Dave Cain: Welcome to unsuitable on Rea Radio, the award-winning financial services and business advisory podcast that challenges your old school business practices and a 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.
Dave: I’m your host Dave Cain. Do you offer retirement plan as part of your benefit package? Then, you’re probably familiar with a census form. You know why this form is necessary? Andrea McLane, a senior manager and retirement plan consultant and expert at Rea & Associates, is here to explain the retirement plan census data while passing along some best practices that can keep you from getting lost in the paperwork.
Dave: Andrea chose a great week to join us today because she can help us celebrate National Employee Benefits Day, which just happens to be April 2nd of this year. Welcome back to unsuitable Andrea.
Andrea McLane: Thank you for having me.
Dave: Hey, did you know that this week was National Employee Benefits Day?
Andrea: That is very exciting.
Dave: Ya know, what are you doing for your podcast host this week as a gift… And the production crew. We’re looking for feedback.
Andrea: That is a very good question. I don’t have anything in mind, but I will think.
Dave: Well, you know, by the end of the week you can have something for us.
Andrea: By the end of the podcast I might have something for you.
Dave: There ya go. You know, you’ve been on unsuitable before as a guest and had some great insight on retirement plan design. Today, we’re gonna take a little bit of a twist and talk about, I guess it’s retirement plan compliance and this census data form that you know, we’ll ding into it, but you shared an example with me that just kind of scared the heck out of me. So, we wanna kinda dig into that a little bit, but what is a census data form? Talk to me about that.
Andrea: Alright. A census data form is something that we send out every year. We have to request all of the indicative data from your employees in order to do your testing and calculate your employee contribution each year.
Dave: So this is the starting point for when you jump in, I guess for lack of a better term, it’s made me think of an Excel spreadsheet with all the employees and all their kind of compensation and all that and from there, you take it.
Andrea: Absolutely. And that’s a very good point. A lot of times, people think that because it’s a retirement plan they only have to give us their information for the people that are participating, but we actually need that data for every single employee of your company. Every single person that gets a W-2.
Dave: Well that’s a good point. So, even if you, yeah, each and every employee. Not just the ones that are eligible. I assume that every time you get this report, the census report, that it’s a hundred percent accurate.
Andrea: Never.
Dave: Never.
Andrea: Very infrequently.
Dave: Okay. So, when you get incorrect numbers, just like when we do a corporate tax return or an individual tax return, if the data we get isn’t very good, then the outcome isn’t very good.
Andrea: That’s right. Garbage in, garbage out.
Dave: This is a little bit different twist because if we make a mistake, the owner makes a mistake, it only impacts his personal tax liability on his return if he gives us incorrect data. But here if we’re getting incorrect data, it’s not your money, it’s the employee’s money for the most case.
Andrea: That is true. That is true. So we need to make sure that our information is correct so that we get to a good outcome, but we also don’t slow down the process.
Dave: You know, you referred to the term testing. When you get this data, what all are you testing for? It sounds like, oh boy I’m getting a blood test and they’re going to test this, this, this and this, but what are you testing for?
Andrea: We’re testing to make sure that the plan is in compliance. The contributions that they put in aren’t out of the ordinary or follow all the rules and we’re also testing to make sure all the right people are in the plan and are getting a contribution.
Dave: That’s a lot of testing and a lot of things that could go wrong. So, let’s start with when you do the testing, you’re testing to see that it’s in compliance with the document that was approved by the IRS and certainly the Department of Labor has a say in that so-
Andrea: Correct.
Dave: So we have to have that. That’s number one. Okay. Now, my business had a very profitable year. I wanna do something pretty awesome this year and I wanna beef up all the retirement contributions, not only my own, but in the employees.
Andrea: That’s a great goal. We designed our plans so that we have some flexibility to maximize the owners if that is their intention or we can maximize a tax deduction if that’s your goal. Our plans are designed to be flexible so that we can meet your retirement plan needs and your tax deduction needs.
Dave: Sure. You guys are very resourceful, but you’re not magicians. You can’t make things what they aren’t, so you’re relying heavily, heavily on the census data that you get.
Andrea: Correct.
Dave: Now, you shared an example with me and this is where I kind of came out of my seat, where you showed me an example where they were and this is a real life example, five employees and the census data on all five of those employees was incorrect.
Andrea: That is right. It’s very important if you have a 401k plan, and you’re with holding deferrals from someone’s pay that what you withhold from their paycheck is remitted correctly to the record keeper. I think in the case that, the example that I sent to you, either it was incorrect on the census data that was provided to us, or they actually sent in a different amount to the record keeper than what was with held from the paycheck.
Dave: Yikes. Okay, alright. Now you got me going. Okay. So if it’s, again, okay. It crosses your desk. It’s incorrect. Do I have, as a business owner, how long do I have to correct that information?
Andrea: It needs to be corrected as soon as possible, but at the latest, by the end of the year.
Dave: By the end of the plan year or tax year?
Andrea: Yes.
Dave: Okay. What happens if those errors go undetected? I could conceivably say my balance is wrong, that is what I was concerned. If census data’s not correct, my balance, my 401k balance is wrong.
Andrea: That’s correct.
Dave: How about that. Now, now I’m really angry.
Andrea: So, here’s where we’re gonna go.
Dave: Okay. Let’s go.
Andrea: That’s one of the reasons you hire Rea & Associates and you hire us as a third party administrator to check that for you so you do not have an incorrect balance going forward.
Dave: So you’re the auditor. You’re the watch dog of that census data. You know, again, it’s kind of a good discussion that hey you’re gonna get the census data, but we’re gonna do everything we can to get it as correct as possible as a trusted advisor et cetera, but again, not everybody subscribes to that so there are census data out there, I’m sure they’re incorrect.
Andrea: Right. And I think that people, I don’t think they look forward to this time of year when we send our census requests, but I think one of the important things to remember is it’s very important for your plan to submit your census timely and to submit it correctly.
Dave: Yeah. Get it done quickly and correctly and I guess a message, like you said, to our listeners is; Ya know, sometimes this is one of those things that’s rush, rush. It might not get the attention that it needs.
Andrea: It’s not a good time of year to be requesting.
Dave: And it’s not a good time of year, and it’s fast, so I think the message is, get it done correctly and quickly so you can do your thing. Ultimately, if there is a problem, and the business owners or the trustees are responsible to get that fixed. Good. Let’s move on to talking about beneficiary and beneficiary forms. What’s going on there? What, ya know, when I signed up with the business and as an employee, I filled out all this paperwork. I mean, my God, I filled out the beneficiary form. Why do I gotta fill it out again?
Andrea: How long ago was that Dave?
Dave: It might of been like 40 years ago.
Andrea: Things change.
Dave: So, I need to put my third wife on as a beneficiary right?
Andrea: Yes. That would be wise.
Dave: As you say, stuff happens from time to time.
Andrea: Yes. This is another topic that isn’t very glamorous, but it’s truly is important because stuff does happen. We advise our clients to have their participants fill that form out annually or if there’s a life change. Very few do it.
Dave: What’s your recommendation as far as how often should I be looking at that beneficiary? Is it an annual thing or-
Andrea: I would say at least annually and one of the other misconceptions is that your record keeper or we as a third party administrator are gonna keep that on file for you, it’s the trustees’ responsibility, the plan administrator’s responsibility. My advice is to have that filled out annually, even for participants who aren’t taking money out of their pay check because they could be getting a safe harbor contribution or a profit sharing contribution so you may not think that they need to fill out the form, but every participant needs to fill out that form in the plan and it needs to be in their personnel file. That’s our recommendation.
Dave: You know, you mentioned, hey this isn’t glamorous stuff to talk about, but in a way it really is because it’s one of the very unique benefits that employers can offer and the worst thing that can happen is if that benefit is not correct or goes awry. Again, I think all of these things, even thought they aren’t maybe at the top of our list to talk about at a cocktail parties, they are things that have to be done on a regular basis so that’s where your team comes in as the TPA, the third party advisor administrator is, you’re gonna help me keep these things straight.
Andrea: That’s true and that is another common misconception because we’re the third party administrator. A lot of plan sponsors think that we’re also the plan administrator and it’s two different distinct entities. The plan administrator is the plan sponsor and we as the third party administrator, or the TPA, we’re gonna help you stay in compliance.
Dave: So you’re the referee. You’re the umpire. We’re gonna make the call on whether this is right, wrong or indifferent.
Andrea: That’s right.
Dave: And also make recommendations if documents need amended. We wanna switch gears a little bit, you know obviously we had a big tax over haul at the end of last year and flowing into 2019, but have there been any recent tax changes that impact that the retirement plans?
Andrea: Not too many as of yet.
Dave: Not as yet, but you sense for your experience, is reform on the way? Always.
Andrea: I don’t know who can predict it right now.
Dave: Yeah, but as it kind of goes, there’s probably some adjustments ahead, but again you guys design the plans and look at that each and every year to make sure that it is up to date.
Andrea: Up to date and as flexible as we can make it.
Dave: How often should my retirement document be reviewed by you guys?
Andrea: That is a very good question. It all depends on your goals. I just had a situation this week where the plan owner, we have locked down their plan for distributions. He did not want any of his employees to take any distributions that was not one of their priorities and then he decided or came to the age when it was time to retire, so we had to go look at his document because he wanted to continue working, but wasn’t working as often as he was in the past and wanted to change those distribution provisions. So, it all depends on what your business goal is and how often that needs to be reviewed. They do have to be reinstated every six years, but as a general practice, it depends on your situation and we can look at them as often as you need.
Dave: So every six years by regulation.
Andrea: Correct.
Dave: Your document does have to be reviewed. Okay.
Andrea: Yes.
Dave: I was not aware of that. That’s good. Good piece of information. If we do need to add a benefit, let’s say, to a plan like you mentioned. You were making some changes within the plan for distributions or whatever, but if you wanted to make changes in a plan, let’s say like hardship withdrawals or whatever else is in there, is that something your group advises on?
Andrea: Yes. We can advise on that. We can do most things prospectively. A lot of times we have clients saying, Hey. Can you make this change for us last month? No, that’s too late, so anytime-
Dave: The old back date, the old back date thing eh?
Andrea: Never. Not in the retirement plan division.
Dave: Never. Never. Got it.
Andrea: We can make those changes prospectively so it’s very important if you have any questions or there is a business situation that you contact us before.
Dave: Sure. Sure. What other areas, kind of help our audience out, our listeners. What other areas have you run across the last several years as you were kind of consulting or doing census data. Are there anything that jumps out for you as far as areas that you know, you want to share with us?
Andrea: I think the most common area are participant loans. Some plans allow participant loans and some plans don’t allow participant loans, but I think that’s one of the biggest areas where we see people mess things up.
Dave: Mess them up. Okay.
Andrea: Either they don’t take out the loan repayment right away so they end up being behind on the amortization schedule or maybe the record keeper allows them to take a larger loan than truly is available. We try to monitor the participant loans pretty closely.
Dave: Right. Right. As an owner, can I develop a plan that would prohibit loans? Is that possible?
Andrea: Yes. That is definitely possible. The participant loans give an employee the opportunity to take money out of the plan and pay it back, but that time period when the money is out of the market, they’re not getting any interest on it.
Dave: That’s pretty tough, yeah.
Andrea: The really bad thing that happens, I call it the cubicle effect, once you allow loans, it’s like this person takes a loan and then this person takes a loan and then this person takes a loan and then all of a sudden, you have money out of your retirement accounts.
Dave: Everybody. Yeah.
Andrea: I mean, it needs to be there. If you’re taking money out of your paycheck that you could use to buy groceries or anything like that, you know, you need to have a safety net in there.
Dave: Right.
Andrea: It’s whether or not you want to allow participant loans or a hardship distribution or something to that effect.
Dave: So, those saying, there is a time and a place, but maybe not you know, let’s make it a little more difficult or challenging to get it out because quite frankly, the idea of that benefit was to put it away for retirement. You know, savings, retirement savings is I think critical as we look at the various generations. What are you seeing as far as younger people entering the work force? Do you have a sense or are they embracing the idea of saving in the 401k?
Andrea: I think so. And the earlier you start, the better off you are in the long run.
Dave: You know, we see this thing in here, this thing about the Roth idea within a plan, what do you think about that?
Andrea: It comes and off.
Dave: A sigh and relief and maybe. I don’t know what, I’m trying to read ya here.
Andrea: It’s been around for so long. Not very many people have taken advantage of it. The way that I’ve heard it described the best is if you’re young and you can afford it, put away the money after tax because there are going to be advantages. The theory is that the tax right now is going to be lower than the tax rate later when you retire and you’re also, the other way I had it described to me was that you would have two buckets of money. You have one bucket of pre-tax money, which you’re gonna have to take at a certain point when you’re age 70 and a half. You’re gonna have to start taking the distributions cause the government wants their money and then you’re gonna have another bucket of money that you can take tax free and penalty free once you reach retirement age.
Dave: Sure. Sure. So again, as we kind of celebrate National Benefit Week, one of the things I guess we can talk to our clients about and let’s celebrate the 401k benefit cause it’s a great benefit.
Andrea: Agreed.
Dave: You’re celebrating. Yes. Yes. For every, again this is more of an opinion, but for every 10 businesses that you run across and talk to, would you say 10 out of 10 have a retirement plan?
Andrea: I would say that’s-
Dave: More on the rise? That’s a good thing.
Andrea: It is a very good thing.
Dave: Yeah. Yeah. Wonderful. As we go through 2019, what’s some advice you can have for a business owner on their retirement plan?
Andrea: I would say just put away as much money as you are able to save.
Dave: And we’re hearing the term, and it’s creeping in, you guys, your team is always talking to us about cash balance plans and is that maybe something I should put on my radar as a business owner to look at in 2019?
Andrea: If you are maxing out your 401k plan or your profit sharing plan, we would be more than happy to put together a cash balance plan illustration. I’ve actually terminated I think five cash balance plans in the past two years. The owners had them in place for 10 years and they maxed them out. They absolutely maxed them out and that’s a great thing.
Dave: So good planning tool that your team can bring to the table. There’s a lot of different ways to accomplish this so good. I kind of want to, I kind of want to wrap up a little bit. One is, is certainly talk about the importance of the census data. Get it done, do it right, do it correctly because that’s your starting point to get the maximum benefit for all the participants. Beneficiary forms, don’t blow that off. If you’ve had a life changing experience, take a look at it.
Andrea: Marriage, divorce, birth of a child… update your forms.
Dave: You know, I think we’ve all run into where there’s been a death with one of our clients and the beneficiary forms was not correct. We know that. Take a look at that and certainly, payroll withholding. Double check, triple check the withholding from your pay roll and make sure it gets deposited correctly. Let’s put cash balance planning on the agenda for 2019. Do it sooner than later. You don’t want to be talking to people on December 28, 2019. Let’s do it sooner than later. And actually, National Employee Benefits Day could be-
Andrea: Hooray!
Dave: -a time to do that.
Andrea: Perfect day.
Dave: Again, our guest today has been Andrea McClain with Rea & Associates, pension and retirement planning specialist group. You guys are awesome to work with and enjoy the insight that you give to our clients. Thanks again for joining us today Andrea. Perfect. I’m glad you were able to stop by today and talk about the retirement plan census data. It was nice to know the reasoning behind the process. Hopefully our listeners found your insight valuable. Listeners, did you enjoy today’s episode? Let us know… like it, comment on it or share it. And don’t forget to check out videos of our podcast on YouTube. Until next time, I’m Dave Cain. Encouraging you to loosen up your tie and think outside the box.
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