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Welcome to The JoyPowered® Workspace Podcast, where we talk about embracing humanity in the workplace. I’m Susan White, a national HR consultant, and with me is my co-host JoDee Curtis, owner of Purple Ink, an HR consulting firm, and author of “JoyPowered®” and “The JoyPowered® Family.”
In today’s episode, we’re going to talk about retirement vehicles offered in workspaces. And we actually have a special new feature we’re going to introduce today on our podcast about sharing best practices. Okay, so JoDee, let’s jump into what do HR people need to know about retirement plans? JoDee, I really am not an expert at this. This is definitely not my sweet spot in the world of HR.
I know enough to encourage people to sign up for one.
Yes, if your company is offering any type of retirement vehicle, be sure and sign up. So I would like to share a couple facts that I found in researching and getting ready for today are from a Willis Towers Watson report released in 2018, entitled “Retirement Offerings in the Fortune 500: A Retrospective.” So a couple of the facts that they revealed were that only 16% of Fortune 500 companies are still offering a defined benefit, which is what you and I think of as pensions, to new hires in 2017. That is down almost 60% since 1998. And then most employers, 84% of Fortune 500 companies now contribute just to defined contribution plans. Back in 1988, 41% offered defined contribution plans. So you can see that that is really up.
Yeah, that – I would have been, known enough to know that those had flip flopped, but I’m still surprised at the significant switch in between the two in that short a time.
Yeah, when I think about millennials, I’m – both of my kids, they are just amazed that I ever worked for a company that offered a pension. They’re like, “Mom, you didn’t have to do anything?” I said, “No, I just had to stay there.” Very, very true.
“So you didn’t have to do anything?”
Yeah, that’s right. That silly thing called work. Right. So JoDee, I’m really excited about our guest speaker today who’s going to help reveal, hopefully, some answers for all of us in the world of retirement. It’s Kevin Ervin. He is the founder of Market Street Wealth Management Advisors, which is a financial planning and investment advisory firm that he started in 2001. I’d love to tell you a few things about Kevin. First of all, he was the Senior Vice President and Manager of Huntington Bank’s private financial group, and before that, he was actually their controller for all of their operations in Indiana. He’s also worked at Arthur Andersen, so he’s got an accounting background like you, JoDee.
And where I first met Kevin was when we worked together at American Fletcher National Bank. And full disclosure here, Kevin is actually my financial advisor, so I have so much faith in him and so excited to share, share a little bit about him with our listeners. So Kevin, is there anything about yourself that I didn’t mention that you’d like to share?
No, I think that’s that’s a pretty good summary of, of what I’ve done in my career. And I’ve kind of crossed paths as a former participant in a pension plan, and now an advisor to a dwindling number of clients who actually have pension plan benefits, as you were saying.
So, Kevin, we mentioned this flip flop between defined contribution and defined benefit plans. Can you tell our listeners and us a little bit more about what the differences between those two are?
I think probably the most important thing is that when employers phased out pension plans, they really shifted the responsibility for retirement planning from the employer to the employee. And from the employee’s perspective, they’re now responsible for managing their own investments while they’re working, and then again after they retire. And when they do get to that time of retirement, there’s no more fixed payments coming in the mail every month arriving in your bank account. So as I said, the risk has really been transferred to the employee. From the employer’s perspective, and why did they do this, then there’s a few reasons. In a defined benefit plan, the cost to the employer was not known. The benefit they had to pay an employee when they retire was known. And what they needed to do was to accumulate money throughout that employee’s work life so that there was enough there to provide this, you know, monthly payment after they retired.
So they were committed to a defined amount of money that every retiree was going to get, and they had to figure out how to either set aside the money and have it invested so that it would be ready at that correct time.
Exactly. And so they were subject to varying returns on those investments in the pension plan. And, you know, changes in the demographics of the workforce as they aged, changes in actuarial assumptions. So there was a lot of risk that the employer was taking on and they, they would rather not have that risk, as it turns out.
I can understand.
From the employee’s perspective, our workforce is a lot more mobile than it used to be. People didn’t start in one employer and stay there for for many years, so a pension plan wasn’t as valued as it once was by, you know, people who’d been in the workforce back in the, you know, 60s and 70s and 80s.
And that, Kevin, I was going to ask you, maybe you just answered it. Which came first, that employees quit working their whole career at, like, my dad worked at the same place for 44 years. Did people start switching jobs sooner, or did the defined benefit plan go away that, so that people started switching more jobs? Was it the chicken or the egg that happened first?
That’s a really good question and one that I’ve not really, you know, fully thought about. I’m guessing you guys probably have as much insight, in your positions, as I do on that. But I think it’s a cultural change and the fact those pensions aren’t there probably have something to do with it.
I would think, you know, I can remember back when, like, GM’s pension plan went bust and some of the other big name ones, I think a lot of employees sort of lost faith that maybe I need to stay at the company and knock myself out for 44 years, because maybe there won’t be a pension plan surviving.
There’s a lot of people working for the state of Illinois right now that still have that concern.
So what do you think that employees should be thinking about given that defined contribution plans is really the the norm of the day and, actually, you should still feel good if you work at a company that has one. What do you think that this all means for employees that might be listening today?
I think the most important thing is that they need to take responsibility for funding their retirement. 401(k)s, in most cases, are not mandatory that people contribute to. There are some plans that do have automatic enrollments, but they can opt out of that. It’s – if young people can get that message to start saving at an early age, that is the most important thing. And unfortunately, they need to get that message at a time where they may have a lot of student loans, starting a family, buying a first home, so it’s easy to put off saving those dollars for retirement when there’s, you know, these other more, what they think are more pressing needs.
What do you think about – there’s such a crisis with student loans. What do you tell your clients if they ask, “should I pay off my student loan or should I invest in a defined contribution plan?”? Which, and I’m sure there’s lots of other factors that go into your answer to that, but in general, what do you recommend?
A lot of times, it depends on if, if there’s a match being provided by the employer.
And the formulas can vary significantly from no match at all to 100% on the first, you know, five or six percent that somebody contributes, or somewhere in between. And it’s real hard for somebody to convince me they shouldn’t take advantage of a guaranteed 50% return on their, return on their money.
Where else can you get that, right?
Exactly. Also, letting the student loan balances continue, if the interest rate’s reasonable, is probably a better way to go.
So I was reading recently about the executive order that President Trump signed on August 31, 2018, where he was asking the Treasury Department to review its rules for mandatory annual withdrawals from traditional 401(k) plans and individual retirement accounts, or IRAs, starting at age 70 and a half. Kevin, I just really would love to hear insights, you know, what are the implications or possible outcomes for businesses and individuals if the age is raised?
If the age is actually raised, for the employer standpoint, it probably means that people might leave their money in their in their retirement plans longer, the balances won’t be coming out. So that would be, you know, one possibility, that there’s there’s still some concern of, is that really what the executive branch is trying to get done. And it might just be that they’re going to review the actuarial life expectancy tables. And those were last updated in 2002, and thankfully, people are living a little bit longer. If that’s the only change that’s made, it’s really going to be pretty immaterial, because it’s just taking smaller amounts out but still starting at the same age. Now, there is a proposal in the House of Representatives that is part of the Family Savings Act. And one of the parts of that is that if a participant has a balance in a employer’s 401(k) plan, or 403(b) plan in case of a not for profit, if the balance is less than $50,000 they don’t have to take any required minimum distributions. Now, this is just a proposal, but if that comes to pass, what you’re going to find is not just the small, small plans, potentially being there, but if I have individual clients, I’m going to urge them to roll over everything but $50,000 into an IRA. The IRAs won’t have that same deferment, that it would inside a 403(b) or 401(k) plan. So, if that, that occurs, then there, there’s going to be a prolonged impact on the employers having to deal with retirees and not be able to force them to take their money out of the plan. And, you know, sometimes I’ve seen employers, for terminated participants, start allocating part of the 401(k) plan fees back to the participants…
…not having the employer pay it. That’s kind of a enticement for them to take the money.
I know when I was an HR director, we tried to do everything to get terminated employees to get their money out of the plan so we didn’t have to keep track of them or… so that would be good. What – Why is there even a mandatory withdrawal age of any kind? If people don’t need the money, why mandate that they have to take it out? And I think maybe I’m answering the question as I’m talking. Is it so then they have, they have to pay the tax on it?
Exactly. So, you know, depending on what age employees started contributing to these, you know, they’ve gotten by without having to pay taxes on it for, you know, in some cases up to 50 years. So the government says, “Okay, you’ve had a free ride, you let these balances accumulate. Now, it’s, it’s time to pay.” So, unfortunately, for most people, by the time they hit age 70 and a half, they need money from their IRAs to live on, so it doesn’t impact them, but for the wealthy who don’t need that money, that they’re, they’re still paying taxes on it.
I can remember when I was a banker back in the early 80s and IRAs were just coming out and I was trying to sell them and so on so forth. And I remember that you could start taking withdrawals at age 59 and a half. That seemed like that would never happen. I couldn’t imagine ever being 59 and a half. Now I’m starting to worry about the 70 and a half. Although I’ve still got about a decade, but yikes.
Kevin, can you give us a short… Well, I don’t know how long, if it’s short or long to tell us a little bit, too, about the difference between a traditional IRA and a Roth IRA?
Sure. And for those of you who are young, pay close attention, because there’s nothing better than a Roth IRA. And the reason I say if you’re young, you have many, many years for the earnings in this account to grow. And the magic of a Roth is that that growth will never be taxed as long as you leave it in there until you’re at least 59 and a half years old. So if you’re an age that you’ve already kind of…
Yes, over 59 and a half.
We don’t have that many more years for that benefit to accrue. But for somebody in their 20s, it’s, it’s extremely important. So, a Roth IRA, you don’t receive a tax benefit when you put the money in. All the benefit is on the back end, that you don’t have to pay taxes on it when you take it out. And under current legislation, you don’t have to take this money out starting at 70 and a half. So it’s a tremendous opportunity. As I said, the younger you are, the more important it is. Contrast that with an IRA, where the money you put in goes in on a pre-tax basis, so the tax advantage is up front, but on the back end’s when you pay income taxes. Now, kind of marrying two topics together here. An increasing number of 401(k) plans now offer a Roth deferral option for money that goes into the 401(k) plan. And what’s really special about that, there are income limitations for Roth IRAs. If you make above a certain amount, you cannot contribute to a Roth IRA. But that income limitation does not apply if you’re contributing into a 401(k) plan as a Roth option.
Then at retirement, you can roll the Roth money into a Roth IRA.
So is it safe to say, in general, I’m sure there’s some exceptions, that you would encourage all employers to offer a Roth option? And then you would encourage all employees to use the Roth option, whether it’s a Roth 401(k) plan or a Roth IRA?
Yes, on the first part of that question. There’s no real cost, at least in the plans that I administer, for the employer to offer a Roth deferral option. When it comes to the individual participant, the facts and circumstances would, would have an impact on whether or not they should do a Roth deferral versus a pre-tax deferral.
And those variables are pretty much their age, as I mentioned earlier, and also what’s their current tax rate.
So the older you are, the higher your tax rate, the more that would favor doing a pre-tax contribution. The younger you are, the lower your tax rate, the Roth options.
Sounds like a good formula.
So Kevin, many of our listeners are HR professionals, and some of them are HR departments of one, there’s the – all they have is who they look in the mirror. That’s that’s their whole team, right? So some of them may be working at firms that don’t offer any type of retirement vehicle. Could you help, kind of help our listeners figure out where do you start when you’re thinking about working with your leadership team to introduce some type of retirement vehicle?
Yes. Well, I would say that listening to this podcast is a good first step.
We’ll take that!
And then I think what would be the best course of action would be to try to find an independent financial advisor to speak with who does not have vested interest in setting up a plan with a certain firm. There are multiple parties involved in a 401(k), plan from a record keeper to a custodian to a third party administrator. And one size does not fit all. So depending on what the size of the company is, there are some combinations of providers that would be a better fit, and an independent advisor has the ability to pick and choose among those, and that can be better than going with your payroll service, for example. There unfortunately are lots of hidden fees within 401(k) plans, and it’s very difficult for an untrained person to be able to ferret all these out and figure out, you know, what is actually the the best option.
So where do you find independent financial advisors? Is there a accreditation group or anything that you would go to find that person or people to choose from?
Yeah, the place I would probably start is with, with the Certified Financial Planner Board of Standards. There are websites that you can put in your zip code and see a list of Certified Financial Planners, or CFPs, in that area. Now, not all CFPs are involved in the 401(k) plan business, so you may have to do a little bit of research there. But if you have a network of other HR professionals that might have already been down this road, that would be a, you know, a possible avenue to pursue as well.
Sure. And is there any limit or minimum number of employees you need to have in order to offer a retirement vehicle?
No, there is not. Now, there are some fixed costs associated with 401(k) plans that make it cost prohibitive if it’s a, you know, very small amount of assets that’s going to build up inside a plan. But if, you know, it’s something that’s going to grow over time and employees are going to be added, then it’s, in my opinion, it’s worth, you know, taking on some of those fixed costs in the early years to provide a benefit that will retain and attract future employees.
Nice. What mistakes have you seen businesses make, Kevin, that our listeners should avoid as they build or administer a retirement plan?
I think a lot of it goes back to some of the so-called, you know, low-cost 401(k) plans where the fees are hidden from plain view, and they’re coming out of the participant’s investment returns, and this is with group annuity fees or higher expense mutual funds than, than what are necessary. And as I said before, it’s it’s fairly opaque. I mean, it’s hard to analyze these, and that’s where if you can get with an independent financial advisor who’s knowledgeable in this area, they can look through the contracts, look to the investment funds that are being offered, and try to get, you know, a true and accurate depiction of what the actual costs are, who’s paying for it, and who’s receiving them.
And that, I would think that’s hard for most of us to figure out on our own, right? We need some, we need to have an advisor, in most cases, to work with us.
It’s extremely difficult. And that’s, that’s a, I’d say a black mark on, you know, some parts of the financial services industry.
And certainly, lots of compliance rules around it and understanding what’s taxable and non-taxable and all those rules, too, people need to get advice on this.
Yes. So even after you get a plan in place, there’s, you know, potentially a role for ongoing education of the workforce that we do with employees of the companies that we work with. And that’s, that’s very, you know, and fun and reinforcing to somebody in my profession who’s often dealing with people who are more fluent, and your impact is not as great as it is on that 22 or 23 year old who’s just starting out if you can get them putting money into a 401(k) plan and hopefully doing it as a Roth deferral on top of that.
Right, pretty good.
That is terrific. So Kevin, what else do we need to know?
I think probably the one thing that we haven’t touched on yet is that 401(k) plans are subject to ERISA laws and regulations. And there are fiduciary obligations that one or more people from the employer are going to be in a position of, of a fiduciary to the plan. And under ERISA rules, if some of these fiduciary duties are breached, they could have personal liability, not just the business themselves, but individual people. A good third party administrator and advisor to plan can help mitigate some of these risks. They can share the fiduciary risk with the employer, but the employer can never totally avoid that fiduciary liability exposure. So it is good to have people with expertise in this matter to help you along.
Who would likely have the responsibility or maybe, really, the liability at the employer? Might that be the HR person, or is that likely the owners of the company?
It could be both, and it kind of gets back to the size of the company. If it’s a small company and the, the owner’s, you know, overseeing a lot of the areas, then it’s, the owner’d definitely be one of them, but the HR person could be as well. If there’s an investment committee that’s looking over the investment funds that an independent advisor such as myself would be putting out there, they would still have fiduciary liability as well.
Well, gosh, if I walk away with nothing else today, it’s don’t do it alone. Make sure you pull in a professional, right? So Kevin, how would any of our listeners find you if they wanted to talk more, or learn more?
Sure. My direct phone line, that is area code 317-860-1078. I would be glad to accept calls from anybody who’s listening to this and has an interest in learning more. Or email is Kevin E at mswma.com
Great. Oh, Kevin, this has been so enlightening. I really appreciate you coming on.
Thanks for coming on. I learned a lot today too.
Thank you. My pleasure.
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Susan, we had a listener question this week from John in New York. He was recently downsized from a large bank headquartered there. He says he has listened to our podcast episode number three, “Starting a Job Search,” and is using lots of our tips. However, he knows that we believe networking is an important component of any robust job search. He knows it’s valuable, but isn’t comfortable with the idea of reaching out to people and asking for help, especially now when he needs it. John wonders how we can make networking easier to do.
Well, John, first of all, thank you for listening to an early podcast. We hope you listen to all of them. I do believe that for some folks, though, just the word networking causes people to get uncomfortable.
You know? And what I want you to do is shake that off, John. I really do believe that most people are kind, actually there’s a country song out right now, I think, that goes by that name, “Most People are Kind.”
Could you sing us a bar?
No, I won’t do that to any of our listeners today. But most people are kind, and the fact that you’re going through a job transition now, they’re going to want to hear from you. And my suggestion is never to say, you know, “Hey, JoDee, I am looking for a job. Can you help me?” Because I think that really gets other people uncomfortable, and not many people can actually ask it that boldly. Instead, I would say, “JoDee, I know that you know me well. I would love to get your advice on the types of jobs you think I should be targeting or companies that you think I should be looking at. Can we set some time aside for a cup of coffee?” or if they’re not local, “maybe for a phone meeting? I really just want your advice.” And then be true to that. You know, if they happen to say, “Well, you know, there – I think there’s openings in my company. Let me share with you the job posting link, or let me talk to some folks,” you know what, great, but don’t go with that expectation. Instead, ask them for advice for companies you ought to be targeting or anything else that they might know or think of for you. It makes people put their defenses down, and I’m going to tell you it works extremely well. In the career coaching work I do, I would have to say that just that approach has led to so many people getting jobs, because maybe you’re networking with somebody in your community who, they are able to say, “You know what? I know that so-and-so’s going to start hiring for finance people,” or “I have a sister-in-law who just is at a startup where they are hungry for project management talent,” so on and so forth. So John, I, I know that this isn’t your favorite thing to do, but I do believe that if you go with that approach, reach out to people, that it will yield some results.
I think that’s great advice. I – the one thing I might also add, Susan, is maybe for people, John and others listening, to just even take the word networking out of your vocabulary, because I agree that that’s uncomfortable for so many people, but just think about reaching out to people and asking for advice or input or ideas or contacts. I do believe people are willing to help, and many people are even honored that you asked them.
That you were – asked for their input or asked for information about their own organization or company. So don’t think of it as networking, even though Susan and I would call it that.
Call it what you want.
Put a different hat on it, and it might make you feel better about doing it.
And you know, JoDee, one thing that I have found is people who’ve been through a job transition and they successfully land in a job, they are, like, the best networking recipients, because when someone approaches them, they’re like, “Hey, I was where you are now four years ago, and I did the same thing you’re doing. I’m so glad you decided to come spend some time with me. Let me see if I can help.” They are the best.
So hopefully you’ll find a lot of those.
Actually, that might even be another great intro, to ask someone, “Hey, I know you were…you were where I was four years ago. What did you do? What advice do you have for me?” So.
Terrific. Well, good luck, John. We’d love to hear from you once you land.
And thanks for calling in.
Okay, so JoDee, we’re ready now for a new sometimes periodic segment that we’re going to be offering, which is called best practice sharing.
I have to say…
“A new sometimes periodic!”
There’s no commitment there, listeners! No, the real fact is, I think I’ve learned more from other HR professionals than I’ve ever learned in a book, so I think that when we come up or hear from others about good ideas, that we owe it to each other to share. So for the first one, I would like to talk about TED Talks. JoDee, I know you’re familiar with TED Talks, but for any of our listeners who is not actively watching TED Talks, they’re available for free on YouTube. They do talk about different topics. And so what I did in preparation for this, with the help of Emily, our producer, is she put out on social media, “What’s your favorite TED Talk, and why?” So we had a few people respond to it that I’d love to share with you. Do you want to do the first one, JoDee?
Yes. Catherine from Michigan shares her favorite TED Talk is Ann Cuddy’s 2012, “Your Body Language May Shape Who You Are.” It’s super useful for difficult, nerve-wracking situations and has made her much more aware of what my body is doing when I’m feeling different kinds of ways. It’s a testament to the power the body has over the mind. Very interesting. Which, usually, we only think of the power of the mind over the body. Catherine shared this TED Talk with many career coaching clients as helpful to prep for interviews.
I am definitely going to put that on my to do list. So we had another response. This one was from Peggy from Carmel, Indiana, and she loves Susan Cain’s 2012 TED Talk, “The Power of Introverts,” because as an extrovert that Peggy is, she says it helps her understand and more fully appreciate the introverts around her. She feels like she has tons of introverted loved ones and now she feels like she can better understand how to make them feel more comfortable and to get the best out of them and relate in a work situation. She thinks that she’ll be more sensitive to people’s work needs if she knows they’re an introvert.
I have not heard Susan Cain’s TED Talk. But I did hear Susan Cain speak a few years ago, and I think she still might be my all-time favorite speaker.
Yeah. And I, too, am an extrovert and really found her, her book – her book is called “Quiet” – a very powerful read about the power of introverts.
That book has a subtitle, so I know it’s “Quiet,” but I think the subtitle is “The Power of Introverts in a World that Just Won’t Stop Talking,” something like that.
That sounds right. That sounds right.
So I have lots of TED Talks that I watch with some regularity, because I enjoy them and they kind of re-inspire me. And I also, when I’m working with a client doing executive coaching, if there’s some topic or issue that they’re struggling with that I think there’s a TED Talk that will help them work through it, I will recommend it. One of my favorites is Margaret Heffernan’s 2015, “Forget the Pecking Order at Work,” and this is such a good one. In fact, it starts with her talking about a Purdue research study where – with chickens, where they were trying to figure out about social interaction with chickens. Anyway, she goes on to say that in companies today, they’re always trying to figure out who are the high pos, who are the high performing, stellar superchickens. And if we built our whole company around these superchickens, these high performing, knocking out of the park people, what might happen? Well, in the study, it showed that they raised a whole batch of chickens the normal way and they were all thriving, you know, so much, so much later. Then they decided to pull out the ones that were the best and the brightest, although I’ve never heard a chicken described as bright, but the brightest chickens, and they put them in their own pen, and they kept the, all the regular chickens in the other. Well, at the end of the study, they went in and they looked to see… the regular chickens were all healthy and producing and doing everything that chickens do. In the superchicken pen, they’d all pecked each other to death. Yeah. So what they said is high performing, highly competitive high achievers tend to be very threatening to each other. And they will put their energy not on doing what they do well, but on trying to get ahead. And she thought it was a huge analogy to the world of work. So for all of you that are spending a lot of time figuring out who your high pos are and do whatever you can to retain them, make sure you spread a few of me around. Some regular chickens. Right?
That is fascinating.
Fun. So please, if you watch a TED Talk and you think it’s one you’d like to share, or if there’s any HR practice or tool or technique that you’ve found, we would love to hear from you, and we’d love to give you credit for it and share, share that best practice in some future periodic times that we have our best practice sharing.
Right. In our in the news section. We are recording this episode in the fall of 2018, and we know most businesses are in the midst of budgeting for next year’s salary increases. Consequently, we are all ears on what is being projected as what most companies will be doing with wages in 2019.
Well, great, because we do have a survey from Willis Towers Watson Data Services that says that executive managers, exempt, non-exempt employees will all see a pay increase of about 3% in 2019. Now, Mercer forecasts an average pay increase of – very close – 2.9% in 2019, which is really kind of good news for employees in that yearly pay increases have averaged just 2.8% between 2015 and 2018. So we are ever so slightly up, which I think is a good sign.
Good news. Good news.
Well, good. Well, please tune in next time. Thank you for listening today. If you’d missed any of our podcasts, you can catch all episodes for free at iTunes, Google Play, Podbean, Spotify, and even now on YouTube, or wherever you listen to podcasts by searching on the word “JoyPowered.” If you have questions on any HR topic, you can call us at 317.688.1613 or give feedback on our podcast via the JoyPowered® Facebook account or on Twitter @JoyPowered. We welcome listener questions and comments. Thanks so much.