Author: Laurie Rowley

Retirement Security for All Act: New York’s State Retirement Mandate

Posted on January 24, 2022 by Laurie Rowley - Retirement Benefits

Mandated retirement savings plans have landed in New York. As of October 2021, New York became the latest state to require private sector employers to provide their employees with a retirement savings plan. Whether you work in New York or employ at least 10 people within the state, this is big news.

Here’s what it means for you.

Who is Mandated to Offer a Retirement Savings Plan

You must offer your employees a retirement savings plan if you meet these criteria:

You employ at least 10 people within the state of New York, and
You’ve been in business for at least two years.

If you do meet this criteria and don’t already offer your employees a way to save for retirement, don’t panic. There has not been much guidance from the state regarding qualifying plans, however here are options that may work for you.

Icon IRA. Icon is the easiest, most affordable way to offer a retirement savings plan to your employees. We’re a low-cost, payroll IRA so employees’ contributions are automatically subtracted from their paychecks and deposited into their retirement account. We also take care of plan management so there are no testing or filing requirements. And bonus? Your plan is set up in minutes, no mountain of paperwork required. IRAs are also open to all employees regardless of employment status (i.e. full-time vs. part-time), so if you have multiple classes of employees, you can comply with the New York state mandate and offer the same retirement account to everyone. This isn’t true with a 401k.
401k. The 401k is the retirement savings account most people are familiar with. However, they’re difficult and expensive to set up and come with legal risk as ERISA regulations require employers who offer these types of accounts to fulfill a fiduciary responsibility to their employees. To adopt a 401k plan, you must: develop and adopt a written plan, arrange a trust fund for the plan’s assets, develop a record keeping system, and provide information to your employees. Then, you must monitor the 401k administrator to ensure it’s managing the plan in the best interest of your employees for a reasonable fee, or else face the possibility of expensive lawsuits. Another catch to this type of account is: 401ks are typically only available to full-time employees. So if you have multiple classes of employees, and your part-time workers are working at least 20 hours a week, you can’t offer them a 401k, but you have to offer them another option.
NY State Secure Choice Savings Plan. If you haven’t chosen another retirement savings plan for your employees the law states you must automatically enroll them in New York’s state retirement plan. This savings plan was created in 2018 as part of the state’s 2018-2019 spending budget and up until now, participation has been voluntary. Now, it’s compulsory if your employees aren’t offered another retirement savings option. The state’s plan is also an IRA but unlike Icon, it requires a fair amount of paperwork to set up and is not user friendly for employees. Unless employees choose another contribution amount, 3% of their wages will be automatically withdrawn from their paychecks and deposited into their Secure Choice Savings account. Employees are automatically enrolled in the retirement savings plan within 14 days of starting, but can opt out at any time.

If you don’t offer your employees a retirement savings plan, the penalties are hefty:

1st offense – $250 per uncovered employee.
2nd offense (within 2 years) – $500 per uncovered employee.
Subsequent offenses (within 2 years) – $1000 per uncovered employee.

This legislation applies to both for-profit and nonprofit private sector companies. If your company is located in New York City, or if you employ 5 or more people within in NYC who are over the age of 21, work 20 hours or more a week and you’ve been in business for more than 2 years, you might be wondering how the state law interacts with the city’s Retirement Security for All Act, that was passed in May of 2021. The answer is: it’s too soon to tell.

The city’s law contains language stating officials won’t implement the law if New York state passes its own version of a retirement savings mandate that covers the majority of people. The likelihood is that the New York state law will supersede NYC’s mandate, but we’ll continue to follow this story and when and if there’s news, we’ll let you know.

If You Work in New York State

Congratulations! As long as your employer meets the above-stated criteria, it’s now required to offer you a retirement savings plan. Here’s what you need to know based on the type of plan you’re offered.

Icon IRA

Your 2021 and 2022 annual contribution amount is $6,000 if you’re under the age of 50. Aged 50 or older? You can contribute up to $7,000 a year.
You always have access to this account regardless of where you work and you can manage it from an app on your phone.
Icon provides you with guided investment options based on your answers to a short survey. If your investment and savings strategies change.
Your contributions are tax-deductible in the year you make them.
Your contributions are automatically deducted from your paycheck, enabling you to “pay yourself first”.
Regardless of how much you work, you’re eligible to contribute to your Icon IRA.

401k

Your annual contribution amounts are $19,500 for 2021 and $20,500 for 2022 if you’re under the age of 50. If you’re aged 50 or older, you can contribute an additional $6,500 per year.
Your contributions are tax-deductible in the year you make them.
These types of plans tend to charge high fees which can eat into your savings over the long term. Make sure to read your plan documents to make sure the fees your 401k administrator is charging are reasonable. If not, notify your employer.
Your investment options might be limited, depending on the type of plan your employer put in place. You will have to read the plan literature to learn which are in line with your current investment and savings strategy.
If you leave your employer, you can: leave your money where it is, complete a rollover to the 401k your next employer offers (if they offer one), roll your money over to an Icon IRA, or cash out.
These types of accounts are typically only available to full-time employees.

New York State Secure Choice Savings Plan

This is a payroll IRA so your annual contribution limit is $6,000 for 2021 and 2022 if you’re under the age of 50. Aged 50 or older? You can contribute up to $7,000 a year.
Your employer will automatically enroll you in this retirement savings plan and if you don’t choose another contribution amount, 3% of your wages will automatically be deducted from your paycheck and contributed to your account.
You can opt out of this plan at any time.
If you opt out, you can only opt back in during the next open enrollment.
You will have to read the plan literature to choose the investment options that are inline with your investment and savings strategies.

Rethinking Retirement Savings

Posted on January 14, 2022 by Laurie Rowley - Retirement Benefits

Icon CEO, Laurie Rowley, recently sat down with Jeremy Goldman on the FutureProof podcast to discuss the structural problems with 401ks, the looming retirement savings crisis and how Icon’s portable retirement plan is the answer.

Over half the workforce doesn’t have access to a 401k. Of those who do have access, the problem is changing jobs with your plan — it’s hard to do. $100 billion is cashed out of 401k plans at job change every year. Add to this the fact that in five years, half the workforce will likely be independent contractors (so they won’t even have access to a workplace retirement savings plan unless a change is made), and it’s not hard to imagine that there’s a $4.2 trillion gap between the savings people will need when they retire and what they’ll have.

The retirement savings industry is well aware of this crisis and spends a lot of time trying to fix the structural bugs in the 401k system. But up until now, they’ve only managed to make a bad product worse. Portable retirement savings is the answer.

Icon is the workplace retirement savings plan for the modern worker and employer alike. It leverages advances in digital technology to deliver a flexible, frictionless and low cost way to invest and save for the employee. And it gives employers a low-cost, no-risk benefits solution to employing people across multiple regulatory environments.

Why Multiple Employer 401k Plans (MEPs) Don’t Make Sense

Posted on January 7, 2022 by Laurie Rowley - Retirement Benefits

“401ks are the best way for employers to offer a retirement savings plan and for individuals to save for retirement.” This is the marketing the 401k industry has been pushing since it was created almost by accident by the Revenue Act of 1978. And we’ve all bought into it at some point in our lives. Maybe you still believe it. If you do, you could be forgiven for taking this statement as gospel.

The 401k industry, through herculean lobbying efforts and behemoth marketing budgets, has sucked all the air out of the public conversation around retirement savings plans. In fact, unless you work in finance or HR, you might not even be aware that there are other options. Options that could reach the 81 million private sector workers without access to a 401k.

By dominating the conversation about retirement savings, the 401k industry has created a vacuum of information. And in that vacuum, arose the Multiple Employer Plan (MEP). Because if you’re a small business, you can’t afford to dedicate the financial resources and manpower it would take to set up and maintain a 401k plan for your business. It comes with too much risk due to the employer’s fiduciary liability, it’s too expensive and with the many hats small business employees must wear, it’s too complicated for them to navigate.

So in rides the MEP on a white horse. “You need to offer a 401k,” the industry says. “We can help you,” they claim. “It’ll be cheaper, less risky and way easier because we’ll do all the plan management for you.”

These statements might have been true at some point in the distant past, but are definitely not true today. Which is evidenced by the growing number of ERISA lawsuits now plaguing the MEP industry.

Here’s the truth: the 401k industry created MEPs to access a new clientbase. Not to benefit the plan participants. They pool a bunch of small businesses into one 401k so that the 401k has more assets (i.e. money) to manage. And since the industry makes money off of assets under management (AUM), the more money they have in each 401k, the more profitable that account is to the MEP administrator.

“But isn’t there some ancillary benefit to the small business? Like lower cost due to economies of scale?” No. In fact, due to technological advances it’s now often cheaper for a small business to open a single employer 401k than it is for them to join an MEP. That’s because MEPs commingle the funds of multiple companies and are incredibly complicated to manage. It can’t be done cheaply.

“What about fiduciary risk? Doesn’t the MEP administrator take that on?” No. The MEP administrator might share the fiduciary risk with the employer, and it might tell the employer it takes the fiduciary risk, but due to ERISA rules, if the employer is offering a 401k, it maintains a fiduciary duty to its employees. So in the case of an MEP, the employer is responsible for monitoring the MEP administrator to ensure its operating the plan to the benefit of plan participants for a reasonable cost. Which is really hard.

“Isn’t it simpler to outsource the management of the 401k plan to the MEP administrator?” Nope. Monitoring an MEP is exceedingly complicated. Here’s why: the MEP administrator maintains all discretionary power when it comes to managing the 401k. So the individual employers don’t have a say in which investments are offered to their employees, plus, their interests are competing with all of the other employers in the plan.

Add to this, the basic 401k rules. Staying in compliance with ERISA rules regarding rebalancing and discrimination on an annual basis is hard enough for a single employer 401k plan. But now, each employer has to worry not only about their own company staying in compliance, but every other in-plan company staying in compliance as well. For if one company is out of compliance, the entire plan is at risk.

The lack of power individual employers have within an MEP adds another complication. Once an employer signs up, that’s it. Their employees are in the plan until the plan itself is dissolved or the employee leaves the company. That’s because participating companies do not have the right to individually terminate. This has led to hundreds of thousands of dollars of assets being held hostage from employees who want to move their assets elsewhere.

In creating MEPs, the industry took a complicated inefficient product and made it worse. Then they sold it as something it wasn’t.

There was a time when 401ks made sense: when people worked for the same large company for 25 years or more, then retired. But that time has passed. Now, the average person will work for about 12 companies throughout their career (Bureau of Labor Statistics) so businesses large and small need to look beyond the 401k.

The retirement savings plan that is actually cheaper, simpler and less risky for small businesses is a payroll IRA like Icon. With a payroll IRA, your employees get personalized saving and investing with automatic savings and pre-tax contributions, with the added benefits of lower fees and full portability. Employers get the benefit of low cost and easy set up, as well as no fiduciary responsibility or complex plan management. And because the plan is non ERISA all types of employees qualify, W2 and 1099.

Finding the Best Retirement Plan for Your Small Business

Posted on December 14, 2021 by Laurie Rowley - Retirement Benefits

As a small business owner, you have an opportunity now to make a positive difference not only in your current employees’ lives, but also in your recruiting efforts. How? By offering your employees a way to save for retirement. Social security is rarely enough to cover living expenses and, although Americans accrue most of their retirement funds through employer-sponsored retirement plans, only 81 million private industry employees have access to one. So as top talent weighs offers from multiple companies, those that include a retirement savings plan are going to stand out.

If you’re a small business that either wants to start offering a retirement savings benefit to employees, or you’re unhappy with your current plan, here are your options.

Small Business Retirement Savings Plan Option 1: 401k

Here are the good things about 401ks:

They’re the retirement benefit most people are familiar with.
They enable automatic savings. Contributions are automatically withdrawn from employees’ paychecks so employees “pay themselves first” and may end up saving money they would have otherwise spent.
Contributions are tax deductible. Since they’re withdrawn from employees’ paychecks before income taxes are assessed, contributing to a 401k lowers employees’ tax burdens.
Deposits grow tax-deferred.
Enables employer matching.

Here are the not-so-good things about 401ks:

They’re expensive. The 401k industry makes money on assets under management (AUM). That means the more people signed up for a plan and the higher the deposit amount, the more money the 401k administrators make. New plans don’t have any assets yet because they’re, well, new, so in order to make money, the 401k administrators charge companies a lot to set them up. They also charge the companies a lot of money to maintain these smaller plans and charge participants high fees which eat into their retirement savings.

They’re not portable. Employees can’t continue contributing to their employer-sponsored 401k once they leave their job. They either have to complete a complicated rollover to their next employer-sponsored retirement plan (if that plan even accepts rollovers), keep track of this account until they retire, cash it out or abandon it.

The average worker today will have 12 jobs over the course of their career. If every employer offers a 401k, that’s either 12 accounts to keep track of, 12 rollovers to complete, 11 cash outs (for which they’ll pay a hefty tax penalty) or a lot of abandoned savings. It’s not exactly the ideal retirement plan for the modern workforce.

They come with legal risk. According to the Employment Retirement Income and Security Act (ERISA), employers that offer 401ks have a fiduciary responsibility to their employees. Those that don’t follow the letter of the law, conduct annual audits and annual rebalancing to ensure they’re not discriminating against lower wage earners in plan participation, open themselves up to lawsuits and other complicated financial hurdles.

They’re complicated to navigate. The average worker doesn’t have the time or interest to read through thick plan documents to make sure their investments are inline with their retirement strategy. This makes it difficult for employees to take an active role in their financial health.

Small Business Retirement Savings Plan Option 2: Multiple Employer Plan (MEP)

In an effort to solve some of the problems small plans pose for 401k administrators (i.e. fewer AUMs), they created a plan that bundles multiple small employers together into the same 401k plan.

Since they’re 401k plans, MEPs maintain all of the above benefits and drawbacks with the following additional rules:

All companies participating in the MEP must have something in common. They must be part of the same industry or located in the same geographic location, or have some other attribute that ties them together.
All companies must still maintain compliance with ERISA rules.
Companies maintain fiduciary responsibility. The MEP administrator will tell you that it takes the fiduciary responsibility for the plan. But the reality is, because the retirement plan is a 401k, ERISA states the employer still maintains a fiduciary responsibility to its employees. That means you’re responsible for monitoring the MEP administrator to ensure it is actually acting in the best interests of your employees. That also means you still maintain the legal risk.

Small Business Retirement Savings Plan Option 3: State-sponsored IRA

In an effort to help bridge the retirement savings gap, some states are rolling out state-sponsored IRA retirement savings plans. The idea is that employees who work for a company that doesn’t offer access to an employer-sponsored retirement savings plan, will be automatically enrolled in the state-sponsored plan.

States with available state-run plans:

California (CalSavers)
Oregon (OregonSaves)
Illinois (Illinois Secure Choice)

Pending State-run plans:

Connecticut (MyCTSavings)
Maine (Maine Retirement Savings Program)
Maryland (MarylandSaves)
New Jersey (New Jersey Secure Choice Retirement Savings Program)
New York (New York State Secure Choice Savings Program)
Virginia (Virginia IRA Savings Program)

If you’re located in one of these states, it might be tempting to just let the government handle the retirement benefit for your employees. And there are upsides to these programs:

They’re no-cost to employers. Since these plans are run by an investment company and workers are automatically enrolled, you, as the employer, don’t have to pay anything to administer the plan.
There’s no fiduciary risk. The state and investment company maintain the fiduciary responsibility to plan participants, so the legal risk to employers is removed.
They enable automatic saving. Like 401ks, the state-run plans require automatic payroll deductions from employees which means they enable employees to “pay themselves first”.

Here are the drawbacks of the state-run retirement savings plans:

They’re Roth IRAs. Roth IRAs have strict rules about who can participate and who can’t. In order to contribute to a Roth IRA you must make under $140,000 (single filers) or $208,000 (married, filing jointly) in 2021. If employees make over this amount and contribute by mistake, they have to go through the complicated process of unwinding those contributions.
Contributions aren’t tax deductible in the year they’re earned. Roth IRA contributions are made after income taxes are assessed. So plan participants will pay taxes on the money they contribute to their retirement plan. But they also won’t pay taxes on the disbursements they take once they retire.
The set-up process is cumbersome. The state-run retirement savings plans require a lot of upfront paperwork and some administrative work on the part of the employer to manage the plan.
They’re not portable.
They’re not user-friendly. Employees find the process of navigating the state-run plans to be complicated and confusing.

Small Business Retirement Savings Plan Option 4: Icon

Icon is the easiest and most affordable way to offer a retirement plan. Here’s what makes the Icon IRA so great:

Affordable. Icon was built to be low cost and high quality. There are no hidden fees or other costs associated with offering the plan.
Easy to set up and easy to use. Our modern, digital platform means it takes only minutes for employers to set up their company plan and for plan participants to get onboarded. Employees complete a short survey and receive guided portfolio options that are inline with their investment strategy. Any plan management can be done through the app on their phone.
We’re portable. So when employees leave they take their plan with them with no rollover required.
We enable automatic savings. We’re a payroll IRA, so employees’ contributions are automatically deducted from their paycheck. This way they “pay themselves first” and those contributions are tax deductible in the year they’re earned.
No fiduciary responsibilities or ERISA rules. We take on the fiduciary role and because Icon is a Registered Investment Advisor, there aren’t any complicated ERISA rules to contend with.
We accept rollovers. Employees who have 401ks languishing in no-man’s land can roll all of their retirement savings into one plan and then never have to do that again.

The Easy Way for Cannabis Companies to Offer Retirement Benefits

Posted on November 18, 2021 by Laurie Rowley - Retirement Benefits

In an industry where finding a banking partner can be difficult, it can be even more difficult for cannabis companies to offer retirement plans to their employees.

Federal laws can make it difficult for cannabis companies to get the financial and administrative support they require to operate their business as many financial institutions and 401k providers refuse to do business with cannabis providers.

Difficult or not, by June 2022, all cannabis companies located in California, regardless of size, must provide these traditional benefits.

Why Cannabis Companies Need to Offer Employees Retirement Accounts

There two major reasons cannabis companies need to start offering employees retirement benefits:

It’s the law.
The CalSavers Retirement Savings Trust Act requires that California employers of all sizes, including cannabis companies, offer a retirement plan with automatic enrollment by June 2022. For companies with more than 50 employees, the deadline has already passed. Failing to offer a plan will cost penalties.
To attract and retain talent.
Transamerica’s 18th annual retirement survey stated a retirement plan was an important benefit to them. 81% of the workers surveyed said they liked companies that automatically enroll employees in their retirement plan. According to Cowen, an investment banking firm specializing in the cannabis industry, recent legalization in US states and Canada, along with the recently House-approved SAFE Banking Act are priming the industry for exponential growth. But to fuel this growth, you need talent. And to get and keep talent, you have to give them what they want.

Retirement Plan Options for Cannabis Companies

If you’re one of the many cannabis businesses scrambling to offer retirement savings accounts to employees, here are your options:

An Icon IRA.
The Icon retirement savings account is a payroll IRA, we take contributions from an employee’s paycheck and deposit them into a personalized investment portfolio based on the employee’s risk tolerence and financial situation. It’s low-cost for employers and employees alike. In fact, it’s one of the most affordable ways to offer a retirement benefit, which means it’s cheaper to hire people and the people you hire get to keep more of their savings. Our IRA also removes the fiduciary burden, compliance requirements, and regulatory headaches from the employer, and unlike a 401k, it’s quick and easy to set up. From the employees’ perspective Icon is easy to use, it offers personalized investing without the need for a ton of research, and it’s portable, so your employees have access to it even when they leave your company.
401k.
There are a handful of 401ks being marketed to cannabis companies and since the 401k is considered the most traditional of the retirement investment accounts, this might be the first solution you considered. Here’s why 401ks are not so great for cannabis companies:

– Compliance risk. As a company whose operations may not be federally sanctioned, you already have to jump through legal hoops just to run your business. Setting up a 401k brings added complications. If you offer a 401k to employees, you take on a fiduciary responsibility to those employees. That means you must retain insurance, submit to annual auditing and ensure that all employees are equally benefitting from the account offering.

– Increased costs. Even for traditional companies, 401ks typically come with high fees for both the employer and employee (which significantly eats into their savings over the life of their account). For cannabis companies, the cost could be even higher because of the onerous vetting process you must complete.

– Lengthy set-up process. As retirement accounts go, 401ks are complicated to set up. They require lots of paperwork and legal work and can take months to set up. Add to this the lengthy vetting process all cannabis companies must complete, you might not have time to set up your 401k by the June 2022 deadline.

– Not portable. Employers sponsor 401k accounts so while the employee “owns” the account, the employer is the vehicle through which the employee has access to it. Once the employee leaves, they can no longer contribute to the account. The cannabis industry has a high turnover rate so this type of model doesn’t really work for those employees.
For California Companies: CalSavers.
If you fail to set up another retirement savings account for your employees, you will have to enroll them in the state-run plan called CalSavers or risk paying a fine of $250 per employee. CalSavers is a Roth IRA, which means employee contributions are not tax deductible in the year they make them. Also, employees who make over $140,000 (single filers) or $208,000 (married, filing jointly) in 2021 aren’t eligible to contribute to a Roth IRA. And if they do by mistake, they will have to go through the complicated process of unwinding those contributions. Another drawback to the CalSavers program is that it’s hard for both employers and employees to use. Employers must spend a lot of time completing paperwork upfront and managing the plan and employees find the process of managing their account complicated.

The Great Resignation is happening. Here’s what to do with your 401k if you’ve left your job.

Posted on November 4, 2021 by Laurie Rowley - Retirement Planning

We’re over a year and half into Covid and people are still resigning in droves. In fact, a record 3% of the American workforce left their jobs in August (that’s 4.3 million workers), leading economists to refer to this period as the Great Resignation. Some of these workers may have simply switched jobs, but not many, since non-farm employment only rose by 194,000 in September.

So what are people doing? We don’t know for certain. They might be working for themselves, working part time (4.5 million people reported being partially employed in September), or they might simply be taking a break since employee-reported burnout is also at an all-time high, with women suffering more than men.

What we do know for certain is most of these people will lose access to their singular way of saving for retirement: their employer-sponsored 401k. Once you quit, you can no longer contribute to your plan. So if you’re one of the millions of people who has resigned or is thinking about resigning, what will you do with your 401k and how will you continue to invest for retirement? Good news! You’ve got options.

Scenario 1: You’ve switched companies and your new employer offers a 401k

If you’re in this boat, you can choose to rollover your current 401k balance to your new employer’s plan or you can choose to roll it into an IRA. If you’ve researched your new employer’s 401k plan and you like the investment options, you’re comfortable with the fees, and if it accepts rollovers, rolling your current balance into the new plan could be a good option.

If you don’t like the investment options, if the plan doesn’t accept rollovers, or if the administrator charges high fees (or any combination of these reasons), then you can roll it into an IRA. If you choose to do nothing and keep your balance where it is, you won’t be able to continue contributing to that 401k, so you’ll need another way to save for retirement such as an IRA with Icon.

Icon’s retirement savings account was created using the best parts of the 401k and IRA to create a new type of retirement plan called portable retirement. Like a 401k, investments are managed for you. Like an IRA, it’s portable, and you have access to it wherever you go. And if you should decide to take a job with a new employer, they may support your Icon account.

Scenario 2: You’re working part time, you’re taking a break, or you’re working for yourself

If you no longer have access to a workplace retirement plan, that’s ok! You don’t have to push off saving for your future. Even small levels of contributions, once invested, can make a huge difference in later years.

So, you can always choose to keep your 401k where it is and also open an IRA to continue building your retirement savings, but unless you have a large balance and a great plan, 401k fees could eat so far into your savings they all but disappear. The better option is to roll your 401k into an IRA like Icon’s retirement savings account. This way, you continue to contribute to your future, all of your money is in one place, and high fees don’t erase your hard-earned savings.

Like we said above, Icon’s retirement account is plan that offers the best functionality from 401k and IRA accounts. Plus, it’s portable, can be managed from your phone, and can be adjusted to fit all the career decisions you’re likely to make throughout your working life.

The Nuclear Option: Cashing Out

With any of these scenarios, there’s always the option to cash out your 401k. But here’s why that’s not such a good idea:

You’re not only going to pay income taxes on the distributed amount with a traditional 401k, but you’re also going to pay a 10% penalty.
You won’t be saving for retirement unless you open a new retirement savings account.

Right now, more than 50% of both men and women think they’ll have to work part time in retirement given their current savings rate (according to a survey by T. Rowe Price). And 21% of men and 31% of women think they’ll run out of money in their later years. That doesn’t have to be the case.

On average “the market”, which is a commonly used term that refers to the world of traditional investments like mutual funds and ETFs, grows at a rate of 7% per year. That means if you invested $100 the first year, you would earn $7. But that’s not all. Without contributing another dollar to your account, your earnings would start earning money as a function of what’s called “compounding”. Take a look:

It’s all about compound interest. Use the slider to see how what you set aside today can grow over time.

$1 Yearly Max

What you set aside today

Adds up over time with compound interest*

The above example assumes there are no additional contributions to your account. To see the effect of compounding on various contribution levels, check out this calculator from the SEC.

The Fiduciary Risks of Offering a 401k Plan

Posted on October 25, 2021 by Laurie Rowley - Retirement Benefits

Did you know that by offering a 401k to your employees, you become their fiduciary? According to the Employee Retirement Income Security Act (ERISA) of 1974, that means you must act in their best interests. This might sound easy enough but in the past year, over 90 companies have had to defend themselves in lawsuits brought about by their own employees for fiduciary mismanagement of the company’s 401k plan. At the heart of these cases are claims of excessive fees that employees have to pay as part of their 401k plan. The result of these lawsuits is an estimated $1 billion in settlements.

These companies probably didn’t set out to harm their employees. But unfortunately, the set of requirements for retirement accounts set forth by the Department of Labor are both vague and comprehensive – which is horrible for plan sponsors and managers, and perfect for plaintiff lawyers.

It’s not just Fortune 500 corporations that are at risk for lawsuits, even plans with assets as low as $4.5 million have been successfully sued.

So how do you make sure you do right by your employees and protect yourself from excess litigation? The first step is to understand what your fiduciary responsibilities are.

What are my fiduciary responsibilities?

According to the Department of Labor, anyone involved in the management of a 401k plan is legally required to:

Act solely in the interest of plan participants and their beneficiaries
Act prudently
Diversify plan investments
Follow the terms of plan documents
Avoid conflicts of interest

Investment-specific fiduciary responsibilities require plan managers to offer a set of ‘prudent investments’ to their participants— which are defined as, “funds that meet their objective for a reasonable fee”. Plan managers must also provide access to a broad range of financial markets so that plan participants are able to properly diversify their accounts to avoid major losses.

New to the world of investments? Too bad. Under ERISA, retirement plan managers are held to the ‘Prudent Expert’ fiduciary standard. This means they must act ‘with the care, diligence, prudence, and skill of someone familiar with such matters’ — specifically an investment professional. Employers lacking expertise are not excused from this requirement, so the vast majority of employers are expected to either seek professional advice or risk litigation.

401k plan managers are also responsible for extensive record keeping. Specifically, plan documents must provide enough information to be “verified, explained, or clarified, and checked for accuracy and completeness.” Mandatory records include fee invoices, trust statements, services contracts, claim records, payrolls, plan documents and amendments, board resolutions, insurance contracts, among many others.

How can I protect myself from Excessive Fee litigation?

If you’re looking to protect your plan from Excessive Fee litigation, you have a couple of options:

Fiduciary Liability Insurance

You can obtain Fiduciary Liability Insurance. Without it, you’re vulnerable to the following claims:

Breaches of Fiduciary Duty – violations of fiduciary obligations, responsibilities or duties under ERISA.
Errors or omissions in the administration of a plan. Including:
- Advising, counseling, or giving notice to employees, participants and beneficiaries
- Providing interpretations
- Handling Records
- Activities affecting enrollment, termination or cancellation of employees, participants, and beneficiaries under the Plan

Fiduciary Liability Insurance can be extremely costly, depending on the structure of your retirement plan. And as a result of the previously discussed lawsuits, premiums have spiked by an average of 30-40%.

Offer a retirement plan that doesn’t carry the fiduciary risk

Icon’s innovative platform enables employers to help their employees save for retirement without exposing the business or themselves to all of the above. By using a payroll IRA as the investment vehicle, instead of a defined contribution plan (like a 401k) our plan removes the fiduciary risk, ERISA requirements and federal filing requirements. New to the world of investments? No problem. Icon is an SEC registered investment advisor, so the fiduciary burden is on us.

With Icon setting up your company’s retirement plan takes minutes, not months. It’s the easiest, most affordable way to offer a retirement plan.

CalSavers California Retirement Savings Program

Posted on May 11, 2021 by Laurie Rowley - Retirement Benefits

California law now mandates that you must offer a retirement plan.

Millions of California residents don’t have an employer-based retirement plan and have no retirement savings. So, to make sure that everyone has access to a workplace retirement plan, California passed a new law that applies to for-profit and nonprofit businesses.

It states that if you don’t offer an employer-sponsored retirement plan—and you have five or more employees—you must either offer a retirement plan or participate in in the state-run plan called CalSavers.

The state mandate has a three-year phased rollout with staggered deadlines for registration, based on your company’s size.

If you have over 100 employees the deadline was September 30, 2020.

If you have over 50 employees the deadline was June 30, 2021.

If you have 5 or more employees the deadline is June 30, 2022.

What’s the CalSavers plan?

The CalSavers program is a retirement plan controlled, offered, and managed by the State of California.

If you don’t offer a qualifying company retirement plan, you’ll need to enroll in CalSavers for your employees. CalSavers is an IRA-based plan that requires all employees to be automatically enrolled. Employees can opt out of CalSavers.

How much does CalSavers cost?

Your employees will pay plan administration fees that can range from 0.85% to .95% these fees will be deducted directly from the assets in their retirement plan.

There are no fees for employers and CalSavers requires no matching contributions.

Who’s exempt from the CalSavers law?

You are exempt if your business offers a 401k or other qualified retirement plan such as a 403b, a Simple IRA, or a Payroll Deduct IRA with auto-enrollment.

If you have fewer than 5 employees, your business is also exempt.

What’s the Icon Savings Plan?

Icon is the easiest and most affordable way to offer a retirement savings plan.

Icon is a payroll-deduct IRA with auto-enrollment, and is built with modern digital technology.

Icon removes high costs, complexities, and administrative burdens from employers. Likewise, you have no federal filing requirements and no fiduciary responsibilities. There are no matching contributions, and the employee annual contribution limit is $6,000, or $7,000 for employees over 50 years old.

For employees, Icon delivers an easy-to-use plan with a browser-based interface. Savings are invested in a portfolio tailored to the needs of the individual. The Icon auto-advisor monitors and automatically rebalances a diversified portfolio of ETFs (Exchange Traded Funds) from leading asset managers like Vanguard and BlackRock.

You can enroll in about 5 minutes. And to set up your plan takes about 30 minutes. Icon integrates with your payroll and provides a streamlined dashboard for easy plan administration.

Your employees will be automatically enrolled, as required by the state mandate, and they can opt-out at any time.

Icon Savings Plan Recognized by Fast Company in 2021 World Changing Ideas Awards

Posted on May 11, 2021 by Laurie Rowley - News, Press

Icon, the trailblazer in the portable retirement plan was chosen in two categories for creating the only retirement plan open to every working American.

New York, May 4, 2021 — The winners of Fast Company’s 2021 World Changing Ideas Awards were announced today, honoring businesses, policies, projects, and concepts that are engaged and committed to pursuing innovation in solving health and climate crises, social injustice, or economic inequality.

Icon was chosen in two categories: “Companies on the Rise” and “Wellness.” Icon is innovating the ways companies offer retirement plans and who they offer them to—every worker in the country. More importantly, Icon’s innovative platform radically simplifies the role of the employer.

“Over half the American workforce doesn’t have a retirement plan—That’s over 50 million working people with no hope of retirement,” says Laurie Rowley, CEO and founder of Icon. “It enables every employer to offer every employee, including their contract and gig workers a high quality, low-cost plan, while eliminating their costs, complexities, and fiduciary risks.”

Icon changes things for every worker, too. As the world’s only portable retirement plan, it’s an easy-to-use benefit that travels with them from job to job—permanently. And wherever they go, Icon brings them the security of personalized investing.

Now in its fifth year, the World Changing Ideas Awards showcase some of the world’s most inventive entrepreneurs and companies tackling global challenges. A panel of Fast Company editors and reporters selected winners and finalists from a pool of more than 4,000 entries across transportation, education, food, politics, technology, and more. Plus, several new categories were added, including Pandemic Response, Urban Design, and Architecture. The 2021 awards feature entries from across the globe, from Brazil to Denmark to Vietnam.

About the World Changing Ideas Awards

World Changing Ideas is one of Fast Company’s major annual awards programs and is focused on social good, seeking to elevate finished products and brave concepts that make the world better. A panel of judges from across sectors choose winners, finalists, and honorable mentions based on feasibility and the potential for impact. With the goals of awarding ingenuity and fostering innovation, Fast Company draws attention to ideas with great potential and helps them expand their reach to inspire more people to start working on solving the problems that affect us all.

Solving for X

Posted on June 1, 2020 by Laurie Rowley - Savings and Investing

Sweaty palms, stomach-churning, head spinning, that choking feeling in the back of the throat. Few things in our everyday lives have the ability to send fear into the heart such as when we are confronted with complicated math. Especially when this math is in the form of a story or word problem. Those who suffer from math anxiety experience discomfort to varying degrees when confronted with math problems. For many of us, math anxiety is a very real thing.

Scientists have found that math stress has a biological effect on the body, including the release of stress hormones like cortisol, which are typically associated with the flight or fight response. Math anxiety can induce feelings of dread, nervousness, worry, confusion and inertia.

Sound familiar?

A lot of people have the same feelings about retirement savings and planning. Which makes a lot of sense because saving for retirement itself forces us to look at uncomfortable issues such as (budgets, mortality, legacy). Now add to this already emotionally-fraught subject a layer of complicated math.

Math is the default language of retirement savings and planning. Retirement planning is essentially one massive, multi-year story problem. But with greater consequences than just miscalculating at what time train A will arrive at the station.

Think about what people have to do. They have to calculate and strategize all kinds of math-based hypotheticals: You are age X, you need to save X percent of your current income, so that you can have X amount of replacement income (which is unknown) by the time you retire, (X age), assuming you will live until X (factor: gender, industry, genetics, social security, future healthcare, and inflation). All of which are unknown.

Once you have calculated your personal story problem, then you need to figure out your own risk tolerance, diversification strategies, retirement income needs, sources of retirement income and portability issues across multiple employers over your 35-year career.

We are using one anxiety inducing complicated technique — math — to explain another anxiety inducing complicated topic — retirement. If my math is correct, that is squaring the pain factor.

People know that in order to have a financially secure retirement they have to make a series of “right” decisions throughout the course of their lifetime, decisions like: how much to invest, where to invest, what to do and when to do it. The stakes are high, and the correct answer is illusive. This all leads to people having very little confidence in their own ability to make good financial decisions. It takes a great deal of financial courage to face all of these issues.

To help illustrate what I am talking about — the overreliance on math to explain retirement savings — I typed into Google the following phrase, “how much income do I need in retirement?” Below is what comes up as the first response, which is from one of the largest 401k provider’s websites:

“How much do I need to save for retirement?

Savings factor: Aim to save at least 1x your income at 30, 3x at 40, 7x at 55, 10x at 67.”

“That’s why we did the analysis and came up with four key metrics: a yearly savings rate, a savings factor, an income replacement rate, and a potentially sustainable withdrawal rate to help you create your retirement roadmap. (See chart.)”

Here is another example:

“Financial experts estimate that the average person, after it all nets out, will need about 75 percent to 80 percent of their preretirement income to sustain their standard of living after they retire. But this is just a rule of thumb. Do your research, and then do the math to see how much retirement savings you need.”

These examples are typical of information that people saving for retirement are confronted with on a regular basis. (The jargon in these two examples is a whole other story).

Relying on math as a rational element or lever for behavioral change is not an effective strategy for most people. Look no further than all of studies from behavioral economics on irrational behavior. In fact, behavioral economics is founded on the idea that rationality is a preposterous assumption. Math requires measured rational thought — we tend to become irrational when we are presented with emotionally charged issues, like our retirement.

I will put my hand up and confess to say that I have math anxiety — despite the fact that I work with math all day — it still leaves me feeling a bit sickly when I am confronted with anything beyond simple arithmetic.

In order to help people save more and improve outcomes, we need to replace anxiety with confidence, doubt with trust, and help reduce complexity wherever possible.

I propose we move away from the language of math, and start to introduce new ways of communicating complicated topics. We can rely on methods that have worked over the course of human development. For example: replace story problems with storytelling, and replace histograms and complicated charts with visual language that simplifies rather than mystifies.

Let’s take out some of the unnecessary anxiety. By doing so we will start to see more confident and engaged savers.