Jessica Gibbs (Co-Host):
Hi, everyone. It’s Jessica. It’s just me here today. Dave is out, but we’re here with a really good episode, really valuable for business owners in particular. So I’m really excited about it. As you may or may not have heard, there’s just been a lot of talk about Secure Act 2.0 since it passed in December last year and what it means for people and how they’re going to save for retirement and how they’re going to experience retirement. While many business owners see the value of their business itself as a sort of retirement plan, Secure Act 2.0 has created some new opportunities worth exploring, both for owners and for employees. So today we have a two part episode. First, we’ll be talking with Emily Harper, Vice President and partner at Monument, about the provisions in the legislation most relevant to business owners. And then we’re going to welcome Caroline Clarke from Capital One, who will give insights on what kind of benefits employees are looking for and impact why you should care about all of this as a business owner. So stay tuned. It’s going to be a good conversation. Emily, welcome back to the podcast.
Emily Harper (Guest):
Thanks. It’s good to be back.
Jessica Gibbs (Co-Host):
As I said, Emily is a partner at Monument. She’s also a certified financial planner, and I think she’s kind of known as the tax expert around here at Monument. So that’s why I wanted to have you on to talk about tax legislation.
Emily Harper (Guest):
Thanks, Jessica. That makes me sound really fun. At a cocktail party. People probably run in the other direction when they see me coming.
Jessica Gibbs (Co-Host):
I know. Well, I will say for those listening, in case you’re curious, Emily’s other specialization is stock options, which, I also. is a hoot, so if you have questions about that, call her. So let’s get down to business. Can you give us a rundown of what business owners need to know from Secure Act 2.0?
Emily Harper (Guest):
The Secure Act 2.0 is really a big piece of legislation. There’s a lot of details and we can spend a lot of time going through everything that impacts a business owner. I really want to focus on the details that are the most impactful when it comes to building personal wealth, both as an owner and the details that help to really foster employee well-being. I think that’s really important for business owners to always keep in mind when they’re thinking about these kinds of provisions related to retirement savings. So let’s just talk about the personal financial benefits for owners first, and then I’ll unpack the employee side of the conversation. So one thing that I think is really big for business owners, especially for sole proprietors, or people who are taxed as sole proprietors, is the ability to be more strategic when it comes to really choosing what kind of tax deferred retirement plan is best for them. Everyone has their own personal and business circumstances and before the Secure Act 2.0, if you wanted to take advantage of a solo for 401k as a self-employed individual, you had to make the decision before the end of the calendar year to both set up a plan and fund the employee portion of the contribution by December 31st. Now, a solo 401k can actually be set up a little bit later. You actually have until your personal tax filing deadline. So basically for 2023, you have until April 15th, 2024 to set up a solo 401k for the 2023 tax year. And this really brings the rules more in line with those first step IRAs, which I think are really favored by a lot of self-employed individuals. And this timing difference may seem really minor, but there’s a lot of adjustments that can occur to your financials after the end of a calendar year. We’re seeing that right now here in our own personal experience. We just filed our business return on March 15th. And up until that deadline, things were really moving around on the financials. So buying a few more months to consult with your accountant can help you make decisions with more complete financial data. And I think the accountants probably appreciate that little bit of extra time, too, to really help their clients make sure that they’re picking the best plan for them.
Jessica Gibbs (Co-Host):
You mentioned solo 401k’s and SEP IRA’s just now. And I feel like this is sometimes a point of confusion. If you’re a business owner and you’re looking to set up a plan from the beginning is why would you go with one versus the other? So can you unpack that a little bit?
Emily Harper (Guest):
Solo 401k’s and SEP IRAs, they’re both tax deferred plans that allow a business owner to make contributions and benefit from tax deferred growth on compounding earnings. And the nice thing about both of these plans is that they really allow you to set aside a more significant amount of money each year than a personal IRA does. So if you’re self-employed and you have substantial earnings, it’s really worth looking at either a solo 401k or a SEP IRA, and they’re both really great ways to build wealth outside of your business and reduce the concentration risk that you experience as a business owner when you’re really just reinvesting in your business. I think the two biggest factors when it comes to deciding between a solo 401k and a SEP IRA, it’s really how many employees you have or if you have employees and how much income you have from your business in a given year. So if you have employees, you can’t use a solo 401k, So that’s really the number one limiting factor there. If you do have employees, you could use an I.R.A. based plan like a SEP or a simple or even set up a company wide 401k plan. One thing about the solo 401k plan, though, even though you can’t have employees if you are married, you can have a spouse that works for the business that you’re making contributions for. So that’s a really great way for married couples to really set aside a good amount of tax free or tax deferred money and get a tax deduction each year. Now, if you’re a sole proprietor without employees, so you could either do a 401k or a SEP IRA or any other of the IRA based plans. I think the biggest determining factor between the two host secure 2.0 is how much? Income you have from your business. Since this will drive how much you can actually contribute a solo 401k is just like it sounds. It’s a 401k with contribution limits that match the limits of other 401k plans. There is an employee component that allows you to defer up to 22,500 in 2023. If you’re under 50 or 100% of your income, if it’s less than $22,500. Now with the solo 401k, there’s also an employer profit sharing component that allows you to save more depending on your income. This is all really nuanced, but a SEP IRA contributions are limited to a percentage of your adjusted net self-employment income and could actually be smaller than what’s allowed in a solo 401k plan. If your income is really under $110,000 or so, so there’s a lot more intricacy to the rules and you would get really, really bored if I explained them all in detail. But we’ll link to a helpful piece that breaks down some of these decision points in our show notes. For anyone who’s interested in learning a little bit more. Ultimately, if your goal is to maximize how much you can contribute to a tax advantaged vehicle, a solo 401k might allow you to make a higher contribution in certain circumstances.
Jessica Gibbs (Co-Host):
I think. But also just adding to what you shared there, it’s the balance then with the administrative and reporting requirements that you have, where maybe that’s worth the tradeoff of being able to save more in a tax deferred account with a SEP or a simple. You don’t have those same burdens.
Emily Harper (Guest):
And I would say with a solo for 401k in particular, those requirements really aren’t as burdensome as you might think that they are. There’s really not a whole lot in the way of IRS filing until your balance gets to a certain amount. And there’s a lot of basic boilerplate prototype plans out there that do all the hard work for you in terms of detailing the provisions of your solo 401k plan. So administratively, they’re not as burdensome as you might think.
Jessica Gibbs (Co-Host):
So you mentioned also that the amount of income that you have is a big consideration when it comes to choosing a retirement plan. Post Secure 2.0. What else did Secure 2.0 change for business owners when it comes to saving for retirement?
Emily Harper (Guest):
Roth expansion has definitely been a big theme of the Secure Act 2.0, both for business owners and for employees. Before the Secure Act 2.0 a 401k was really the only option outside of an individual Roth IRA for accumulating Roth money. And with the Roth IRA in particular, you’re really limited to a small dollar amount that you can save each year, and you have to make below a certain amount of money to be able to contribute to a Roth IRA directly. So for those who really wanted to accumulate a lot of Roth money, the 401k was the only option for really doing that in a meaningful way and for one case are really great when it comes to allowing you to save that larger amount of money. But they can be expensive and at administrative burden for small businesses to set up and maintain for their employees. To your point, Jessica, about some of the ARISA requirements, that’s definitely more burdensome for a 401k plan where you have employees, you have different employee demographics that drive some of the financial decisions about the 401k. What the Secure Act 2.0 did. It’s actually allowing for Roth contributions to I.R.A. based employer plans like SEPs and simples. And starting next year, employers can actually make matching contributions to a Roth source for their employees, both in a for a 401k or an IRA based plan. So we know that SEPs and Simples have higher contribution limits than just a personal Roth IRA, and certainly the 401k does as well. So now there is a lot of options for employers to select a tax deferred plan that not only helps them save larger Roth amounts, but also helps their employees build tax deferred or tax free wealth for the future and a relatively cost effective and simple way. I think one thing to really be aware of, though, is that if you’re offering Roth matching contributions as an employer, those contributions can’t be subject to a vesting schedule, which is something that most employers will put some kind of vesting schedule in place for their match or for any profit sharing contributions that they’re make to try to retain employees. And it’s not uncommon for those vesting schedules to really stretch over a long period of time. So five years. I get it. It doesn’t feel great to invest in employees and have them leave in the short term. But I think rather than seeing limits on investing as a drawback, this is a good opportunity for employers to really think about meaningful and more inspired ways to retain their employees and focus on their overall well-being.
Jessica Gibbs (Co-Host):
Well, thank you. Emily, for breaking down. Secured 2.0 so well.
Emily Harper (Guest):
Absolutely. More to come.
Jessica Gibbs (Co-Host):
All right, so let’s dive more into employee well-being and benefits. So to do this, joining Emily and I is Caroline Clarke. Hi, Caroline..
Caroline Clark (Guest):
Hi, thanks for having me.
Jessica Gibbs (Co-Host):
Yeah. Caroline is a human resources business partner at Capital One. She’s previously held roles in recruitment, talent, retention and enterprise strategy with the American Bankers Association and Marriott International. Also of note is Caroline received her MBA from UVA Starting School of Business in 2021 where she met Emily. But Caroline was the president of Darden’s Network of Executive Women. I love that. So welcome, Caroline.
Caroline Clark (Guest):
Thanks. Thanks, so much. I’m excited to be here.
Jessica Gibbs (Co-Host):
Great. So, Emily, actually, I must ask you, because I want to pick up on something that you were saying in our first part. How should employers be thinking about employee well-being? And specifically, does Secure 2.0 give them any new ways to contribute to this?
Emily Harper (Guest):
Yeah, that’s a great question, Jessica. I actually came across an interesting study on employee while being done by Gallup, and it pointed to the organizational benefits that come with employee well-being, things like fewer sick days, higher performance, lower rates of burnout and turnover. I think all of this really impacts the bottom line for business owners. And the study really pointed to five common elements that people need to be in the thriving category of well-being career, social, financial, physical and community well-being. And personally, being a person who works in wealth management, I think financial well-being really influences so many of these other elements. So one area of the legislation that I think could be so impactful is the ability for employers to make matching retirement plan contributions for amounts that an employee paid towards student debt starting in 2024. I don’t think it will surprise anyone to hear some of these stats, but there’s something called the Education Data Initiative that tracks things like the number of borrowers of student loans and the amounts that are outstanding. And in their February 2023 report, they noted that the outstanding federal loan balance for student loans is $1.635 trillion, while with a T, about 43.5 million borrowers have federal student loan debt, and the average federal loan debt balance is just under $40,000. So those numbers are really staggering. And I think they point to a real challenge for employees struggling to balance repayment of those loans that they took out to go to college and launched their careers with saving for their future and funding all of the other financial priorities that we have, like emergency savings, buying their home, saving for their own kids education so that they’re not in the same loan situation. Student loan debt is really a big problem, and I think it’s something that prevents a lot of people from feeling like they’re able to make their future better as it relates to their finances or even make their present better as it relates to their finances. So I’m not saying that the Secure Act 2.0 will solve the student loan crisis by any means, but it does give employers a way to relieve some of the financial pressures that their employees might be feeling and bringing to work with them on a daily basis and really create a path to better financial well-being, which impacts overall well-being and impacts your business.
Jessica Gibbs (Co-Host):
It’s a great point, Emily. I mean, it’s really not surprising that financial well-being is a big aspect of someone’s decision when it comes to accepting a job offer or staying with their current employer. Caroline We’ve heard a lot about the great resignation and the tight labor market over the past couple of years. What are some of the trends that you’ve seen in benefits and what’s resonating most with employees and jobseekers?
Caroline Clark (Guest):
Well, I love the different kind of buckets of benefits that Emily just pointed out because they really resonate with the trends that I’m seeing up close when it comes to being in HR VP. Certainly the financial benefits are huge. And I think what’s neat about what companies are doing and thinking about tagging on to Emily’s point is it’s not just for the financial well-being of the employee or associate now, but then that future look as well into how are the associates kids being taken care of and supported through an employer. So some examples of this. I worked in places where 529 contributions are made right after a new addition is welcome to a family. And that’s something that employees responded very positively to. For those that aren’t familiar with 529, that’s where you can put aside money for your children’s college tuition down the road, and that money really grows over time. To be quite a significant amount if you’re looking at it carefully. Second of all, retirement benefits. I think employers have gotten a little creative about this, whether it’s a company match. I was actually with an organization that sunset their pension program and increase the company match is kind of interesting. When the CEO announced the increase of a company match, everyone was silent because we just couldn’t believe it. So that was a neat moment to say, no, really. Like we’re doing this. We’re taking another look at a benefit we all value and we want to do more in this space. Transportation stipends are something that I’ve seen, especially if you’re taking public transportation. So that’s another way to support the associate from a financial perspective. And then tagging on again to Emily’s point around educational assistance, I’ve seen this in the form of upfront payment reimbursement, but then certainly over time, student debt repayment support on a monthly basis with a cap at different organizations, different caps are applicable. That was hugely well received by associates when that came out. Another bucket of benefits I’ve seen. Childcare remains a hot topic. As a newer mom, I can sympathize. You can’t do your best work if one of the things in your life you value most is not taking care of well. So getting really creative about whether you have a child care site on site with the office or a backup care situation. So yes, associates are responsible for having their own childcare option, but then there’s a backup benefit for those times when the nanny is sick, the child care centers closed for unforeseeable circumstances. So that’s hugely helpful. And actually, on that note, I was talking with an employee recently about wouldn’t it be awesome for the non-parents at the company to be able to like, cool their backup child care days because you’re allotted a certain amount?
Jessica Gibbs (Co-Host):
A nonprofit that I used to work at and had very generous paid time off policy, and you were able to, if you want to donate some of that time towards people that could then use it if they needed it for a family medical leave or parental leave.
Caroline Clark (Guest):
It’s hugely helpful. And it meets, I think, associates where they are given their different phase of life or their different life circumstances. I love those ideas. The communal sense around benefits, health and wellness incentives. These kind of remain, I don’t want to say basic because I think they’re still valuable in their basic form, but I haven’t seen a whole lot of iteration from this. Outside of getting the annual flu shot, your annual wellness check. I think there’s more to do in this space. And then the things that I think as employees we’ve come to expect things like workplace amenities, fitness centers, if you ride your bike to work or walk run that there’s lockers and showers to be able to change into for the work you’re going to be doing during the day. Mother rooms, this is a huge I think it’s a newer benefit, but it’s something that I think can continue to evolve and really create huge value for moms in the future. And then health services, things like a MinuteClinic being onsite at some of the larger employers. And then to your point, just go around leave. That’s clearly baseline. I think how we’re providing lead to employees has begun to evolve. Whether we track it, we don’t track it, it’s unlimited, it is limited. So that’s an area that again has become baseline. But I think how we approach that benefit is evolving.
Jessica Gibbs (Co-Host):
Are there any major gaps between why employers are offering in terms of benefit packages and what employees want most?
Caroline Clark (Guest):
I think the real gap here is just making an effort to hear from current employees and associates and their feedback on different benefits. Sometimes I find that I’m just going to make up a number. If an employer offers a dozen benefits, six of them are really, really valuable. Exactly. And like utilized and leveraged by a high percentage of the employee base, But six half a dozen are not so much leverage. So like, how can we be really strategic about, again, meeting associates and employees where they are and investing in those areas for every stage of life so that we’re supporting them in a meaningful way and they feel that support and they value it. And I think having benefits presented to prospective candidates throughout the process is another thing that employers could be doing better. I used to sit down with every candidate when they came into interview and go through all the benefits at one place of employment where I was directing recruitment for that firm. And I can’t tell you how many times someone would say this has never happened, but I’m so appreciative that you took the time to just go through the two dozen benefits that you offer. And I think what that does to the benefit of the employer. The candidate walks away with. I really need to look at total comp at this place of employment because it’s not just about the base and bonus or whatever numbers are included in the offer letter. It’s this other part of the offer that is hugely valuable that I need to think about when I’m making a decision.
Jessica Gibbs (Co-Host):
Right. Is there benefits or contributions they’re making towards health insurance or commuter costs or things like that that you would maybe have been paying out of pocket previously at a previous role? Do you recommend a survey of employees? Let’s just say that you’re a business owner and you’ve had an employer benefits package for a while, but it’s kind of been run of the mill. How do you recommend if someone wants to get that type of input on what people are liking or not liking or what they’re using or not?
Caroline Clark (Guest):
Absolutely. I find focus groups and one on one conversations to be a great starting point. I think surveys, depending on your work environment, could be a way to start the conversation. But benefits can be a sensitive topic. Nobody wants everyone to know every benefit that they’re leveraging at any given time for obvious reasons. And so I think this starts with H.R. having great relationships throughout an organization. If you can kind of put the call out to, Hey, we’re looking to revamp our benefits, we think that these might be some starting points. We’d love to get your reaction and input. I find that you kind of have to almost like filter out the response because people want to be heard, especially if they’re going to be positively impacted by providing feedback. That was great advice. Caroline, any other practical tips that you can share with business owners who want to create a meaningful benefits package but really aren’t sure where to start? As I kind of already mentioned, listening to your current employees and associates, they’re going to be the best benchmark for what future employees and associates are going to be looking for. And again, I think to the earlier point of looking at your benefits package, where things are leveraged versus not don’t be afraid to pilot new benefits for a set period of time. And I think in that period of time, it has to have a meaningful amount of data that comes out of it and that will be different for each benefit. I think if you pilot a life insurance fund, you benefit for like three weeks. That’s not going to be super fruitful as opposed to maybe paying into the facility on site gym for three weeks. That’s going to be a different group of people, different set of meaningful data that comes out of it. So I guess where I’m going with this is really make sure it’s a pilot that fits the benefit that you’re looking for data and feedback on. And then this is one of my final points, but I think it’s almost the most important one in many ways. I don’t think employers always think about the ease of access of benefits. I’ve worked places where you have a very rich array of benefits, but then when you go to actually access them and leverage them, they’re very difficult to enroll in or there’s a lot of bureaucratic steps to get to the final point where you can find that value in the benefit. I think looking at those different processes, those enrollment processes as an employer and just really pushing to have the best experience possible will lead to more associates leveraging what you’re offering and then being able to really provide value to them as well.
Jessica Gibbs (Co-Host):
Yeah, I’m thinking about just my personal experience with when I was out after I had given birth to my son. You know, I leverage the short term disability for the first time. And here’s a shout out to Cecilia Monument’s office, who made that a seamless experience for me while I was out on maternity leave, that she was the one who connected with the insurance company and helped me make sure that my claim was submitted and following up. I mean, it was a huge hat tip to her that made the experience of using that benefit, one that worked well for me. I think it would have been really frustrating had I been a new mom and trying to navigate working with an insurance company on my own.
Caroline Clark (Guest):
Absolutely. And I think it’s always wonderful when you have people like Cecilia who are incredible in their department. I think the real ROI, the return on investment is when you’re looking at different benefits. It’s like, how can we scale this? So like the process is just better. You don’t need people like Cecilia maybe stepping in, but I love that people like that exists in h.R. And just make the employees experience better.
Emily Harper (Guest):
Jessica, I think you have to give yourself a little bit of a hat tip, too, because monument’s a really small organization, and there’s probably a lot of listeners out there who also have small organizations that have never really formalized or codified some of their benefits package or had to develop things like maternity leave or family leave policy. So you’re really the expert in pulling things together, formalizing and even crafting new benefits.
Jessica Gibbs (Co-Host):
Thank you. Emily. Yeah, that was definitely out of my job description was right a parental leave policy that I knew I would hopefully one day take. Advantage of a balancing. As you said, I’m only a small business. I mean, I think, Caroline, I mean, you’ve worked in larger businesses, but like how if you’re a small business, I guess you want to offer all these really great benefits that you’re hearing about from these major companies. But, you know, if you’re a ten person team and one person is out for such a significant amount of time, it’s a huge burden on the rest of the team. Financial implications for a small business. So it’s that balance between what can we do and what do we want to do for our employees.
Caroline Clark (Guest):
I think that’s exactly right. And I think what it comes down to in a lot of ways is recognition, recognition for the comprehensive total wellbeing and experience of an employee. And so when they are out being able to have plans in place to support that leave and even prioritization conversations before that leaves starts, I think is huge. It’s benefit based, but it’s also, I think in a perfect ideal world, it’s baked into how the business is run. And so not making it just like an h.r. Thing, but like part of the culture of the organization, i think is where the real value is.
Jessica Gibbs (Co-Host):
All right, so i want to switch gears a little bit because we’ve been talking a lot about attracting and retaining talent. But I want to come back to something that Emily mentioned earlier, which is about how employee well-being ultimately impacts the bottom line. So beyond just thinking about the bottom line, why else should a business owner care about everything that we’ve been talking about today?
Emily Harper (Guest):
I’m going to take Caroline way back to 2019 when we started Darden. This whole conversation really brings to mind the concept of stakeholder theory, which stresses the interconnected relationships between a business, its customers, employees, even the communities in which those organizations exist, and others who have a stake in the organization, including the business owner. So this theory really posits that value needs to be created for all stakeholders, not just shareholders. And Caroline can attest to this. In our first week at Darden, we had this stakeholder versus shareholder debate in our ethics class, and it was a pretty hot topic, a pretty hot debate. I think a lot of people came in with the initial belief that business is just profits and that’s all that matters. And I think throughout two years of business education and really being challenged to think about these things on a different level and open our minds to a broader way of thinking, I think by the end of the program, we all really understood the value of stakeholder theory, and it’s not unreasonable to believe that fostering employee well-being as an employer has really positive, far reaching consequences that allow value creation to benefit everyone and not just limited to that business, to the broader world, which I thought was just it’s a shame that that’s not more widely talked about.
Caroline Clark (Guest):
I love this point, and I think I’ve seen two instances where very senior leadership has encapsulated this stakeholder theory in a very memorable saying. And the first one is if you take care of the associate, the associate will take care of the customer and the customer will keep coming back. That is something that is, as I said, very memorable but has a lot of meaning and it can really inform how every associate does their job every day. It points to, I think, the sentiment of stakeholder theory. The second quote that I’ve heard that again reflects the same sentiment is when you’re making business decisions, make them as though they’ll impact your own grandmother. And that’s a little bit clunkier. And that’s not to say you want to picture a bunch of grandparents in a room. That’s not the point, of course. But you want to treat people as human beings and not just as customers that are paying a cash flow back kind of to the company.
Jessica Gibbs (Co-Host):
Or thinking about a different way. It’s like, would you be the person that you would be comfortable referring your grandmother to? Would you be comfortable knowing they would be taken care of and respected and not ripped off and all those things be in good hands, basically?
Caroline Clark (Guest):
Exactly. And I think that’s a really salient point that those two sayings, I think can do a lot of good when it comes to making great business decisions that are not just with the current quarter in mind in terms of earnings, that’s long term vision. In terms of sustaining a successful business.
Emily Harper (Guest):
We could debate the finer points of stakeholder theory for hours. It could be a whole series. But if you’re interested in hearing more, are Edward Freeman, professor at Darden. He is really the. Leader on this topic, and he’s written really extensively on managing for stakeholders and building a business strategy around relationships with them. So I highly recommend checking out some of his work. If anything that we’ve talked about here has been of interest or piqued any questions.
Jessica Gibbs (Co-Host):
I love a stakeholder theory philosophy. While the phrase H.R. trends all in one episode is the good times. So as we close out this episode, what final advice do you have for business owners considering the benefits they offer and how to balance their personal priorities with the needs of the business? Emily, I want to start with you.
Emily Harper (Guest):
We’ve obviously talked about a lot here today, and there is a lot of nuance and details that you have to get right. So don’t try to sift through every piece of information out there on the Internet, on Google about retirement plans and benefits. That world is really complicated and you’re creating more value when you’re focused on your business. So partner with advisors who understand not only your business, but your personal priorities and values, and they can help you really narrow in on what options make the most sense for you and why it’s worth considering one over another.
Caroline Clark (Guest):
I would really recommend every company, every organization is going to need or leverage in different ways a benefit package that best meets the needs of their own associates or employees. And it’s great to look around and see what others are offering because as your prospective employees are looking for roles, they’re doing that work. So keeping an eye out for trends, but then really relying, as I mentioned earlier on your current associates, your current employees, to say what’s working, what isn’t working, where am I finding value and doubling down in areas that there is value and then not being afraid to say, Hey, actually this one benefit no one’s leveraging or very few are leveraging. Let’s use that investment in other ways that more can feel that value. So I think no benefit package is going to look the same and have the same level of value for different words. And then second of all, data is everything. And the more you can use data to make those decisions, I think the better off in the long run organizations will be.
Jessica Gibbs (Co-Host):
That’s fantastic. Thank you, Caroline. Thank you, Emily.
