Ep 23 - Business Retirement Plans Explained: Avoid Costly Mistakes & Choose The Right One

Setting up a business retirement plan isn’t just about saving for later, it’s about reducing taxes, staying compliant, and making smarter decisions as your business grows.

In this episode of EnRich Your Life, Rich sits down with a seasoned retirement planning Third Party Administrator (TPA), Brad Scherer. His role is to break down how business owners should think about retirement plans, what mistakes to avoid, and how recent regulatory changes can impact your strategy.

Whether you already have a plan or are starting from scratch, this conversation will help you understand your options and avoid costly errors.

Key highlights:

• How to choose the right retirement plan for your business goals
• Common compliance mistakes business owners don’t realize they’re making
• What SECURE Act 2.0 changes mean for 401(k)s and catch-up contributions
• When a cash balance plan actually makes sense

Disclosure:
Brad Scherer is not a client of Richard Leimgruber, no compensation cash or otherwise was not paid in exchange for his appearance in this podcast, and there are no known conflicts of interest. 

Filmed and recorded at Studio on the Avenue/LMC Media
Mamaroneck, NY
https://lmcmedia.org/
Produced and Edited by Vekterly
https://www.vekterly.com/

Disclaimer: This podcast is for informational and educational purposes only and should not be considered as financial advice, a recommendation for any specific investment, strategy, or financial decision, or legal advice. By engaging with this material, you acknowledge and agree with its intended purpose. Any examples provided are hypothetical and for illustration purposes only. Neither Rich Leimgruber, the EnRich Your Life Podcast, nor its representatives are advising or suggesting any specific action or decision. Before making any financial, legal, or tax decisions, individuals should consult their own financial advisor, accountant, legal professional, or other qualified professional before making financial decisions. All opinions expressed are those of the host and guests and do not reflect the views of any affiliated financial institutions. The views shared may not be suitable for every individual or situation. Past performance is not indicative of future results, and all investments carry risk. Please note that any strategies discussed may not be suitable for all investors, and the appropriateness of any specific investment or strategy will depend on individual circumstances.

Transcript

EnRich Your Life Podcast

Episode 23 - Business Retirement Plans Explained: Avoid Costly Mistakes, & Choose the Right Retirement Plan for your business. 

[00:00:00] Intro: This is Enrich Your Life, a podcast about financial health, all things investing, life planning, and smart decisions with Richard Leimgruber.

[00:00:11] Rich L: Hello and welcome to Enrich Your Life Podcast. I am your host, Rich Leimgruber And today we're gonna be talking about something that every business owner probably has thought about in the past. Uh, and if you haven't thought about it and you are a business owner, you wanna listen to this podcast. it's all about setting up a retirement plan for your business.

[00:00:31] And if you've had a retirement plan already and you think there might be an opportunity to expand what you've already done, we're gonna go over all those opportunities for you today. We are starting a new Prosperity for Business series on our podcast. So we're gonna be adding a lot more, business owner value content to this, uh, podcast.

[00:00:51] So please check back in, make sure that you're getting all the great content that we're providing To our listeners, today we're diving into a topic that [00:01:00] impacts every small business owner, whether you're a sole entrepreneur or managing a, a team that is growing in leaps and bounds, which we all hope they are.

[00:01:08] you probably thought about your retirement plan. We know when structured well a retirement plan can attract talent, retain employees, reduce taxes, and build long-term wealth for everyone who's participating. But the rules are complex and the landscape continues to evolve. Especially with some of the major updates on the Secure Act 2.0 and now the big beautiful Bill Act of 2025.

[00:01:34] So to help us break this down, I'm joined today by someone who lives and breathes plan administration, and that's Brad Scherer. He's a third party administrator with a deep background in compliance, audit, and financial controls. Brad began his career as a sales tax auditor for the state of New York. He went to Deloitte's financial services audit practice, served as a controller at Goldman Sachs, and [00:02:00] since 2017 has worked as a TPA or a third party administrator alongside his father, who brings more than 45 years of experience in the retirement plan industry.

[00:02:10] today we're going to discuss how to choose the right plan structure. What changes when you hire employees? How to avoid IRS and Department of Labor problems and why every business owner needs a clear strategy for retirement planning.

[00:02:25] So let's jump in. Brad, are we ready? Before we start off our conversation, Brad, I always find it interesting to learn what drives people like yourself and why you got into the business that you're in today. So can you give us a quick story of how'd you become A TPA? It sounds so exciting.

[00:02:43] Brad S: Hey, Rich. Yes, 

[00:02:44] thanks.

[00:02:45] Thanks for having me. Yeah. Believe it or not, they don't have a major in, in college, uh, as, as a third party administrator? 

[00:02:50] Rich L: No. Okay. 

[00:02:51] Brad S: Um, so I always knew I wanted to be in, in, in the business field, and I was a business major and I was, I was kind of told by a couple [00:03:00] mentors. Accounting's a great place to start because with an accounting degree you have, you have a great.

[00:03:04] Base for, for numbers and financials, and you can really go anywhere. So that's, that's kind of the route I went and, and even though my father's been doing this for a long time, I was kind of looking for, for my own way in life. Mm-hmm. Really to start off. And I graduated in, in 2009. Right, right. As the financial crisis was, was in a big swing.

[00:03:23] Oh yeah. And um. Uh, jobs were, were limited at that point. So, as you mentioned, I, I started my career with New York State Department of Tax and Finances, a sales tax audit. 

[00:03:33] Rich L: That was be fun. 

[00:03:33] Brad S: Yeah, it was, it, it was really cool to be able to see kind of what goes behind the scenes from, uh, a, a regulatory body and, and know what they're looking for 

[00:03:43] and make some connections there, so Sure, sure. You know, that was great. But, but I always knew I, I wanted to work for the big four, um, and write kind of as, as we came outta the crisis and people started hiring again. I, I moved to Deloitte's Audit practice, which I was in for, for, for four years.

[00:03:59] And it was, [00:04:00] it was a great background and I met some amazing people and I, I still think the way that I, I. Talk to people and I craft emails all came from that, that knowledge base. So maybe not necessarily the audit knowledge, but just. How to be a, a financial professional in the world. 

[00:04:17] Rich L: and what I always say is, the more experience you have, you can get right to the point like, here's the value added, here's why you wanna work with me, and here's, and here's the information that you need.

[00:04:26] Let's get over all the bs. Right, right. Kind of stuff. Exactly. 

[00:04:29] Brad S: That's great. So, so I, I, I ended up leaving the, the accounting field realized it wasn't for me. And, and that's when I, I came to work with my father. I've been doing this for about eight years now.

[00:04:38] I love it. I love to be able to work with small businesses and, and kind of help them navigate the rules so it works well for them because these really are great benefits for owners and employees if they're used the right way. Right. Obviously, if they're not, they could cause a lot of headaches and. It, it really drives me on a day-to-day basis to be able to work [00:05:00] with, uh, all my clients, whether they're in the financial field or they're a plumber or, or, or they're in construction, wherever it may be.

[00:05:06] We have clients in every industry. Mm-hmm. And it's really rewarding and, and they realize that. That what we do is value add to them. And, and that's what drives me. 

[00:05:15] Rich L: Yeah. And, and so no matter what business you are in, right? You all have profits. And we always say, as a financial advisor, the the best thing I could do for a client is help them reduce their taxable income, right?

[00:05:27] And, and, and at the same time, be able to save, maybe tax deferred, maybe after tax, but save on taxes. Retain the employees, right? So offer something that your employees can also participate in. And that's why I thought it was so important to get in on this conversation with you and I, I, you know, full disclosure, I've been working with you now for at least a year, through the firm that I work with, and, and you always do a great job.

[00:05:50] So thank you. Uh, I appreciate you, you know, coming on today. So let's talk about establishing business goals and, and planning for retirement. Uh, which one is always gonna be [00:06:00] right for the business because it's never a, a yes or no answer. It's never a defined yes, this is the one that you should be using.

[00:06:06] It all depends on what the business owner wants, right? What factors should a business owner consider when determining the goals of a retirement plan? 

[00:06:14] Brad S: the goals are where you have to start, and you already mentioned a few before.

[00:06:18] Mm-hmm. plans come about from a number of different scenarios. You are looking to accumulate wealth. To live on in retirement, maybe a supplemental security or supplement any, any other income you have. Mm-hmm. You're looking to attract and maintain talent. It is a benefit for the employees. You are looking to now comply with 15 states and soon to be 10 more states that are requiring.

[00:06:43] Companies to have these plans or use a state sponsored IRA and the fourth one, and probably the biggest one in our world working with small business owners, as you mentioned before, is the tax advantages. Mm-hmm. Yeah. Great. So, and then furthermore, you want to [00:07:00] understand what the cash flow of the business is.

[00:07:03] You want to understand what the budget is, you want to understand what the employee demographics are, and all of these factors will help you design the plan, which is the foundation of the plan. Now, it's not to say you can't redesign the plan or change things or amend things as you go along, but the design of the plan is the foundation of how things are gonna work.

[00:07:23] Rich L: So how do, uh, how do owners', uh, objectives such as saving for their own retirement versus offering an employee benefit impact that plan design? 

[00:07:33] Brad S: So the IRS and the DOL have have a lot of rules, as you can imagine. Yep. And. Depending on your goal will depend on how you design the plan, as I mentioned.

[00:07:43] Yeah. So if the goal is to maximize owner contribution and minimize employee contribution, that will be set up one way as opposed to the other end of the spectrum where maybe owner or highly compensated employee do not want to contribute and do not [00:08:00] wanna be part of the plan. And the plan is just for non-high compensated employees.

[00:08:04] You can design it a completely different way than that.

[00:08:07] Rich L: The next thing I wanted to talk about is how often should a business, um, reevaluate whether it's current plan still aligns with its goals? And you had said that you can change things.

[00:08:17] So sometimes I, I meet with, uh, new. Prospects or new clients and, and, and when we're going through what they're doing for their business. It turns out it was set up maybe 15 years ago when they were a small, little nimble shop and it was just him and his wife, right? Yeah. Or her and his, her, her husband.

[00:08:34] And, and now all of a sudden you hired three employees and you're starting to do really well and they don't realize that you should be probably looking at updating your plan to something maybe. A better option. Right? 

[00:08:46] Brad S: A a hundred percent. 

[00:08:48] I would say, at least on an annual basis. Yep. It's, it's, it's a great idea to sit down with your administrator and really, uh, speak, even if nothing has changed.

[00:08:56] Just, just a good opportunity to kind of speak about if [00:09:00] your goals that you started the plan are still your goals now. Right. And of course, on a proactive basis, always better. I, I find it best to try to communicate and sit down with my clients before the end of the year because there's still the opportunity to fix things or change things before you've hit certain certain points of the year.

[00:09:19] Okay. Um, you, but you definitely wanna do it at least annually. And if things are changing, you wanna do it more than annually. If maybe there's a divestiture or there's an acquisition of a business. It's a great time to sit down and see how that affects your plan. If employee demographics are changing.

[00:09:36] Maybe you, an older employees have now retired and you're bringing on younger employees. So the profit sharing contribution you've been making doesn't work anymore. You have to change things there.

[00:09:47] Rich L: Yeah. And so you brought up a good point, and I think ultimately for somebody like you or any other third, third party administrator, you know, just like a, a tax accountant, right?

[00:09:56] Don't call them on April 14th asking 'em to do your taxes, [00:10:00] right? It's just like, yeah, good luck. Uh, same thing with a TPA. When would be the right time to say, Hey, I gotta reach out to my TPA, I gotta reach out to Brad and, and tell him about all these updates. I mean, when's your busy season? 

[00:10:12] Brad S: Well, it's always good to do it on a proactive basis.

[00:10:14] Rich L: Okay. 

[00:10:14] Brad S: If, for example, if you are going to have a merger of a business. Please come talk to me before the merger comes through. Right? So maybe there's something that I can speak to you that needs to go in, in the contract of, of an, an acquisition. Let's say you're doing things as an asset purchase or an equity purchase, or maybe there's a liability.

[00:10:34] , the company you're buying from has a match that they haven't made the contribution yet, and now you're taking on the liability of this company. Maybe that's something you want to put in the contract. To have the company pay for before the acquisition 

[00:10:50] goes through. 

[00:10:51] Rich L: Oftentimes I hear business owners, uh, that they wish they set up a plan sooner. Maybe they just never set one up. Maybe they didn't have enough cash at the time, or maybe they [00:11:00] just didn't realize that you could do that and they were putting into a traditional IRA saying, I wish I could save more money for my retirement.

[00:11:06] Have you seen any challenges business owners face when they wait too long to establish a plan? 

[00:11:12] Brad S: Well, the, I've heard all the excuses why not to do it now. Uh, I would say, I would say the biggest problem in waiting, as you know very well is, is compounding of, of interest and time value of money. Uh, you'd rather have your more money working for you rather than you working for it.

[00:11:28] So the sooner you get the plan started, the sooner you get your money in the market. The more your money can work for you. I'm sure you know the rule of 72 very well, 

[00:11:36] Rich L: absolutely se the rule of 72 is great. 

[00:11:38] Brad S: You know, it's a rate, rate of return times, number of years is how long equals 72 is how long it takes your money to double.

[00:11:45] So the more you can get the money in your market, in the market quicker. The more that your money can double over time. So

[00:11:51] Rich L: I use that reference all the time. It's been on this podcast several times. I, I explain it as you take 72 and you divide it by your rate of return, and that's how long it's gonna take you to double your money.[00:12:00] 

[00:12:00] Right. So if, if it was a 10% return annually, and you, you'll take you 7.2 years to double your money without adding anything into it. 

[00:12:07] Brad S: When I talk to employees about enrolling, uh, then they ask me when should I get started for retirement? My answer is always yesterday.

[00:12:15] Rich L: And it should be right, because obviously there's a lot of benefits to setting up a retirement plan, not only free for your income today, but also for your future and how much money you're gonna have there. Right, exactly. So business owners have so many options, Brad, and we all know those options. You and I, we talk about 'em all the time.

[00:12:32] So can we briefly break down some of the plans that are available and, and obviously we all know that there's traditional. Plans, right? The traditional 401k before, uh, before tax dollars getting saved and on, a hundred percent taxable when you take it out in retirement. But now we have this new introduction of the Roth that uses after tax dollars.

[00:12:52] So it. Most of these plans now have either traditional or Roth capabilities, but let's talk about the plans. We have [00:13:00] IRAs, simple IRAs, SEP IRAs, solo 4 0 1 Ks, regular 4 0 1 Ks. And then we have those good old cash balance pension plans. I think. Did I get 'em all or,

[00:13:11] Brad S: yeah. Yeah. For the most part. You hit, 

[00:13:13] you hit the big ones.

[00:13:14] Um, the biggest difference between. All those plans are the dollar limit you can put in. As you go from IRAs to much more complicated plans, 401k plans, cash balance plans, you'll have a higher dollar limit you can put in on an annual basis as you graduate to the higher dollar limits. It's a bit more complex to administer, but they're more customizable and it's more flexible.

[00:13:41] So the more that your business needs customization of a plan, the more. Or the higher limits, the more you should think about going into the 401k and cash balance plan. If, if you are a solo, um, entrepreneur and you have a high income, a set may work for you. But if you [00:14:00] are an S corp or, or a C corp and, and your income isn't as high, maybe you want to think about a 401k plan because you can get a higher contribution into a 401k plan than, than in a sep.

[00:14:11] So, uh, a lot of differences between them. Contribution limits. Eligibility, uh, and customization are probably the biggest factors. 

[00:14:20] Rich L: And then one of the other things I always bring up too, around all this is when you're able to add a contribution. So as an example, within a, so 401k or a 401k, you as the employer can add up to December 31st of each year.

[00:14:33] But once December 31st ends, that's it for you as an employee making a contribution, whereas. Um, your business after the be end of the year can always make a contribution up until when the business files the taxes as a profit sharing contribution, right? 

[00:14:49] Brad S: Correct. Correct. 

[00:14:49] Rich L: So I think that's one of the other things, if you want that flexibility of being able to add more.

[00:14:54] Because some might say, well, I have to figure out how much money I have left at the end of the year to know how much I'm gonna be able [00:15:00] to put in. And that's where the profit sharing side of it, this all comes in.

[00:15:04] Brad S: And a lot of times you're working with your accountant maybe in January, February, or March.

[00:15:09] And that's where for the first time, you're understanding what your tax liability may be or how much you owe in taxes for that given year. Right. And then hopefully between myself and your accountant and and yourself, we can give you different options about, oh, if you put money into a plan and how much money you did put into a plan, how much lower your taxes your taxes owed could be.

[00:15:30] Rich L: So the other thing is the amount of contributions you just mentioned. IRAs As without talking about, you know, after 50 excess contributions, 7,000 five hundred and twenty twenty five. I think it's going up to 8,000 next year. Right. Or 7,500 next year. Um, and then with a 401k you could put up to 23.5k into, uh, as an employee.

[00:15:55] And then, uh, if you're over the age of 50, um, obviously you could put another [00:16:00] 7,500 away as well, 

[00:16:01] Brad S: correct? Correct. 

[00:16:02] Rich L: That's changing. Secure Act 2.0, right? Yes. Is changing that for anybody over a certain, uh, income limit. 

[00:16:09] Brad S: So if you made over 150,000 as a W2 in 2025 and your over age 50 in 2026, your Roth, your catch up contribution now needs to be made as a Roth.

[00:16:24] Okay. 

[00:16:25] Rich L: And that's important to business owners and the reason Yes. Is because if you're offering a plan that does not have a Roth capability, 

[00:16:31] Brad S: correct. 

[00:16:32] Rich L: Then the person who's over 50 is not gonna be able to contribute that extra money. 

[00:16:36] Brad S: Correct. So you wanna work with your administrators now to, as we mentioned before, being able to amend the plan mm-hmm.

[00:16:42] To either adding a a, a Roth capability. Or maybe you decide, I don't wanna make a Roth contribution, so I just won't make a ca a catch up contribution in this year. I'm hearing that a lot from a, from some of my clients because they're using their plans solely for, for a tax, um, deduction. And if they're not getting [00:17:00] one, they're at the level where they need to be for retirement.

[00:17:04] So. Adding more funds doesn't necessarily matter to them. So it's really an individualized, uh, conversation that you need to have. 

[00:17:11] Rich L: And that gets me to the point of what role does a TPA play in designing help, maintaining and monitoring your retirement plans? And, and because someone can actually go and set one up and.

[00:17:23] And not use a third party administrator for a lot of the things. can, we express the value that you, that you provide when and for the things that you're doing throughout the year.

[00:17:31] Brad S: Our goal is to ensure that the employer has to put as little time in this as possible and focused as much time on their business. So we wanna take. Everything off their plate that we possibly can. So we do everything from plan design to to compliance testing, to calculating the contributions to preparing the reporting documents for the IRS and potentially DOL.

[00:17:58] Tracking [00:18:00] eligibility and everything in between. Mm-hmm. We, we want to ensure that your plan is running as highly efficient as possible, and that you are spending as little time in this as possible. 

[00:18:11] Rich L: And the reason for that is something I wanted to bring up is what happens if your plan is out of compliance, right?

[00:18:18] You have the Department of Labor looking at you. I have the IRS looking at you. There's a lot of people looking at your books, looking at everything that you're doing. And I always say you want the least amount of eyes looking at your books throughout the year. Correct. And that's why you wanna stay in compliance.

[00:18:33] Brad S: Correct? Correct. 

[00:18:34] Rich L: So can you give us some, maybe some examples of things that you've seen that mistakes that were made that you had to come in and kind of hopefully rescue the day

[00:18:41] Brad S: One of the biggest mistakes I've seen right now is, is, is if you're working with a company that is doing your plan document, that is not an actual TPA, just, just a system that you're, you're putting in money and they're spitting out a plan document, and it's a solo 401k. You do not have to file a [00:19:00] 5500 until you are over $250,000 in assets.

[00:19:03] Yep. The problem is, no one is reminding you when you're getting to that level. Of 250,000 assets, or you hire a common law employee that you now need to file a 5500. So I'm having people come to me that they haven't filed 5500 in the prior few years that they've needed to because they don't have a TPA that they're working with.

[00:19:26] That's kind of nudging them to say, Hey, you now have to do this. So then you have 

[00:19:30] to work with the volunteer program to raise your hand pay penalties. File the previous 5500s to get you on on shape for the next one because no matter what, even if you don't go over 250,000 in assets ever, you will still need to file a 5500 in your final year.

[00:19:49] Rich L: And those are the things that you will be able to help somebody look out for

[00:19:52] Brad S: just, just one example, right? 

[00:19:54] Another example I, I see, uh, a common pitfall is if you own [00:20:00] more than one company and you're what's called a controlled group of corporations, and you have employees in your other company, but you're not including them in the retirement plan 'cause you just didn't know, right?

[00:20:10] And you are now maybe the IRS or the DOL, um, knocks on the door. And they find this out, and now you are going to have to pay penalties and, and you've now failed compliance testing because of this. So we know the right questions to ask because we're asking them all the time. Mm-hmm. And we know you personally.

[00:20:32] So maybe there's something that you've said that will make us think to ask a certain question that you may not think to just tell a computer. 

[00:20:41] Rich L: And there's ways that you could set up. Basically making sure that people stay in compliance, like having a safe harbor contribution perhaps, right? Yes. So can we talk a little bit about those safe harbor contributions?

[00:20:52] Brad S: So if an owner or a highly compensated employees are contributing to a plan, 

[00:20:57] Rich L: what? What would you define as highly compensated? [00:21:00] 

[00:21:00] Brad S: That number changes every year. Okay. Uh, so right now it's about in the $155,000 range.

[00:21:06] Okay. Uh, depending on what year you're talking about. If, if you're, if you have highly compensated employees, then you have to pass certain. Non-discrimination testing. Most small businesses are going to fail these testing. The two big ones being the top heavy test and the A-D-P-A-C-P test. If you are going to fail these tests, then the remedies are you, you're either gonna give money back as the owner or you're going to have to make a contribution.

[00:21:35] So what a safe harbor does is a safe harbor avoids you having to even. Perform these tests. There are two different types of safe Harbor contributions. They're both an employer contribution. One is a 3% non-elective to all individuals who are eligible for the plan. The other one is a safe harbor match, which is a hundred percent up to the first 3%.[00:22:00] 

[00:22:00] And 50% of the next 2%. So if a non-high Compensative employee is contributing 3% of their salary, they'll get a 3% match. Four gets you three and a half, five gets you four. Anything above five still gets you four. So using one of these two options, depending on your demographics of of the staff and who is contributing, what kind of contribution you want to do will avoid.

[00:22:27] Having to perform these non-discrimination testings and have problems in, in, in future years. 

[00:22:33] Rich L: And is that something, these, you know, these tests that you have to perform, is that something like the IRS looks at and says, Hey, do we wanna make sure that you're doing these testing? And if you haven't, what is the ramification?

[00:22:46] Brad S: You, you must do these tests. If you're not doing a safe harbor contribution, you must do these tests, okay? And if you're, if you're failing them, then as I mentioned before, there, there are a couple options. The owner either takes money out of the [00:23:00] plan, which depending on the time that they do, that could be a nightmare.

[00:23:03] And gains giving back or even potential penalties, uh, makes it harder for your accountant as well. Or like I said, you're going to have to make a contribution for your staff anyway. 

[00:23:14] Rich L: How can inaccurate or incomplete employee census data create risks for the plan?

[00:23:22] Brad S: It's the basis of everything.

[00:23:23] If you don't have accurate data. An administrator can't do, can't do their job, and, and you can't even prove that a plan is compliant or not. If you have incorrect dates of birth, you have incorrect dates of hire, you have incorrect hours, then no test can even be done. Right. So you're, you're not even at step one without, without. Correct data. 

[00:23:45] Rich L: So that's similar to what you put in is what you're gonna get out of it. Exactly. If the data you're putting in is wrong 

[00:23:50] Brad S: exactly, 

[00:23:50] Rich L: you're gonna get bad data back out. 

[00:23:52] Brad S: And as I mentioned before, it's not even necessarily some of the data that, you know, it's some of those things that. [00:24:00] TPAs know to ask in terms of do you own another company?

[00:24:04] Do you have income elsewhere? I've seen a lot of issues where someone has they have a a day job with a W2 and they have their plan in a side gig, and they are contributing to their 401k plan at their day job. Mm-hmm. And they also want to max out their 401k. They're solo 401k, but you can't because the 23 5 maximum is per person, right?

[00:24:30] So the tpa a has to know to ask those questions so you can subtract how much you put away into your 401k your day job to know how much you have left. To put in your solo 401k, 

[00:24:40] Rich L: and that's when I usually get a phone call. And that's the worst news I can hear is it's called an excess contribution removal.

[00:24:48] Right. Removal of excess contributions. Yes. And that's when the custodian has to get involved or whoever's managing the funds for you, and it becomes a nightmare. Yes, it really does, because now you have to look at how much money, when you put [00:25:00] it in, how much money that, that, that contribution actually made.

[00:25:03] As important as you and I are as advisors to small business owners, we must understand all the nuances of the plan that we've kind of gone over, right? And we also have to pay attention to any new updates and changes.

[00:25:14] As I mentioned earlier, we had the Secure Act 2.0, um, with this new catch up contribution change coming in this year that most people didn't even realize happened when the law went into effect back in 2022. But we also have some new changes with the big beautiful Bill Act that was just passed into law on 4th of July, retroactive to January 6th.

[00:25:34] What Secure Act 2.0 provisions have the most significant impact on small business retirement plans? 

[00:25:41] Brad S: So we hit on the Roth catch up earlier in the podcast. Yeah. Uh, another change is what's called the long term part-time employees, where the IRS said that you can exclude individuals from a plan if they don't work more than a thousand hours in a year.

[00:25:58] Now there's a provision [00:26:00] where if employees work a certain amount of hours for a certain amount of years. They're part-time, not a thousand hours, but more than 500. They can be included in the plan and they'll be able to defer for themselves. Now, these individuals won't get an employer contribution, but it's just another.

[00:26:18] Another thing to track another layer for, for, for the owner to, um, if you have hourly employees, you know, tracking hours and knowing who is eligible for what type of contribution,

[00:26:29] um, but it's not all bad. They, they've also added some startup credits, which is helping plans become more affordable, uh, especially in the first couple years, being able to offset TPA costs, record keeper costs, um, financial advisor costs.

[00:26:46] Even some credits to offset some of the employer contributions, safe harbor or, or match contributions that can make for the first couple years. 

[00:26:54] Rich L: So the government recognizes that this is not easy, so they're incentivizing businesses to say, Hey, we could [00:27:00] save you even more money if you do this now. Right?

[00:27:02] So they're incentivizing you to get this done. And so that's, that's one of the things I, I, I'm glad we brought up, because you know. It all depends on the size of the plan and how much money that you're gonna be able to get back. Yes. Where can somebody find that information?

[00:27:15] Brad S: Right. On the IRS's website. Okay. They'll tell you. It, it, it maxes out at a certain dollar amount. Uh, and then you can get there depending on how many non highly compensated employees you have. So unfortunately, the, the credits are not for your, for your sole 4 0 1 Ks. Um, they're, they're more to incentivize, um.

[00:27:34] Providing access to 401k plans for rank and file employees, right? 

[00:27:39] Rich L: So how should a business owner prepare for the upcoming requirements around the auto enrollments Right.

[00:27:46] And the Roth Catchup contributions?. 

[00:27:48] Brad S: Definitely start identifying those employees now that you know will be making more than $150,000 in 2025. And you definitely want to, as you mentioned [00:28:00] before, add a Roth feature if you don't have one yet. Yeah, you'll want to talk to those employees about if they want to contribute their catchup as a Roth or they don't wanna do it at all on the, the auto enrollment, that is for when employees are eligible, they're automatically enrolled in the plan unless they decline. So one thing I've been telling my clients, if they have immediate eligibility. Then they may wanna think about changing it to quarterly or semi-annually.

[00:28:32] So you're not doing these enrollments constantly throughout the years and maybe two times a year or four times a year. You really kind of have to do this enrollment meeting and you can speak with people. If they want to enroll or not. 

[00:28:47] Rich L: And, and that enrollment eligibility is all determined with the plan document, 

[00:28:51] Brad S: correct.

[00:28:52] Rich L: So if you have an old plan document and you've, you've done auto, you know, immediate vesting and, and vice versa, you can always come back and talk to you about [00:29:00] updating that plan. Correct. And maybe changing it to correct what, 12 months of working before you can even be considered a plan participant.

[00:29:07] Right. 

[00:29:07] Brad S: Amending the plan is not only for if. Something in your company changes. Amending the plan could be a, a good thing to do when. New regulatory, um, right rule rules come out and starting next, uh, 2026 into 2027, all defined contribution plans 401k profit sharing plans will need, will need to be amended, and new documents will need to be done, 

[00:29:33] Rich L: okay?

[00:29:34] Brad S: Every six years, the IRS says, says that you must do this. So all the laws that kind of have been being passed in the last couple years will now be in this new document. 

[00:29:43] Rich L: And what if somebody doesn't do that? And 

[00:29:46] Brad S: then the plan is disqualified. 

[00:29:47] Rich L: Disqualified, and all those deductions go away. 

[00:29:50] Brad S: Correct. 

[00:29:50] Rich L: And everything that the plan was really designed to do goes away.

[00:29:53] Brad S: Correct. 

[00:29:54] Rich L: So this is very important to our listeners that you really should be calling a TPA or a your financial [00:30:00] advisor, making sure that your, your plan stays in compliance with every, all the new regulations. .

[00:30:04] We talked about defined contribution plans. We didn't touch upon defined benefit plans, which is where that cash balance, ben pension plan comes in and so forth. So can you just describe the difference between the, uh, defined contribution versus defined benefit plans Correct.

[00:30:21] And why somebody might want to consider doing a defined benefit plan. 

[00:30:25] Brad S: So a defined benefit plan can be used on its own, or it can be used in combination with a defined contribution plan. Something to think about when you are looking at a defined benefit plan or a cash balance plan is if the 415 limit the limit for the defined contribution plan.

[00:30:45] is not enough for you. So you would like to make a contribution in excess of a hundred, 200, potentially 300,000, uh, in contribution for year to year. It works well for people who are [00:31:00] closer, getting closer to retirement. That's mostly how the plan was designed. I like to see someone in the sweet spot of maybe in, in fifties or sixties.

[00:31:09] Not that it can't work for an owner who's in their forties or thirties, but it, it's designed better to work if, if you're a little bit closer to retirement. 

[00:31:17] Rich L: So maybe you've had a business and it's been okay. And now the last five years it's really ramped up and you're starting to make a lot of profit.

[00:31:24] Brad S: Correct. 

[00:31:24] Rich L: And you're like, I'm paying all these taxes. I have all this cash sitting there. I don't know what to do with it. 

[00:31:29] Brad S: Or your question earlier where you got started a little bit later. Saving for retirement, and now you need to kind of catch up to get to where you need to, to be within the next 10, 15 years of your working.

[00:31:42] So this allows you to put in much higher contributions. You'll, you'll also want a consistent profit year over year. Define, unlike define contribution plans where you can decide to not contribute to any given year, a defined benefit plan or cash balance plans has minimums that you'll want to contribute [00:32:00] every year.

[00:32:00] And if you see. If you foresee that you have a defined benefit or cash balance plan and the future does look a little bleak, it is important to get in touch with your TPA quickly to be able to amend or potentially freeze the plan. But, but that's definitely something you want to think about before starting a defined benefit plan is that you can hopefully foresee years and years of doing profits as well.

[00:32:22] And, and also the demographics matter as well. So a, a, a stable, smaller group of employees. Lend lend. Its, its hand better to having this plan, uh, because everyone who's eligible is gonna get a contribution. So for it to make sense to the owner, they have to get a, a sizable amount of the total contribution.

[00:32:42] Rich L: Well thank you so much for sharing all the, uh, the, the insights and, and your experience. I think a lot of small business owners will see themselves, uh, in certain examples that we've talked about today, those moments where too many options lead to procrastination

[00:32:57] like, I just don't know what I'm gonna do. There's too many options, so I'm not gonna do [00:33:00] anything, and they wind up never pulling the trigger. Before we close, if you can give one piece of advice to a small business owner that's on the fence about starting one or maybe amending, what would that be? 

[00:33:12] Brad S: Well, as I mentioned before.

[00:33:15] At the beginning, plans come about from a number of, of different, uh, of, of different avenues. So really look at, at your books, really speak with your accountant and, and understand if this makes sense for you. I always say. Send me a census. Let me, let me work up some of the numbers. I'm a numbers person, uh, particularly, so no charge to, to kind of review a census, show you what it, what it may look like.

[00:33:43] If, if it works for you, great. If not, then we'll talk again in the future. 

[00:33:47] Rich L: Great. And for any business owner who's said, I gotta call Brad, how do I, how do they reach you? What's, what's some contact information we can give to them today? 

[00:33:55] Brad S: So my email is Brad, BRAD. [00:34:00] Klerer K-L-E-R-E r.com, and my phone number is (516) 409-5500.

[00:34:12] 5500 Easy to remember. 'cause that's the form that we have to sign. 

[00:34:16] Rich L: Great. Great. Well, well, again, thank you for this. I'm excited to, to share this with all our listeners today. And if you're that small business owner and uh, you missed Brad's contact information, you could also check out the show notes and we'll list his information there.

[00:34:33] You could also email us at hello@enrichlifepodcast.com. For our listeners, if there's one thing to take away from today is that there are experts out there. There are professionals. There are advisors that can help every single one of you. There's plenty of us out there. Don't try to do this alone.

[00:34:51] It's very complex. The penalties can be a. Extraordinary, uh, speak to a professional about setting up a retirement plan. If you had [00:35:00] one and you haven't really looked at it and you've been ignoring it, there's no better time than today to, to start looking at this and making sure that you're still in alignment with the new rules and regulations.

[00:35:11] Right. Thanks for tuning in today. I look forward to, um, seeing you again in the future. Please don't forget to like, share and subscribe and if you're listening to this and you know, a business owner. Please share it with them and, and let them know that we're gonna be having the, a business series, uh, on Enriched Life podcast, uh, which will entail a lot more stuff to help, uh, small business owners and how they can be more profitable and keep more of the money that they're working hard for.

[00:35:39] I wanted to say a special thank you to LMC Media. Uh, and Vekterly who helped me produce this podcast. 

[00:35:47] Until next time, thanks for tuning in.

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