The 401(k) Audit CPA Success Show: Episode 13
In this episode, Jamie Nau sits down with Kim Moore and David Ramirez from ForUsAll. We talk about current trends related to 401k plans during COVID-19 and the economic decline and things you can do in your business to respond within your 401k plan.
We also talk about advice for employees and what you can do as an employer to support your employees on their 401k plan.
Jamie Nau: Hello everybody, and welcome to today's podcast. Kim and I are really excited about today's guest. We have David Ramirez ForUsAll. I'm really excited for some of the topics he wants to talk about today. We just did some pre show discussions here. I'm excited to learn about a lot of the things he wants to talk about. But before we get to that, David, you want to give us a little bit of your background and kind of do your own introduction here?
David Ramirez: Yeah, thank you. Well, first of all, Jamie Kim, thanks so much for having me today. So I am David Ramirez, the co-founder and chief investment officer here at ForUsAll and, we are a 401(k) advisor that happens to be a technology company. A quick background of the firm. As you know, prior to starting this firm, myself and my co-founders, we used to manage about 55 billion in 401(k) assets, mostly for Fortune 500 companies. So our clients were Citigroup, Motorola, J.C. Penney, American Red Cross, you name it. We worked with some of the largest organizations in the country. But back in 2012, we noticed a trend that you probably saw in your practice, which was that the Department of Labor was increasingly holding smaller and mid-sized companies to the same fiduciary and compliance standards that they did for companies like Citigroup, which didn't make sense, because I can tell you for a fact, Citigroup had four people whose sole job it was to keep their Plan compliant, and they were assisted with an army of consultants and lawyers from some of the top firms in the country. So when we looked at small businesses, you know, they usually have half a person, maybe one person to do the same job. So what we did was we decided to bring the same sort of technology platform that we provided to the largest companies, to the small and mid-end of the market at a price point that made sense. So what we've really rolled out is kind of an interesting blend between a technology platform and more of a traditional 401(k) advisor that we like to say allows plan sponsors to do a lot more for less.
Kim Moore: Yeah, that that makes a lot of sense. I'm sure our listeners, they're probably going to be interested in hearing more about that. So we're going to throw out some email addresses here a little bit later if you want to learn more about, because I think it's a valuable service that a lot of plan sponsors might find very helpful, especially if they're drowning right now in you know, we're right at the time period where compliance on these 401(k) audit plans can be a little bit overwhelming. So David, I wanted to ask, you know, we're right in the middle of the pandemic that we've been living through for the last several months. I know here at Summit it's been a challenging year for us on the audit side. But I just kind of want to get your thoughts. What are you hearing from your clients? And just out in the industry?
David Ramirez: Yeah, well, you know, certainly the world has changed for almost everybody. I think it really depends on the industries that we work with. So we certainly have a lot of clients that are in the hotel and hospitality industries. And, you know, we've helped some of our clients really navigate how to furlough up to 90 percent of their employees. How to manage all of the impacts that has on the retirement plan. But most importantly, you know, it's a really tough decision for employers to either furlough or lay employees off. And for us, as a 401(k) advisor, that's one of the unique times where we're really able to go in and help those employees transition. So it's tough to lose a paycheck. But then those employees have a myriad of other financial challenges at home. You know, nearly one out of two American households have suffered a significant decline in their income in a time when most didn't have sufficient emergency savings reserves. So a lot of what we've been doing is working with plan participants to help them manage this significant shock to their income. And it makes it a little bit easier for the benefits teams because at least they know that there is somebody who is there to help their employees transition into this new environment. So certainly a much greater need for participant help is one area that we've been focusing on. The other is compliance. Look, you know, one of the key aspects of what we do is automate all of the day-to-day administrative and compliance work for the retirement plan. So it's integrating the payroll system with the 401(k) system so that when an employee makes a change on the record keeper, it just automatically shows up in payroll, and then doing everything from notices, reviewing hardship withdrawals. That's critical right now when there are so many HR. teams that have to do so much more with so much less resources.
Kim Moore: That's what I was going to say. I know that's the one thing we've seen is that, you know, the furloughing and the laying off or whatever avenue that folks are taking doesn't just hit the operation staff. It hits some of the administrative folks, too. So they're there working with fewer HR people. Maybe that key payroll person had to leave or maybe had to leave on their own for reasons of what's going on. So it's just been difficult and there's not a lot of transition time sometimes. We found that with our clients. You know, another thing we mentioned was just communication with all of your current employees as well as former employees, because if they're still participating with assets in the plan, there are communications that need to go on. So what have you seen in that space?
David Ramirez: Well, maybe in a couple of different realms. So the first is, early on in the COVID lockdown, we saw the market drop quite significantly, quite quickly. In fact, it was one of the largest, fastest declines that we've seen in history. And we started getting a ton of phone calls into our advisory team. So for all of our clients, we provide financial advisors to help their employees. Well, employees were increasingly calling in, concerned about the market, wanting to pull out of equities and go straight into cash. Now, we know that that's a really bad idea. Historically, when people sell at the bottom of the market, they're effectively locking in their losses. What we've also recognized is, you know, this is not the first time that there's been a significant health threat that has hurt the economy. We had SARS, so you know, studying past outbreaks of diseases and the impact of the market we were pretty confident going into this that historically we have seen is a stop, a sharp sell off, but a relatively quick rebound once public health officials get things under control. So recognizing that a lot of employees didn't understand that, we figured okay, we're going to have to do a couple of things differently. First, we launched a probe about two weeks after the market started declining. We launched an email and mobile campaign that we called Pause Boost. We told employees, hey, look, if you're really concerned and you need extra cash in your pocket right now, no problem. Why don't you just pause your 401(k) contributions for the next three months? Or you might be looking at the depressed stock prices and thinking, wow, this is a great time to start saving more to lock in those lower asset prices. And so we launched that pause boost campaign and it was really exciting. So we ended up reaching about 40 to 50 percent of employees through that communications, and about 20 percent took action. So 10 percent of the overall participants did something with really one or two emails, and half of them chose to save more and half of them chose just to pause. And for us, choosing to pause your contributions for 90 days was critical because people didn't end up setting their savings rates to zero. They didn't end up selling out of equities and going straight into cash. And that's exactly kind of the behavior that we saw in 2008 and 2009 that we wanted to avoid. So that was one big change, employee communications. The second one was for the CARES Act. Distributions were always complicated, right? And boy did they get a lot more complicated.
Kim Moore: Yes, they did.
David Ramirez: Take a loan, take a hardship withdrawal. You could pay it back. You couldn't. And so we launched a number of communications during that period that really helped employees understand. A, do I qualify? B, what's the reason why I qualify? What's the impact on my retirement if I take money out now and don't pay myself back? And then okay, so I need the cash, what's the best way for me to do this? Is it a COVID withdrawal or COVID loan to the plan sponsors? These communications were key because as an employee went through those communications, we were effectively documenting for each participant whether or not that participant was actually meeting the very strict requirements for getting that particular type of distribution. So it was a great tool for making sure that everything was tightened up on the compliance side for the employers and making sure, most importantly, that the employees knew their right options and knew what the impact would be on their retirement.
Kim Moore: Right. I can imagine, you know, we're on the outside, but I can imagine if I was a plan sponsor, that would be a great help because they had a lot of other things, you know, to weigh through. So not that they don't care about their 401(k) plan and don't care about their employees, but probably top of mind was just, how do I keep this business going during this difficult time. I know we had some employers that are clients that had more business than they could handle. If they were in the health care, or in the ambulance business. You know, we have a client that does that and were very, very busy. So they had the opposite problem. But it seemed like everybody had a problem. It was one way or the other. So that definitely helps. Anything else you can think of on the current front that you think our listeners would like to hear about?
David Ramirez: Yes. The only last thing, so we talked about different types of proactive communications that we were sending out. There were really specific to things that were happening at any moment in time. The other thing that we've started doing, and it was really back in maybe the first or second week of March, was we started sending out a weekly market commentary which, look, I'm a portfolio manager. I spend at least half an hour to an hour reading all of the financial journals every day. So I love this stuff. But what I was surprised with was how many employees have actually been reading it. So we write this every week. It's a complete survey of everything that's going on in the markets, what's driving things up or down. And we're basically seeing about 40 percent of employees each week are reading this market commentary. You know, our advice to employees is not changing on a week by week basis. And so the same core advice to employees, it's always really the same, you know, stay the course being a risk appropriate diversified portfolio. But what we've seen is that just going that extra step and making sure that the employees know that we actually are monitoring case accounts. Looking at how the downturn is impacting different credit markets. That has given employees much greater comfort, knowing that their advisors are actually staying on top of what's going on in the market and that it's not tone deaf advice. The last thing an employee wants to hear from an adviser when the market is declining is don't worry, just stay the course, stay the course. That only makes sense if you trust the person that's giving you that advice is actually staying on top of what’s current, right?
Kim Moore: That's very true. I think your average employee doesn't really understand the investment market. You know, they want to trust someone. So I'm sure giving them that information helps them feel comfortable, but also just gives them some information that they wouldn't otherwise have. Do you get a lot of questions from the folks about what you send out? And I'm curious because, you know, sometimes the investment terminology can be almost legalese, if you will, and so the average employee might find it difficult to understand.
David Ramirez: Yeah. Yeah. So I think certainly, we frequently get questions from employees either through email or phone calls. We do video chats with employees quite a bit. But I think one core tenet of what we do when we communicate with employees, and I don't care if you are a Ph.D. epidemiologist, a doctor or an engineer, look, if you're not in the financial services industry, you're probably not staying on top of all of the lingo to your point. And so a lot of what we do is really try and make the current financial news accessible to employees. And whether that's bringing it home to examples that are close or proximate to their lives is a great way to do that. And it is always a balance.
Kim Moore: Right. Well, I think that would be very useful because I know that's one thing that I've seen over my career. Is really the investment, when you get down to the fundamentals, it isn't that complicated but it sure can seem like it if you're not that familiar with it.
Jamie Nau: I'm in accounting and still some of the language, I'm like, I'm not sure what that means. I'm in the financial industry, and there's still a big difference between accounting and finance and some of that.
David Ramirez: Well and how does that make you feel actually, when you get that information?
Jamie Nau: It makes you overwhelmed. Like, wow, what should I be doing here? Because money is an important thing and my investments are important thing. And when an email comes that doesn't make sense to me, you have to question yourself like, am I doing the right thing here?
Kim Moore: I think that, you know, the news doesn't always help. You know, a lot of times you hear the sky is falling or, the market just tanked and it's never going to come back and it's affecting everything. It's going to make the whole world fall apart. I think it can be very scary to people, so I think having somebody kind of sort through that and just reassure them with knowledge, and historical background, and I think that's very helpful.
David Ramirez: Yeah, I think a lot of what we do is think about overall behavioral economics, and then also just overall classic user design. And one thing that Jamie, you were touching on now and describing I really perfectly is what happens when we communicate to employees in technical terms. The industry for decades has talked about how irrational the average American saver is, right? They're not saving enough and how that makes no sense. But in in our opinion, it's actually quite rational for a lot of employees not to join the 401(k) plan, and the core reason is if you're presented with a ton of options, you get that welcome packet in the mail and you've got 20 or 30 different options. There's a lot of technical jargon, you know, for why one is good. You're not exactly sure if this one's good. You're not sure what your options are. Actually, the rational decision is to figure out what your choices are before you make a decision. The problem is that takes a lot of work. And so you'll look at it tomorrow. Tomorrow turns to next week, next week to next month before you know it, 5, 10, 15 years has gone by before an employee starts saving. So I think for us, some of our overall communication and design principles are, one, make sure that the information is understandable and accessible to anybody, regardless of industry. One quick read, never ask a question that somebody can't answer off the top of their head in 3 to 10 seconds. Most importantly, you know, we're advisers. But the point is not to give somebody advice. I fundamentally think that when you're in a position where somebody has to go to the advisor and say, well, what should I do? That's a disempowering interaction. It's like going to the doctor and asking the doctor, like, oh, I'm feeling like this, what's going on? Am I sick or not? A much more empowering interaction is one in which the adviser can help ask the right questions and present the right options such that the person knows immediately what's right for them and their family in that moment. As an adviser, that's definitely where we strive to be at. I think the results are people save a lot more into the 401(k) plan at a lot higher rate.
Jamie Nau: You want to avoid that pile that my wife makes for me. This is the stuff we need to look through eventually. Instead you keep looking at it like, oh, maybe next week we'll look at it because you want to avoid that pile of the complicated stuff.
David Ramirez: That's right. Yeah.
Kim Moore: And the pile just grows and grows and grows
All: Laughing [in audible]
Kim Moore: One thing I definitely wanted to touch on, because we have not really covered this in any of our other podcasts, is the fees associated with the 401(k) plan. I know we were talking before we got on the podcast here a little bit about that. But can you share your experience with that. and what you're seeing and some of the regulatory implications with that? I know that's a kind of a hot topic now.
David Ramirez: Yeah, well, this is definitely a hot topic for a number of different reasons. First, you know, this is the time of year that a lot of plan sponsors are doing a fee and service benchmark of their plan. It's also the time when a lot of people are looking at potentially changing their 401(k) plan options. You know, I was just looking at a recent GOA report that was looking at small businesses 401(k) plans. They found that 57 percent of plan sponsors didn't know their fees or thought that all the 401(k) fees were waived. Which I can assure you the 401(k) industry is not a nonprofit. You know, I mean, I'm sure you guys have looked at fee disclosures in the past. Some record keepers and some providers are better than others at making it more simple. But even the simplest fee disclosure, they're still not simple. And, you know, some might argue that's by design. And, you know, to be fair, that's a pretty good argument that it might be by design. We just over the last couple of weeks have been doing an analysis. So plan sponsors give us their fee disclosures oftentimes so that we could help them make sense, figure out how much they're paying. We just did a big statistical analysis of different pricing on different record keepers, and it blew my mind how the same size company. Relatively equivalent industries, same average balances, same asset levels. on the same record keeper could be paying anywhere from 20 to 50 percent different prices for their 401(k). It's the same product. I can't think of any other product where there's such a wide range of what people are paying for exactly the same thing. So that actually creates not only huge potential losses for the employees, but it also creates significant fiduciary risk for the plan's sponsor, especially that person who's signing the 5500. Because when you do that, not only is the Department of Labor looking to you as the person who doesn't just need to have a general idea of what you're paying. The Department of Labor wants you to be 100 percent certain. You need to know exactly what you're paying. So there's a significant legal liability there. But more important than that, like, look, look around your office, all of those people you see, that's their life savings in most instances. And if you don't know what they're paying, then we can't be sure that they're not overpaying. And, you know, the recent data that I saw is, you know, one out of four plans that have around 20 million in assets, the all in investment fee is point nine percent or less. That actually means then that three out of four companies are overpaying.
Kim Moore: Yeah I think that this area can be very complicated for the average person that, you know, is maybe the CEO of the company or the president of the company, or head of HR, depending on the size of the company, it's not really their area of expertise. They don't get a lot of training on it. Any recommendations to the average plan sponsor out there? How do they figure all this out?
David Ramirez: So one of the things that we've been doing quite a bit over the last six months, especially given that companies and employees are all tightening their belts and wanting to make sure that every last dollar is spent in the right way. We've got some tools that allow us to quickly analyze the fee disclosure so that first, you know exactly what you’re employees are paying. Second, you know exactly how that compares. And then third, and most importantly, you know what are the small tweaks you can do to significantly cut fees. And generally, for most plan sponsors that we look at, there's usually opportunity to reduce fees 30 to 40 percent. The number one tactic that gets you close to there is actually just making pricing transparent. Most plans right now are still small and midsize companies still using revenue sharing. And that's the process by you know, you've got the record keeper charges you a little bit for the record keeping fee. And then, you know, maybe the employees are paying anywhere from half a percent to one and a half percent on the investments. Well, a lot of those crazy fees on the investments are actually being paid back as in the form of kickbacks to either the record keeper or the advisor that recommended those funds. And so people don't really know exactly what they're paying for. But when you remove revenue sharing, which hint, that's pretty much what every single Fortune 500 company has done over the last 10 years. People know what they're paying. You can see what the record keepers are charging, and that gives you tremendous ability to lower the overall cost of the plan. And it's a real quick, easy fix. That's one where in most instances you don't even need to change record keepers. You could stay with what you got, just cut fees 20 to 30 percent and make it more transparent. The other thing that we've seen is with renegotiating the record keeping costs, because that can be, particularly for some industries, a significant portion of the overall plan cost. If you've been with your record keeper anywhere from 3 to 5 years, that's the perfect time to renegotiate those fees. You know, record keepers, depending on the record keeper, they incur significant cost to set up your plan and they need to amortize that back. And depending on the record keeper, it takes them 3 to 7 years to get their money back. What that means though, is after they've gotten their money back, their margins are pretty high on your business. That's exactly the last time that they want to lose your business. And so what we've seen is by getting a number of competitive bids from some of the lower cost record keepers, taking them back to your current record keeper is a great way for them to sharpen their pencil. So we like to tell clients, look, you're going through the benchmarking. Let's set 30 to 50 percent as the goal and we're going to reduce the fees. Most instances you're able to do that on your current record keeper by removing the revenue sharing, getting competitive bids and bringing them back to your current record keeper.
Kim Moore: That makes a lot of sense. I think the transparency issue you brought up right on. I know most of the folks that we talked to in our business said they don't even know that's going on. They're not even aware of it. So there's a cost there that they wouldn't even consider because they don't understand it. So great point.
David Ramirez: And the impact is huge. I mean, for a three million dollar plan, you know, if you project the cost savings and what that means for retirement, you could easily be talking about two to three million of extra retirement savings if you're able to lower your fees. And to be frank, that literally can be done. The entire analysis and end getting competitive quotes can be done in 30 minutes. I can't think of too many other things plan sponsors can do in 30 minutes that can literally generate millions of extra dollars for their employees by retirement right now.
Jamie Nau: This is the part that everyone needs to listen to you.
Kim Moore: Yeah, great point. I think you might get some follow up from people listening to this saying, wow, I didn't know that was an option. I'm sure they will want to take advantage of that because I think that's a great opportunity.
Jamie Nau: So speaking of that follow up, we have a couple minutes left here. I want to make sure people know how to get a hold of you. So what's the best way to reach out to you?
David Ramirez: Yeah, so either go to: www.forusall.com Just quickly click the contact us button. You could quickly set up some time where we can share with you some of the tools, or if all you're interested in is a quick pricing analysis happy to do that. Or you could email me at: email@example.com. Although when we get on the phone, I'm going to remind you that I actually go by David instead of David.
Jamie Nau: I know you caught me on that. I apologize for that. But yeah, in addition, you can reach us at firstname.lastname@example.org. Again, we're always looking for topics or guests and love people reaching out to us. So any final thoughts for today before we end this podcast?
David Ramirez: You know, I think now more than ever, the 401(k) plan is probably one of those benefits that can provide unique value to employees. It's not just by saving. It's really, as we think of it, all of us are struggling with how much the world has changed and whether you're one out of two American families that have suffered income and just needs help figuring out how to make ends meet, or whether you're somebody getting closer to retirement and unsure of what you should be doing on your portfolio to really protect your life savings, I think now is a critical time for all of us to reach out and help people make smarter financial decisions. Let them know they're not alone.
Jamie Nau: That's great.
Kim Moore: I don't have anything else. I want to thank David for all your time and joining us today on the podcast. I think you gave us some really wonderful information. I would encourage our listeners to reach out to those emails that we threw out. If you missed anything, reach out to us here at Summit and we'd be happy to pass along that information.
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