a personal retirement savings vessel. So it’s not sponsored by the employer. There is no match tied to it. It’s not set up by the company for the employee. That’s their own personal contributions. Does that make sense?

VANNOY:

It, it does, and that’s what I thought. But in the context of managing a plan, the employer would, isn’t offering the Roth then the, the, the employer is only offering the 401k. Roth is just something else the employee can do with their tax per for tax, per deferred growth. Okay. Okay. Okay. So I guess even though everybody probably gets it, just give, give a remedial course here on, on the tax benefits of, to the employee for a 401k.

KROMPHARDT:

Sure. Pre-tax contributions really commonly done, you know, maybe for higher earners or lower earners, because the advantage of it is you’re taking this, you’re taking your earnings out before you’re actually getting taxed. So for somebody that’s, you know, only seeing a very small amount on their check and they, they say they don’t wanna see a huge difference in their paycheck, that may be more opportunistic for them to do this pre-tax contribution. The only downside on that is they’re gonna be paying taxes when it comes time to pulling the money out of the 401K plan. So for, for people that wanna do a post-tax, also known as a Roth contribution, they are gonna be paying their taxes now. But the, the very, very positive feature on it is when it comes time to retirement and all that growth on the assets that you’ve seen in the plan, you’re not gonna be paying taxes at that point. So for some people, they like to look at as control the controllable, and that’s, we know what the taxes look like now, but for each individual it’s, it’s important to know there’s no limitation. You don’t have to, you get to do one or the other. Some situations you couldn’t even do bold.

VANNOY:

Yeah, it, and I think there’s just also the reality of that, you know, you’re probably not gonna live the life of your dreams in retirement, packing away $6,000 a year. You’re gonna have to do something above and beyond the, the Roth. And if you’re doing the Roth, you probably are doing other things, whether it’s, you know, real estate or, or other investments o other areas. But but of course there’s the tax deferred component there. What other reasons why why an employee would want to sign up for a 401k?

KROMPHARDT:

Everybody’s got their savings account, right? You’ve got the savings account tied to your bank account. You’re just basic checking account. And so nobody, nobody expects, expects to see any growth in there. Heck, maybe you’ll see 0.0, 0, 0, 0 0 0 1% on your quarterly statement. But the real big, the real big advantage of the 401k is you’re giving yourself the opportunity to save so much more because you’re being, you when these contributions, they’re not just going to sit in a bank account. They’re being placed into more, more often than not mutual funds with these mutual funds, you’re, you get the chance to see significant growth and investment and interest attached to these different mutual funds for me. But the very first job that I had outta college, I had no clue what a 401K was. It was just, I was, you know, I was selling marketing for a tech company out west, and I was automatically enrolled into the plan.

I had no clue what that meant. It was 5% of my check. I didn’t even notice the difference. And then all of a sudden, six months later, I get my quarterly statement. Cause I ignored the first of my guess and I got to see the advantage of having a 401K plan. I got to see the advantage of compound interest and of growth, you know, and for somebody that’s 22, 23 years old, the ability to start saving then 40 years of 40 years of savings, it’s huge, right? And so for, for any and all employees time is your best friend, set it and forget it. Even at the smallest amount, start saving a small amount into the 401k. Companies love to do automatic enrollment cuz business owners know how advantageous it is for these employees, just like myself. And for me, it just, all I needed was six months to see. But yeah, right. There are, there are tools out there, we call ’em retirement calculators where you can, you know, punch in some numbers and look at the difference between starting to save now and starting to save two years from now, five years from now. And really what you’ve sacrificed by waiting when at the end of the day to be able to start saving three or 5% of your check. Not that huge of an impact, but over time a much bigger impact that it’s gonna have on you.

VANNOY:

Well, we probably don’t have to go deeper on this, on this topic just because 88% of all employees say this is really important to them and therefore the majority of people more get it what it is. And the benefit, I think what’s has been probably less obvious is what the real value is to it. The employer, which is the real today may maybe talk us through some of the difference between different types of, of plans. You know there’s, there’s a 401k, there’s a 4 0 3 B, a lot of a lot of numbers and acronym soup going on here. That can be pretty in intimidating to, to an entrepreneur. Kinda kinda unpack these different types of plans, if you could.

KROMPHARDT:

Sure. So just think of a 4 0 3 B as a 401k for nonprofits, very, very common for these nonprofits. Opt to do a 4 1, 4 0 3 B because you’re basically with the 4 0 3 B, you’re avoiding a lot of the testing compliance side of things, you know, because at the bottom line when we’re looking at profit, that’s not a thing. And so for this, I wanna keep that very, very simple. 4 0 3 B is the 401K for non-profits. When we’re talking about traditional 401ks, if you wanna talk about simple 401ks, we’re getting into the differences of what responsibilities the business owner has. Traditional 401K is just giving the, giving the employees the ability to save, whether you choose to contribute or not as an employer through a match completely at your discretion. Okay? Simple, simple. 401K comes with an automatic contribution from the, it comes with an automatic contribution from the business owner regardless of that participation. And lastly, I think the another one to talk about, if we’re looking at a 4 0 1 a solo 401k, the ability for a business owner, no employees,

A lot of, a lot of business owners don’t know this as a possibility. You know, doctors’ offices, real estate agents, lawyer firms. This is such a great opportunity for them to start saving for themselves and to take advantage, like using all those tax advantages tied to the match and the profit sharing and really max out that max contribution of $61,000 now. So for a solo 401k to not have to worry about the responsibilities tied to having the employees, an individual and their spouse can sign up and make these maximum contributions and really maximize the savings that come with that.

VANNOY:

All right. Say more about that. Cause I think there’s a lot of people just don’t know that. So what’s and what’s the name of the plan type?

KROMPHARDT:

That’s just a, it’s a solo k solo 401k,

VANNOY:

Solo 401k. And so it, it has different cap limits, contribution cap limits.

KROMPHARDT:

Nope. The exact same as a, it is an exact same situation for a business owner that has employees as far as the cap goes, which means there aren’t any.

VANNOY:

And, and one more. So how, so how does the business do it? So they’ve got, what, 20, is it 27,000, right?

KROMPHARDT:

Yeah, 27 if you’re over 50. Yeah. If you’re over 50 years old, the individual contribution’s 27,000.

VANNOY:

So I’m over not a doctor, I have no employees. I’m, I’m an architect. I can, I can contribute 27,000 my business can also then match, right? Correct. And what’s the max on that match?

KROMPHARDT:

Same.

VANNOY:

Same. So 27 plus 27

KROMPHARDT:

The maximum. Yeah. The maximum, you know, through an employer match the employee contribution and the employer profit sharing, you can max make a maximum contribution of $61,000 if you’re over 50, $67,500.

VANNOY:

Pretty cool. And the, the match is an expense to the business. Yeah. Which then lowers the business’ profit and therefore the business’s tax burden.

KROMPHARDT:

Correct. And get and guess, and same thing with the profit share, that’s an expense for the business. So an expense for the business all of a sudden becomes a contribution in, into their own retirement plan. Exciting stuff.

VANNOY:

So let, let me, let me finish trying out on the solo plan. So the solo plan, you got your the, the individual you hang your shingle for yourself, you can contribute 27, the business can match 27 that 27 business is a tax deduction from the business and you can do it with your spouse to the exact same dollar amount, right?

KROMPHARDT:

Correct.

VANNOY:

So 27 plus 27 54 times, 208,000 in, in, in, in benefits on the solo 401k per year.

KROMPHARDT:

It’s amazing.

VANNOY:

Yeah. Yeah.

KROMPHARDT:

If, if those business owners are in that position where they have that type of, or they’re, they can make those type of contributions, this is the perfect vessel for them,

VANNOY:

You know, and, but if you think about it, so maybe, maybe I’m not a doctor or lawyer. Maybe, maybe I I’m a professional and I’m, I’m a consultant and maybe I’m not rich, but I make a good living for myself, right? Sure. And maybe I’m, you know, maybe I, maybe my business has a hundred thousand in profit, well, a hundred thousand in profit at, you know, it’s called a 30% tax rate. You know, I’m bringing in 70 out of that, out of that a hundred. Cause I’m paying taxes. If I found a line item for $27,000 that was tax deductible, I just saved myself 30% of $27,000. That’s we’re real money instantaneously here. Right?

KROMPHARDT:

It’s, it’s, it’s another hidden, you know, you were talking about the profit sharing, the same thing goes with the solo floor one.

VANNOY:

Yeah. So, so, so now speak to profit sharing. So, so that we just talked about the solo plan. How, how does, how does a profit sharing 401k work?

KROMPHARDT:

So, and it’s gonna, I don’t wanna get too far into the weeds as far as this goes, but it’s essentially a way for way for the employer at the end of the year to take the profit or the bottom line and make contributions on top. Like, so you have the match, they have the individual employee contribution. The profit sharing allows for them to make one additional lump sum contribution into the employees, into the different employees 401k plans that are already existing. And so that’s where, that’s where individuals can see more of a maximum contribution than just that, you know, the 20,500 or the 27,000. It’s almost a, another, another or a new way for business owners to provide that Christmas bonus or that holiday bonus or just end of year bonus on top of it.

VANNOY:

Okay. And then if we could kind of went fast over simple versus traditional, what’s the different, because those are the two most common, I believe, right?

KROMPHARDT:

Sim the simple’s not common at all. Traditional is MO is by far the most common plan that’s set up. Okay. With the, under a simple, an employee can elect to defer, they can make their own decision. Do I want to contribute into the plan? But unlike the traditional, really what’s happening is the employer must make either a matching contribution up to 3% of each employee’s pay, or they’re making a non-elective contribution of 2% of each employee each and eligible employees pay. So with that, they’re either like, there’s some sort of match automatically tied to the plan.

VANNOY:

Got it. Got it. Okay. can be dizzying, a little intimidating that you, to make your decisions listening to today, today’s show. The other guidance you would have for employers to think about different plan types as they consider, boy, should I really be offering this?

KROMPHARDT:

At the end of the day, it start evaluating your options. Like start having, you and I are just having a casual conversation today, but you could really look into what’s best for your company because there’s not just the different plan types, there’s also different plan design that you can business owners have complete control over making for, for the businesses. Do you know, it’s not just, do I wanna offer a match? Okay, well, can I do a vesting schedule on that match? Of course you can. What are you thinking? Do I want to set, you know, I really, I, I see a high turnover for my employees. You know, usually I know if they’re gonna stay, I know if they’re gonna be, you know, long term employee after about three months or six months. Okay, well, let’s set up eligibility requirements. You have to work for the company for six months before you can join the plan. Business owners have can use this as a tool. It’s a, not not just the attraction tool, but it’s also a retention tool with that vesting schedule or those different eligibility requirements.

VANNOY:

Got it. That makes sense. That makes sense. Okay. I think last topic to, to unpack what are some of the challenges? I think it’s probably administrative but you know, what, what, what do you see the the top challenges for, for companies with, you know, that want to or have tried to implement 401K for their employees?

KROMPHARDT:

And I love that we’re finishing off on this because historically 401ks have been hard to set up and maintain and have been extremely expensive, especially for, for small businesses as well as the fees that the employees are facing. And so for, you know, more of the modern 401K providers, what we’re trying to change is we’re trying to offer more of that all in one solution where we’re not taking different taking different pieces and creating the puzzle. We’re offering that all in one solution. You know, other, more, more one modern providers don’t really, we don’t use paper needed to sign up for getting the 401K plan set up. We do have providers that offer payroll integrations, which is what we have with with your software. And that what that does is that really relieves the, a lot of the administrative burden for managing your 401k. When I was rambling on and on and on about the responsibilities that go with the tpa, it’s why so many people elect to hire somebody to take on those responsibilities. But hey, why not have them act as the co-fiduciary, the record keeper and the advisor record on the plan? Let’s just have an all in one source and one person, one point of contact to talk to about this benefit.

VANNOY:

Yeah.

KROMPHARDT:

I think, you know, talking about, we didn’t really get to the chance to jump into the, to the co fiduciary with the 401K plan, because that’s not something that’s really commonly elected. Like, that’s not a service that’s commonly provided by 401K providers. And for us, we just do 401k plans. We want to take on this added liability. We want to take off that, we wanna take that the burden off of you. And so do you want me to talk a little more about that? I, I don’t know if there’s a limit on time.

VANNOY:

Yeah, you know what, let, let, let’s take, take, take another minute. Yeah. So this is our last slide to, I wanna share just a pure education for, for, for anybody watching the show today. I, I, I’m gonna give you 30 seconds, just talk about just human interest, what you guys do, how you guys help help businesses, and what your relationship is with Asure. But I want, I want everybody to be eyes wide open, but what some of the administrative challenges are, if they’re gonna try to do 401k regardless of who they signed up with, in fact, let’s say if they don’t sign up with you traditionally in the marketplace, what would some of those challenges be?

KROMPHARDT:

It, it’s finding the pieces of the puzzle. It’s not, it’s not very common for there to be an all-in-one solution. You’re gonna have to go find your co-fiduciary, you’re gonna have to find your advisor to oversee the plan, the tpa to handle the day-to-day responsibilities with the plan. And then there, there’s the record keeper on top of it. And so for Jon,

VANNOY:

Define what those terms even mean though. What, what, what is a record keeper and how, what is a co-fiduciary and why are those things different?

KROMPHARDT:

Yeah, so to jump to the co-fiduciary, because this is one of the most important things to me, the being a co a fiduciary for a 401K plan, is it’s basically stating that they’re responsible for acting in the plan participants’ best interests. And the co-fiduciary could then be liable if they failed to fulfill those responsibilities. So when we’re talking about a 401K plan, this is where, this is my retirement. You’re in charge of picking the funds where we’re gonna be investing our retirement assets. Yeah. So to have, to have a partner in your vendor or your 401K provider that’s willing to take on these responsibilities, that’s huge. And it, it really brings into the trust and the mutual interest of, of this benefit offering.

VANNOY:

Got it. Got it. That, that, that, that’s helpful. Okay. to me this is, this is a no-brainer, and I’ll kind of just recap. I think forever small businesses have seen 401K as the thing just for big businesses. I think there’s some financially very astute business owners or are advised by really good tax planning professionals that have steered them down this 401k especially 401k plans for their own wealth creation and their own retirement planning. But I think the average business person, they’re out there just grinding every day trying to serve customers and try to build a business, right? And, and, and they’re just not aware that this is a, a tool that’s available for their own wealth creation and to help attract and retain employees. The punchline is I, I think all small businesses should be thinking about offering a 401K to their employees today, where maybe it was just, it, it, it was too hard to pull off in the past. So with that, I, I will give you, you know, 30 seconds, tell, tell the audience who human interest is why you guys are unique. And, and, and I’ll, and I’ll say everything about here is why we specifically chose human interest is one of our strategic partners to work with, to help our clients.

KROMPHARDT:

It’s, you know, and, and thanks again for inviting me to join you today. You know, when it comes to the partnership that, that we do have together human interest was started seven years ago. 401Ks have been around for a lot longer. So there’s been a lot, there’s been providers that have been around for a lot longer than we have. We were start, we were started and we were created to kind of challenge the status quo of the more traditional providers. You know, that whole clunky mentality. We, we consider ourselves just as much of a tech platform as we do a 401K provider. And with technology, with technology, we’re able to offer an all-in-one bundled solution. We don’t wanna outsource what we’re doing, we wanna manage it all in house, because by doing that, we’re allowed to control our costs and allow for us to be much more transparent with the product that we’re offering and the costs that are tied to it.

And for people when they’re choosing vendors, that’s usually a huge look. That’s a huge thing that they’re looking out for. The fact that we are willing to take on co fiduciary responsibilities. We are shared risk, shared liabilities. We’re looking, we’re your employees are, are in our best interest legally speaking. And so to be able to pick, pick a partner that takes on the whole bundled solution, has the shared risk and responsibilities. Oh, hey, on top of that, our platforms speak to each other. Put techno technology on the forefront allows for us to create a no touch administrative responsibility for a business owner. Set it and forget it, like I said earlier, get the 401K plan up and running and it becomes a fully automated experience moving forward. And I think that’s a good place to finish right there.

VANNOY:

Yeah. Small businesses need things to be simple and they just need crap to work. Right? and one of the things, if you think about it, if you are, so let’s say you’ve had experience working for a big company. Maybe you had a Fidelity 401k. You, you log into Fidelity site and you change your deductions and, and whatnot. Maybe you, maybe you pulled a loan from your 401k. There’s all kinds of things you can do. Well, how does the payroll department on the other end know what to deduct from your paycheck based on those changes? Well, either it’s human beings keying that information or it’s systems talking to each. So we have built a robust integration to your platform. And I think maybe the best endorsement I can give is, you know we, we recently sold a a a A deal. We brought on a new customer in the number one criteria for them selecting us.

Obviously, they looked and said, okay, payroll, HR software, yes, it meets my requirements, looks good, easy to use, yada, yada, yada. But the one criteria they had before selecting us, they loved human interest for their 401k, and they required their payroll provider to have an integration for that. So to me great testimony to, to the value you guys are bringing. So Jon, thrilled they had you on today, learned a lot about 401k. Hopefully our audience did too. I’m sure they did. And, and, and we’re gonna give everybody an opportunity to fill out a form at the a little, a quick survey will pop up at the end of this show. And anybody who wants to get in contact, who will, will, will do so. And with that anybody who needs help with payroll, hr, tax time attendance software or HR services to keep you compliant and help you find and retain the best employees we’d love to help you out in any way. Jon, thanks for joining me today.

KROMPHARDT:

Thank you so much for inviting me. It was a pleasure speaking with you today.

VANNOY:

Yeah, likewise. And thanks everybody else, until next week. Thanks.