episode 167 – transcript

Dave Cain: Welcome to unsuitable on Rea Radio, award-winning financial services and business advisory podcast that challenges your old-school business practices and the traditional business suit culture. Our guests are industry professionals and experts who will challenge you to think beyond the suit and tie, while offering you meaningful modern solutions to help enhance your company’s growth. I’m your host Dave Cain.

Dave: Disruption is hitting us from all sides these days. Today Kim Veal, CPA, a supervisor on Rea’s retirement plan audit team this time of year, is going to tell us how disruption’s newest target might just be the retirement planning industry.

Dave: Welcome back to unsuitable, Kim.

Kim Veal:   Yeah, thanks.

Dave: What is this disruption all about? What’s going on?

Kim:   So a very big part of everyday culture for a lot of employees, especially those coming out of college these days is their student loan debt. Unfortunately, because students are coming out with so much debt these days, they are not focused on saving for their retirement. That’s not where their focus is. They’re too focused on the fact that they’ve gotta pay back all these loans that they’ve taken out in order to get the education to get the job that they now have. That puts them way behind when it comes to the balance they need in their retirement for … They’re thinking, “That’s 30, 40 years down the road. I gotta deal with the debt that they’re calling about right now versus my actual future.”

Dave: So we’re gonna talk about the student loan debt elimination, a possible new benefit that’s out there.

Kim:   Yes, one plan in the entire United States has introduced a program-

Dave: One plan.

Kim:   One plan thus far that’s gone public with it. And the reason why is they applied to the IRS for approval. It’s not normal, obviously, for a retirement plan, or a benefit plan, to push money anywhere other than into like a 401K or into a retirement plan. They’re trying to put money towards loans, which doesn’t exactly sound in the same realm, but the IRS did approve one plan’s program. So it’s causing a stir that, “Oh, we can introduce this into our plan, and help our employees start to pay back their debt, so that they can get back on track, and focus back on retirement in a faster speed.”

Dave: So the wave is coming.

Kim:   The wave is coming. There were multiple articles that came out as soon as the IRS issued this approval letter. There were articles coming out all over the place about, “Hey, look at what this plan is doing, and what can we do? What problems is that gonna cause?”

Kim:   Basically, this plan instead of putting a match into the 401K, they are putting that money towards, directly, the student’s debt that they had. What that allows, because the IRS has approved it, that student, former student who’s now an employee, would not be taxed on those funds.

Kim:   That’s kind of where this is coming from is rather than, “Hey, my employer just gave me $500 to put towards my debt, that’s great and I have, but when tax time comes around, I’m gonna owe 25% or whatever on it.” This is a, “Hey, we’re gonna do it directly for you. It’s gonna be like your pre-taxed dollars. You’re saving 20-some percent or whatever on it. And it’s going directly to pay down your principal balance.”

Dave: Great. You know, on unsuitable on Rea Radio, we encourage our guests and our listeners to think outside the box. This is outside the box.

Kim:   Yeah, because that’s one of the biggest warnings right now is if you don’t set up your program exactly close to what this approved program is, there’s a chance that it’s not approved. Because the IRS has not issued general guidance or put statute out there saying, “Go ahead and add this to your program.” It’s just, “Hey, we approved this one thing.” You can use it as a precedent, but only if your program currently looks almost exactly like that.

Dave: So this is brand spanking new.

Kim:   Yes.

Dave: Buyer beware, we’re not quite ready yet to bring this new car out of the … and put it on the road yet.

Kim:   Yeah, it’s not being adopted left and right, but it has drawn a lot of interest just because of the benefit it can have for your employees. It’s a caveat, that little like, “Oh, hold up a second.” You could potentially apply for own approval from the IRS, but right now there’s just a lot of groups pushing the IRS to issue statute instead. So then rather than I have to pay a fee for my plan to receive this, why don’t you put out there as a general acceptance of the program, just some guidelines for us all to follow, so we can also add this to our plans.

Dave: Any guesses when this might be ready to roll?

Kim:   Unfortunately, there isn’t. There’s no time frame. The IRS hasn’t even said or come back to the various groups that are asking to do this, and even said, “Hey, we’re working on it.” I don’t even think it’s necessarily a focus right now, just with all of the new tax laws coming through that are gonna be going into effect.

Dave: Was going to say, we got, we’re waiting on new forms, the 2018 forms, tax forms, for individual income tax. They got their hands full on that. I don’t know where this goes in the pecking order. Will the Department of Labor also have to sign off on this?

Kim:   Yes. They will have to work hand in hand to come up with that guidance just because it’s built into the Department of Labor’s ERISA Act is probably where it’s going to end up. They’re doing a lot right now on their own end, and funding wise, and making sure they have time to devote to the various areas. We don’t know if they’re even going to ever issue some sort of official statute on it.

Kim:   But the more that people desire to add this to their programs as a … you can obviously prove the benefit. That’s the thing, you can prove the benefit to your employees. “Hey, your ERISA Act was originally to make sure that the money wasn’t gonna disappear on people. So our goal is for people to save for retirement. Well, if student loans are a roadblock, you’re gonna wanna take that roadblock out.” So if this is one of those things that’s gonna take that off the table, then why wouldn’t they wanna jump on board?

Dave: Why don’t you start a grassroots movement to get this thing done?

Kim:   Get out there, work in the fields, with my little picket fence.

Dave: Think how many people that, yeah, that this would benefit.

Kim:   It’s true. It’s one of the reasons, I think, so many articles started coming out. We wanna get the people informed that this could potentially be an option. That’s when you start to lobby. The more groups that lobby and get behind it, or the more plans that put out there a note that, “Hey, we wanna add this too.” Or the more plans that go ahead, if they can meet the same type of specifications that this other plan has. If they can get it on their books, and even show a track record of how well it could do, that could only improve the chances that it becomes standard.

Dave: Sure, so we’re getting ready, getting everything ready, but I would think maybe piece of advice to our listeners would be talk to your employees about this. Is there interest in this? Because it will take some administrative duties, et cetera, to get this done.

Kim:   Yes, someone is going to have to do quite a bit of work. So even if you go ahead and adopt a program, and it’s all well and good with the IRS, normally you’re only doing one contribution into one record keeper. You send one check or one ACH out to Fidelity or Transamerica, whoever is monitoring your plan.

Kim:   Well, my student loans might be with Sallie Mae or Navient. You may have private student loans. So if it’s a match, and you have to prove first that they paid on their loans so much. Well, then I’m gonna have to get documentation from each of those employees regarding how much they paid. Then I’m gonna have to issue one check, one ACH, to each of those individuals, or each of those companies. And then keep record of it.

Dave: You’re pretty fired up about this.

Kim:   Yeah, I do actually have student loans.

Dave: I kind of thought you might have as you were rattling off all of that. But, yeah, I mean, why not? Everything can help, but you do … your profession is you’re an auditor by trade, and specific with a heavy concentration, if not 100% concentration, on retirement plans.

Kim:   Yes.

Dave: So you can see, just as you sit here as an expert, it will take some administrative situation, an increase on administrative costs to get this done.

Kim:   Yes, there’s potentially some additional costs there. There is also the chance if you are audited, this is gonna become an area, either if you’re audited, your plan is. So if someone like me comes in and audits your plan. I’ve talked about this with some of our other auditors that were kind of like, “Oh man, what would happen if we had to audit a plan that has this in place?”

Kim:   There’d be special testing that’d have to be done. But also, there’s a chance that the Department of Labor, it’s gonna become potentially an automatic audit for them, if it’s a newer program. Yeah, with how new it is, they could automatically say, “Well, we as the Department of Labor gotta make sure there’s no abuse, that nothing’s wrong. So if you go ahead and check mark this box, we’ve added a question that says, ‘Does your plan allow for coverage of student loan payments?’ Check that yes, well, guess what? You may now end up in their, the DOL audit pool.” And they’re gonna come visit, which is why all your records gotta be in place.

Dave: You don’t want that visit, do you?

Kim:   It’s not always the best.

Dave: Not always pleasant.

Kim:   Sometimes it can go just fine, if you’re solid. If your records are solid, everything, you’re able to answer all their questions, it could go pretty clean, but it’s a new program. There’s no guidance yet. So, I mean, if they come out and audit you, you kind of just gotta guess how much support they’re gonna wanna see, and have all of your Ts crossed and your Is dotted.

Dave: As you mentioned earlier, it’s difficult no matter what your age is to save, whether it’s outside of retirement plan or inside the retirement plan. There’s just a lot of things tugging at the checkbook month to month, and student debt certainly is one of the largest concerns that we’re hearing.

Kim:   It doesn’t matter, yes, you’re gonna hear, you’re hearing about it now because there’s a large pool of students coming out of college now. And they’re very vocal about how much debt they have. But it’s not just your 22, 23-year-olds that have that. It can be individuals who have been out of college for a long time. They’ve been paying their minimums. Well, a lot of those payback programs could be 10 years, 20 years.

Dave: 10 or 20.

Kim:   Mm-hmm (affirmative), and they’re still paying on them. Well, bills can be, what? Some people with a lower balance may only pay a couple hundred dollars. I’ve heard of people with over $1,000 on student loan payments every month. How much? They’re gonna be like, “Well, I’m not gonna put anything towards retirement. I gotta pay 1,200 bucks over to so and so to cover my debt. I still need to live. I still have to rent my apartment. I still have to pay for food.”

Kim:   You’d think that it would just be, you know, it’s just young people. They’re just potentially complaining a little bit too much, but it’s a hard struggle for a lot of people. It’s interesting that this was the solution that came out of it. That it wasn’t just, “Oh, we’ll just give you some extra money. We know you’ll get taxed on it later, and you probably won’t use it. You’ll use it all now, and forget that you’re gonna get taxed on it later.”

Kim:   Let’s find a way so that we can give you the most benefit without a hit later on. I’m not even sure how this one plan came up with the idea other than they talked to their employees. This was the concern they had, and it drove them to dig deep, and find the very new off the wall solution.

Dave: Right, so if this provision became available for plans, would you take advantage of it?

Kim:   Yeah, I would. I’ve been working to pay down my debt, but that has impacted my retirement savings. I’ll admit that. I’ll put that out there. It just is. The faster that I can get out of paying anything because I’m done, anything that’s gonna be to that, I’ll go ahead and shift that over and say, “Yep, sign me up. I’ll do that.” And when they’re gone, then I can bounce right back over, but how much faster what that happen?

Dave: Right, right.

Kim:   Years, years earlier, which is years of compound interest that I’ll be able to get back by them helping me out ahead of time.

Dave: So what you basically say is, “Look, I’ve had to postpone some of my retirement savings, and some of the other things that we wanna do because of student loan.” Gotta be a lot of folks just like you listening and out there, your colleagues, et cetera. Just jump on the bandwagon. How do we get this thing moving? What can we do as a profession to get this thing off the center? Is there anything you can suggest?

Kim:   The biggest thing is to, I mean, you can talk to your clients. Obviously, you can talk to your own employer. As a professional, if that’s something that you’re concerned about, or something that you have to get out there, and start talking with people. You mentioned getting out there, and figuring out if there was interest in the program.

Kim:   Well, your clients might wanna figure out if there’s interest in the program. If they have a lot of people that they hire straight out of college, I could probably bet, 95, if not more probably have some sort of student loan, but maybe they’re fine. Maybe they’re fine with that, and they’re like, “No, I’d rather keep my retirement.” You have to talk to your people. It’s the same thing anytime you’re gonna introduce a new benefit type program.

Kim:   I’m not gonna just introduce it because this is the new thing, and then you have nobody take advantage.

Dave: Take advantage of it.

Kim:   You gotta hear that your employees want it.

Dave: We had a similar program on the same benefit several weeks ago on unsuitable. A lot of different twists on the discussion, but kind of the same thing that it is a benefit. It could be used as a recruiting tool in certain situations, certain employers that are having a hard time retaining clients, or they’re listening to their employees.

Kim:   Yeah, that is absolutely 100%. You put it out there, I know somebody’s gonna be asking about that because it’s not, “Hey, we introduced this new student loan payback program, and guess what? We’re gonna do it as part of our retirement plan. You’re not gonna get any sort of tax penalty because of it. We already have our approval for it.” That’s much more interesting, potentially, to somebody coming out of college than, “We do a nice little three percent match, or three percent safe harbor. We’re gonna give it to you anyway.” That’s standard.

Dave: And get some tax deferral, tax savings in the meantime.

Kim:   Yeah, so it’s some of that stuff that you’re going above and beyond. You’re showing them something new that they haven’t seen, that when they compare benefit packages. Either they’re a current employee, and they’re thinking about leaving, and they’re looking at your programs compared to others, or somebody coming out, looking to … They’re applying at multiple different places. They’re gonna compare them, and look at one, and go, “Well, that’s different. Everything else is, yeah, you got medical. You got dental. All great, love the programs, but I can get them at both. So what can I get here that I can’t get somewhere else that is gonna directly impact me?”

Dave: Great, great. Kim, let’s switch gears just a little bit. Stay in the lane about retirement plans and benefits. It’s early 2019. I would suggest, as you would I think, that each employee take a look at their benefits that are being withheld from their paycheck and what’s available. You and I both have discussions with our clients and colleagues, and even one on one, that what can we do to make our paycheck bigger and better? One of them is take advantage of some of your benefits.

Kim:   Yeah, I would definitely suggest taking a look at what you do already have. There’s something you might not … There could be a program you’re not taking advantage of right now. The beginning of the year is a great time. A lot of times your employer is already looking at what their packages are, figuring out what they’re gonna change for the new year. They probably already have that information readily available.

Kim:   If you wanna ask about it, it’s not in the middle of their … They’re running around doing a whole bunch of other things. They’re like, “Yeah, we’ll get back to you.” No, it’s like, “Yeah, we’re talking about this. Let’s get you a list, and show you what we’re offering.” Because some of it, you might not even realize that they’re doing for you. It’s on the backend. You don’t see it every day. That’s one thing you should be evaluating for your employer is, is the things that they’re providing me what I wanna see? If there’s something missing, something like this program, or something else that you’re like, “Hey, here, let me suggest it as an option potentially.”

Dave: Rea & Associates on an annual basis audits, my guess would be, well over 100 retirement plans. You, you’re involved in many of those. We just finished up the audit season. What’d you find? Any … so what’d you find?

Kim:   We had a pretty clean season. No major issues.

Dave: No fraud?

Kim:   No fraud, as far as I know. I haven’t heard. I probably would’ve heard if we had somebody with some fraud cases. We had some difficult ones, where one the employer is, I believe, going through bankruptcy. So you gotta figure out who you’re even gonna get information from. Is the company under? But, I mean, the plan’s still there. People’s balances are still intact, and they still have to have the audit.

Kim:   So there’s some difficult ones, but most of the time, and a lot of the times, again, we find compliance stuff. Things that potentially the Department of Labor may hit you for.

Dave: Give me an example of a compliance deficiency.

Kim:   The consistency of contributions is probably the biggest that we see.

Dave: You mean I withhold from your paycheck, and six months later I put it in your account?

Kim:   Now there are cases where they take that long. Most of the time they’re not though. If they’re taking that long, it’s actually a much bigger deal. There’s a reporting requirement for it. But we even comment on it more about you’re doing it at the same timeframe every paycheck. The Department of Labor thinks that, and has put out there that, if you can process your tax deposits and your regular contributions to the 401K plan. If you can do that in two days for one pay, you should be able to do it in two days for every pay.

Kim:   So if you see this pattern of two, two, two, and then you see-

Dave: Two weeks.

Kim:   … 14 days, three days even, five days, seven days. If you’re seeing, or just all the time it’s a mix, it’s not even like you usually do two, but then for these five in the middle of the year you had random numbers. If it’s six this week, and five next week, and 15 the week after. They really say that they might consider those just as bad and late, just like they would for a six month contribution.

Dave: Right, right.

Kim:   So we oftentimes will tell our clients, but more than that, it’s like, many of them are keeping it very short. It’s not your six months timeframe. But if the Department of Labor comes in, and looks at this, they may tell you, “Hey, those four weeks where you took four days, five days, when normally you take two, those are all considered late. You owe for lost earnings.”

Dave: Who would you rather have an argument with, the Department of Labor or the Internal Revenue Service?

Kim:   Oh dear.

Dave: You have to have an answer. You can’t say, “Well, both.”

Kim:   Well-

Dave: And you’ve dealt with both, I know.

Kim:   Probably just from how active I have seen the Department of Labor here in Ohio, and working with our firms here, it would be much easier on us with working with the Department of Labor. Probably the IRS would be more difficult. They aren’t as involved on the regular basis like Department of Labor is. They see that one filing, and that filing triggers something. I just think, even just finding somebody as active isn’t gonna be anywhere near as easy as it with the Department of Labor.

Dave: Good, good, you know, I wanted to kind of end up with the discussion about general retirement plan because as an auditor, you see a little bit of everything.

Kim:   I do.

Dave: You help fix a little bit of everything. I mean, your job is not to find compliance deficiencies. Your job is to fix it, and make sure the controls are in place that it doesn’t happen again, again and again. So kind of in conclusion, certainly we’ve talked about one of the biggest struggles facing employees today is student loan debt. There may be a benefit on its way that may help that. If student loan repayment program, that’s certainly one of the benefits we discussed, and the option that we talked about, a couple things that we could do if we wanna jump on the bandwagon. And then a general overview of the retirement environment. Well done.

Dave: Our guest today has been Kim Veal, talking to us about student loan debt elimination, and a new employee benefit coming soon-

Kim:   Coming soon.

Dave: … to your neighborhood. So, thanks again for joining us, Kim.

Kim:   Yeah, it was great, Dave.

Dave: There are so many people struggling with student loan debt these days, by helping their employees conquer their debt, employers have a really good chance to set themselves apart from their competitors. Not to mention improve their employees overall retirement strategy and readiness.

Dave: Listeners, did you enjoy today’s episode? Let us know. Like it, comment on it, or share it. Don’t forget to check out videos of our podcasts on YouTube. Until next time, I’m Dave Cain encouraging you to loosen up the tie, and think outside the box.

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