Tag: Small business

Small Business 401k Provider Alternatives: The Future of Retirement with PRPs

Posted on October 11, 2024 by - Retirement Benefits

As a small business owner, you want to take care of your employees, grow your company, and stay ahead of the competition. But let’s face it: the 401k, especially for small businesses, is outdated. It’s expensive, complicated, and designed for a corporate world that no longer exists. It’s time to rethink retirement benefits, and that’s why the Portable Retirement Plan (PRP) was created. It’s the solution built for the future.

Why the 401k Fails Small Businesses

Here’s the truth: 401k plans were not designed for small businesses. They were created for massive corporations that have the resources to manage the legal hoops, compliance testing, and fiduciary risks. Most small business owners simply don’t have the time, money, or bandwidth to deal with the complexities that come with offering a 401k.

Here’s why small businesses struggle with 401ks:

  • High Costs: From administrative fees to compliance and investment management costs, a 401k plan is expensive to maintain. For small businesses, these fees can eat up precious resources.
  • Complex Regulations: 401k plans require adherence to strict IRS and Department of Labor regulations. This includes annual compliance testing to ensure fairness across all employees. Navigating these regulations is time-consuming and a headache for small business owners.
  • Fiduciary Responsibility: Offering a 401k means you are legally responsible for your employees’ retirement funds. Even if you work with a provider, some fiduciary duties remain on your shoulders, exposing you to potential legal risks.
  • Limited Flexibility: Small businesses tend to have a mobile workforce with high turnover. Traditional 401k plans don’t offer the flexibility needed for employees who frequently switch jobs, and the rollover process can be a hassle.

Safe Harbor 401k Plans: A False Safety Net

Many small businesses turn to Safe Harbor 401k plans because they automatically pass IRS non-discrimination testing, ensuring the plan benefits all employees, not just the top earners. In fact, 70% of SMBs choose Safe Harbor plans to avoid failing compliance tests.

But here’s the catch: Safe Harbor plans require mandatory matching contributions for all employees, regardless of whether your business can afford it. These contributions typically range from 3-4% of each employee’s salary. So, while Safe Harbor plans save you from compliance headaches, they can significantly increase costs, especially as your business grows.

For a small business, that mandatory match can put a serious strain on resources. The more employees you have contributing, the higher the cost burden on your business.

The PRP: The Game-Changer for Small Businesses

This is where the Portable Retirement Plan (PRP) comes in. It’s a modern, flexible, and affordable alternative to the traditional 401k. Here’s why it works for small businesses:

  • Lower Costs: Forget the surprise fees that come with a 401k. PRPs offer predictable, lower costs with simple, flat fees—whether monthly or annually. You’ll never be blindsided by hidden charges or required matching contributions.
  • Simplicity: PRPs remove the administrative burden that comes with 401ks. There’s no need for annual compliance testing, and no complicated IRS regulations to navigate. It’s built for ease of management.
  • No Fiduciary Risk: One of the best things about a PRP is that it eliminates fiduciary responsibility for the employer. When you work with a provider like Icon, they assume fiduciary duties on behalf of your employees, saving you from legal risks and the need for costly fiduciary insurance.
  • Portability for Employees: PRPs address one of the biggest flaws in the 401k—the portability problem. Employees can take their retirement savings with them wherever they go, without needing to roll over accounts.

Why PRPs are the Future

The PRP isn’t just an incremental improvement. It’s a breakthrough. This is what the 401k should have been—a flexible, affordable, and portable retirement solution for the modern workforce. And now, it’s available to every small business, not just the big guys.

By embracing the PRP, you’re not just offering your employees a retirement plan—you’re providing them with a future. And you’re doing it without sacrificing your time, money, or peace of mind.

So, ask yourself: Do you want to keep using the same outdated tools that hold your business back, or do you want to be part of the future of retirement planning?

Secure Your Employees’ Retirement with Icon: The Easy and Affordable Retirement Plan Solution for Small Businesses

Posted on September 21, 2023 by - Retirement Benefits

Are you worried about retirement savings? You’re not alone. According to a recent study by the Employee Benefit Research Institute (EBRI), only 52% of workers are confident they’ll have enough money for retirement. But there’s good news – offering a retirement plan to your employees can help.

At Icon, we understand that offering a retirement plan can be a daunting task for small business owners. That’s why we’ve created a solution that’s easy to set up, affordable, and designed specifically for businesses like yours. Our Icon Portable Retirement Plan (PRP) is the perfect choice for small and medium-sized businesses looking to offer a retirement plan.

Our plan is fully automated and can be set up in just 5 minutes. We take care of the regulatory complexity and fiduciary burden that comes with traditional retirement plans. And best of all, our plan is a turnkey solution for you and your employees at a fraction of the cost of a 401k plan. With the Icon PRP, you can offer your employees a retirement plan that’s easy to manage and cost-effective.

But why offer a retirement plan in the first place? The EBRI study found that workers who have access to a retirement plan are more likely to save for retirement. In fact, 87% of workers who have access to a plan participate in it, compared to just 44% of workers who don’t have access. And workers who participate in a plan are more confident about their retirement savings – 72% of participants are confident, compared to just 42% of non-participants.

Offering a retirement plan can also help you attract and retain top talent. The EBRI study found that retirement savings is the most wanted benefit after healthcare. By offering a plan, you can show your employees that you care about their financial well-being and help them save for their future.

The Icon PRP is designed specifically for small and medium-sized businesses. It’s easy to set up and manage, and it’s a cost-effective solution that helps you attract and retain top talent. 

Schedule a call with us today to learn more about how we can help you offer a retirement plan that works for you and your employees. We’re here to help you achieve your business goals and ensure a brighter future for your team.

Finding the Best Retirement Plan for Your Small Business

Posted on December 14, 2021 by - 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:

  1. 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.
  2. All companies must still maintain compliance with ERISA rules.
  3. 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.