Author: Laurie Rowley

Why we need an alternative to the 401k

Posted on April 20, 2023 by Laurie Rowley - Retirement Benefits

While there is no federal mandate that all companies with 5 or more employees offer workers a retirement savings plan, many states do require this. And it’s just good business. More than 60% of employees we surveyed responded they feel stressed about their finances and it’s estimated that employee stress costs U.S. companies $4.7 billion per week. Offering your employees a way to save for retirement is a key way you can help lower their financial stress as well as bolster your recruitment and retention efforts. But the 401k isn’t always the best way to do it. Here’s why.

The Problems 401ks Cause Employers

The 401k was created 50 years ago as a supplemental retirement plan to the pension as large companies began to phase out this type of employment arrangement. It was meant for large companies with a workforce that stayed put for decades. Because of this, the regulations that rule the 401k space create an inflexible, expensive plan and annual testing requirements that are easy for small and medium-sized businesses to fail. Even large companies experience problems with offering a 401k to their workforce. These are some of the most common problems 401ks cause employers:

Expensive annual non-discrimination testing. Every year, every company that offers a 401k must run a test to ensure their plan doesn’t unfairly benefit their high earning or key employees. If they fail this test they must either give back the requisite contributions to their high earners or key employees, and said employees will pay taxes on those amounts. Or they can make the necessary contributions to their non-high earning employees. It’s also common for small and medium sized companies to fail their compliance testing because they typically have a larger percentage of “rank and file” employees that contribute lower amounts to their 401ks.
Employers retain fiduciary duty to employees. As part of this duty, employers must make sure the fees charged to their employees are reasonable, the plan offers a sufficient amount of diversification and there are no conflicts of interest. For small and medium employers this is a very challenging threshold to meet because plan participants at their companies are more likely to be charged higher fees than employees at larger companies. Because fiduciary lawsuits have ballooned in the last 10 years, many companies have started carrying ERISA fiduciary liability insurance (which is an added operational cost).
Plans are expensive and complicated to set up, administer and maintain.
Lack of portability leads to abandoned accounts. Since 401ks are tied to the employer, when employees leave they must either complete a complicated and costly rollover to their new employer’s 401k plan, cash out their balance or abandon their plan. Every year, 2.8 million accounts are abandoned which can cost employers additional fees and may require special handling.

The 401k No Longer has a Product-Market Fit with Modern Workers

Anyone who has started a new company or built or created a new product knows that one of the essential milestones to success is finding “product-market fit”. This is when your target demographic is buying, using and proselytizing your product and usually happens when you have figured out how to sufficiently solve a key problem for them. The 401k had product-market fit with boomers because they stayed at the same company for decades. For employees who move around a lot, or who are contract workers, it’s no longer an adequate solution. And there are more of them than you think.

In fact, in the last 10 years 94% of net employment growth came from 1099s and in 2025 it’s estimated that 50% of the workforce will be 1099 workers. That means 50% of the workforce won’t be eligible to contribute to a 401k.

Beyond that, millennials and Gen Z employees stay an average of 2.75 years at each company. If they work for 40 years, that’s about 15 companies. Which means they’ll have to keep track of 15 401ks or complete 14 rollovers in order to fully take advantage of their retirement savings plans. It’s no wonder that $92 billion in assets are cashed out each year at job change.

In addition to the non-portability of the 401k, and the fact that it won’t even be available to half the workforce in a few years, this type of retirement plan carries high fees that eat into participants’ savings and investment portfolios that are predetermined by their employer. This means the types of assets they can buy are limited and might not fit their needs.

The modern worker needs a retirement plan that:

Moves with them from job-to-job-freelance-back to job.
Charges low fees so they can keep more of their savings.
Offers personalized investment options that can fit their diverse needs.
Is easy to use.
Is offered by their employer.

Icon is the Right Product Fit for the Modern Worker

Icon solves the problems inherent in a 401k for both the employer and employee alike.

For employers Icon:

Removes the fiduciary burden. Icon’s is an IRA-based plan so employers aren’t bound by ERISA regulations. Icon is an SEC-registered investment adviser and retains the fiduciary liability.
Removes the annual testing requirement. Again, since our plan is IRA-based, there are no non-discrimination rules to comply with.
Offers a turnkey retirement savings solution with a low, transparent fee structure.
Provides employee onboarding and education.
Provides companies with a clear and informative dashboard for easy plan monitoring.

For employees Icon:

Provides a portable retirement savings plan they never lost access to.
Provides high-quality, personalized and low-cost investment portfolios.
Provides access to a workplace retirement savings plan for every worker, even contractors.
Offers a clear and informative dashboard and app for easy plan management.
Gives them an easy and automatic way to save for their future.

Icon is the most cost effective way for companies to offer employees a retirement savings plan. If you’re interested in an alternative to the traditional 401k, reach out today.

Should Your Business Switch from CalSavers to Icon?

Posted on March 31, 2023 by Laurie Rowley - Retirement Benefits

California law requires all employers with at least one employee in California to offer a retirement plan to their workers. The law was passed to help workers save for retirement, as many Californians were not saving enough to support themselves in their later years. Employers have two options to comply with this mandate: they can either use the state-run CalSavers retirement plan or they can choose a private-sector plan like Icon.

While CalSavers may seem like a good option, there are several reasons why small businesses should consider switching to Icon.

1. Icon is a Fully Automated Plan

Icon retirement plans remove the administrative burden from employers. You can set up your plan in minutes and we integrate with your banking and payroll partners. Once your plan is ready, we handle everything for you, including all enrollment and employee communications. You’ll have an easy to use dashboard so that you can easily review and monitor your plan.

And unlike with a 401k plan, Icon plans never require plan testing, federal filings, and never make the employer the fiduciary. Icon is a payroll deduct IRA with auto-enrollment. Employees can opt out of the plan if they choose not to participate.

2. We’re a Fiduciary

One of the main benefits of using a private-sector retirement plan like Icon is that we’re a fiduciary with oversight of the investments. CalSavers offers only a limited number of investment options, which may not meet the needs of all employees. With Icon, employees’ savings are invested in a portfolio tailored to their needs. This allows employees to have a more personalized plan that is automatically managed for them. Employees can easily track their plan details through an easy to use interface.

3. Lower fees

Another advantage of Icon is lower fees compared to CalSavers. While CalSavers fees are reasonable for the employer, they are higher than what many private-sector plans charge for the employee. Icon offers competitive pricing, which can help small businesses save money in the long run. Lower fees can also mean higher returns on investments, which can be a big benefit to employees.

4. Better customer service

Many small businesses may find that Icon offers better customer service than CalSavers. This is because we have dedicated representatives who can assist with setting up and managing retirement plans. This can be especially helpful for small businesses that may not have a dedicated HR department. Additionally, Icon may offer more personalized service and support, which can help employees make informed decisions about their retirement savings.

In summary, while CalSavers may seem like the easier option, small businesses should consider switching to Icon to take advantage of the investment options, lower fees, better customer service, and flexibility. By offering a retirement plan like Icon, small businesses can help their employees save for a secure retirement and stay competitive in today’s job market.

How to Comply with the California Retirement Mandate

Posted on March 30, 2023 by Laurie Rowley - Retirement Benefits

In 2016, California passed legislation that requires all employers with five or more employees to offer a retirement savings plan. The goal was to address the retirement savings crisis in California, where approximately half of all private sector employees do not have access to a retirement savings plan at work. Employers have three main plan types that comply with the mandate: a 401k plan, CalSavers, and Icon Savings Plan.

A 401k plan is a well-known, widely used traditional retirement savings plan. It allows employees to contribute a percentage of their income, pre-tax, into their account. Employers can also choose to match a portion of their employee’s contributions. However, 401k plans can be expensive to set up and maintain, and smaller businesses may not have the resources to manage them.

Calsavers is a state-run program that was created to help small businesses offer a retirement savings plan to their employees. Calsavers is a payroll deduction Roth IRA, which means that contributions are made post-tax. Calsavers has no setup fees, but there is some administrative complexity that places a burden on employers. It is also very expensive for the employee that is contributing. In a recent study, two-thirds of employees indicated they prefer a private retirement plan over a state-run plan.

The Icon retirement plan is another option for small businesses to comply with the California retirement savings mandate. It’s an innovative retirement savings plan that was specifically designed for small businesses. It’s easy to set up and maintain, with low fees and no hidden costs for employers and employees. Unlike Calsavers, Icon Savings Plan is a fully digital, turnkey plan that easily integrates with banking and payroll providers, removing all administrative burden from employers.

Icon Savings Plan also offers several unique features that make it the best option for small businesses. For example, it offers flexible contribution options, allowing employees to contribute a fixed dollar amount. It also offers a personalized investment experience, with investment options tailored to each employee’s risk tolerance and investment goals. In addition, Icon provides employees with access to financial wellness tools and resources, such as educational materials and live events with retirement specialists.

Overall, Icon Savings Plan is the best option for small businesses that want to comply with California’s retirement savings mandate. It is affordable, easy to set up and maintain, and offers unique features that can help employees save more for retirement. By offering a retirement savings plan like Icon, small businesses can not only attract and retain talented employees and help secure their financial future, but remain compliant in the eyes of California as well.

Yes! You can Still Make Contributions to Last Year’s IRA

Posted on March 9, 2023 by Laurie Rowley - Retirement Planning

Whether you realized that you didn’t contribute as much to your IRA last year as you wanted to, or you’ve received a year-end bonus or another form of cash that you want to invest, there’s still time to make IRA contributions that count toward last year’s annual limit. When you make a contribution this year that counts towards last year’s limit, it’s called a carryback contribution. These types of contributions can serve many purposes and come with a range of benefits.

What is a Carryback Contribution?

A carryback contribution is a deposit to a Roth or Traditional IRA between January 1st and April 15th (or tax day) that is designated as a contribution for the previous year.

How Do You Make a Carryback Contribution?

To make a carryback contribution, you must:

Have earned taxable income in the previous tax year.
Have not reached the annual IRA contribution limit for the previous year.
Make the contribution before you file your taxes for the previous year or Tax Day, whichever comes first.

To ensure your contribution is counted toward the previous year’s annual contribution limit and that the deduction is taken from your income taxes, you or the IRA account holder must provide the financial institution with a written statement saying said contributions should be designated as a carryback. Your financial institution may have other specific requirements or processes to designate contributions as carryback so make sure you check with your account administrator for instructions.

How Much Can You Contribute?

The IRS sets the annual contribution limits for all retirement accounts each year. The IRA contribution limit for 2022 was $6,000, in 2023 it’s $6,500. If you turned 50 or older by the end of the tax year, you can contribute an additional $1,000 “catch-up” for a total of $7,000 in 2022 and $7,500 in 2023.

The maximum amount you can contribute to your IRA is the lesser of: your annual income for the taxable year or the annual contribution limit. Your carryback contribution can total the difference between your maximum allowable annual contribution and the amount you contributed during the previous year.

What if You Don’t Have an IRA Yet?

If you haven’t yet set up an IRA, you still have time to do so and make a carryback contribution up to your annual limit. The great thing about carryback contributions is that they don’t just apply to people who already have an IRA. Even people who didn’t have an active IRA before the end of the previous year can open and fund an account before they file their taxes (or tax day) and apply those contributions to the previous year.

Are Carryback Contributions Tax-Deductible?

For the most part, yes. Contributions made to a Traditional IRA are tax-deductible in the year they are made (or the year for which they’re designated) and distributions are subject to the appropriate income tax. If you aren’t covered by a workplace retirement plan in the form of a 401k, your entire carryback contribution will be eligible for deduction on your previous year’s taxes.

If you are covered by a 401k, your ability to deduct your Traditional IRA contributions will depend on your income and filing status.

Filing Status	Modified AGI	Deduction
Single or Head of Household	$68,000 or less	Full Deduction
Single or Head of Household	$68,001- $77,999	Partial Deduction
Single or Head of Household	$78,000 +	No deduction
Married Filing Jointly or Qualified Widow(er)	$109,000 or less	Full deduction
Married Filing Jointly or Qualified Widow(er)	$109,001- $128,999	Partial Deduction
Married Filing Jointly or Qualified Widow(er)	$129,000 +	No Deduction
Married Filing Separately	Less than $10,000	Partial Deduction
Married Filing Separately	$10,000 or more	No Deduction

To clarify, you can always contribute up to your annual limit (i.e. the lesser of the IRS limit or your annual income), you just might not be able to deduct the full amount from your tax bill. That’s because the IRS doesn’t want the favorable tax treatment these accounts receive to disproportionately benefit wealthy taxpayers.

Who Should Consider Making Carryback Contributions?

There are many benefits to making carryback contributions, which include:

Maxing out your retirement savings.
Growing your savings at a faster rate because of compound interest.
Saving money on your taxes.
Putting extra cash flow to work instead of spending it.

These benefits can apply to anyone, but for people in the following situations, a carryback contribution might be especially advantageous:

You received a bonus or other unexpected cash flow at the end of the year or early this year. Making a carryback contribution enables you to put this influx of cash to work without dipping into this year’s contribution limit.
You earned more last year than you expect to earn this year. In this scenario, taking the tax deduction on last year’s taxes might save you more money.
You didn’t max out last year’s contributions but expect to have increased cash flow this year and the ability to contribute more. If you have the ability to contribute more than the annual limit this year, and didn’t max out last year, making a carryback contribution enables you to take full advantage of your improved financial circumstances and max out your savings.
You’ve maxed out your 401k. In this scenario, a carryback contribution would allow you to maximize your total retirement savings opportunities.

Should You Make a Carryback Contribution if You Can’t Deduct It?

This will depend on your personal financial circumstances and the other investment opportunities available to you. But there are many benefits to funding your retirement savings accounts, separate from the tax deductions. The principal benefit is that you are investing in your future and taking advantage of compound interest.

According to the EBRI, there is currently a retirement savings gap between what is estimated Americans will need to live comfortably when they retire, and what they have saved. Even the “baby boomer” generation, which is the wealthiest generation in US history, is facing a cash flow crisis in retirement. The fact of the matter is, inflation, market forces and the exponential rise in the cost of medical care has all but ensured that people underestimate what they will need to have saved in order to retire.

So, the more you can save for your golden years, the better. Making a carryback contribution helps you to save more because it allows you to max out your retirement savings deposits for both the previous and present tax years. And the more you save, the faster your savings grow because of the way those earnings compound over the years.

Want to Open an IRA? Icon can Help

Icon Savings Plan is the most cost-efficient way to save for retirement. As long as you earned taxable income last year, we can help you open an IRA and make a carryback contribution to get started on your retirement savings goals. If you’re ready to take control of your financial future, reach out today.

*Disclaimer: This is not tax advice. Please consult a tax expert before making any decisions.

Most Americans Report Feeling Financial Stress, But It’s a Solvable Problem

Posted on September 23, 2022 by Laurie Rowley - Retirement Benefits

Much has been written about the financial stress and anxiety the Covid-19 pandemic caused amongst the US workforce. And a recent study conducted by the Icon Retirement Innovation Research Center confirms that most Americans (63%) still feel stressed about their finances. But this phenomenon is not new. It was not created by the pandemic, just exacerbated by it. Instead, a lack of financial literacy and a workforce that largely lacks access to workplace retirement plans has steadily built the wave of financial stress Americans are experiencing today. Luckily, there is something employers can do about it, and Icon is here to help.

The Data

In 2021, FINRA (the Financial Industry Regulatory Authority) published a report on financial anxiety, stress and literacy in American workers. It collected its data between 2018 and 2020, when the economy was in expansion and the U.S. was experiencing record-low unemployment. Despite these favorable economic conditions, the study found results similar to Icon’s: that 60% of respondents felt anxious when thinking about their finances. More than half weren’t saving money and 20% had accumulated debt.

So during a period when individuals should have been able to improve their financial situation, more than half were not able to do so. Why? There are many factors that both FINRA and Icon found that correlated with problematic financial behaviors like lack of savings. But it’s a lack of financial literacy and access to a workplace retirement plan that are the two hurdles most people couldn’t overcome despite being completely solvable.

In terms of financial literacy, FINRA defined financial literacy as being able to demonstrate a basic understanding of financial terms like interest rates, inflation, and risk diversification. In their study, they found that 63% of financially illiterate people reported feeling financially anxious vs. 51% of financially literate respondents that reported feeling that way.

The FINRA study also found a link between low financial literacy and problematic financial behaviors like overdrawing their checking account and accruing expensive credit card debt.

What can Employers Do?

Employers can provide workers opportunities to save, starting with a retirement plan, and increase workers’ financial knowledge and awareness in the process. Why start with a retirement plan? Those feeling financially anxious are less likely to plan for retirement and need access to a plan through work. And retirement planning is a strong indicator of wealth and a good indicator of how savvy people are about how to use their resources.

Icon found that ⅔ of workers don’t trust their own financial decision making. So they look to their employers to help them save for retirement. If these workers are among the 81 million who lack access to a workplace retirement plan, they’re not likely to feel comfortable investing on their own.

The current 401k-dominant retirement system has created a wealth gap between those whose employer offers this benefit and encourages saving, and those who don’t have access to a retirement plan. The result is generational financial stress and illiteracy get passed down, making it very difficult for people to improve their financial situation.

How Icon can Help

The retirement system as it exists today is broken. It only covers W2 workers who have been at their company for a certain period of time and each 401k plan is an island unto its own. Meaning, 401ks can’t be connected even if they’re owned by the same person. The results are:

An estimated 80 million American workers don’t have access to a retirement plan.
There’s more than $1 trillion sitting in abandoned 401ks.
Over 20% of all 401ks are lost or forgotten.
There’s an estimated $3.68 trillion gap between what Americans will need in retirement and what they have saved.
Two classes of savers. Plans with larger asset balances pay lower fees than smaller plans, which means it takes employees of smaller companies longer to reach their financial goals than their counterparts at larger employers.

We need a new system to save for retirement and that’s exactly what Icon has built. Icon’s plan is a retirement savings benefit that enables employers to offer every worker, regardless of classification, a way to achieve financial stability. Our fees are transparent and the same whether you have five employees or 500. Our plans are also portable. This means workers never lose access to their retirement savings. When they leave your company, we simply “unplug” them from your system and “plug” them back into that of their next employer.

Employees want to save. They want to feel like they have more control over their finances and their future. Most also need their employer’s help in doing so.

What employees don’t want is to navigate a complicated and expensive system. They don’t want to have to read (and understand) complicated plan documents in order to discern how much they’re paying in fees and how they’re supposed to roll old accounts into new ones (or if they’re even allowed to do it). They want saving for retirement to be easy so they can focus on their actual job.

We’ve created a retirement benefit that allows them to do just that. Changing the tide of financial anxiety and illiteracy and lack of savings will take time and continuous effort. But with Icon, employers can help their workers invest in their futures and by doing so, show their workers the company is invested in them.

If you’re interested in learning more about Icon and how we can help you reduce your employees’ financial stress, reach out to a retirement specialist today.

The CalSavers Deadline Has Passed… What Happens Next?

Posted on August 10, 2022 by Laurie Rowley - Retirement Benefits

Whether you’re a California-based company with 5 or more eligible employees, or you’re a company with 5 or more California-based eligible employees, June 30th was an important deadline for you. By this date, by law, you were supposed to have either enrolled your eligible employees in the CalSavers retirement plan or sponsored your own plan.

If you didn’t, you might be subject to fines. If you did, and you went the CalSavers route, you might be running into some user-satisfaction issues. Icon can help you deal with both.

I Missed the June 30 Deadline, Now What?

If you missed the June 30 deadline and didn’t set up your eligible employees with a retirement plan, we have two pieces of good news. First, you still have time before fines are assessed. In fact, you have 90 days from the deadline (September 28th) to get your retirement plan up and running before you’ll have to pay any fines.

Second, Icon is an easy and cost-effective way to comply with the CalSavers mandate, we can get you signed up and onboarded in minutes. We are a payroll IRA that links with your payroll provider to take employees’ contributions directly from their paychecks. Since we’re an automatic enrollment payroll deduct IRA and not a 401k, there’s no financial reporting or fiduciary responsibility on your part and we take on the administrative duties of employee onboarding and communication and plan maintenance and administration. All you need to do is provide your payroll information and approve employees’ contributions.

If you choose not to sign your employees up for a retirement plan within 90 days of the June 30 deadline, you will be subject to fines of $250/eligible employee. If, at 180 days after the June 30 deadline, you still haven’t provided your employees with a way to save for retirement, fines of $500/eligible employee will be levied against your company.

Beyond the financial penalties, you might find it difficult to attract and retain employees unless you can offer them a retirement savings benefit. The consultancy firm, WTW, recently surveyed employers of various sizes, across several industries, and found that 55% of the companies expected to have retention issues in the next two years. And 36% were planning to use their retirement benefits package as a way to attract and retain talent. So if you want to compete, you will need a retirement plan that employees will actually want to use.

Icon is that plan. With low fees, and easy plan management, Icon’s retirement plan is user friendly and customizable so every worker can find what they’re looking for. On top of that, employees own their Icon plan and can take it with them wherever they go. They never lose access to it, retaining the ability to both contribute to and manage their retirement savings plan no matter where they work.

I Signed up for CalSavers Before June 30, am I Stuck with It?

CalSavers has helped get more California workers saving for retirement, and that’s a good thing. But it’s far from the ideal retirement plan. Many employers and employees alike have found it to be a challenging system to navigate and inflexible. CalSavers also charges asset-based fees of between 0.825% and 0.95%, whereas Icon’s average fund fee is 0.07%. Lower fees help your employees grow their savings faster.

So if you signed up for CalSavers but you’re unsatisfied with your choice, we have good news. You can unenroll your employees from CalSavers and roll their accounts into an Icon retirement savings plan. Icon makes account management easy with a clean and informative dashboard. We also make it easy to rollover old accounts so your employees can start saving more, faster.

If you’re interested in rolling your CalSavers accounts into Icon retirement savings plans, reach out to a representative today. We’ll walk you through the process.

Why You Need to Offer Your Employees the Right Retirement Savings Plan

To be successful, companies need healthy, focused, talented, and productive workers. They need to retain those workers so they’re not constantly recruiting and training new people, and suffering lost productivity due to losing institutional knowledge. In order to attract and retain the talent, companies need to be successful and give employees the support they need. According to a recent survey by PwC, support means caring about employees’ financial well being.

PwC surveyed more than 3,000 workers across various industries and found that 56% were stressed about their finances and 1 in 4 had less than $1,000 saved for retirement. The workers who were stressed about finances reported using up to 3 hours of work time or more to deal with their financial worries, 18% said it had negatively affected their productivity at work and 15% said it had negatively affected their attendance. On top of that, 76% of the financially stressed employees said they were attracted to another company that cared more about their financial well being.

Many workers are struggling and one way employers can help them feel in control of their financial future is to offer a retirement plan that makes saving easy. Since Icon charges low fees, employees will see their savings grow faster, which can give them a sense of security. Icon’s plan is easy to understand and use and we offer support to both plan participants and employers so everyone has the opportunity to be successful in reaching their financial goals.

Icon’s Companion Plan: A New Way to Help Your Employees Save More

Posted on August 9, 2022 by Laurie Rowley - Retirement Benefits

Icon’s 2022 small business survey found that 92% of employees contributing to a 401k want an additional tax-advantaged way to save for the future. That means to remain competitive as an employer, you must provide a comprehensive benefits package that enables all of your workers, from W2 to 1099, a way to achieve financial security beyond traditional offerings. Now, that’s possible with Icon’s Companion Plan.

What is Icon Companion?

Icon Companion is the new, smart way to help your employees build financial security in addition to their 401k plan. It’s easy to set up, integrates with payroll, and is a fraction of the cost of a 401k. Why? Because Icon leverages technology to automate administrative work and keep costs low, allowing us to pass those savings on to our customers.

How Does it Work?

Icon’s Companion Plan works similarly to your 401k in that contributions are automatically deducted from worker’s paychecks and invested in a retirement account.

There are some big advantages with Icon: no federal reporting requirement, no discrimination testing, and no rebalancing needed because it’s set up as a smart, online payroll IRA. All employers need to do is provide payroll information and approve their employees’ elections. Icon handles the rest.

In fact, Icon is a turnkey plan that includes full-service recordkeeping, employee onboarding, portfolio management, and compliance. And because it’s portable, you’ll never have an orphaned account. When an employee leaves the company, they retain access to their Icon account and can continue saving. No rollovers needed.

What are its Benefits?

Employers gain a cost-effective recruitment and retainment tool that doesn’t just sound good, it actually provides employees with a real benefit. Icon’s Companion Plan can be offered to 1099 workers, so if you’re a company that relies on independent contractors, it can help you keep this valuable talent happy. You’re also helping your employees reach financial goals and security, which can lower financial stress, leading to happier, more productive workers.

Employees gain another tax-advantaged way to save for their financial futures that can help them build financial security. Our low-cost portfolios are tailored to the individual employee and easy to manage from the dashboard. Icon’s portability feature is also a huge benefit because employees will never lose access to their account nor will they have to complete a confusing or expensive rollover.

Icon’s Companion Plan is an easy, cost-effective way to stay competitive in a tight labor market while providing your employees with a retirement plan that is a true benefit. And it helps all your employees (W2 and 1099) to become more financially secure so they’re less likely to experience financial-related stress, leading to a happier, more productive workforce. Icon’s Companion Plan is the retirement plan for the modern workforce.

Why Offering an IRA can Help Future-Proof Your Company

Posted on July 28, 2022 by Laurie Rowley - Retirement Benefits

For the past few years, the ground has constantly shifted under employers’ feet. There have been new regulations regarding retirement benefits and employee classification, and The Great Resignation has permanently altered workplace culture and what employees expect from the companies they work for.

Regardless of whether you were ahead of the curve or are currently playing catch-up, one thing is clear: doing things the same way as they were done before isn’t going to cut it. Not in the present environment and in the future.

So how do you come up with a benefits solution that meets the current moment and future-proofs your company from changes that are to come? You offer your employees a payroll IRA like Icon.

What is an IRA?

IRA stands for Individual Retirement Arrangement (or Account) and it is a tax-advantaged retirement savings account. There are two types of IRAs: traditional and roth. Traditional IRAs function similarly to a 401k in that contributions are tax-deductible in year they’re made, the deposits can be used to purchase a wide range of investments and once the retiree begins to take disbursements from their IRA, they pay the appropriate income taxes on the withdrawn amount.

Roth IRAs function a little differently. First, in order to contribute to a Roth IRA, you must satisfy certain income requirements depending on how you file your taxes. Second, contributions to Roth IRAs are not tax deductible in the year they’re made, but once you begin to withdraw them in retirement, you won’t pay income taxes on that money.

All contributions to retirement savings accounts grow tax-free.

401k vs. IRA

As we said above, there are some similarities between these two accounts:

Contributions are tax-deductible the year they’re made (traditional IRA only).
Contributions can be automatically withdrawn from the plan participant’s paycheck and deposited into the account.
Contributions grow tax-free.
Disbursements from these accounts in retirement are subject to the appropriate income tax (traditional IRA only).
Theoretically, owners of these types of accounts have access to the same investments.

Here are the differences:

	401k	Icon IRA
Portable?	No	Yes
Who’s Eligible?	W-2 Employees	All Employees
Access to Investments?	Limited by Company	Access to Everything
Fiduciary Responsibility?	Employer Maintains	Icon Maintains
Filing Requirements?	Form 5500	None
Discrimination Testing?	Required Annually	None
Annual Contribution Limit?	$20,500 (2022)	$6,000 (2022)
Catch-Up Contributions for 50+	$6,500	$1,000
Employer Matching Allowed	Yes	No

How Offering an IRA can Help Future-Proof Your Company

First, staying compliant. In 2019, California passed legislation (AB 5) that expanded its definition of what an “employee” was vs. an independent contractor. This, combined with the state’s retirement plan mandate has forced many California businesses from small start-ups to large, publicly traded companies to rethink how they manage their relationship with their employees without running afoul of employment law.

California isn’t alone in passing a retirement savings mandate– 14 other states either have passed, or are considering, similar legislation and the U.S. Senate is currently reviewing a bill the House of Representatives passed last year that would federally expand the definition of “employee”.

If you offer employees a 401k, you will need to stay abreast of who is legally considered an employee (might be different for state vs. federal), to make sure you’re in compliance with employment law (and not opening yourself up to expensive lawsuits). Or, you could offer employees an Icon IRA. Our plan can be offered to all employees (W-2, 1099, full-time or part-time) and it complies with all state retirement savings mandates so you’re covered in the case the legal landscape changes under your feet.

Second, retaining talent. It’s no secret that many companies rely on independent contractors. It was published recently that even Google retains more independent contractors than actual employees. And startups, especially those that are pre-profit rely on independent contractors in order to grow and innovate.

But independent contractors are often functioning like employees– working alongside actual employees for the same number of hours (or more) and subject to the same performance standards and oversight. They just don’t receive the benefits. If you are like the many companies that rely heavily on your independent contractors, offering them an Icon retirement savings plan can help them feel valued and a part of the company. Which will make it harder for another employer to poach them.

Even your full time employees who are eligible for a 401k will benefit from an Icon retirement savings plan. Our plans are portable, so they never lose access to their account, they can choose from 100’s of investments, our app makes plan management easy, and our low, flat fee makes it easier for them to grow their savings faster.

If you’re looking for a way to future-proof your benefits package, consider an Icon IRA. It’s the most cost-effective way to offer a retirement savings plan that complies with all major state mandates and doesn’t send you scrambling when employee classifications change.

Will the SECURE 2.0 Act Really Solve the Retirement Crisis?

Posted on July 12, 2022 by Laurie Rowley - Retirement Benefits

As has been widely publicized lately, there is a looming retirement savings crisis in America. Only 40% of Americans have any savings at all in retirement accounts and the median American worker has nothing saved for retirement. As an attempt to help solve this crisis, the House of Representatives passed the Securing a Strong Retirement Act of 2022 (aka the SECURE 2.0 Act), building upon the Setting Every Community Up for Retirement Enhancement Act (aka the SECURE Act) of 2019. The legislation is currently in committee in the Senate.

What Changes Does the SECURE ACT 2.0 Make?

The first and perhaps the most consequential change this legislation makes is making it mandatory that employers auto-enroll their employees in a retirement savings plan. The default settings are:

Pre-tax contributions are to be 3% of the employee’s gross income.
Contribution percentages increase by 1% each year to at least 10% of gross income, but not to exceed 15% of gross income.
Contributions will be invested in a qualified default investment alternative like a target date fund, a balanced fund or a managed account.

-Participants can change these settings at any time but they must be prompted to do so.

-This only applies to businesses with over 10 employees who have been in business for at least 3 years. There are also exemptions for church and government plans.

The next set of changes the SECURE Act 2.0 makes are around the topic of “catch-up” contributions.

For those aged between 62 and 64, the catch-up contribution to defined contribution plans like 401ks and 403bs increases to $10,000. The additional catch-up contribution allowed for those between age 50 and 62 remains the same.
The $1,000 additional catch-up contribution allowed for IRAs for participants aged 50 years and older, will be indexed to inflation starting in 2023. It is currently not indexed to inflation.
Starting in 2023, all catch-up contributions must be made to Roth IRAs. That means plan participants will pay income taxes on their contributions in the year they’re made, but they won’t pay income taxes on those contributions when they start to withdraw them.

Other changes to the rules around retirement plans include:

Allowing employees to have their employer’s matching contributions treated as a Roth IRA contribution, meaning said contributions will be included in the employees’ gross taxable income. But, employees won’t pay taxes on those contributions when they withdraw them in retirement.
Delaying the start date for required minimum distributions (RMDs). Now, participants in defined contribution plans like 401ks must start taking their required minimum distributions starting at age 70 ½. If the SECURE 2.0 Act passes, it will delay the start of RMDs until 73 in 2023 (if you reach age 72 between 1/1/2023 and 12/31/2029), 74 in 2030 (if you reach age 73 between 1/1/2030 and 12/31/2032), and 75 in 2033 (if you reach 74 after 12/31/2032).
Employers can provide matching contributions to employees for student loan payments, even if those employees aren’t currently contributing to their retirement plan.
It expands the eligibility for long-term, part-time employees to participate in their employer’s defined contribution plan. Right now, part-time employees become eligible after working for an employer for 3 years. The SECURE 2.0 Act shortens that time period down to 2 years.
It will create a lost-and-found database for people to locate retirement accounts they had with former employers.
It offers a tax incentive to small businesses of $1,000 per employee if they offer a retirement plan.

What Problems does the SECURE 2.0 Act Solve?

There are some things about this legislation to applaud. Allowing employers to provide 401k contribution matching for student loan payments can benefit both employer and employee. The employee receives a retirement benefit for paying their student loans, and by providing this matching it could make it easier for the employer to pass non-discrimination tests as long as those paying off their student loans aren’t highly compensated employees.

Creating a database that enables people to locate retirement accounts they had with previous employers could potentially cut down on the number of abandoned accounts and lead to greater retirement savings for individuals. And shortening the time in which part-time employees become eligible for the employer-sponsored retirement benefit and providing small businesses an incentive to offer employees a retirement savings plan could result in increased access to retirement savings accounts.

On the surface, these are all good things. But they don’t solve the structural problems inherent in the 401k industry and some of the provisions laid out in the SECURE 2.0 Act aren’t going to benefit those that need it most.

What the SECURE 2.0 Act Doesn’t Solve

Auto-enrolling employees with a default contribution rate of 3% their gross income, and then automatically increasing the contribution percentage by 1% per year might sound like a good way to force savings. But it could catch some employees by surprise and they might not be prepared to allocate that much of their monthly or annual budget to their retirement account.
The lack of retirement savings among mid to low income earners. Increasing the catch-up contribution amount will likely only benefit high earners who can afford to set aside an additional $10,000 a year for their retirement account. Taking away the tax deferral benefit of catch-up contributions by requiring they’re deposited in a Roth IRA, makes it even more difficult for mid to low income earners to afford these additional contributions.
Delaying RMDs might be a good thing if you’re a high earner and you plan to continue working into your 70’s. That way you don’t have to pay income taxes on both your traditional income and your retirement distributions. However, by delaying these distributions, individuals will be taking larger chunks of money over a shorter period of time and might be subject to higher taxes because of this.
The structural problems inherent in the 401k system. These types of retirement accounts are expensive to set up and administer, making it difficult for small businesses to offer this benefit (even with a $1,000/employee incentive). The fiduciary risk these plans carry is also a burden many companies, big, medium or small, can’t justify. The lack of portability of 401k plans and the cost of rollovers means that even if individuals find their long-lost retirement accounts, they will be left with the choice of managing and continuing to keep track of separate accounts or engaging in an expensive rollover.

While the SECURE 2.0 Act attempts to solve many facets of the looming retirement crisis in America, it doesn’t do enough to increase access to and the usability of retirement savings accounts for most Americans.

Icon’s payroll IRA is a portable, low-cost (for both plan participants and employers) retirement benefits solution that is easy to set and use. There’s no fiduciary risk to employers and employees always have access to their money.

How Icon Uses Behavioral Finance to Help You Successfully Save for Retirement

Posted on June 22, 2022 by Laurie Rowley - Retirement Benefits

Behavioral Finance might sound a little esoteric and perhaps like it’s a subject for grad school. But the question this scientific field tries to answer is actually quite simple: why do investors, even experienced ones, often make misguided choices? Icon uses the principles of Behavioral Finance to ensure its plan participants are successful in saving for retirement.

What Is Behavioral Finance?

Behavioral Finance is a field of study that was developed in the 1980’s and 1990’s in response to what experts thought were unpredictable moves in the stock market. At the time, the Efficient Market Hypothesis held that the stock market moves in predictable, rational ways because everyone has access to the same public information (and those that have access to insider information aren’t allowed to trade on said information).

But the stock market often moves in irregular or volatile ways so researchers wanted to find out why.

What Has Research Into Behavioral Finance Found?

In short, Behavioral Finance has found that the markets don’t always move in predictable, rational ways, because the people who are operating within those markets (i.e. the investors) are not always rational and predictable. Instead, they often let outside psychological influences affect their investment decisions.

Some of the phenomena researchers have found include:

Stocks with ticker symbols starting with an A, B, or C are traded more often and are thus considered more liquid than those with tickers starting with X, Y or Z.
Investors (even experienced ones) have a tendency to sell winners too quickly and hold losers too long. Presumably because the pain of losing is greater than the satisfaction of gains.
Most actively managed funds (i.e. those managed by a broker who decides which assets to buy and sell) don’t beat passively managed funds (i.e. those that are automatically rebalanced using an algorithm).

Reasons for this behavior include several biases:

Herd behavior: the instinct to act how others act.
Overconfident bias: you think you know more than you do.
Hindsight bias: you think what happened before will happen again.
Confirmation bias: you look for information that confirms what you already think is true.
Anchoring bias: basing your assessment of value on the numbers in your immediate vicinity. A real world example of this is: you live in an area with a high cost of living, so you think that everything costs more than it does (or should).

How Does Icon Use Behavioral Finance To Make You More Successful At Saving For Retirement?

Icon asks you a few questions to understand your financial situation. Then, we use an algorithm to determine the assets your portfolio should include. We use an algorithm to rebalance your portfolio regularly to ensure you always own the asset mix that makes sense for your financial goals and timeline.

Why do we use an algorithm? Because an algorithm doesn’t have psychological biases. It doesn’t favor stocks with tickers at the beginning of the alphabet or have hindsight bias.

We also don’t use jargon to influence your decisions. And we show gains and losses in true dollar amounts instead of percentages because it’s an easier way for people to understand the state of their portfolio.

At Icon, our goal is to help you save for retirement successfully. We don’t make money off of the sale of specific assets nor are we motivated by having as many assets under management as possible. We are simply motivated by closing the retirement savings gap because we believe everyone deserves a financially secure future.