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[00:00:00] Dr. Sharp: Hello, everyone. Welcome to The Testing Psychologist podcast, the podcast where we talk all about the business and practice of psychological and neuropsychological assessment. I’m your host, Dr. Jeremy Sharp, licensed psychologist, group practice owner, and private practice coach.

This episode is brought to you by PAR.

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[00:01:00] Hello folks. We are back today and we are talking about retirement planning.

Retirement planning is something that can be intimidating, something you might want to avoid, something that causes you a lot of stress, but my guest is here to help us.

Courtenay Shipley is the founder and Chief Planologist of Retirement Planology, a consulting and registered investment advisory firm for corporate-sponsored retirement plans. With a wealth of experience in the retirement plan industry, Courtenay not only offers her clients expertise in investment analysis, plan design, and employee education but also helps them leverage their employee benefits in a way that supports their own business goals.

She’s worked with qualified retirement plans, developed strategies for third-party administrators, and conducted over 10,000 educational meetings.

Courtenay holds various designations including [00:02:00] Accredited Investment Fiduciary™, Chartered Retirement Plan Specialist, Certified Plan Fiduciary Advisor, and Certified Exit Planning Advisor. She is also the esteemed president of the Retirement Advisor Council, and her outstanding contributions have earned her accolades such as Top Women Advisor, NAPA Young Gun, and FT Top 401 Advisor. So Courtnay knows a lot about retirement planning.

These are just a few things that we talked about in our conversation. We talk about the benefits of offering retirement plans for yourself or your employees. We talk about the different options depending on your stage of practice development, whether that’s solo, medium, or large group practices. We talk about all the professionals who might play a role in your retirement planning and we touch on how retirement options are a DEI issue these days, along with many other things. So [00:03:00] if this is something that you have wrestled with or feel confused about or want some guidance on, this is your episode.

If you are a practice owner and you would like some support on the business side of things, I will likely have 1 or 2 individual consulting spots open starting in April 2024. If that sounds interesting to you, then you can go to thetestingpsychologist.com/consulting and schedule a pre-consulting call to see if it’s a good fit.

All right y’all, let’s talk about retirement planning with Courtenay Shipley.

Courtenay. Hey, welcome to the podcast.

Courtenay: Hey, thanks so much for having me. I’m excited to be here.

Dr. Sharp: Good. I’m excited to chat with [00:04:00] you. Like we were saying ahead of time, I don’t know if everyone gets excited about talking about retirement plans and financial planning, but I am one of those people who does. So I am really glad that you’re here. Thanks. 

Courtenay: All right.

Dr. Sharp: I’ll start with the same place that I start with everybody, which is this question of why spend your life with retirement planning? Of all the things, what pulled you to this area?

Courtenay: Well, I fell into it, believe it or not, after school and I just think there’s something so fun about being able to help people have the luxury of deciding how they spend their time later in life. I think it’s something that’s important. I don’t think that Social Security supports everybody. Most people need more to live on than that. And so helping people make smart decisions about their money and where it’s going to go in the future is a super fun thing for me.

Dr. Sharp: Yeah. I like the way that you phrased that, giving people a little bit more freedom about how [00:05:00] they live their life after work.

Courtenay: Yeah.

Dr. Sharp: It’s really cool. I’m always curious what pulls people to different fields. Are you a math person? Did you love math? Is it something else? I’m so curious what aspect of it is attractive to you.

Courtenay: I’m a problem solver, I would say. Actually, my degree is in music performance. So there’s a bit of math that’s involved in that, believe it or not, and the analysis that goes with it too. But this was a job that I got after college and I was surprised at how much I enjoyed it.

You can control your money or your money can control you. And so I feel like it’s a really important subject to dive into no matter if that’s your profession or not. I thought it was really fun and it was a good way to help educate people who had not necessarily heard the story of what retirement could mean, how to save, or how to invest from [00:06:00] quite frankly, somebody that looks like me or had my background.

Dr. Sharp: I think that’s important. I think we’ll probably dig into more of that as we go along here, but I like to set that stage.

Well, before we get into the financial stuff, I have to ask what the music performance was about. Were you a singer or do you play an instrument or what? I played an instrument. That’s why I’m asking. I’m very…

Courtenay: It was a Trumpet performance. 

Dr. Sharp: Oh, okay. A fellow brass section member. I was a euphonium player

Courtenay: Oh my goodness.

Dr. Sharp: if that means anything. Nobody knows what those are. So the fact that you might recognize that as very validating.

Courtenay: Can’t have a brass band without one.

Dr. Sharp: Hey, thank you. That’s the right answer.

Courtenay: Yeah.

Dr. Sharp: All right. Let’s dive into all this. There’s a lot that we can talk about obviously with retirement planning, but maybe we start with the WHY. Why are we even having this conversation? Why [00:07:00] is this important for business owners whatever size we might be? Let’s start there.

Courtenay: From the business owner’s standpoint, there are two things they need to be thinking about.

One is how are you going to make your paycheck later in life if you’re not working at your business or you’ve sold your business? What happens next? How do we recreate that paycheck if we’re not going to be showing up at work anymore? And then that carries over to the employees as well.

One of the benefits that employees have come to expect from employers is the ability to save for their retirement, the 401(k) plan and the 403(b) plan, are the most common ways that people are saving for retirement today. And statistically speaking, if we look at the American Retirement Association, they’ll point and say that a person is 12 or 13 times more likely to save for retirement if it is provided by their employer. So it’s an important benefit. It’s [00:08:00] good for attraction for hiring people. It’s good for retaining them over a long period. So there are lots of benefits to the business owner, including some nice tax perks too.

Dr. Sharp: Yeah. I look forward to getting into all the details with this, but just setting the stage because I know there are some folks out there who are like, I did not know that I need to be saving for retirement as a business owner. That’s one of those things that we can easily overlook going from a structured job or a job at a hospital or university or whatever it might be into private practice. It’s like you have to pay your taxes. You also have to account for your retirement now. It can be complicated at whatever stage you’re at. Nice.

Courtenay: That is true.

Dr. Sharp: We know it’s important. If you don’t do it, nobody else is going to do it for you. Let’s start to talk about the [00:09:00] different options. When we chatted earlier about the recording, you called it the retirement suite, which I liked. So maybe explain what you mean by the suite of retirement options.

Courtenay: Well, several different types of plans are available for a smaller medium-sized business, let’s say under 100 employees. You start with maybe your state has a mandate. Maybe they have a state IRA plan already set up that you could use. So that’s option one.

Next would be looking at a SEP-IRA or A SIMPLE IRA. The SEP-IRA tends to be good for small employers or family-owned businesses, or like, where it’s a husband and wife situation or something like that because you’ve gotta give everybody the same amount in their retirement account no matter what.

Moving into the SIMPLE IRA, [00:10:00] it’s still simple, very simple administration, and it is an IRA and individually owned retirement account. The way that it works is that you can contribute up to I believe it’s $17,000 for next year, right?

Dr. Sharp: Huh-hmm.

Courtenay: I’m sorry. $16,000 for 2024. The employer has to put either a match or a non-elective contribution in to have the SIMPLE IRA. So you can either give everybody 2% of their pay into it or you can match them up to 3% in order to be able to save that $16,000.

After that, you move up into the 401(k) space. Listen, I’ve graduated. 401(k) is looked at more like a trust. So it’s got a tax ID that goes with it. It’s like its own little bundled thing, but everybody has their own individual account inside it, but it’s sponsored by the workplace. So it’s a little different than an IRA. You’re not going and setting up your own account on your [00:11:00] own and some financial institution.

The record keeper is chosen for you. The investment menu is chosen for you. Your employees and the business owner can put up to $23,000 away for retirement unless they’re turning age 50 years old, and then they can put up to $30,500 in 2024. So it’s like the one that you can put the most away.

On top of that, if the business owner wants to, they can also do a matching contribution or some additional money they put in the plan. And then they can do what’s called profit sharing. So maybe you get to the end of the year, you want to reward everybody. You’d like the tax benefit of it going into your retirement plan so that the business gets a tax benefit from it, rather than giving everybody cash, you could do it through the retirement plan.

So those are a suite of options, and there’s probably a right answer or a better answer for your business [00:12:00] once you’ve worked through all the available options.

Dr. Sharp: Yeah. I can personally say that we’ve moved through, or I’ve moved through three of the options that you listed

Courtenay: All right. 

Dr. Sharp:  at different stages of the practice depending on what was going on being solo or smaller or larger, whatever it may be. Maybe we tackle it that way in terms of how we even make these decisions, right? So we have all these options. I’m guessing people are like, wow, that’s overwhelming. I have no idea why I would do one or the other. So, what’s the rubric for even deciding what makes sense?

Courtenay: I would say the first thing you have to think about is, what are your employees expecting when they come to work for you? Are they coming from a big hospital system? Are they coming from, like you mentioned before, or something like that where they’re used to seeing a 401(k) or being able to save to that pretty high max amount?

The other thing [00:13:00] to be looking at is, what kind of flexibility do you need as a business owner? Can you afford the matching or the non-elective contribution I mentioned? And if so, maybe the SIMPLE IRA is a place to start and then you figure out what you want to do after that.

Or if you’re aiming to put away some extra money for yourself as the business owner, then your best option is going to be the 401(k) because that’s going to give you the higher limits that you can put away for yourself on top of not only what you’re contributing, but the company can put extra in for you.

I think those are some of the things you start thinking about when you look at the different plans. I think you also partner with your accountant and you say, what’s going to be the most tax efficient thing for me to do here, what’s going to benefit me as the owner, and what will also benefit my employees as a result, because I think your accountant is probably going to be a really good place to start with.

Here’s what seems to make sense from what we’re looking at from a number standpoint. They’ll also be able to advise on how much of a tax credit you’ll get because if you start a brand new retirement plan, they [00:14:00] are now offering a tax credit up to $5,000. And I said, credit. Not deduction. This is a new thing. This just went into effect this year. Tax credits are very valuable. And if you don’t have a retirement plan in place for your business, then you have access to that now.

Dr. Sharp: Yeah, I did not know about that. That’s great.  Let’s take a quick little detour since you mentioned the accountant just to help define for folks what each person does. There are several people who might be involved in this process, right? So, a financial planner versus an accountant versus a financial advisor versus a bookkeeper. Who else is in the mix? 

Courtenay: I think your accountant is probably the place to start. They’re going to be looking at your taxes, your tax return, your tax efficiency, and all of those things. They can make a recommendation. Ours did this year, for example. They’re like, Oh, well, you’ve got this and you could do it this [00:15:00] way, and this would play out better for you from a number standpoint. So that’s excellent and very valuable input.

Your bookkeeper might be able to also suggest some of that, but I don’t see it coming from them as often because they’re the ones keeping track of all the entries in your finances and put their categories correctly and your books are clean, and all of that.

The next is you mentioned a financial advisor. If you have a really small business, if you have like 5 employees or less, they’re probably a great place to start as well because you probably don’t want something very complicated. Most financial advisors can certainly accommodate a small retirement plan and we’ll be able to give you the ins and outs of the differences between them and help you walk through that process.

If you have, I’d say 10 or more employees and you’re starting to think about your accountant whispering in your ear about profit sharing or some of the maximums that hitting [00:16:00] the $69,000, for example, in 2024 for what you can completely max out a 401(k) with, then that’s when you want to start talking to somebody more of a specialist who works with corporate-sponsored retirement plans.

And that’s only because if your business is growing, you’re making decisions today about your cashflow and where things are going, but you also need somebody who’s going to tell you what that feels like at the next stage of your business, and someone who’s going to be looking out for what happens as your business grows and changes, what happens to the retirement plan because we don’t want an albatross. We want something that adds value to the business, but still allows you the flexibility to do what you need to do with cash flow. So having someone like our firm, quite frankly, looking over your shoulder and being that trusted advisor is very helpful.

Dr. Sharp: Yeah. I always say, there’s no shame in asking for help, especially with financial stuff. These are relatively complicated decisions and even [00:17:00] your description so far, which has been super simple and straightforward, it’s easy to get lost in nuances and the limits and employees versus not employees. There’s a lot to keep track of. That’s not our job or what we’re supposed to be doing or what we’re trained to do. So, totally okay to get some help.

I wanted to talk a little bit about, I know that you y’all focus a lot on the medium-to-large size businesses, the employees, and so forth. And I don’t want to leave solo practitioners out in the shadows. So, maybe we spend a little bit of time there. What does it look like as a solo practitioner? What you’d be considering from a retirement planning standpoint.

Courtenay: If you were a solo practitioner, you’re probably making the decision between a SEP-IRA and [00:18:00] a solo 401(k). Again, your accountant is going to be the one that tells you because they’ve got some different rules. So which one’s going to look better or does it even matter?

If it’s just you, the easiest thing to do is the IRA because it’s super easy. There’s no tax filing that goes with it. It just gets reported on your taxes. It’s personal. Whereas the 401(k) plan, there’s a little bit more from an administrative standpoint that goes into it. So there’s a few more costs, but that’s where you should probably be starting as a solo practitioner. Just keep in mind when you hire your first employee, you will probably have to cover them as well. So be careful with that. But that’s a great place to start.

Dr. Sharp: That’s great to hear. I can totally validate that. I started with a SEP-IRA and had to go through that process of finding a different option once I started to hire folks. Maybe some practice owners can do this, but it seems rare that [00:19:00] going from solo to an employer to you can match your employees the same as what you’re contributing to your own retirement, so I think that’s an important point.

And just to be super clear with the difference between the SEP-IRA and Solo 401(k), is it just the contribution limits as far as advantages where the Solo 401(k) would have higher contribution limits if you have more money to put into retirement?

Courtenay: Yeah, more than likely. That’s going to be the main difference.

Dr. Sharp: Okay. That makes sense. As we move through to more midsize groups or larger groups, do you advise differently for each of those tiers?

Courtenay: Yeah, typically we’re having the… If someone’s starting a plan for the first time, we’re having conversations about the SIMPLE IRA or the 401(k) plan. Full disclosure. We don’t do the SIMPLE IRA [00:20:00] but it’s often a very good option because there’s not a lot of administration that goes with it.

Once you get into 401(k) land, you are a fiduciary to the plan. You are responsible for selecting and monitoring those investment options and making sure that the tax filing gets filed on time. And that’s where you really need the help of other people because you don’t want to have all of those things on your to do list if you can help it, right? You’d like a little assistance with it, but the SIMPLE IRA can be a great place to start if someone’s not trying to save more than whatever the maximum limit is that year versus what the 401(k) provides. So, that’s the typical conversation we’re having there.

And for many smaller employers, they just stay there. They just Keep that SIMPLE going and it’s fine. Others will graduate. They want to do something different or they have people who are now asking, I’d really like to max out like I can in a 401(k) plan. I want to put the higher maximum [00:21:00] away for my retirement.

Or you’re trying to do something different than the 2% that the SIMPLE requires or the 3% match. Like you want to do a 5% match or you want to do profit sharing or things like that. That’s when you start having to move into the 401(k) space. So, for a lot of employers, that SIMPLE IRA is a really good option because it does not require as much red tape.

Dr. Sharp: That’s always nice. Simple is good. I’m curious what your distinction is when we talk about medium versus larger practices. You threw out the number less than 100 employees. I’d say that would probably eliminate 99.9% of mental health practice owners. What are you thinking when you say mid-size or large practices?

Courtenay: For our purposes today, I would say, anything that you’re getting over 10 or 15 employees or you’re looking to grow more than [00:22:00] that. That puts you in that space where the 401(k) starts to really make sense, but sometimes the SIMPLE IRA is still a good option.

But once you’re in that territory, that’s really when you need to have somebody looking over your shoulder; a good advisor that you’re working with because that’s when the decisions start to be a little more complicated. Know when do you bring on more people and what kind of benefits do you reward them with? Again, it comes back to you. What are you trying to attract and retain from a talent standpoint?

Dr. Sharp: Yeah. Let’s spin off into that for a second because I think that’s important. The WHY behind the retirement plan. You mentioned it being attractive to employees. Are there other benefits that we should highlight for offering retirement options?

Courtenay: Well, I think that when most business owners are to the point where they are hiring employees, and maybe those [00:23:00] employees need benefits, the first place that they start is with health insurance, which is probably a very good idea. That’s what a lot of people care about. I would say they moved from that into more voluntary benefits like disability and life insurance.

And then the 3rd stop is the retirement plan and part of the conversation is going to be, how are you doing your compensation planning? That’s not my area of expertise, but an outsourced HR person would be a good person to bounce those ideas off of because when you start thinking about compensation with benefits versus without, there’s different value that goes with that there.

The retirement plan usually comes at a point where the business is profitable, you’re feeling good about the direction of the cash flow, and you are willing to give your employees a little bit of a raise if you want to think of it that way.

[00:24:00] Dr. Sharp: 100%. Yeah. I’m glad you framed it that way. I think people in my experience jump to offering benefits quickly, sometimes, more quickly than they should from a profitability standpoint. It’s all money that you’re contributing to employees. So if you’re doing a 3% match, it’s essentially like giving them a 3% raise. They just can’t access it for years. 

Courtenay: Yeah, but I do want to point out that 3% is not a lot.

Dr. Sharp: It’s not a lot.

Courtenay: When you do the math, it’s not a lot. It sounds like a lot. You’re like, Oh, a 3% raise. It’s not a lot of money. So that’s again, where the accountant comes in to help you look at it like, okay, here’s your payroll number, and here’s what 3% of it is. And it’s not that much more or giving you some different ideas about what you could spend versus what’s going to break the bank.

Dr. Sharp: Yeah. That’s such a good point. So you mentioned there are tax benefits for the [00:25:00] practice as well. I know you’re not an accountant and I’m still going to ask you to give some rudimentary explanation. Why is there a tax benefit to us as practice owners to contribute to a retirement?

Courtenay: Sure. So there’s a couple of different ways to look at it. One from the practice, any money that you’re spending on benefits, and then you’re putting it in as an employer contribution into the retirement plan, that’s going to go in there pre-tax. So, it lowers what you’re going to have to pay in taxes.

The other thing is, as the owner, you’re probably in some sort of business structure like an LLC or an S Corp where it’s a pass through. So all the income is eventually going to be make it to your own tax return. In that case, again, I’m not an accountant. I don’t play one on TV. We do not render legal or tax advice. But when you are able to sock away $23,000 let’s say free tax, that lowers [00:26:00] your taxable income. And that’s the same for your employees too. They’re excited to put money away that they don’t have to pay taxes on and hopefully pay lower taxes at the end of the year. So that’s a nice advantage when it comes to controlling today’s tax bill.

A lot of times you’ll hear from an accountant, well, you can either pay yourself or pay the government. That’s maybe true, maybe not, depending on the situation, but it is something to consider. You also are able to put money away as an after-tax or Roth benefit.

Not to get too far into the weeds here, but if you’re paying taxes on it today, then you don’t have to pay taxes on it in the future. So if you’re at the lowest tax bracket, you’ll be at for a while because your business hasn’t taken off yet, and it’s not as profitable as it could be, you might take advantage of that in the short term and then switch over to doing the pre-tax contributions later when your business is profitable, and you’re trying to lower [00:27:00] your taxable income, or trying to lower the overall income of the business.

Dr. Sharp: Yeah, that makes sense. Is it an oversimplification or maybe plain wrong to think about getting super concrete with it and saying, hey, if you put away $20,000 to a retirement account that’ll essentially save you whatever tax bracket you’re in, let’s say 25% on your taxes, like, will that save you $5,000 on your taxes? Am I thinking about that the right way or am I off?

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Courtenay: You are thinking about it the right way. I just can’t quote you what those numbers are. But you’re exactly right. That’s why I always defer to talk to your accountant because they’ve got all the numbers in front of them. They can tell you what it means to you, but you’re exactly right.

Dr. Sharp: Yeah. I think in saying that I’m just trying to… I’ve gotten confused. I think people get confused around what’s a tax credit versus a tax deduction or whatever, and so just making… It so it’s not like you get a [00:30:00] credit of $20,000 for contributing to retirement, but it does lower your tax burden by that.

Courtenay: That’s right.

Dr. Sharp: Cool. When we’re thinking about the reasons that you might offer retirement for your employees for those of us who have employees, you also mentioned there’s an element of equity involved here as well, a cultural awareness that goes into this. Can you talk about that a bit as well?

Courtenay: Yes. The statistics are not good around people of color and having access to retirement plans. Overall, about a little over half of America has access to a work-sponsored retirement plan. Congress has been working for years to try to increase that number. And it’s been hard to budge, but we’ve seen two things come through over the past two years, I would say.

One is that a lot of states are putting a [00:31:00] mandate in place now. So if you have a business, if you have a business over a certain amount of employees, you have to offer a retirement plan. Maybe that’s the state-run plan. Maybe it’s just setting up an IRA plan. Maybe it’s doing the full-fledged 401(k).

That and also this new tax credit that businesses get for starting the retirement plan, that’s going to go a long way in helping people get access to being able to save. And like I said before, they’re much more likely to save if they have a work-sponsored plan that’s made available to them, especially if you automatically enroll them in it. And by that, I mean, they can still opt out, but you’re nudging them in the right direction.

You’re making the default that they will save for retirement versus saying, hey, do you want to sign up for this? Can you fill out some paperwork and get it back to me? We’re using inertia the other way is to opt people in. So that is a new thing that’s come into play in the last two years with the SECURE 1.0 and SECURE 2.0, [00:32:00] the SECURE Act.

Dr. Sharp: Yeah, that’s great to hear. You mentioned the gap in access, I suppose, from folks of color to retirement plans, and one of the downstream effects, I suppose, is the wealth gap that we know exists with people of color. That’s a major issue as well. I don’t know. It’s important to highlight that yes, offering retirement plans is a great recruitment strategy and it’s a way to be an active ally and supporting marginalized groups in some form.

Courtenay: Yes, level the playing field. In a way, it also helps. You may not want to give away ownership of your business, but this is a way if you do a profit-sharing plan, you can think of as the extra contribution that your employees [00:33:00] are putting forth here and they’re getting rewarded for it. So it is a way to at least have everybody working towards the same goals of trying to make the business a profitable one, and also move through life, and have the luxury of deciding how we spend our time later.

Dr. Sharp: Right. It’s important. We’ve talked about profit sharing two times, and this is a term I think that gets thrown around out there. I don’t know that a lot of folks actually know how it works. Can you give a rundown? When you say profit sharing, what does that actually look like in real life?

Courtenay: Well, I’m going to speak more in terms of like the 401(k) plan and the side, the 401(k) plan, there’s basically 3 buckets of money. One is from the employee’s paycheck. So that’s your first limit that I talked about with the $23,000 that a person can decide they want to save in their own retirement account.

And then there’s the balance that’s left over before we hit the maximum, which is [00:34:00] $69,000 in 2024. That’s the most that can go into a retirement plan per person. So, the remaining balance can come from the employer and so the employer has the option to put money in as either a match or we call it a non-elective, but it’s kind of a gift. It’s like, thank you for working here. You now get 3% of your pay or something like that in the retirement plan. So they did not have to put money in to get matched in order to receive the contribution.

The 3rd piece is the profit sharing.

So don’t get too hung up on the labels, but the idea is that you could do all of the things I just talked about or you could do none of them or you could say, as the business owner, I want to wait until the end of the year. I want to see how my year goes. And then I want to make the decision about whether or not I distribute some money into the retirement plan for my employees.

And so that’s typically how we see this category of profit [00:35:00] sharing used is, let me get to the end of the year, let’s see how things look, and then let’s decide how much we’re going to contribute to everybody’s account. So that could be in like, oh, you know what? We’ve got extra $10,000. We’re going to have all 10 employees $1,000 in their account. It could be we’re going to give everybody a certain percentage of their pay.

And then there’s some other fancy things you can do which would integrate Social Security wage base. You can also look at people’s ages and their pay and determine benefits based on that with the profit sharing. So there’s a couple of more complicated strategies, it’s kind of graduate school for 401(k), if you will, that you can employ in order to meet certain goals.

Whenever we start designing a plan or working with a new client, our question is always, what do you want this retirement plan to do? And we’ve hit on two things, right? We’ve talked about giving back to your employees and making that part of your [00:36:00] company culture. We’ve talked about the tax benefit. Maybe the owner is looking for a better, more tax-efficient way to hold onto some of these profits and is willing to share some of their employees as a result. We’ve also talked about whether or not it could be discretionary or if they want to commit to making those contributions.

But there’s always a reason behind why you’re starting a plan and then what it’s supposed to do. And so from there, that’s when you branch out into some of these different ways of designing the plan that have an impact today on your budget but also will have an impact in the future. And that’s why, again, you want to have somebody who’s riding along to help you navigate not navigate those decisions.

That’s where we start when it comes to clients. And then from there, it’s how do we build the plan? Who’s eligible for it? When are they allowed in the plan? They vest. Do they own the employer contributions right away or over time? And that’s when you’ve a thousand more questions.

Dr. Sharp: Sure. [00:37:00] I’m going to pick one of those questions and ask you because it came up on a podcast this morning that I was listening to actually about retirement plans. So what do you think, or maybe what’s the industry standard for vesting versus immediate access? Is it typical for folks to have to work at a practice for a while before they’re eligible or more typical to offer the enrollment right off the bat?

Courtenay: Yep. Well, that’s going to depend on a lot of factors. Most commonly, we have a match of 100% up to 4%, I’ll explain why in a second, or a gift of 3% into everybody’s account. I would say from a vesting standpoint, it’s either going to be 100% immediately or you most commonly these days, we’re seeing vest over 3 to 5 years, more commonly, 3 years, [00:38:00] especially with profit sharing. Usually with profit sharing, you have to be employed on the last day of the year, and you have to have worked 1000 hours during the year to make sure that that person actually did give some good contributions to the business before they get the profit sharing.

Now, why the 100% up to 4% match, why the 3%, and why immediate vesting? There’s a thing with 401(k) plans that does not exist with the other ones that we’ve talked about so far, where you have to pass non-discrimination testing. The IRS has all these rules and regulations around 401(k) and 403(b) plans, 401(k) specifically, where you have to break out the people who are owners and considered highly compensated. That’s a moving target, the IRS names that every year, versus the rest of the employees, because what they don’t want is for the business owner to be padding their own account and no one else is using the plan. That doesn’t help anybody. So the IRS has these wickets in place to make sure that you can pass this [00:39:00] non-discrimination testing and that everybody’s getting an equal share or an equal opportunity when it comes to the plan.

The way to forego that is to just say, I’ll give everybody a match of dollar for dollar up to 4% of their pay and vest them right away. So it’s theirs if they leave tomorrow once it goes in or I’ll give everybody 3% of their pay and I’ll vest them immediately. So that’s why you will see that as the most common match out there these days and the most common vesting.

Having said that, there’s no right or wrong answer, right? It’s who are you trying to attract into your team. Are you trying to keep somebody there for a long term? Do you expect them to stay for a long time? Are you being really generous with your profit sharing or your contributions overall? And so you want to make sure that that person sticks around for a while? So there’s all kinds of different ways and different thought processes that go into how you set this up.

Now, on the eligibility, you usually want to make sure the [00:40:00] person’s hanging around for a while. I had one client where they could tell me without a doubt, they had 90-day eligibility and they knew if the person didn’t sign up for the 401(k) plan, that they weren’t going to be there very much longer, which is fascinating.

They chose three months because it aligned with the rest of their benefits. They didn’t have to track multiple dates. So they were keeping it simple, but it was really funny that it became this red flag if people didn’t sign up, they knew they weren’t going to stick it out very long, which is interesting.

But if you are working in an industry where there’s high turnover within a certain amount of time, or you just want to try somebody out, you’re not sure if they’re going to work or be a good employee, you may put a time limit on how long they have to wait before they get into the plan. The longest that you can do is up to a year. That’s what the IRS says.

Dr. Sharp: That’s super helpful. Thank you. I wanted to go back to something that you mentioned a bit ago [00:41:00] about how did you phrase it? Proactive opting in or versus giving them the choice or something like that.

Courtenay: We call that automatic enrollment.

Dr. Sharp: Automatic enrollment. Yes. Talk to me a little bit about that because that gets into how do you present retirement options to people and whether you want them to, I guess it gets into question, do you really want them to enroll? I mean, hopefully you do, but how do we approach all that?

Courtenay: Well, if you’re going to sponsor a plan, obviously you’re going to spend a lot of time and effort in getting it going. You want your employees to appreciate it. So a good communication strategy is super important. That’s one of the services that goes with our package. We want to make sure that your employees understand the plan, they appreciate the plan, and they’re using the plan.

In line with that, Congress says we want people to be automatically enrolled. And the reason [00:42:00] from a behavioral standpoint is that people will not sign up. It’s usually certain groups of folks who will not get around to signing up. If you think about it. If you want somebody not to do something, just make it hard to do.

Dr. Sharp: Great point.

Courtenay: So they’re trying to remove the friction and help people get on the right track in saving for retirement. And you also see generational issues here. Baby boomers, Gen X weren’t always so good about signing up for their 401k plan.

Now their kids, they have whipped into shape and said, you have to sign up for this when you get to your job. We see a lot of younger folks who show up and say, I’m supposed to sign up for my 401(k), my dad says so, which is very good. But because there’s that disparity and people move jobs so often and, Oh, I forgot to sign up. Oh, was there paperwork? What was I supposed to do? It’s just easier. And employees are looking to their employer more and more for direction on their financial life, it [00:43:00] turns out, so by opting them into the plan, you get them started on the right foot.

So, you may not want them to sign up because it is a budget. It’s a line item in your budget, right? But if you’re going to offer the plan, just be prepared for the worst case scenario. And then there’s no problem, right? 100% of your employees sign up. How much is it going to cost? Okay. Moving forward.

Dr. Sharp: Yeah. I like how you framed that. I was going to say the same thing. It’s almost, like don’t go to a restaurant if you’re not willing to tip. I mean, don’t offer the plan if you are not willing to get people signed up for it and budget for it. That’s not a vanity benefit or something, right? So this is cool.

And so I’m just getting super granular with this, but that’s how my brain works sometimes. So as far as automatically enrolling folks for this plan, how does that look from a hiring standpoint? Is it built into the paperwork or is there something that we would need to do on the back end with the retirement [00:44:00] plan portal? How does that work? 

Courtenay: This is one of those moments where you have to think about your operations. I don’t know who’s running your payroll for you if it’s going to be you, or if it’s going to be a payroll person, or if it’s somebody on the team, how that works. What you want is for your payroll to talk to your 401(k)record keeper, if at all possible, because it’s all the same data. You need the name, the address, the phone number, the date of birth, all that stuff. So it’s best to just type it in once and have it carry over to your providers.

So I would look very hard at any 401(k) vendor that your payroll provider has a setup integration with because that’s going to save a lot of time, energy, and agony at the end of the year when you have to round up all of the final numbers and report everything.

I think that’s what you asked.

Dr. Sharp: Yeah. Great job. [00:45:00] Nice. I always like to get into the practicalities and how does this actually happen.

I guess personal or selfish question. We have run into the issue, I’d say fairly frequently, I’ll ballpark it at like 50% of our employees enroll in our retirement plan but then don’t know what to pick, their options, for which funds to invest in, or what to do with the money. And then they come to us almost for guidance. That doesn’t feel okay. Do you run into that a lot? And if so, I’m curious how we might navigate that as practice owners.

Courtenay: Yeah, we run into it all the time. That’s part of our service offering as well is when you get that question, please send them to us because you as the owner do not want to be rendering investment advice. That’s not good. No, no, no, too much liability.

Everybody’s different and you don’t necessarily want them to [00:46:00] share the amount of information that we would get in order to give them the right guidance on that either, because we’ll be asking questions about the rest of their financial picture, what they’ve saved, have they saved any money, what their risk tolerance is like, what’s their experience with investing, all of those sorts of questions before we guide them into two different tracks that we usually set up in our plans.

We have the people who are, I’m all over it. Let me loose. I want to choose my own adventure. Then we have the other extreme, which is, Oh boy, just find somebody to do it for me. I don’t want to do this. Please invest it for me. Then there’s some in between as well. That’s typically what we’re seeing. 

Dr. Sharp: Okay. Well, that’s validating. Glad to know. Every time we get that question, I’m like, I am not the right person to do this. We should send you to a different place. 

Courtenay: The other thing is that there will be a default investment. So that’s one of the things that’s come about with the automatic enrollment. You have to have a place for the money to go. It shouldn’t [00:47:00] sit in cash. It should be invested some way somehow.

The Department of Labor has different get-out-of-jail-free cards if you will. If you choose one of the options that they’ve said is clear and good as a default investment, then you wouldn’t be held liable later if the employee comes back and says, Hey, I didn’t invest my money and it’s your fault.

So those default investments are really important, and there were a lot of the money lines up, it goes into those. And so it’s really important to be thoughtful about what that default investment is. You should look at who your employees are, what their life stage is, what the general demographic is, how much are they saving. Are they good savers? Are they not good savers? Are they very educated? Are they not educated when it comes to investing? And then there’s different ways of building those target date funds or the balance or the risk portfolios, things like that, that you can align pretty well with who you’re [00:48:00] hiring for. And then you know you’re getting them into a very good default situation if they pick nothing.

Dr. Sharp: If they pick nothing, right, which happens. We’ve had that happen a few times too.

Courtenay: Yes. And if you think of it from a behavioral standpoint, they’ll say, what am I supposed to do? They’re going to assume that because this is the default, that’s probably what they’re supposed to do.

Dr. Sharp: So true. As you talk through this, I’m just struck again by all the layers and there’s a lot to sort through as we’re putting these things in place. So that may be a nice segue to anything that would be helpful through this process: books, resources. I know y’all help with this process. I mean, anything. If people out there are like their wheels are turning, they’re like, I really want to learn more, get to a better place with this, where would you send them?

Courtenay: The first place would be our website is [00:49:00] retirementplanology.com/learnmore. That’s a place where you can start to dig into our website. We put out a lot of content. We have a section on the website that’s for people who have never set up a retirement plan before, so they can start thinking through their options. There are some good videos.

Surprisingly, the IRS website is very good. So, for the plans I mentioned today about the SEP-IRA and the SIMPLE IRA, it’s all out there. Step-by-step directions on how to set them up. So kudos to the IRS for redoing those sections. They are very approachable. So that’s another place they can go.

And then our blog or follow me on LinkedIn because I talk about retirement plans all the time.

Dr. Sharp: Fantastic. That sounds good. I know we’ve just scratched the surface with all this, but the hope is to get people used to the idea or start to get acquainted with the idea and then have plenty of resources to move in that direction.

I will say, [00:50:00] from personal experience, it’s nice. People in our practice seem to appreciate having retirement benefits. It was one of the things that people asked for when we surveyed them. It’s important.

Courtenay: That’s a great point. Ask your employees what kind of benefits they want. If they don’t say a retirement plan, but they do say something else, give it some thought.

Dr. Sharp: Yeah. Well, I really appreciate your time, Courtenay.

Courtenay: Thank you for having me on. I’m so glad to be here.

Dr. Sharp: It’s been fun. Like I said, retirement planning has the potential to be less fun but I feel like this was great.

Courtenay: Good.

Dr. Sharp: Straightforward, lots of good info, and pretty fun.

Courtenay: That’s the idea.

Dr. Sharp: Well, take care and thanks. I really appreciate it.

Courtenay: Thank you.

Dr. Sharp: All right, y’all. Thank you so much for tuning into this episode. Always grateful to have you here. I hope that you take away some information that you can implement in your [00:51:00] practice and in your life. Any resources that we mentioned during the episode will be listed in the show notes. So make sure to check those out.

If you like what you hear on the podcast, I would be so grateful if you left a review on iTunes, Spotify, or wherever you listen to your podcast.

If you’re a practice owner or aspiring practice owner, I’d invite you to check out The Testing Psychologist mastermind groups. I have mastermind groups at every stage of practice development: Beginner, Intermediate, and Advanced. We have homework. We have accountability. We have support. We have resources. These groups are amazing. We do a lot of work and a lot of connecting. If that sounds interesting to you, you can check out the details at thetestingpsychologist.com/consulting. You can sign up for a pre-group phone call and we will chat and figure out if a group could be a good fit for you. Thanks so much.

[00:51:12] The information contained in this podcast and on The Testing Psychologist website are intended for informational and educational purposes only. Nothing in this podcast or on the website is intended to be a substitute for professional, psychological, psychiatric, or medical advice, diagnosis, or treatment.

Please note that no doctor-patient relationship is formed here, and similarly, no supervisory or consultative relationship is formed between the host or guests of this podcast and listeners of this podcast. If you need the qualified advice of any mental health practitioner or medical provider, please seek one in your area. Similarly, if you[00:53:00] need supervision on clinical matters? Please find a supervisor with expertise that fits your needs.

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