Stepping Up

there are an increasing number of retirement doors to open. Cerulli Associates, a Boston-based consulting firm, calculates that the number of companies with under 100 employees that offer 401(k) plans has more than doubled over the past decade.

Earlier this year, a suburban Boise, Idaho, couple was thinking about starting a retirement plan for their construction company. They were in their 40s, the business was taking in over $1 million annually, they employed two dozen workers — mostly laborers — and, for the first time, they weren't putting every cent they made back into the business.

Their accountant referred them to Jason Haas, a local financial advisor who runs Eagle River Financial. They told him they wanted to put away a sizable nest egg for themselves, sheltered from taxes, while providing more modest retirement benefits for their employees.

Haas suggested a Safe Harbor 401(k) retirement plan. With this variation of the standard 401(k) plan, which is targeted at small businesses, the couple wasn't bound by the usual rules and could contribute significantly more to their own accounts — up to $15,000 each — as long as they contributed to their employees accounts.

So, in February, Haas set up the plan. Many advisors might think he would be glad to be done with it; putting together retirement plans is tough, time consuming work that doesn't pay much, and this job was no different.

But, Haas knew he could leverage the relationship. He quickly met with the couple to map out a more-detailed financial plan for all their assets. Haas expects to manage about $750,000 for them in the near future, plus the proceeds when they eventually sell their business and retire. Thus, that single Safe Harbor plan has turned into $12,000 to $15,000 a year in regular income for Haas, whose firm does several hundred thousand dollars in business annually.

“These retirement accounts are a pain,” Haas says cheerfully. “But they're my foot in the door.” He estimates that about a dozen of his 80 major clients started out with retirement plans. Moreover, he has picked up about 50 small IRA rollovers from employees who retired from plans he manages.

Haas' success is hardly surprising because there are an increasing number of retirement doors to open. Cerulli Associates, a Boston-based consulting firm, calculates that the number of companies with under 100 employees that offer 401(k) plans has more than doubled, to 367,300 from just 168,400, over the past decade. The combination of growing interest and room for growth has opened up new opportunities for brokers, reps and financial advisors like Haas.

Even so, that's a small fraction of firms that size in the U.S. Tax-law changes and vendor competition have made retirement plans less of a pain by raising the amount that can be contributed, lowering administrative costs to no more than a few hundred dollars a year and providing more options. The newest choice is a Roth 401(k). It joins a wide assortment of plans — from a solo or individual 401(k) plan to the ordinary 401(k) to even traditional defined-benefit pensions — that may be particularly well suited to small businesses at varying stages of their growth and development.

At the same time, advisors have barely tapped the market. According to the Employee Benefit Research Institute, a Washington, D.C.-based organization specializing in retirement issues, fewer than half of all companies with under 100 employees offer any sort of retirement plan.

“We lead with retirement plans because the No. 1 risk that people have is not saving enough money for retirement,” explains Douglas Peete, president of Douglas R. Peete & Associates in Kansas City, Kan. “Then it's natural to develop other lines of business around that.”


Even when a client already has a retirement plan, a rep may find an opening by recommending a better one. Two years ago, the husband-and-wife owners of a small Los Angeles graphic design company that has about a dozen employees came to Elad Goren, They were unhappy with their standard 401(k), to which neither of them could contribute more than $5,000 annually.

Goren, a partner in Financial Pointe Wealth Management, a Los Angeles financial-planning firm, moved the owners to a Safe Harbor 401(k). That led to estate planning. Now Goren manages their $200,000 Safe Harbor plus about $600,000 of their personal assets — bringing him some $8,000 a year in fees.

Haas had a similar experience with a local dentist who has eight employees. The dentist's practice was covered by a Simplified Employee Pension plan (SEP). The client, says Haas, was frustrated by the rules that limited his contributions.

With a Simple, he could lay aside $10,000 for himself and just 2 percent of his staff's salaries, which was a lot less than he was putting into the old SEP for them. “It was a tough transition,” Haas says, who had the unenviable job of telling the employees. “We focused on the fact that it had been a generous plan, but what we're using now is what everybody else has.”

He says the dentist didn't lose any staff and ended up saving $20,000 a year in contributions. And now that the dentist is about to retire, Haas will manage his IRAs, the proceeds from selling his practice and some real estate he intends to liquidate — maybe $1.6 million in total.


A client who's happy with the new retirement plan may well ask the rep to take on more work, or refer the rep to other firms. For instance, Clarence Kehoe, a tax partner at the Manhattan accounting firm Anchin Block & Anchin created a defined-benefit plan for a man in his early 50s who ran a small financial-services firm in New York.

A defined-benefit plan made sense for the owner because it favors older participants who make more money and have been with the firm a long time. There is also no cap on contributions. Thus, the owners could sock away more in this plan than probably anyone else in the firm.

“You're still being nice to your employees because you're giving them money, but the amount that you're putting away for yourself is huge,” says Kehoe.

Launched with about $100,000, the financial-services firm's plan today has some $300,000 in assets, three-fourths of which will go to the owner. “The owner thought it was a good idea, so he mentioned it to a friend of his who had a similar situation,” Kehoe says. Bingo — Kehoe set up another defined-benefit plan of a similar size for client No. 2.


Of course, putting together a retirement plan is only the beginning of any advisor's work. There's a load of administrative responsibilities: Peete has three staffers — two full-time and one part-time — who work on retirement-plan services. Goren says that even after a plan is established, he spends 15 to 20 hours a year per sponsor running enrollment meetings and handling employee questions. “It's more repetitive than other work I do,” Goren concedes.

Still, it's worth the effort, and not just because of the money. Says Goren, “What I love about it is that we're giving all these employees an ability they wouldn't have had — the ability to contribute to a retirement plan.”


Solo or individual 401(k). This is a 401(k) that can be used only where the sole employees are the owner and spouse. Not a lot of work for advisor. Not much pay either. Advisor may generally charge $100 for the set-up; $50 to $250 for annual maintenance.

Simple IRA. It has an employee cap of 100 and a contribution cap of $10,000 annually per employee (i.e. must fund employee accounts). A little more work and pay for advisor: Set up charges likely under $1,000 and annual fee around $15 to $25 per member.

Simplified Employee Pension (SEP). No employee cap, but meant for small businesses because it's easy and cheap like Simple. Big difference is on contribution side: not mandatory and maximum of $44,000 per employee.

Defined-benefit plan. Gaining popularity with small businesses as it loses popularity with large companies. Contributions virtually unlimited. Good idea for a small company whose owner earns significantly more and is significantly older than the rest of the staff. Advisor may get over $2,000 for set-up with annual fee running into the thousands annually.

401(k). The standard defined-contribution plan requires considerable paperwork, time and expense. Thus, it generally works only for larger small businesses (i.e., over 75 participants) that can afford expense. Count on charging set-up fee of $1,000 to $3,000; annual fees can run into the thousands for the whole plan.

Safe Harbor 401(k). Same as standard 401(k) except that it lets owners contribute proportionately larger amounts, as long as they also contribute to employees' accounts. Possible alternative to the defined-benefit plan because, again, it allows for larger contributions from participants at the top of the company's compensation structure, but doesn't pay an advisor as well.

Roth 401(k). Added as an option to standard defined-contribution plan. Participants pay taxes on contributions rather than on withdrawals. A bit of extra work for an advisor with no financial compensation.

Profit sharing. Although this can be used as a stand-alone plan, it is usually added on top of a 401(k). Deserving second thoughts: The paperwork is complex and expensive. Advisors charge set-up and annual fees similar to a 401(k) for a stand-alone plan, but nothing or a few hundred dollars for add-on.

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