Let’s break down the differences between these two retirement plan options.

What is 401GO’s GO-Starter Plan?

401GO’s GO-Starter is an innovative and simplified 401(k) plan designed for small businesses, startups, and self-employed individuals. Unlike traditional 401(k) plans, which can often be cumbersome to set up and manage, GO-Starter offers an easy-to-use platform with minimal administrative complexity. The goal of 401GO’s platform is to provide a user-friendly retirement savings option without the need for a dedicated HR or finance team.

One of the standout features of the GO-Starter plan is its low cost. It eliminates many of the fees that are typically associated with traditional retirement plans, making it a cost-effective solution for smaller businesses that may not have the resources to offer complex benefit packages. Additionally, GO-Starter includes features such as automatic payroll integration, employee enrollment, and an intuitive dashboard for employers to manage their accounts.

This plan also offers flexibility in terms of contribution levels, allowing both employees and employers to contribute to the retirement fund. GO-Starter helps employees to begin saving for retirement without the need for complicated paperwork or investment knowledge.

What are State-Offered Retirement Plans?

State-offered retirement plans are a growing initiative aimed at helping workers who do not have access to an employer-sponsored retirement plan. These plans are available in states that have implemented mandatory or voluntary programs to address the increasing number of individuals who are not saving for retirement. Some well-known examples include California’s CalSavers, OregonSaves, and Illinois Secure Choice.

State-offered plans are primarily designed to help individuals who work for businesses that do not offer retirement benefits. In these states, employers are required to either offer the state retirement plan or offer a different type of retirement option from a private provider. Using the state-run programs, employees can contribute through payroll deductions, and the state typically manages the investment options. Unlike 401(k) plans, state-offered retirement plans are often set up as Roth IRAs, which means they may have different tax benefits and withdrawal rules.

One key advantage of state-offered plans is that they are highly accessible to workers who otherwise wouldn’t have access to retirement savings. For employers, offering these plans comes with fewer administrative burdens compared to setting up a private retirement plan like a 401(k). However, the investment options within state-offered plans may be more limited, and employees don’t have the same level of control over their savings as they would with a 401(k) plan.

Key Differences Between GO-Starter and State-Offered Plans

1. Eligibility & Access: GO-Starter is designed for small businesses who want to offer a 401(k)-type plan to their employees. It is designed to be generally accessible to almost all employees who live in the U.S. In contrast, state-offered programs are available only in specific states and only for employees who reside in that state.
   
2. Plan Type: The GO-Starter plan is a 401(k) plan, which provides both employees and employers with the opportunity to contribute to a retirement fund. On the other hand, state-offered plans are often structured as IRAs, typically Roth IRAs, meaning they are owned by each individual employee and not the employer.
   
3. Control & Customization: With 401GO’s GO-Starter, employers have more flexibility in terms of plan structure and investment options. Employees also have a wider range of choices for their contributions. State-offered programs are not plans, and therefore have few, if any, customization options.
   
4. Administrative Effort: Both options aim to simplify the process of retirement savings, but the 401GO plan is particularly designed to minimize administrative costs and workload for businesses with automation technology. State-offered programs require some work on the part of employers, to maintain a current employee census and educate new hires about the program.
   
5. Investment Options: 401GO offers a broader selection of investment options for employees compared to most state-offered retirement plans, which typically have limited choices managed by the state.
   

Conclusion

Both 401GO’s GO-Starter plan and state-offered retirement plans serve a vital role in helping individuals save for retirement, but they cater to different needs and situations. GO-Starter is a more flexible, customizable solution for small businesses and self-employed individuals who want to offer employees a traditional 401(k) retirement plan. State-offered retirement plans, meanwhile, are a simpler, more accessible option for workers in states where businesses are required to participate. Choosing the right option will depend on your specific needs—whether you’re a small business owner, an employee, or an individual looking to secure your financial future.

The post GO-Starter vs. State-Offered Retirement Programs: What’s the Difference? appeared first on Fast and Affordable 401k for growing businesses.

Batman vs. Superman. Hulk vs. Wolverine. Frankenstein vs. Dracula. These are legendary contests, and while we don’t claim that 401GO vs. Colorado SecureSavings is as entertaining as the others, we assert that the results are much more relevant. Our contest is more like a presidential debate than a boxing match, and we’re letting you decide who the winner is.

The Premise

Here at 401GO, we want as many people as possible saving for their retirement. That’s why we started our company — to help small businesses offer retirement plans to their employees. So you might think we would be in favor of Colorado SecureSavings, and in a way, we are. Colorado SecureSavings is much better than nothing. It’s just not as good as 401GO.

What Is Colorado SecureSavings?

Created by the state government, Colorado SecureSavings aims to address the 40% of workers in the state who don’t have access to a retirement plan — almost a million people. Under the state law, employers are required to offer this plan to their employees, unless they have another retirement plan in place already.

As a small-business owner, you may wonder what the Colorado plan offers that workers cannot get by simply opening their own IRA, and the answer is: not much. The hook is that when employees sign up, the money comes directly out of their paycheck, before they get a chance to spend it. This kind of savings is marginally better than paying too much in taxes in order to get a big “refund” in the spring, but you can do better for your employees.

What Is 401GO?

With 401GO, you get many more options as an employer — and more control.

One of the greatest barriers — whether real or perceived — to small-business owners sponsoring a retirement plan for employees is the time and money it takes to get the plan up and running. Some small-business owners simply can’t afford it, while others just don’t want the bother. With 401GO, you can get a 401(k) or IRA program up and running in minutes — not days, weeks or even months. And the cost is minimal.

We concede that this minimal cost (usually $79 per month plus $9 per participant) is greater than the cost of Colorado SecureSavings (zero!), but we believe that you get what you pay for. Free plans are typically worth what you pay for them.

How Is 401GO Better?

One great benefit of working with 401GO is that you get to choose your investment options. You may not be immediately excited by this if you are not familiar with investment options and making choices about them. However, you don’t have to do it alone. We offer guidance via our portfolio builder, but you are also completely free to use your accountant or financial advisor, or make the choices on your own.

You are likely aware that investors should make different choices depending on factors such as their age and risk tolerance, and if this is not an option, employees will not be well-served by your plan. Additionally, without options or proper knowledge, investors may find themselves in a default investment that doesn’t perform well. This can have a tremendous impact on the size of an employee’s nest egg.

Many financial sites devote time to demonstrating how money can grow exponentially over the years, and how impactful it is to start young. Imagine that two workers — one who works at a small business that uses Colorado SecureSavings and another who uses 401GO — invest the same amount of money, but one comes out much richer in the end. Choices matter.

Other Important Differences

With Colorado SecureSavings, employers cannot make contributions to their employees’ retirement accounts. You may believe you are not in a financial position to make contributions yet either, but you may be able to one day. And with Colorado SecureSavings, that is not an option.

One of the biggest draws for employees looking for work is benefits, and specifically a 401(k) with a match. The establishment of a 401(k) program demonstrates the stability of the company as well as the employer’s dedication to workers’ well-being. It puts you ahead of the pack of companies trying to attract the best talent.

And because 401GO offers payroll integration, it’s easy for your company to make the necessary deductions and payments every pay period. Not so with Colorado SecureSavings — deductions must be made manually every pay period. They say the program is free, but they don’t count the hours of labor you must dedicate to facilitation.

The Verdict

We will leave the final tallying up to you, but we have full confidence that shrewd small-business owners in Colorado will see the benefits of working with 401GO. To learn more about 401GO, peruse our site or chat with us today.

The post Colorado SecureSavings Pros and Cons appeared first on Fast and Affordable 401k for growing businesses.

Everyone’s Doing It

A retirement plan is a benefit. You may think it’s not, because you’re being forced to offer it. But wages are beneficial too, and you are required to pay those as well. Regardless of whether you want to call retirement mandates benefits, the bottom line is that every business owner who meets the state’s requirements must offer a retirement plan. So, like wages, what is happening is that workers are shopping around for the best deal for them. How can you play (and win) this game?

Nearly half of all businesses in the U.S. are small businesses. As such, they are exempt from many of the rules that larger businesses must follow, the reasoning being that if these rules applied to small businesses, there wouldn’t be any, because the costs and the time associated with following the rules would be too onerous. The ability to open your own business and eventually become successful (and possibly even rich) is the concept that America was founded on. Never mind that you need to find a lender to start the business and that most fail within 10 years — everyone who starts one plans to be the exception.

You may have researched your field and your options carefully before starting down the path to becoming a sole proprietor. But there are always pitfalls along the way. Maybe you opened a coffee shop and the tenant in the big office building across the street pulled up stakes and moved across the border. Maybe you used to make jewel cases for CDs, and then they became obsolete. Maybe you started a tech, accounting or another kind of firm and now the state wants you to provide retirement plans to all your employees.

The last scenario is the best one, because state-mandated retirement plans are not exactly ruinous to small businesses. It’s not like you have to sponsor your own retirement plan for your employees — you merely have to ensure employees can access the state’s retirement plan. In most states with retirement mandates, this means automatically enrolling all your eligible employees in the plan (they are allowed to opt out).

Separating the Wheat from the Chaff

State-sponsored plans can affect how level the playing field is among small businesses that are in competition with each other. Let’s stick with the coffee shop example. Say there are three coffee shops downtown, and you own one. None of the shops offers benefits, and all pay about the same. Employees cycle through them, hoping one is better than another. Other companies in town that hire unskilled workers offer a retirement plan, and the best workers are drawn to these companies, leaving the coffee shop owners with the rest.

But now there is a state mandate for retirement plans. Employees can get them anywhere — they don’t need to seek out employers that offer them. Suddenly, you can better compete with these other employers. The quality of your workforce may improve. It would, however, theoretically improve equally with the other two coffee shops. How could you differentiate your shop?

State mandated retirement plans are much better than no plans, but as with government-run health care, the private sector can probably do better. State plans are the bare bones, the bottom of the barrel. But only companies with no plan are required to offer them. If you have your own retirement plan, you can turn your nose up at the state plan.

Get a Leg Up

You may not have fantasized about starting a retirement plan for your employees, but now may be the perfect time. The stumbling block for many small businesses has been the cost and the expense of starting a plan. But that’s why we founded 401GO — to help small businesses start retirement plans quickly and easily. While other, large financial companies take weeks or even months to get plans up and running, you can get your plan started with 401GO in as little as 15 minutes. And the costs are minimal. Think about the caliber of employees you can attract with your very own retirement plan.

And if we dare imagine a benefit even sweeter, you may want to offer some type of employer match as well. The thing about state-mandated plans is that they are IRAs that belong to the employee — thus, workers have no incentive to remain at the same company the way they do if there is a company match and a vesting schedule. Not only will potential employees find your company more attractive for having your own retirement plan and offering a company match, they will have more respect for you, your business and how you manage it. Your employees will view you in a less adversarial way, and look at you more as a benevolent leader.

A Few Do’s and Don’ts

If sponsoring your own retirement plan doesn’t sound feasible for you, brainstorm other ways you may be able to set yourself apart from the competition in order to attract better talent. Can you afford to pay higher wages? A flexible schedule is important to job satisfaction. Treating employees fairly and respectfully is always appreciated. If you operate a food establishment, allowing employees to eat and drink for free is probably a worthwhile offering, but if you don’t, FYI, few employees appreciate free pizza or coffee as much as a retirement plan or some cold, hard cash.

Think about what would work best for you, and don’t hesitate to contact 401GO for help and more information about sponsoring a retirement plan at your small business.

The post State Retirement Mandates and Hiring: Attracting Talent to Small Businesses appeared first on Fast and Affordable 401k for growing businesses.

These figures are proof that the new mandates — currently active or in the works in close to half of all U.S. states — are helpful in getting Americans to save for their retirement. But is there a plan that’s even more helpful?

What’s Good About OregonSaves

When OregonSaves was first implemented, about two-thirds of all employees in the state had no retirement program at their workplace. Because the average Oregonian who was close to retirement age had an average of $12,000 saved for financing their golden years, state lawmakers felt that creating a way for more Oregonians to save was practically an emergency.

A common criticism of Secure Choice programs is that they merely offer workers a Roth IRA — a savings vehicle they can easily get on their own, regardless of employment. But studies showed that only 3.5% did, versus 70% of those offered the option through their employer. When you ask why, the obvious answer is that it’s easier to enroll at work than to go out and get a Roth IRA on your own. But there are other reasons as well. Opening an IRA without help can be intimidating, especially to younger people and those who are not well-versed in retirement accounts and how they work. Although many people know it’s important to have a retirement plan in place that you contribute to regularly, they put it off.

Additionally, Secure Choice plans provide an easy way to contribute — the money comes directly out of workers’ paychecks. They don’t have to log onto an account to make a contribution, and they don’t have to think about whether they will talk themselves out of contributing this pay period, convinced they need the money for something else.

Right now, OregonSaves has an almost 77% participation rate. The law says that workers must be automatically enrolled in the program, but are given the option to opt out. Inertia works in everyone’s favor here, as a lot of workers don’t take the time or trouble to remove themselves from the plan.

While many retirement plans start workers out with a 3% contribution, OregonSaves starts at 5%, and it increases 1% every year workers stay in the plan until it gets to 10%.

Another advantage to workers participating in OregonSaves is that their accounts are portable, and they can take them with them from job to job (as long as the job is in Oregon).

The advantages of the plan for employers are numerous. Employers have almost no responsibilities with a Secure Choice plan. They have to offer it, but there are no choices or employer contributions to make, and expenses are minimal.

Too Good to Be True?

Oregon wants everyone to know about its progress in getting workers to save for retirement, but the program has some negatives to temper its positives.

Automatic enrollment feels like theft to some Oregon workers. Employees whose opt-out instructions came via email from a source they didn’t recognize sometimes didn’t open the email, and had not been sufficiently informed by their employers of the impending deduction. Once they noticed the money missing, they tried to opt out, but this can be easier said than done, with workers complaining it takes months to get themselves removed from the program, or that the opt-out button they needed to click resulted in a 404 error. This can result in true lost wages, as when they ask for their money to be returned to them, they can be hit with a fee for withdrawing retirement funds early.

Some employers complained that payroll deductions and contributions to the plan are only automatically made if you use certain pre-approved payroll companies. Otherwise, the bookkeeping falls to the employer. And even if OregonSaves works with your payroll company, each transaction means an added fee for the employer, which sometimes amounts to more than the contribution itself.

Customer service has been notoriously bad, with callers reporting surly agents, wait times of over an hour, hangups and repeated requests to divulge their Social Security number or EIN. Results take days or weeks longer than callers are initially told, and indignation over this is partly due to the state outsourcing the management of this program to a private company to which employers are legally required to provide employees’ private information such as Social Security numbers.

Those who stay in the program report paying high fees for management of their retirement income — fees they would not have to pay if they opened their own IRA independent of OregonSaves.

Additionally, a Roth IRA is funded with after-tax dollars, offering employees no benefit of a tax deduction like they would get with a traditional IRA.

The 401GO Difference

While it’s probably true that some Secure Choice programs are better run than others, the bottom line is that you will likely rarely get the quality service you expect with a private company from a government-run plan.

A 401(k) retirement plan through 401GO is superior to OregonSaves in every way.

• Contribution maximums are higher — employees can save more than three times as much of their own money with a 401(k), and can benefit from tens of thousands in employer contributions as well.
• Fees for participants are lower, so they get more out of their investments.
• Plan management is easy and customer service is top-notch.
• Employees place a much higher value on a private 401(k) plan than OregonSaves, meaning you can attract better talent if you opt to sponsor your own retirement savings plan.
• Choices are much greater, so participants are not stuck with funds they don’t want and a performance they believe is lackluster.

The new starter-k plan type is a great alternative to OregonSaves too. These plans have similar plan limits and designs, but for just $25/month (in 2024) small businesses can get a much higher quality plan with better support and no government involvement.

These are the major benefits, but there are so many more. For instance, if you have a trusted financial advisor, we will work directly with them to create the plan you want. Our fees are low — much lower than behemoth investment banks — and our results are no less robust. Setup is fast, easy and cheap. Plus, you can get tax breaks on setup and employer contributions. Are you ready? Start today.

The post OregonSaves Pros & Cons appeared first on Fast and Affordable 401k for growing businesses.

The problem is that only about a third of working Americans have any type of retirement account, partly because many work at small businesses that don’t offer them. For this reason, many state governments have created retirement programs that businesses are invited — or required — to participate in. If you’re a small-business owner, you need to know if your state has a mandate and if it does, what you need to do to comply.

States That Have Retirement Plans

As of this writing, 20 states (and two cities — New York and Seattle) have passed legislation to establish retirement plans. They are:

• California
• Colorado
• Connecticut
• Delaware
• Hawaii
• Illinois
• Maine
• Maryland
• Massachusetts*
• Minnesota
• Missouri*
• Nevada
• New Jersey
• New Mexico*
• New York
• Oregon
• Vermont
• Virginia
• Washington*

But many more states are in the process of legislating retirement plans, so if you think you don’t need to worry about it, you’re probably wrong.

Each state has its own rules, and if you operate a business in one of them, it’s important you know what the rules are and follow them, to avoid unpleasantness such as fines and penalties. Below is an FAQ based on the types of questions we’re hearing from small-business owners like you.

Wait, is it even mandated?

Some states with retirement plans targeted to employees of small businesses are voluntary (that’s what the asterisk is for in the list above), not mandated. So of course, there are no penalties associated with failing to implement these programs. Instead, they are meant to provide an easy — and free! — way for small-business owners to provide a worthwhile benefit to their employees.

How many eligible employees trigger the mandate?

For small businesses to be required to participate, they usually must have a minimum number of employees, and this number is often five. This minimum number is slated to change, however, in some states, like California, where it goes down to one eligible employee in 2025, and Oregon, a state with a phase-in with no fewer than six stages of varying requirements. So you need to understand not only what the rules are right now, but what they’re going to be next year and each year after that.

Some states have other requirements outside of employee headcount, such as how long your business has been operating and whether you use an automated payroll system.

What type of plan is mandated or available?

Each state has its own plan with its own name — CalSavers, Colorado Secure Savings Program, OregonSaves, etc. While a couple states offer MEPs (group 401(k) plan), the vast majority are Roth IRAs.

[Sidebar: What is the difference between a traditional IRA and a Roth IRA? Roth IRAs are funded with after-tax dollars, while traditional IRAs are funded with pre-tax dollars. This means if an employee has a Roth IRA, they will not need to pay taxes on their retirement income once they start drawing on it. But if they have a traditional IRA, they will pay taxes on each withdrawal. It sounds like a choice of pay now or pay later, and it is, but the idea behind being able to make this choice is that if you start a Roth IRA when you are young (and presumably in a lower tax bracket), less of your retirement income will be eaten up by taxes than if you paid them later, upon retirement, when you would likely be in a higher tax bracket.]

What is a qualified private retirement plan?

Many states allow you to operate a qualified private retirement plan in lieu of using their plan. You must have your plan up and running and registered by your state’s deadline to avoid fines and penalties.

What qualifies as a qualified private retirement plan? It can be complicated and vary from state to state. Basically, the plan you choose must conform to IRS standards. The IRS has some rules about tax deductions that apply to different retirement plan contributions. If your state (or city) requires small businesses to offer a retirement plan to employees and you don’t want to use the state plan, you must find out what your state deems an acceptable alternative. The requirements of each state can be different.

What are the penalties if I do not implement the mandate in time?

As you may guess, each state has different penalties. They range from as low as $20 up to several thousand dollars, and are usually levied per employee, based on the time period you are out of compliance.

If you’re thinking of offering your own qualified private retirement plan as an alternative to your state’s plan, consider working with 401GO. Our clients love how easy it is to get a plan up and running with us, and how affordable each plan is.

The post Complying with State Retirement Mandates appeared first on Fast and Affordable 401k for growing businesses.

Do workers know something that legislators don’t? Or do lawmakers have selective vision when making rules that govern enormous pots of money?

Consider these very obvious problems.

Limited Choices

Some will say that a few choices are better than no choices at all, but that’s certainly open for debate. For example, in some states the default investment is intended to earn nothing. It aims to earn zero, and to lose zero. But participants pay for the privilege of putting their money in this non-interest earning fund. They would be better off stuffing their cash in the mattress.

Even with those investments that earn money, the dividends are usually small. An investor with a small amount of education and ambition could easily get a better return from a private IRA, a brokerage account, or sometimes even a money market account at their local bank. 

Limited Portability

Portability was touted as a feature of state secure choice plans, but it doesn’t take much looking to discover that portability of these accounts is a bigger problem than a solution. The idea of the account belonging to the participant instead of to the employer is solid, but the practicalities get in the way.

The portability only works if the participant moves from one secure-choice-participating employer to another. And since most states have fewer than half of their businesses participating, the likelihood of multiple jobs all offering the same plan is low. What happens to the state-run IRA account if the employee moves to a company with a 401(k)? What if the participant pursues employment in another state? 

Now the employee is saddled with an account that no longer functions as intended (as a payroll-deduction plan) and cannot be rolled into a 401(k). Participants are left to pay for an account they may no longer be using, or withdraw the funds and pay taxes on them. Most of these funds never make their way into another retirement account. Is this good for workers?

Limited Flexibility

Most of the states are implementing Roth IRA plans, which are good for some, but certainly not for all. Since they are designed to cater to a broad population, they are not suitable for everyone’s financial circumstances or goals, and they do not come with the ability to select a non-Roth option.

Roth accounts tend to be useful for younger workers, who will probably have a larger income in retirement than they do currently. They are often less useful for older workers who are at the peak of their earning potential. 

Roth IRAs do not allow employer contributions, so even those businesses that can afford it and want to contribute cannot do so with this type of plan. Add to that the much, much lower contribution limits of an IRA as compared to a 401(k), and you have two big reasons why the earning potential within a 401(k) is far greater than with an IRA.

And the flexibility problems don’t end there. High-income earners are often not eligible to contribute to an IRA. And those employees who have private IRAs already will not increase their savings potential at all, since contribution limits are not enforced per account, but rather per person. In fact, employees that aren’t watching closely could find themselves in trouble if they over-contribute because they now have two separate IRA accounts.

Government Involvement

Secure choice plans are all created by state legislation, and all overseen by government entities. Governments, even those in the most responsible states, are not known for their competence or efficiency, leading most small business owners to prefer that states engage a private company to provide the management. Do you really want the government involved in your retirement savings? Trust in government sits at an astoundingly low 14%.

The upside of government involvement (at least theoretically) is worker protections, but since state IRA plans are not subject to ERISA rules, those protections do not apply.

And consider the potential for political interference, turning retirement accounts into political weapons. Or changes to legislation that might make it difficult for workers to plan appropriately. Or restrictions to participants’ freedom to use their funds. And what happens if the federal government makes laws that interfere with the state laws?

Who really has the power over these plans?

Fees, Fees, Fees

Because state IRA plans are free to employers, it is the workers who pay all the fees. In some states these fees are within industry norms (at least for now), but in others the fees are very high. California, for example, charges almost a full 1% to participants, triple what they would pay with a privately-held IRA.

These fees add up over time, not just in dollar amounts, but also in lost growth. The fees paid to managing bodies are dollars that could have been earning much-needed dividends. And, if they are invested in funds that are not bringing a good rate of return, the fees could actually make them lose money in their retirement savings accounts.

Which leads me to wonder, who benefits from state IRA plans?

The Players that Benefit Most from Secure Choice Retirement

It’s hard not to see state-mandated retirement plans as a money making scheme for the government and a very small number of private companies. Just two big corporations manage almost all of the state plans. States are creating new regulatory and oversight boards, and vast bureaucracies to manage accounts and serve participants.

Increasingly, the movement looks like one big “good ol’ boys” club, aimed at enriching the wealthy and empowering the powerful at the expense of the average American employee.

It’s not as if the retirement industry was pure as the wind-driven snow before the states stepped in. The legacy retirement plan providers are behemoth companies that have spent their energy focusing on whales — the largest businesses with the wealthiest retirement plans. For four decades, they have ignored the vast majority of workers, those that work for small companies.

It’s no accident that the state solutions started coming about at the same time that fintech solutions were entering the market. The need was so great that someone had to act. But in terms of which has the power to make a substantial difference for workers, fintech 401(k) plans are vastly superior to state IRAs.

For the sake of brevity, I’ll just mention a few quick bullet points to illustrate my point.

• Contribution limits for 401(k) plans are almost 10x what’s allowed in IRAs, making them a much more effective savings vehicle.
• Employers have the option to provide funds to their employees within a 401(k), again increasing their ability to save.
• Most of the fees are paid by the employer, so the fees to the participant are kept within reasonable limits. Because fintech companies are relying heavily on automation, they are able to keep costs very low for both employers and employees.
• While 401(k) portability is not as good as it could be, it is possible to roll one 401(k) into another, or leave the old one in place for what is often a reduced fee.
• Scrappy fintechs provide much better customer service than government bureaucracies. Governments have no competition and don’t care if you leave them a bad review. 
• Fintech 401(k)s are built specifically for the market that is the most left behind and the most in need — small companies with fewer than 100 employees. In fact, even those with fewer than 5 employees can still get an affordable retirement benefit for their employees.
• New 401(k)s come with lots of tax credits. IRAs come with zero.

Don’t Fall for the Hype

If your company is one that is being forced to offer a retirement benefit, let me offer two pieces of advice. 

First, at least investigate a fintech 401(k) option before choosing the state plan. There is a reason why more than half of small companies will choose a private option over a state IRA, and another 25% of those that choose the state plan will change their mind.

Second, seriously consider seeking the counsel of a good financial advisor. Regulations and economic forces of all kinds are plaguing small companies, and a smart advisor could save your company thousands of dollars, as well as helping setup and manage a good retirement plan.

Stick it to the good ol’ boys club and talk to 401GO. We can help you get a good retirement plan setup in just minutes at a price point you can actually afford.

The post Is Secure Choice Good for Workers? No. It’s Not. appeared first on Fast and Affordable 401k for growing businesses.

Employers who will fall under the mandates in the coming year may wonder whether this plan or an alternative is the best choice for them.

The Retirement Problem in Maryland

It’s estimated that up to 70% of the employers in Maryland are small businesses. Nationally, less than 25% of workers at companies with 10 or fewer employees have access to a work-sponsored retirement plan. With increased reliance on social services, which is ill-equipped to provide a comfortable living, it’s important to help employees become more involved in their own retirement planning.

The Maryland program is patterned after other successful programs, such as OregonSaves and CalSavers, with a couple of unique additions. It’s intended to provide a savings option for those who don’t already have one, not as a replacement for existing retirement plans.

MarylandSaves: The Details

This program, like several others, is essentially a payroll-deduction Roth IRA. It is for companies that have been in business at least 2 years, use a payroll service, and do not already offer a retirement plan to employees.

The accounts essentially belong to the employee, and can move with them from job to job, with no need for a rollover or other change.

Employees are automatically enrolled in the plan, at a default contribution rate of 5% of gross income. Participants can opt out, or they can change their contribution level any time. The plan also features auto-escalation, which increases their contribution by 1% per year, up to 10% of the gross income. The first $1000 are deposited into an emergency savings account, and subsequent funds are deposited into the IRA.

One unique feature of the program is the bridge option, which allows participants to defer their Social Security enrollment and receive MarylandSaves funds instead. Since many Americans claim Social Security before the full retirement age (67), which prohibits them from receiving full benefits, this deferment can potentially be useful to help Marylanders claim their full amount.

The program is available at no fee to employers, and they have no fiduciary or plan management responsibility. The employer is also barred from contributing to employees accounts. Their only obligation is to enroll, and to facilitate the payroll deduction.

At this time, no compliance timeline or penalties have been established.

The Dark Side of Secure Choice

The benefits of the Maryland program are clear: no cost and no liability for employers means the main barriers to work-provided retirement planning are removed. A closer look reveals some potential downsides.

1) Income Limits: If employees earn too much, they are not eligible for the program. It’s also not an effective vehicle for those who are close to retirement.

2) Contribution Limits: Far lower than a 401(k), Roth IRAs only allow contributions of $6,000/yr. If an employee has an additional private IRA, they’ll need to track these limits themselves.

3) No Matching: Employers are barred from making matching contributions to employee accounts.

4) No Protection: The Illinois program is not subject to worker protetctions under ERISA, which requires fiduciary oversight, plan information to be provided to participants, and the establishment of a grievance and appeals process.

5) No Tax Benefit for Employees: Since Roth IRA contributions are made post-tax, workers looking for more immediate tax benefits will not get them. By contrast, 401(k) plans offer both pre- and post-tax contributions.

6) Poor Investment Options: The small selection of investments available to Illinois employees may not be suitable for everyone. And, the default age-based target-date funds have been underperforming and may not be very helpful in accomplishing wealth building.

7) No Proven Effectiveness: Oregon was the first state to mandate a secure choice plan, which began in November 2017. By April 2020, the average account balance of it’s 67,000 participants was only about $750. This calls into question how useful these plans really are for encouraging retirement readiness.

The Best Alternative to Secure Choice: a 401(k)

If an employer is required to participate in something, they may find a 401(k) to be a better option for their business than the state-mandated program for several reasons. Most of these reasons are apparent when the downsides of secure choice programs are clearly understood, but three main benefits stand out.

1) Tax Benefits: Implementing a new 401(k) plan can potentially qualify an employer for up to $5000/yr in tax credits for 3 years. And, matching contributions are usually tax deductible. Many employers find they prefer to give the money to employees rather than spend it in taxes.

2) Employee Retention: A surprisingly high percentage of employees would rather receive additional benefits than a pay raise, and more than half consider benefits when deciding whether to accept a new job.

3) Less Burdensome than in the Past: Especially for small businesses, traditional 401(k) plans have been expensive, complicated, and come with excessive liability. New platforms like 401GO provide employers with an option that is inexpensive, unbelievably fast, and very low in administrative burdens and fiduciary liability. 

Understand the Options

New platforms like 401GO are becoming available now that give smaller employers flexibility and freedom that they never had access to before. For less than the cost of a gym membership, a business owner can give workers a robust 401(k) plan that levels the playing field and lets them compete in the labor marketplace.

Consider these features:

1. Automated setup takes just minutes, not weeks.
2. Automated administration, compliance, and payroll integration require almost no time from employers and eliminate worries.
3. The easy-to-use platform gives participants easy account access, increased control and hundreds of investment options.
4. Live, world-class customer support is available to both employers and employees.
5. Plan flexibility allows employers to add the components that meet their needs.
6. The financial wellness tool helps users make wise financial choices and build their wealth.
7. 401GO serves as the fiduciary, the administrator and the recordkeeper, removing these worries from business owners.
8. At just $9/user/month with no setup fees, 401GO is much more affordable than competitor plans.

Ask for more information, become a partner, or start a plan today.

The post MarylandSaves Retirement Program: Pros and Cons appeared first on Fast and Affordable 401k for growing businesses.

Employers who will fall under the mandates in the coming year may wonder whether this plan or an alternative is the best choice for them.

The Retirement Problem in Connecticut

It’s estimated that almost 600,000 workers in Connecticut do not have access to a work-sponsored retirement plan. With increased reliance on social services, which is ill-equipped to provide a comfortable living, it’s important to help employees become more involved in their own retirement planning.

My CTSavings is patterned after other successful programs here in the U.S. It’s intended to provide a savings option for those who don’t already have one, not as a replacement for existing retirement plans.

My CTSavings: The Details

This program, like several others, is essentially a payroll-deduction Roth IRA. It is for both for-profit and non-profit companies that have at least 5 employees who received at least $5000 in wages during the previous year, and do not already offer a retirement plan.

The accounts essentially belong to the employee, and can move with them from job to job, with no need for a rollover or other change.

Employees are automatically enrolled in the plan, at a default contribution rate of 3% of gross income. Participants can opt out, or they can change their contribution level any time.

The program is available at no fee to employers, and they have no fiduciary or plan management responsibility. The employer is also barred from contributing to employees accounts. Their only obligation is to enroll, and to facilitate the payroll deduction.

Employer Compliance Timeline

My CTSavings has three waves of implementation scheduled.

• Wave 1: June 2022 for 100+ employees
• Wave 2: October 2022 for 26+ employees
• Wave 3: March 2023 for 5+ employees

The Dark Side of Secure Choice

The benefits of the Connecticut program are clear: no cost and no liability for employers means the main barriers to work-provided retirement planning are removed. A closer look reveals some potential downsides.

1) Income Limits: If employees earn too much, they are not eligible for the program. It’s also not an effective vehicle for those who are close to retirement.

2) Contribution Limits: Far lower than a 401(k), Roth IRAs only allow contributions of $6,500/yr (2023). If an employee has an additional private IRA, they’ll need to track these limits themselves, and take care not to over-contribute.

3) No Matching: Employers are barred from making matching contributions to employee accounts.

4) No Protection: The Connecticut program is not subject to worker protections under ERISA, which requires fiduciary oversight, plan information to be provided to participants, and the establishment of a grievance and appeals process.

5) No Tax Benefit for Employees: Since Roth IRA contributions are made post-tax, workers looking for more immediate tax benefits will not get them. By contrast, 401(k) plans offer both pre- and post-tax contributions.

6) Poor Investment Options: The selection of investments available to Connecticut employees may not be suitable for everyone. The default selection places funds in a money market for 60 days, and then into an age-appropriate target retirement date portfolio. Other retirement vehicles may have an investment lineup that is more robust and effective for wealth building.

The Best Alternative to Secure Choice: a 401(k)

Employers may find a 401(k) to be a better option for their business than the state-mandated program for several reasons. Most of these reasons are apparent when the downsides of secure choice programs are clearly understood, but three main benefits stand out.

1) Tax Benefits: Implementing a new 401(k) plan can potentially qualify an employer for up to $5000/yr in tax credits for 3 years. And, matching contributions are usually tax deductible. Many employers find they prefer to give the money to employees rather than spend it in taxes.

2) Employee Retention: A surprisingly high percentage of employees would rather receive additional benefits than a pay raise, and more than half consider benefits when deciding whether to accept a new job.

3) Less Burdensome than in the Past: Especially for small businesses, traditional 401(k) plans have been expensive, complicated, and come with excessive liability. New platforms like 401GO provide employers with an option that is inexpensive, unbelievably fast, and very low in administrative burdens and fiduciary liability. 

Understand the Options

New platforms like 401GO are becoming available now that give smaller employers flexibility and freedom that they never had access to before. For less than the cost of a gym membership, a business owner can give workers a robust 401(k) plan that levels the playing field and lets them compete in the labor marketplace.

Consider these features:

1. Automated setup takes just minutes, not weeks.
2. Automated administration, compliance, and payroll integration require almost no time from employers and eliminate worries.
3. The easy-to-use platform gives participants easy account access, increased control and hundreds of investment options.
4. Live, world-class customer support is available to both employers and employees.
5. Plan flexibility allows employers to add the components that meet their needs.
6. The financial wellness tool helps users make wise financial choices and build their wealth.
7. 401GO serves as the fiduciary, the administrator and the recordkeeper, removing these worries from business owners.
8. If you currently use a financial advisor, the advisor can partner with 401GO to help manage your plan.
9. At just $9/user/month with no setup fees, 401GO is much more affordable than competitor plans.

Ask for more information, become a partner, or start a plan today.

The post Connecticut Retirement Program My CTSavings: Pros and Cons appeared first on Fast and Affordable 401k for growing businesses.

Employers who will fall under the mandates in the coming year may wonder whether this plan or an alternative is the best choice for them.

The Retirement Problem in New York

It’s estimated that more than 4 million workers in New York do not have access to a work-sponsored retirement plan. With increased reliance on social services, which is increasingly ill-equipped to provide a comfortable living, it’s important to help employees become more involved in their own retirement planning.

The New York program is patterned after other successful state programs. It’s intended to provide a savings option for those who don’t already have one, not as a replacement for existing retirement plans.

New York SCSP: The Details

This program, like several others, is essentially a payroll-deduction Roth IRA. It is mandatory for private-sector companies that have been in business at least 2 years, and have at least 10 employees, and do not already offer a retirement plan to employees.

Employees are automatically enrolled in the plan, at a default contribution rate of 3% of gross income. Participants can opt out, or they can change their contribution level any time.

The accounts essentially belong to the employee, and can move with them from job to job, with no need for a rollover or other change. Employers must offer an open enrollment period at least annually, during which time employees who have opted out are able to re-enroll.

The program is available at no fee to employers, and they have no fiduciary or plan management responsibility. The employer is also barred from contributing to employees accounts. Their only obligation is to enroll, to provide notification to employees, and to facilitate the payroll deduction.

Compliance timelines and penalties have not yet been established.

The Dark Side of Secure Choice

The benefits of the New York program are clear: no cost and no liability for employers means the main barriers to work-provided retirement planning are removed. A closer look reveals some potential downsides.

1) Income Limits: If employees earn too much, they are not eligible for the program. It’s also not an effective vehicle for those who are close to retirement.

2) Contribution Limits: Far lower than a 401(k), Roth IRAs only allow contributions of $6,500/yr (2023). If an employee has an additional private IRA, they’ll need to track these limits themselves.

3) No Matching: Employers are barred from making matching contributions to employee accounts.

4) No Protection: The New York program is not subject to worker protections under ERISA, which requires fiduciary oversight, plan information to be provided to participants, and the establishment of a grievance and appeals process.

5) No Tax Benefit for Employees: Since Roth IRA contributions are made post-tax, workers looking for more immediate tax benefits will not get them. By contrast, 401(k) plans offer both pre- and post-tax contributions.

6) Poor Investment Options: The small selection of investments available to New York employees may not be suitable for everyone.

The Best Alternative to Secure Choice: a 401(k)

If an employer is required to participate in something, they may find a 401(k) to be a better option for their business than the state-mandated program for several reasons. Most of these reasons are apparent when the downsides of secure choice programs are clearly understood, but three main benefits stand out.

1) Tax Benefits: Implementing a new 401(k) plan can potentially qualify an employer for up to $5000/yr in tax credits for 3 years. And, matching contributions are usually tax deductible. Many employers find they prefer to give the money to employees rather than spend it in taxes.

2) Employee Retention: A surprisingly high percentage of employees would rather receive additional benefits than a pay raise, and more than half consider benefits when deciding whether to accept a new job.

3) Less Burdensome than in the Past: Especially for small businesses, traditional 401(k) plans have been expensive, complicated, and come with excessive liability. New platforms like 401GO provide employers with an option that is inexpensive, unbelievably fast, and very low in administrative burdens and fiduciary liability. 

Understand the Options

New platforms like 401GO are becoming available now that give smaller employers flexibility and freedom that they never had access to before. For less than the cost of a gym membership, a business owner can give workers a robust 401(k) plan that levels the playing field and lets them compete in the labor marketplace.

Consider these features:

1. Automated setup takes just minutes, not weeks.
2. Automated administration, compliance, and payroll integration require almost no time from employers and eliminate worries.
3. The easy-to-use platform gives participants easy account access, increased control and hundreds of investment options.
4. Live, world-class customer support is available to both employers and employees.
5. Plan flexibility allows employers to add the components that meet their needs.
6. The financial wellness tool helps users make wise financial choices and build their wealth.
7. 401GO serves as the fiduciary, the administrator and the recordkeeper, removing these worries from business owners.
8. If you currently use a financial advisor, the advisor can partner with 401GO to help manage your plan.
9. At just $9/user/month with no setup fees, 401GO is much more affordable than competitor plans.

Ask for more information, become a partner, or start a plan today.

The post New York Secure Choice Savings Program: Pros and Cons appeared first on Fast and Affordable 401k for growing businesses.

Retirement Planning in California: The Problem

In California, an alarming number of workers, about 7.5 million according to the GAO, don’t have access to an employer-provided retirement plan. Many of them rely on social security and other government benefits to help them survive as they age. But these programs are overburdened and have proven to be an inadequate living income.

The GAO determined that a large number of wage-earners would participate in employer retirement plans if they were offered. Nearly half of all low-income workers who are working for small businesses did not have employer-supported retirement accounts. And, even when retirement plans were available, less than half took advantage of them.

While employees had a variety of reasons why they didn’t participate, the overwhelming number–about 84%–were ineligible, meaning they could not contribute if they wanted to.

In anticipation of future burdens to both workers and the social programs that support them, the state created a program to help the problem and enacted it into law. 

CalSavers: How it Works

CalSavers is essentially a payroll-deduction Roth IRA plan. It’s mandatory for non-governmental employees in both for-profit and not-for-profit companies that have at least 5 employees in California. If companies have a separate retirement plan in place, they are exempt from the mandate.

For employers who have joined the program, their employees will be enrolled automatically. The default contribution rate is 5% of gross income, and it includes an optional auto-escalation feature that will automatically increase the contribution rate by 1% each year until it reaches 8%. Employees are forced into using the system, but they can manually opt out if they want.

Employers are legally restricted from making contributions for or on behalf of the employee, and they have no fiduciary responsibility in regards to accounts of employees. Unlike with 401(k) plans, for example, CalSavers will not allow companies to offer matching funds to employees.

It is illegal for employers or staff to express any opinion either in favor of or opposed to, either encouraging or discouraging participation in the CalSavers program. The program administration is handled by a private business called Ascensus, and not directly by state employees.

Employer Compliance Timeline

Employers need to keep in mind the deadlines they are facing. The deadlines are based on the number of employees.

• With 100+ employees: be registered by Sept 2020
• With 50+ employees: be registered by June 2021
• With 5+ employees: be registered by June 2022

By these dates, employers need to either register to participate in CalSavers, or apply for an exemption based on their current retirement plan. If they are non-compliant for 90 days, they are subject to fines of $250 per eligible employee. After 180 days, the fines double to $500 per eligible employee, an amount that can add up very quickly.

CalSavers Pros and Cons

On its most basic level, the California state-mandated retirement program does exactly what it aims to do: it makes it possible for companies that do not already have ERISA qualified retirement funds to offer employees a retirement plan option, with no cost or liability to the employer. The low barrier to entry makes it a particularly attractive option to employers.

CalSavers also offers automatic enrollment for employees, and auto-escalation if they want to increase their contributions to as much as 8% of their gross income.

A deeper dive into the program, however, uncovers some concerning issues.

Issue 1: Roth IRAs Are Not for Everyone

Roth IRA accounts are a great option, but they are not great for everyone. The accounts in the state-mandated programs are still subject to federal rules, and many employees may not realize it. 

The main concern is the maximum contribution amount of $6000 per year. If an employee is more highly compensated, making over $120,000 per year, that maximum represents less than 5% of their income. This means if the employee is auto-enrolled at the default 5%, they will find themselves in trouble with the federal government when they contribute too much to their account.

The same problem applies to those who have additional private IRAs. The contribution maximum does not allow for $6,000 per IRA, only $6,000 per contributor. So if an employee is already contributing $4,000 to a privately held IRA, they would only be able to contribute an additional $2,000 to their CalSavers account.

Neither the employer nor the state of California have responsibility to notify the employee of this situation, so participants who aren’t aware of the conditions might find themselves subject to extra taxation. 

Additionally, contributions to Roth IRAs are always made after taxes. Depending on personal circumstances, a participant may be much better off using a plan with pre-tax contributions. CalSavers does not offer this option.

Issue 2: Auto-Enrollment

Auto-enrollment can be a really great way to increase participation rates, but it must be done carefully to avoid causing problems. Employees must be very clearly notified about their enrollment, as well as how they can opt out, and opt out procedures must be simple and easy to follow, even for non-English speakers. 

Since every employer is different, some will inevitably do a better job at this communication than others, leaving some employees essentially in the dark about where their money is going. And Ascensus, the company managing the CalSavers plan, is a large corporation. This could potentially (but not definitely) delay the resolution of errors caused by miscommunication, leaving an employee without their expected money for some time.

These types of issues can be frustrating and problematic for employees, especially those who can least afford delays. It puts employers in the middle, potentially complicating their relationships with employees. In today’s difficult labor market, it’s a problem many employers cannot afford to have.

Issue 3: Earnings and Fees

Perhaps most concerning are the results for participants. CalSavers offers very limited investment choices, and those who are not knowledgeable about investing may find the options confusing. The default fund is a money market fund which aims to have a yield of 0%. It’s designed to not lose money, and the result is that it typically doesn’t make money. 

While some of the options have had good yields, the default fund has not. 

Ascensus charges fees of just less than 1%, usually 0.85%-0.95%. While this may sound like a small amount, it looks quite large when compared to competitor plans. Typical plans available privately charge about half that amount, about 0.45%. This can cost a contributor tens of thousands of dollars over time. In fact, a participant contributing $6000 per year over 20 years might lose more than $100,000 to these fees. 

Even savvy employees may struggle to decide on the best fund, since information about the options isn’t readily available. But, participants who aren’t watchful and careful may find themselves in worse condition than if they had put that money into a savings account at their bank.

Issue 4: Government Involvement

While the state of California has mandated this retirement program, the implementation and management is subcontracted to the lowest bidder, in this case, Ascensus. For business owners, this means finding a way to cooperate with a large corporation that is paid by the state.

Some employers (and employees) are sensitive about what personal information is shared with government bureaucracies. More importantly, many business owners are concerned about any involvement the state will have with their business, and the long-term implications of that involvement.

Issue 5: Lost Opportunities for Employers

Perhaps the main reason employers offer a retirement plan is for the tax benefits. Depending on the state they are in, and the type of plan they use, a business may receive $5000 in tax credits per year for 3 years after setting up a new plan. And, if they contribute to employee’s accounts, they may deduct that expense on their taxes.

Good retirement plans offer some tax advantages for participants as well, allowing them to grow their personal wealth either pre- or post-tax, and receive matching contributions from the employer that aren’t subject to payroll taxes.

Employers typically spend a few hours each month handling administrative tasks related to CalSavers. While some retirement plans also require administrative work, not all do, and newer platforms often relieve much of the burden on employers. CalSavers does not offer payroll integration, and mandates that employers send payroll details every pay period.

Consider These Alternatives to CalSavers

Several good alternatives to CalSavers are readily available.

• Traditional and Roth IRAs (for individuals)
• SEP and SIMPLE IRAs (work-sponsored)
• Traditional and SIMPLE 401(k)s (work-sponsored)
• Solo (k) (for a single self-employed individual plus spouse)
• 403(b) (for non-profits and governments)

An employer-provided 401(k) typically offers low administrative costs, thanks to automation and payroll integration. They give both employers and employees solid tax advantages, they offer a wide range of investment options and more direct control over the accounts. They generally provide better customer service, as well as technology that is constantly improving.

These privately-offered retirement options give employers a valuable tool for improving their employee retention. According to a recent employee confidence survey, 60% of respondents place an emphasis on benefits when deciding whether to accept a job, and 80% say they prefer additional benefits to a pay raise.

It can be particularly beneficial for employers who typically hire low-wage earners. These workers rarely have access to work-sponsored retirement benefits, so a 401(k) can easily attract the highest caliber of employees. Plus, it helps them to be more financially stable, happier, and more likely to stay at their job.

Since traditional 401(k) plans have been expensive and cumbersome in the past, many owners of small businesses have considered them out of reach. New platforms, such as 401GO, provide automated platforms that cut costs, time, and liability so substantially that they are easily within the reach of almost every employer.

Become a 401GO Partner

401GO was built with small businesses in mind, and it is available to both the newly self-employed and larger corporations, and everything in between. Brokers and agents have a unique opportunity to use 401GO for their clients. Helping small businesses that are subject to these new mandates find better solutions can greatly increase your market share and profitability.

401GO offers:

• Automated onboarding in just minutes, not weeks
• Increased user control, easy account access, and lots of investment options
• Affordability, at just $9/user/month
• Plan flexibility that allows employers to add components which suit their unique needs
• Payroll integration that can save time every pay day
• Automated compliance eliminates reporting and testing worries
• Access to actual humans, with live support for both employers and employees

Ask for more information, or become a partner today.

The post CalSavers: The California Secure Choice Program appeared first on Fast and Affordable 401k for growing businesses.