Tag: 401(k)

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.

Dreading That Form 5500? This Retirement Plan Doesn’t Require One.

Posted on June 13, 2022 by Laurie Rowley - Retirement Benefits

If you offer your employees an employer-sponsored retirement plan in the form of a 401k, a pension or another type of plan covered under ERISA, you’re coming up on your Form 5500 deadline. Unless you have a one-participant plan (either a sole proprietor or partnership plan) with total assets of $250,000 or less, filing the Form 5500 is a non-negotiable requirement to offer a 401k or similar plan. And it will likely require that you allocate resources (time, money and talent) to ensure it’s completed properly.

What is a Form 5500?

Form 5500 is a form issued by the Department of Labor (DOL) on which employers who offer 401ks and other ERISA-covered plans report on their plan’s performance, financial condition, operations and management. These results are then distributed to plan participants.

There are three types of Form 5500:

The “Regular” Form 5500: If your plan has 100 or more participants, you’ll have to complete this version.
The “Short” Form 5500: This version is for companies that have fewer than 100 participants in their plan.
The “One Participant” Form 5500: If your plan covers one participant and their spouse, and you’re required by ERISA rules to file a Form 5500, this is the version you will use.

Why Do Employers Have to File a Form 5500?

The federal government uses Form 5500 in two ways. First, it helps to ensure that employer-sponsored plans are being operated and managed in a way that is in the best interest of the plan participants (i.e. the employer is fulfilling its fiduciary responsibilities). Second, the DOL, Congress and other federal agencies and private organizations use it to inform them on employee benefits, tax and economic trends and policies.

Form 5500 Deadline

Your deadline to file your Form 5500 is seven months after the end of the plan year. If your retirement plan operates on a calendar year, then your deadline is July 31st. Penalties for missing the deadline are $250 a day up to a maximum penalty of $150,000.

The Form 5500 is one of the many annual administrative duties employers must fulfill when they offer a 401k or similar type of retirement savings plan. But what if we told you there was another option that didn’t require filing a Form 5500, or any other form of documentation with the IRS or Department of Labor (unless you’re offering a plan to comply with a state mandate)? There is. It’s an Icon payroll deduction IRA.

Payroll Deduction IRA: The Simplest Way to Offer a Retirement Plan

Even the IRS will tell you that, “a payroll deduction IRA is probably the simplest retirement arrangement that a business can have.” This is why:

A business of any size (even the self-employed) can offer a payroll deduction IRA.
No plan documents are required (unlike the plan document you must maintain under a 401k arrangement).
The employer has no Form 5500 filing requirements, unless required by a state retirement mandate.
Employers’ only responsibilities are to approve the payroll deductions and provide employee information to plan administrators.
No statements need to be provided to employees.
Only employees make the contributions.
Employees’ contributions might be eligible for the Saver’s Credit.
Employees are always 100% vested.

How Icon Makes a Payroll Deduction IRA Even Better

Icon leverages technology to administer our plan so we can offer flat, transparent pricing. We handle all employee onboarding, communication and investment management. We offer customer support in real-time and provide employers with a streamlined dashboard for the minimal tasks they need to perform and employees with an app for easy plan management.

No, You Don’t Need a 401k Calculator

Posted on May 20, 2022 by Laurie Rowley - Retirement Planning

Developing a plan to save for retirement can feel daunting. The idea is basic enough: set aside money each month or year, invest it, then use it once you retire. But how much you should set aside and where you should invest it and through which vehicle (e.g. IRA, 401k, etc.), to ensure you’ll have enough money in your golden years is complicated. And the answers change constantly depending on your financial and employment situations.

That’s why 401k calculators are functionally useless.

What is a 401k Calculator?

A 401k calculator is a tool that many financial institutions provide to show you how much you should be saving each month in order to reach a certain retirement goal. It usually takes into account basic inputs like:

Your age,
Your 401k balance (if any),
Annual income,
Percent contribution,
Employer matching,
Retirement age,
Average rate of return,
Investment fees as a percent. Note: they typically leave out administrative fees which can be substantial.

Then the calculator will spit out a combination of the following predictions:

Your monthly costs in retirement,
Your 401k balance when you retire,
How much of your monthly costs your 401k will cover, and sometimes
How much you’ll pay in fees over the course of your working life.

What a 401k Calculator Actually Shows You

You might look at the above list, and think, “That’s useful information.” And it is in the sense that it’ll give you a basic idea of what happens to your savings as you continue to contribute and invest it in the market, and just how far fees can erode your savings. But here’s the hard truth: a 401k calculator is only a snapshot of what your retirement savings journey looks like right now using a standardized set of assumptions.

For instance, you might live in a high cost of living state during retirement, in that case you might need more per month in living expenses than the calculator predicts. Conversely, you might own your home outright and have very low monthly expenses at retirement. It also doesn’t take into account any other investments you might make over the course of your working life or health issues you could develop that need managing. So the calculator’s predictions can only give you a vague, general idea of what your financial situation in retirement could, potentially, maybe look like if everything stayed exactly the same as it is right now.

We don’t have to tell you that this is an unrealistic expectation because, to quote the Greek philosopher, Heraclitus, “Change is the only constant in life.” As you earn raises, suffer unemployment, experience highs and lows in the market, change employers and your contribution percentage, change investment portfolios or perhaps roll your savings into a different savings vehicle, that original snapshot becomes outdated and therefore, irrelevant.

What’s Better than a 401k Calculator? Understanding How Compounding Affects Your Balance

The important thing to understand about saving for retirement is: the more you save (and the earlier you start), the more you earn in the market because of something called “compounding”. Compounding is what happens when the interest you earn on your principal contributions earns interest.The more frequently your money compounds, the faster it grows without any additional contributions.

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*

Another Important Thing to Understand: High Fees Erode Savings Quickly

Employer sponsored retirement savings plans are often subject to two types of fees: investment fees and administrative fees. Investment fees are what the financial institution charges for managing your portfolio of investments. The average investment fee ranges from 0.58% to 1.2% of the portfolio balance, depending on the type of fund you’re invested in.

In addition to investment fees, employers typically pass on the cost of managing the plan (i.e. administrative fees) to account holders. The administrative fees charged to individual account holders will depend on the employer, the financial institution investing the retirement plan, the company that’s actually managing the plan (this could be the employer, the financial institution or a third party), and the portfolio the savings account is invested in.

How Do I Make Sure I’m Saving Enough?

There are a few different philosophies out there and each espouses a different ideal budget percent allocation. What some people do is, take your total monthly take-home pay for your household (for 1099 employees, this is your gross pay net of taxes, for W-2 employees, this is your paycheck), and allocate the money accordingly:

70% for expenditures (needs + wants)
20% for saving (retirement savings and saving for big purchases like a house)
10% for your emergency fund (for unexpected crises like unemployment or a medical emergency), debt repayment or donations

This isn’t a hard and fast rule and your actual percentages will likely fluctuate depending on your current circumstances. But aiming to save some of your income is a good way to build financial health and ensure that you’ll not only be taken care of in retirement, but in a crisis as well.

Why Don’t 81 Million Americans Have A Retirement Plan?

Posted on March 30, 2022 by Laurie Rowley - Retirement Benefits

The retirement industry is complicated, outdated, and serves a workforce that no longer exists. Originally created to replace the pension system, the 401k was intended to provide employees who worked for the same company, for the majority of their career, a way to save for retirement.

But, in the forty-plus years since 401k plans were created, the workforce has changed in dramatic ways. Today, people are mobile and will have an average of 12 jobs throughout their career. Many companies are also making a strategic shift toward keeping their workforce independent contractors as a way to keep costs down. These shifts in the workforce require a parallel shift in how people access retirement plans.

Or else we’ll all pay the price.

The Harrowing Stats

Almost 36% of Americans have never had a retirement account. Not because they don’t want one, but because most of them don’t have access to a workplace retirement plan (e.g., a 401k). This problem is going to get worse as more and more people choose to work for themselves and/or become independent contractors. In fact, 86.5 million workers are predicted to be self-employed by 2027 (Statista). None of whom is eligible to contribute to a 401k.
In 2020 there were 147.79 million people employed in the U.S. and only 60 million of those participated in a 401k. That’s 40% of the workforce.
About 50% of women and 47% of men aged 55 to 66 have no personal retirement savings.
Only 22% of women have $100,000 in savings or more, which is worrisome when healthcare alone is expected to cost the average 65 year old $300,000 in retirement.
The annual contribution limit for an IRA (the only type of retirement savings vehicle available to everyone, regardless of their type of employment) is $6,000 (an additional $1,000 is allowed for those age 55 and older). Compare this to the $20,500 limit for 401ks for 2022 (with a $6,500 catch-up allowed for 55 older), and you see that even if these workers open their own retirement savings account, it’s difficult for them to save the amount they’ll need for retirement.

The current system that relies on 401ks as the preferred vehicle for retirement savings isn’t working.

What Makes 401ks Outdated for the Modern Workforce?

Lack of portability. The 401k is set up and sponsored by the employer, which means once someone leaves the company, they’re no longer eligible to contribute to their plan. They must either roll their previous employer’s plan into a new one (which could be costly, if it’s even allowed), manage multiple plans, abandon the account, or cash out.

Today, people spend between 2 and 8 years at a job , which means that 15 million people change jobs each year. That’s 15 million people who are forced to make potentially damaging decisions about their financial future because of the way the 401k is structured.

Unfair eligibility leaves a lot of people out. The 401k system is restrictive when it comes to who is qualified to participate. Typically, to “qualify” for a 401k, you must be a full-time employee who has worked for your employer for a certain time period. If you’re a part-time employee you’re only eligible to participate if you book between 500 and 999 hours with your employer over a consecutive two-year period. If you’re an independent contractor, you’re not eligible at all. Even if you work 40 hours a week or more for the company.

If you’re an employer, surprise, you’re a fiduciary. Over the past decade, several high-profile lawsuits have brought an increased level of attention to employer’s legal responsibilities in offering 401k plans. This is because employers become fiduciaries when they sponsor plans. They are responsible for ensuring the plans are fair, managed in the best interests of plan participants and in compliance with ERISA guidelines. Even if the 401k provider takes on some fiduciary responsibilities, the employer always remains a fiduciary, as well.

Due to these liabilities, risks, and costs, many employers would like to remove themselves from the responsibility of being a fiduciary to their employees’ retirement savings.

Antiquated technology. Much of the technology the 401k industry uses is shockingly outdated. This is worrisome. These behemoth systems create massive inefficiencies that result in high fees that are passed on to plan participants, which erodes their life savings. In addition, outdated technology makes the process of saving cumbersome and out-of-step with other consumer experiences. Today’s customers expect products to be easy to use, accessible, personalized, and fairly priced.

Fees, fees, and more fees. Today, high fees are costing people billions of dollars in lost savings. This is especially true for those who work for small to medium companies. Sadly, smaller companies pay much higher 401k fees because they don’t have the negotiating leverage of larger companies.

The Solution is Portable Retirement.

The last decade has brought rapid innovation to banking, payment processing, and systems integration. These new technologies provide the components required to build an alternative retirement savings architecture that serves the needs of the evolving workforce.

Beyond technology, there are other design and product features required for a modern retirement savings plan including: low (transparent) fees, high quality funds, universal accessibility, holistic financial education, and support with personal finances.

Icon. The modern retirement plan.

Built by industry experts in behavioral finance, technology, and design thinking, Icon is an entirely new approach.

Icon eliminates the regulations, costs, and risks for employers, and completely redefines the employer’s role. Icon is the simplest way to offer a retirement plan.

It gives people the freedom and flexibility to save in a low-cost, easy-to-use, tax-deferred savings plan. And, unlike a 401k plan, there are no limits on who can use it. Everyone qualifies: full-time, part-time, independent contractors, gig workers.

And for the millions who work for themselves, Icon can help them achieve financial security through a structured, self-directed, and flexible retirement savings plan.

The Easiest Way to Offer a Retirement Plan

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

If you’re reading this article it’s probably because you’ve tried to offer a 401k retirement plan and found it to be complicated, confusing, and expensive. With a payroll IRA, small and medium businesses now have an easy way to offer their employees a retirement savings plan without the cost, risk, and complexity of a 401k. No matter what your setup, whether you have all W2 employees, all 1099 workers or a mixture of both, a payroll IRA is the easiest way to offer the people on your payroll a retirement savings plan.

Payroll IRAs are Easy to Set-up and Administer

With a payroll IRA, employers get a “plug-and-play” retirement benefits solution that’s low cost, low risk and, because of its utilization of new technology, incredibly easy to use for employees and employers alike. Icon is a full service, payroll IRA with live customer support, employer and employee onboarding, employee communication, and an easy-to-use dashboard.

With Icon, employers complete minimal paperwork for initial plan set-up and then you send us your payroll information and we take care of the rest. This includes:

Employee onboarding and education,
Communication with your payroll service,
Plan management, and
Employee removal upon departure from the company.

Once you’ve activated your plan, your employees choose whether or not they want to participate and how much they want to contribute (up to the annual maximum). The only thing you have to do as the employer is approve employees’ contribution amounts.

Payroll IRAs Solve 3 Big Benefits Problems for Employers

First, a payroll IRA satisfies the need to offer all employees a retirement benefit. There’s no need to distinguish between different employee classes or to figure out vesting schedules, because all employees are eligible to participate in a payroll IRA and they’re immediately 100% vested.

Second, it allows employers to offer a retirement benefit without the cost and risk of carrying a 401k plan. With Icon’s payroll deduction IRA, we maintain the fiduciary liability of managing the plan, there are no annual reporting requirements, and no ERISA or nondiscrimination rules to worry about. Icon charges a flat monthly fee based on your company size. Icon is so much more affordable than a 401k plan because we leverage new technology to keep our costs down. The 401k industry is still very paper-intensive and requires a lot of manual plan management, so they tend to charge employers and employees a lot more for their services.

Third, employers have more flexibility in terms of how you reward employees for saving. Instead of a complicated formula used in 401k plans, you can have full discretion on what you give your employees (if anything) through a financial wellness bonus.

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.

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.