 Welcome to this week's edition of Business in Hawaii. I'm Deilene Yanagida and we are broadcasting live from the ThinkTech studios in downtown Honolulu. If you want to tune in live, we are at www.thinktechhawaii.com and while there, please subscribe to our programs and get on our mailing list. The theme of Business in Hawaii is to share with you stories of local businesses by local people. Our guests share with us their journey to building successful businesses right here at home. And in the ThinkTech studio today is Shauna Christensen. Shauna is the retirement plan consultant with RBG, Retirement Benefit Group. Shauna, thank you so much for joining us. Thank you for having me. I have to admit that having you on the show is really exciting for me because of my passion for employee benefits. So if I could carry it away, just go ahead and take the conversation back. You can own it. Tell us a little bit about yourself, about RBG and then of course your passion. Thank you. I started in financial consulting, working with private wealth clients, those people who were in retirement and I quickly realized within about two to three years that I got defeated in my career working with these people because they hadn't saved enough. They were in their 60s, 65, even 70s. And I can't reverse time and get them to go back 30, 40 years to change their habits. So my natural progression went to how can I reach people early on? When they're in their 20s, they're 30s and 40s and the best place to reach those folks is in a retirement plan that's sponsored by a company. Now you can reach 20 people at a time, 30 people, 1,000 people and you can create good habits early on so that they're prepared for retirement. I think that that's probably one of the biggest challenges though, are convincing people that they want to save, right? And as business owners, we're wanting to be able to hire the talent that we need to make our businesses successful and at the same time we're competing for that talent and so we turn to employee benefits to sort of give us an edge on our competition and a lot of times that includes retirement benefits. A lot of working people now know that, hey, the competitive benefit packages offer some sort of retirement vehicle for me and so business owners are feeling that they need to include that. What are your thoughts about the trends? How do you see that moving or is it moving? Yeah, most employers do sponsor a 401K plan. Most of the larger employers. We see trends nationally actually where a lot of states are enforcing an auto-deduct IRA if an employer doesn't sponsor a 401K plan. That hasn't made its way here to Hawaii yet but certainly on the mainland that is forcing people to go, do I want a state-run IRA or do I want a 401K or some other type of employer-sponsored retirement plan. But I'm sure that's a similar trend here. Like you said, it's really hard to attract and retain and keep good talent so people do need to offer some sort of retirement. So I'd love for you to share with your viewers about perhaps I'm a new business owner and of course I'm going to have some employees and want to be able to offer that benefits package that will include a retirement vehicle. Tell me, walk me through the steps. What do I need to know or what do you need to know in order to get me going? You always want to know the goals. And we're assuming here the goal is to attract and retain talent. So figuring out what type of vehicle you want to offer to your employees is important. Most people just default to a 401K but there's three, four other types that you can choose as well. That might be a little less cumbersome. So it depends on how many employees do you have. What is your budget? Do you want it to be employee only deferral? Do you want it to be have a company match? Do you want to have a vesting schedule or not? Some of these types of plans are always 100% immediately vested. Some are employer funded only. And like a profit sharing plan you also have a SEP which is those to our employer funded only. So there's a lot of decisions other than just let's go with the 401K. Four enclaves are the most flexible but they also come with a lot of rules, regulations, and costs. Wow, OK. So you already threw out a whole bunch of options at me. And as a business owner why I really don't know. And when we talk about goals, I mean of course I'd like to offer great retirement benefits. But what's in it for me? What's in it for you is attracting and retaining talent. One of the main things employees say when they come, it's obvious you're going to have health care benefits. That's a very obvious one. But with unemployment rates where they are right now, you need to do more than that. 401K is another obvious one. There's other benefits and perks popping up like student loan repayment programs. So employers are getting more and more creative in the programs that they provide. 401K being a very obvious one. So I'm going to go to my retirement plan consultant. Thank you. And I am going to ask you, well, how do I get started? And by offering a 401K because somehow that's the buzzword or the marketing that is gone out that I should offer a 401K. Are there any tax incentives for me in doing so? Or are there any benefits for me? Yes, there's tax incentives for you. And there's tax incentives more importantly for your employees. If your employee base is going to be high earners, you want to have a 401K, so maybe they want to max out. And they also want to defer taxes in the current year. But another important consideration is for young people coming into the workforce, one feature that isn't broadly available in 401K plans is the Roth feature. And that is a very, very powerful tool for young people because what it does, it allows them to pay the taxes today when they're just starting out in their career, allow it to grow tax-free. And then when they take it out, they have a big tax-free bucket of money. But that is not communicated well to your young folks. The power of a Roth in a 401K plan. And I think it can be better communicated. Are you finding that communication is the reason why there's not a lot of awareness? Absolutely. Employees don't come in asking for a Roth. They don't know what a Roth is. Do you know what a Roth IRA is? Roth 401Ks only came out in the last six to 10 years. And it's not well communicated to people. The record keepers don't promote it. It might take an amendment to add it to your plan. So I think people can shy away from doing work on your plan unless you know how to get them to do what's in your best interest. And more importantly, your employee's best interest. How much will it cost me to start one up? To start a 401K? How many employees would you have? Say, I have just one or two. OK. It's about $2,500 on the administrative side. But then there's costs that your employees, so that's your cost as the business owner. There are tax incentives for starting a 401K plan. But then there's also costs that the employees bear, which is important to understand as well. So if I offer a 401K plan to my employees, there's a cost to them. It's not just a retirement plan that I offer to them? No, there's definitely a cost to your employees. And if you do ask any employee, what is I have a 401K plan? What are my costs? Everyone in the room will say that I don't pay anything. And there's a couple good and a couple bad reasons for that. The cost can be hidden in the cost of the investment option. And they don't see the cost explicitly on their statement. So do most small businesses try to find a retirement plan consultant and just start up a 401K plan like that? I mean, I feel like there's so much we don't know, but yet we're trying to buy this product, right? So what are the steps that I need to take to do that? What should I be aware of? I feel like there's too many things unknowns for me. Yeah. So in terms of where do employers go when they're thinking of starting a 401K plan, one obvious place would be their private wealth manager. And they go, hey, I just started this business. Or I have this business. Can you help me with a 401K? That's one spot. Another place that people go is to a TPA. There's a lot of great TPAs here locally. Many of them very well known. And so they reach out to the TPA and say, hey, you can help me set up my 401K plan. And then other people go to more of the nationwide brand names like Fidelity and Vanguard. And they'll just call Fidelity or Vanguard direct and say, I know you guys do 401Ks. Can you help me? What is a TPA? OK, a TPA is your third party administrator. They're the one who's. So every 401K plan, just like we as individuals have to file a tax return, every 401K plan has to file a tax return as well. So they do that. That's part of the administration. The second part is, in order for a 401K plan to be tax qualified, meaning you can reduce your taxable income today and maybe pay the taxes later, you have to do certain discrimination testings, guidelines that the IRS puts out for you. And you have to pass those discrimination testings to keep the plan qualified and to make it run smoothly. So that's your third party administrator. When you say discrimination testing, what am I discriminating against? So when the tax code came out and the IRS was going to allow people to reduce their current year taxable income, which is a big benefit to business owners and is one of the big reasons why a lot of business owners start a 401K, the IRS said, well, we don't want you to just, because we're giving you this tax benefit, we want to make sure that you make this a benefit that's good for your employees. So they put in certain rules. There's about five discrimination tests that you have to do. One of the most basic ones is the average deferral percentage test. And to put it simply, the IRS defines a highly compensated person as a business owner or someone who makes more than $125,000. So you group those people together. Then you take the non-highly compensated people, anyone earning under $125 and not an owner. And the average savings rate for the highly compensated people versus the non-highly compensated people cannot be more than two percentage points. What this does is it encourages the employer not just to set up the K plan for himself. It says, you need to go get your employees into the plan. You need to encourage them to save. You need to teach them how to save. So that's one of the basic tests that they have to do. And I've stated that very, very simply. The rules are a lot more granular. But that's the very basic explanation for it. You've already shared overwhelming information with a business owner who's starting out and wanting to offer a 401K product. And you had mentioned that there are different parts to setting that up. We are going to go to a quick break. But when we come back, let's finish up that conversation about the TPA. And then anyway, you'll tell us all about it. Thank you, Dave. We are going to take that short break. This is Business in Hawaii. We'll see you back here shortly. Aloha. I'm Keisha King, host of At the Crossroads, where we have conversations that are real and relevant. We have spoken with community leaders from right here, locally in Hawaii, and all around the world. Won't you join us on thinktechhawaii.com or on YouTube on the Think Tech Hawaii channel? Our conversations are real, relevant, and lots of fun. I'll see you at the Crossroads. Aloha. Hi, I'm Rusty Kamori, host of Beyond the Lines. I was the head coach for the Punahou Boys varsity tennis team for 22 years. And we're fortunate to win 22 consecutive state championship. This show is based on my book, which is also titled Beyond the Lines. And it's about leadership, creating a superior culture of excellence, achieving and sustaining success, and finding greatness. If you're a student, parent, sports or business person, and want to improve your life and the lives of people around you, tune in and join me on Mondays at 11 AM as we go Beyond the Lines on Think Tech Hawaii. Aloha. Welcome back. This is Business in Hawaii. And with us today is Shauna Christensen of the Retirement Benefit Group. Shauna, when we left to break, you were explaining to me, as a new business owner, if I wanted to stand up a retirement benefit for my employees, perhaps a 401K, that there are parts, specific parts that I need to have in place in order to make that work. The first that you were explaining to us was the TPA. You were mentioning very similar to individuals. Retirement plan needs to file a tax return. Tell us more about the other parts that I need to have in place. So the second important part is your record keeper. So that's the one you'll recognize as the Fidelity Vanguard Empower, John Hancock. There's a whole bunch of them out there. What the record keeper does is they receive the contributions that you withhold from the employee's paycheck. And then they invest it based on how the employee would like to invest their money. So they record keep that whole transaction. The record keeper is also going to be what your employee sees as the 401K. The employee isn't going to think about your TPA, the third party administrator. They're going to think Vanguard, record keeper, because that's where I log online. That's where I keep my data, my beneficiary, all of those types of things. And is there a third party in that? Absolutely. The third party would be your consultant or your advisor. And this is a very important role to a 401K plan, especially for a small business owner where you are not fully aware of all the risk of rules and regulations. Your advisor, most people think of their advisor as, oh, they help me take a look at my investments and maybe they'll come in and educate my employees or help them enroll every once in a while. Your retirement consultant should be the one that helps you holistically look at the plan to help you monitor your other service providers. Are they doing a good job? Are they charging a fair fee? Is it reasonable? These are things that employers, especially in small companies, where you have the controller who's wearing five different hats, the owner who's wearing 10 different hats, they don't have the time or the attention to really monitor those other service providers to make sure that they're doing a good job. So I'll bet that each one of these three folks that are going to work for me to help me provide this retirement benefit, everybody's got to get paid, right? Do I pay them as the employer or perhaps could I get my employees to pay for some of that? You could get your employees to pay for everything, but most employers pick up the third party administrator's fee, which as I mentioned earlier, baseline is about 2,500. The more you grow in employee count, there's typically a per head charge. And that fee is, I'd say 90% of the time, even 95% of the time paid for by you, the employer. What isn't paid by the employer and which is typically paid by employees, whether employees know it or not, is the record keeping fee and then the advisor or the retirement consultant fee. And those are typically charged as a percentage of assets. So if there's a million dollars in your plan and your advisor's charging 50 basis points or half a percent, they're getting $5,000 on your plan. But it's not, there's a fee disclosure that you can go collect and look at it, but it's not explicitly stated as a line item on an invoice. So those fees can very much go by the wayside and go unnoticed. As a business owner, should I feel that I have the ability to negotiate some of those fees down? I mean, do I try to negotiate a TPA fee down? Do I try to negotiate a record keeper fee down or are my consultant fee down? What do you think about that? It is absolutely your duty to negotiate and make sure that the fees are reasonable, especially the fees that your employees are paying. When you sponsor a 401K plan, under the rules of ERISA, you are a fiduciary, which means you have to act in the best interest of your employees. You can't put your interest ahead of the employee. You can't put the record keeper, your advisor. No one's interest can come above the employees, which means you do need to, even though you don't get invoiced for the fees your employees are paying, you need to know what they are and you need to benchmark them. So go out to a third provider and make sure that your fees are reasonable, at least once a year, I would say. So going back to this consultant, would that be a financial advisor? Yes. Would my employees be able to ask you an independent question about their finances, so their investment strategy, or what have you, and are you able to help them and tell them what they should do, what they shouldn't do? Absolutely. Now, every advisor's service agreement is gonna be different. So pull the service agreement from your advisor. But if I were you, the plan sponsor, or an employer who cared about his employees, I would look to my advisor not only to help them save for retirement, choose how much they're gonna save, educate them on the risk and return profiles of the investment, so they don't make bad choices on their own. But most good retirement consultants will go much further than that. A lot of times one of the biggest barriers to an employee even saving for their own retirement is they're straddled with so much cash they can't even save. So a good retirement consultant will go back to basics for those folks and take the time and care to help them with other financial stresses that are preventing them from saving for retirement. So one of the things that perked my ear up is you said, well, if your plan has a million dollars in assets, well, my plan will likely not have a million dollars in assets anytime soon. But what does that mean for me? And how does that affect the pricing and what should I look for? I feel like there is some sort of strategy that I should be employed with to go out and manage this plan. So when you're looking at the fees an employee pays, it's typically paid in two ways. One is like I mentioned, like an asset-based fee that half a percent, that maybe the advisor charges and they charge it to assets. The other way that employees are hit with fees is in the investment cost of the funds that they're invested in. Now, when you dissect the investment cost of those funds, a lot of retirement plans have behind the scenes revenue sharing. So let's say you and I as an employee invest in XYZ fund. It has an expense ratio of 1%. If you look, if you open up the hood of that fund actually just request your participant fee disclosure and your plan level fee disclosure and it'll all be laid out there. But there's revenue sharing that goes from the fund back to the record keeper and even back to the consultant. So while you might think the consultant is making half a percent on assets, you might be getting a little more juice for lack of a better word on the backside from the funds. So you really wanna look for lowest costing funds and try and strip that revenue out so it's much more transparent for the employees. Okay. So I know that I'm gonna have you back on this show numerous times because I've got a ton of questions for you. But when we're initially talking, we're talking about how business owners as the very first step, if they already have a retirement plan set up, a 401k plan set up, that they can take a look under the hood if you will. But even if they're not really versed in it, what are some of the things they should look at? So when you set up a retirement plan and you're just starting out, obviously you have zero assets. But just about every record keeper, the TPA's fees are normally fixed and by the way it's the employer paying it. Well you really wanna, where fees get out of whack? Because you see that invoice from the TPA. You can monitor that. Well you can't seize the fees in the plan which the employees are paying so you don't feel it as a business owner. But it is your duty to make sure those are reasonable. So every record keeper when they start you up, there's certain break points you can take advantage of. One of the most common first break points in a 401k plan would be once you reach $500,000 in asset. You might see a reduction in fee of about 10%. But you can't realize that unless you go to the record keeper and say, hey I reached my break point, lower my fee. And then there's break points from there, 750,000. A million is a very often common one. I think from there you would see three million once you hit assets there. And your advisor's gonna have break points too. So make sure you know what your advisor's break points are as well so that you can, as your assets grow and your employees are building wealth, one of the best ways to give them additional returns and compounded returns over long periods is to take advantage of those break points as you hit those milestones. Two questions. As an employer or a business owner, do I rely on my consultant to help me understand where those break points are? You shouldn't be able to, but not all consultants are monitoring fees, especially so there's two consultants you can work with. One consultant who's gonna be a fiduciary with you and you can count on them to help you monitor fees because they're on the same side of the table as you, they're liable like you are if they don't monitor, help you monitor fees. And there's another type of retirement consultant or an advisor who is not a co-fiduciary or a fiduciary in any sense of the word. So it's not their best interest nor are they legally bound to monitor the fees and make sure you take advantage of those break points. So you really wanna first identify what type of advisor do I have? And lastly, either advisor that you do have, the final responsibility is always on you. You can never give up full responsibility and you're the last person the DOL IRS will come to if you're not monitoring fees or doing what's in their best interest. So the responsibility always lies with you. It makes sense to offload that if you can to someone who wants to take that same responsibility with you and will help you with that. The second question was as an employee, is there someone that I should be relying on that can help me understand break points and pricing and all of that? If you know who the advisor is of your 401K plan or maybe a good exercise for you the next time your record keeper or your advisor comes in to do an education workshop, be it an enrollment workshop, whatever that is, if you're sitting in that classroom I encourage you to raise your hand and ask the question, what are my fees? Participants don't do it enough, you need to do it. And so I would strongly, strongly encourage all employees part of a 401K plan, let's all raise our hands and say what our fees are because I guarantee you you can get a lot of fee reductions just by asking the question. I like that as a takeaway. So just to recap, the takeaway for our audience today is to ask what are my fees? What are my fees? When's the next break point? When's the next break, yeah, got it. We want to make sure to have you back over and over again and each time we'd love to hear our newest takeaway so I'm gonna go back now and ask about break points and fees. And is there anything that you'd like to leave with our audience today? And of course, please tell them how they can find you. Know what your 401K is as a business sponsoring a 401K plan. Know who your service providers are and make sure they're doing a good job for you. Ask the questions about fees. I'm with Retirement Benefits Group, as you've mentioned before. We have an office here in Honolulu off South King Street. So please visit our website. Come and visit us anytime in our office. Send me an email, pick up the phone and call. If you're having trouble identifying what your fees are, we're happy to help. Awesome, thank you Shauna. Thank you so much for having us. We are out of time. I'd like to thank Shauna, RBG advisors, of course, the wonderful production staff here in the studio. If you would like to be a guest on our show, please subscribe and leave a comment below. Business in Hawaii airs every Thursday at 2 p.m. and we look forward to seeing you here next week.