I reached out to Stephen with a question about retirement plans, and even though I’m not a client, Stephen took the time to explain everything I needed to know. After speaking with Stephen at length, it became clear to me that Stephen is someone who has a genuine and sincere desire to educate people so they can make good financial decisions, and who is dedicated to transparency in financial services.
To be more specific, I was trying to find out the basic requirements to set up a 401k plan for a small business. Stephen helped me understand the four components: 1) a plan administrator that puts together the documents that govern the plan and the yearly form 5500, 2) a record keeper that tracks transactions and runs a web portal so employees can manage their accounts, 3) a custodian/trustee that acts like a bank for the money/investments, and 4) an investment/financial adviser — that would be 1080 Financial’s role.
He further explained the pros of having an adviser that is a 3(38) fiduciary: they are required to act in the best interests of their clients and to avoid conflicts of interest. The fiduciary would share with the plan sponsor (i.e. the company setting up the 401k plan for its employees) the liability for making sure employees have appropriate investment choices in the plan, amongst other duties, like being a point of contact for employees.
Stephen went on to detail the ballpark costs involved in creating and maintaining a plan, how those costs can be divvied up between the employer and employees, as well as some of the different ways employers can set up matching (if any) especially vis-à-vis compliance testing (e.g. Safe Harbor plans).
He also turned my attention to other, potentially more cost-effective alternatives for smaller companies. One option Stephen spoke about in detail was a SIMPLE IRA. He explained that this type of individual retirement account has the advantage of no compliance testing and no reporting requirements so you save on admin costs/time, but the annual contribution maximum of $12.5k per employee is lower than the $18k max for a 401k. There’s also a requirement for an employer match of 3% and no wait for employees to be vested in the employer match. Finally, he noted that the SIMPLE IRA can be rolled into a 401k later on. This was an option that I would never have even thought about if Stephen hadn’t mentioned it, but now I could see the pluses, and you get the flexibility to become a 401k plan down the road.
I came away with a far better understanding of retirement plan options than I could’ve imagined. I was impressed with Stephen’s knowledge of retirement planning — he touched on topics from pensions (defined benefit plans) to the tax advantages for employers — and with his ability to explain things in a clear and easy-to-understand manner. Stephen also followed up immediately by sharing a helpful information sheet. Though I had contacted Stephen while strictly on an information-gathering mission and made that clear, Stephen was still patient in his explanations and generous with his time. Thumbs up for Stephen!