2024 Retirement Plan Advice Process

The 2024 Retirement Plan advice process is now closed. We are moving forward with Vanguard’s SIMPLE IRA, more details can be found in the Retirement Plan section of the Handbook.

Purpose

This document is to help us understand how to choose a retirement plan, considerations and implications for the company (Employer) and individuals (Employees).

Advice Process Roles

Erika Parkins is the Proposer. All full-time exempt employees are Advice Stakeholders. Please provide your input by Monday 11/20.

Desired Outcomes

• All employees should understand what we are considering for a retirement plan and what it means for them personally, and the company generally, to provide the benefit.

• All employees should understand why we are selecting a particular plan

• Selection of a plan for plan year 2024

Proposal

I propose we move forward with the Vanguard Non-Elective IRA for the following reasons:

Cost effective:

• The plan will not put any financial pressure on us to make the contributions or put us in a position to pull back from the benefit at any point while we grow.

• No fees for Cadence OneFive and flat, consistent fees for employees.

Flexible:

• For Cadence OneFive: we can easily offer the benefit on our own schedule (e.g. monthly or annually) and keep the plan as we grow - even if we later offer a 401(k) option.

• For Employees: Additional contributions can be made outside of the non-elective contribution

Easy-to-manage:

• We do not have the IRS reporting requirements though we can still benefit from the SECURE Act tax credits for offering, setting up and managing the plan.

• Low administrative needs from us - we just need to connect to Justworks and indicate an account from which to withdraw funds.

Another plus with offering a retirement benefit would be as a recruitment tool, to attract talent and show another way in which we support employees (92% of companies that offer a plan make an employer contribution so we would be in good company).

Duration

Likely 3 years until we consider adding a 401k.

Context & Background

Retirement Plan Roles

The HR Lead will be the internal point of contact for the retirement plan. We currently do not have an HR lead in place (as of Aug 2023) and until there is, the internal points of contact for the retirement plan will be the Strategic Growth Lead and the CEO. Retirement plan responsibilities include:

• Research and understanding retirement plan types

• Communicating plan options, types and changes to the team

• Selecting a retirement benefits provider and confirming plan setup, as well as being the main point of contact for the provider

• Making sure tax forms are submitted to the accountant filing taxes annually; this includes Secure Act tax credits and any IRS filing forms the selected plan requires

Glossary of Terms

There are a number of terms associated with retirement plans that you may or may not be familiar with. Below is a list of terms that will come up most often in our discussion. The IRS and Investopedia also have great in-depth explainers on retirement plans and terminology.

General Terms

Definition

Advisory Fee	Also known as account maintenance fee or management fee, these are ongoing charges for manages the assets of the investment fund. They are generally stated as a percentage of the amount of assets invested in the fund and vary between .05% - 1%.
Auto Enrollment	Allows an employer to automatically reduce an employee’s wages by a fixed percentage and contribute that amount to the employee’s plan account.
Employer Contributions	Funds that employers allocate to the employees’ retirement plans, either through matching programs, profit-sharing, or other methods. Depending on the plan design, employers may or may not be required to contribute.
Plan Design	Plan design refers to the framework of a retirement plan, defined by such characteristics as participation requirements (mandatory or optional); required contributions by the employer and employees; vesting requirements; benefit levels; methods of benefit distribution; and others.
Profit-Sharing Plan	A profit-sharing plan is a retirement plan that allows an employer or company owner to share the profits in the business, up to 25 percent of the company’s payroll, with the firm’s employees. The employer can decide how much to set aside each year, and any size employer can use the plan. The key difference between a profit sharing plan and a 401(k) plan is that only employers contribute to a profit sharing plan. If employees can also make pre-tax, salary-deferred contributions, then the plan is a 401(k).

Roth Contributions

Retirement Plan Responsibilities

Definition

Recordkeeping	- A recordkeeper maintains participant records of investments, loan payments, distributions, earnings, vesting, and forfeitures.- A recordkeeper also keeps records of contributions, allocating them to the appropriate accounts and funding options.- From providing quarterly participant statements to sharing required plan and participant disclosures, a recordkeeper helps participants track what money is going in and out of the plan.
Plan Administration	- A plan administrator creates and maintains plan documents including an adoption agreement and summary plan description.- An administrator is tasked with preparing 5500 and 1099-R forms for tax purposes.- The administrator also helps ensure that the plan remains compliant.
ERISA	The Employment Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans. It contains rules on the federal income tax effects of transactions associated with employee benefit plans and may require additional filings with the IRS depending on the retirement plan.
Fiduciary	An IRA fiduciary includes anyone who does any of the following:- Exercises any discretionary authority or discretionary control in managing the IRA or exercises any authority or control in managing or disposing of its assets.- Provides investment advice to the IRA for a fee, or has any authority or responsibility to do so.- Has any discretionary authority or discretionary responsibility in administering the IRA.SEP IRAs and SIMPLE IRAS are technically covered by ERISA, but are exempt from most ERISA rules - mainly the requirements for annual filing.In the world of 401(k) plans, there are two types of 401(k) fiduciaries required by ERISA: Named fiduciaries are specifically identified in the plan document. A named fiduciary can be the employer, a company officer, or a third party. Unnamed fiduciaries have a fiduciary duty as a result of the role they plan in managing the 401(k) (see definition of Fiduciary Support below).
Fiduciary Support	- A fiduciary exercises discretion over management of the plan or authority over plan assets.- A plan fiduciary renders fee-based investment advice, either directly or indirectly, or has discretion over plan administrative issues.- A fiduciary is required to share plan information with participating employees and with the government.

Plan Types

Overview of retirement plan options available for a business of our current size (less than 100 employees) can be found in our Plan Summary spreadsheet and below. We considered a range of retirement options and third-party plan providers to identify the right fit for us and the summary includes Traditional 401(k), Safe Harbor 401(k), SIMPLE 401(k), SIMPLE IRA and SEP IRA.

https://docs.google.com/spreadsheets/d/1SW2NhFtrh1A90mVyLexv7kJsWcYUoBCNJoqXiVAwrkc

Choosing a Plan

There were a few key considerations in deciding which plans and providers would be the best option:

• Light administration for Cadence OneFive, since we do not currently have a dedicated HR lead

• Integration with Justworks or easy for the third-party provider to integrate with Justworks to decrease administrative load of uploading and sharing additional documents

• How long we would be able to grow with a plan

• Cadence OneFive budget and what it would mean to the company and employees, to offer a retirement plan vis-a-vis our financial position

Cost Analysis by Retirement Plan

When evaluating a potential plan, we consider what the cost will be for the employer and the employee. At plan start, we also look at year one versus year two costs and potential growth in the number of overall employees. Below are the cost analysis considerations by retirement plan type.

You can see how we compare plans we are considering in this Retirement Options spreadsheet.

401(k) Plans

| Employer Cost

Description

Cadence

Req’d

Annual Fee	If charged, this fee may cover one or all of the following: preparation of the plan, the work required for compliance items in the year(s) the plan is active, including drafting and preparation of IRS forms; plan administration and fiduciary duties.	Annual	No
Participant Fee	If charged, this fee usually covers record-keeping for each participant.	Monthly	No
Set-Up Fee	Covers implementation of the plan and set-up on the provider’s platform.	One-Time	No
Employer Contributions	Funds that employers allocate to the employees’ retirement plans, either through matching programs, profit-sharing, or other methods. Depending on the plan design, employers may or may not be required to contribute.	Depends on Plan Design	No
Advisory Fee	Also known as account maintenance fee or management fee, these are ongoing charges for manages the assets of the investment fund. They are generally stated as a percentage of the amount of assets invested in the fund and vary between .05% - 1%.	Quarterly	Yes

| Employee Cost

Description

Cadence

Req’d

Participant Fee	If charged, this fee usually covers record-keeping for each participant. This cost may be passed on to the employee depending on the plan and provider.	Monthly	No
Administration Fee	Similar to the advisory fee (or account maintenance fee or management fee), they are generally stated as a percentage of the amount of assets invested in the fund and vary between .05% and .5%. An alternative to the percent based fee is a flat fee based on the total value of savings. This fee may be waived if savings meet a certain threshold.	Quarterly or Annual	Yes

IRA Plans

| Employer Cost

Description

Cadence

Req’d

Employer Contributions	Funds that employers allocate to the employees’ retirement plans, either through matching programs, profit-sharing, or other methods. Depending on the plan design, employers may or may not be required to contribute.	Monthly	No

Process for Choosing a Plan

This is the process for choosing the initial retirement plan. The steps may be different in the future, if there is a need to change to another provider or we have grown enough that we need to move to a different retirement plan option.

1. Give yourself enough time.

2. 60 - 90 days is the minimum amount of time to research and set-up a plan, depending on whether you are opting for a 401(k) or SIMPLE or SEP plan.

3. Most retirement plans also have a window between Jan 1 and Oct 1 to be set-up, with many plan years starting Oct 1.

4. In addition, traditional and safe harbor 401(k) plans have rules around when you must notify employees of a plan, options to opt-out, etc. before a plan start. Usually 30-60 days.

5. Understand current priorities for the team and company

6. This should be brought up in a team meeting and confirmed again via Slack

7. Research providers and track responses

8. Points of comparison include: services and support provided to the employer and employee, investing opportunities such as the availability of ESG-focused funds, curated or managed portfolios and pricing

9. Track responses in a document that everyone can access and follow. An example is the Retirement Options spreadsheet.

10. Review budget to make sure options align with our financial position

11. Summarize top choices and why we are pursuing them

12. Share top choices with the team for feedback

13. Allow 1-2 weeks for review and feedback

14. We do not need consensus on the final plan, but everyone should understand the options and what that choosing one over another will mean for the company and for them as an employee.

15. Confirm plan provider

16. After confirming the provider, we will need to sign a service agreement and any other notices the provider has. These documents may be signed by either the Strategic Growth Lead or CEO in the absence of an HR Lead.

17. The internal plan point of contact (the Strategic Growth lead) will work with the plan provide on the plan set-up and required notifications to employees.

Setting Up a Plan

| IRAs

401(k)s

- Adopt a plan document by signing the appropriate IRS forms (e.g. Form 5304) You do not need to file these forms with the IRS during tax season. - Give each eligible employee certain information about the plan and the institution where employee contributions will be made before the employee election period begines. Usually 60 days before Jan 1.- Set up an IRA for each eligible employee via form 5303 (for a trust account) or form 5305-SA (for a custodial account)- If we choose to offer a SIMPLE IRA, we many not offer any other retirement plan to employees.

- Draft a 401(k) policy document with the plan provider. The process by which contributions are deposited into the plan and other essential functions may also need to be documented per legal requirements.- Choose a trust to hold plan assets. At least one trustee must be chosen to manage plan contributions, investments and distributions. This decision is especially important because financial integrity, i.e., ensuring that assets are only used for the benefit of plan participants and their beneficiaries, depends upon it.- Establish recordkeeping methods A recordkeeping system is necessary to keep track of contributions, investments, earnings and losses, expenses, and distributions. It also comes in handy at year’s end when 401k plan reports have to be filed with government agencies.- Provide information to all eligible participants. Employers who sponsor a 401k are required to provide eligible participants with a summary plan description (SPD), as well as information regarding their rights and plan benefits and features. SPDs are usually written in conjunction with the plan document.

The IRS also has clear, easy-to-understand documents on retirement plan operation and maintenance.

SECURE Act Tax Credits

The Setting Every Community Up for Retirement Enhancement (SECURE) Act became a law on Jan. 1, 2020. The Act changed a variety of retirement account rules, including making it less costly for small business owners to provide a retirement plan for their employees. The SECURE Act provides a tax credit to small employers with up to 100 workers that start a workplace retirement plan, with an additional credit available if the plan includes automatic enrollment.

As an eligible employer, Cadence OneFive may be able to claim a tax credit of up to $5,000, per year, for three years, for the ordinary and necessary costs of starting a SEP, SIMPLE IRA or qualified plan (like a 401(k) plan). The tax credit will reduce the amount of taxes we own on a dollar-for-dollar basis. Overview of the credit from the IRS is below and can also be found on their site.

If we apply for the credit - and we should! - our responsibility would be to submit IRS Form 8881 with our annual tax return.

Eligible employers

You qualify to claim this credit if:

• You had 100 or fewer employees who received at least $5,000 in compensation from you for the preceding year;

• You had at least one plan participant who was a non-highly compensated employee (NHCE); and

• In the three tax years before the first year you’re eligible for the credit, your employees weren’t substantially the same employees who received contributions or accrued benefits in another plan sponsored by you, a member of a controlled group that includes you, or a predecessor of either.

Amount of the credit

The credit is 50% of your eligible startup costs, up to the greater of:

• $500; or

• The lesser of:

• $250 multiplied by the number of NHCEs who are eligible to participate in the plan, or

• $5,000.

Eligible startup costs

You may claim the credit for ordinary and necessary costs to:

• Set up and administer the plan, and

• Educate your employees about the plan.

Eligible tax years

You can claim the credit for each of the first 3 years of the plan and may choose to start claiming the credit in the tax year before the tax year in which the plan becomes effective.

No deduction allowed

You can’t both deduct the startup costs and claim the credit for the same expenses. You aren’t required to claim the allowable credit.

Auto-enrollment tax credit

An eligible employer that adds an auto-enrollment feature to their plan can claim a tax credit of $500 per year for a 3-year taxable period beginning with the first taxable year the employer includes the auto-enrollment feature.

Making Changes

Sometimes, we’ll need to make a change to either the plan or the process for selecting and administering it. Here’s what to keep in mind.

Retirement Plan Changes

Why would we want to change retirement plans? Reasons include our business has grown and is no longer eligible for the plan we initially selected or wanting to reduce the amount we pay in fees, if we feel they are ultimately too high.

Should we ever decide to change the plan provider or upgrade our plan, there will be a few additional considerations.

1. Plans can change at any point in the year, however, if we choose a 401(k) plan that has IRS reporting responsibilities or will be choosing a plan that does, we will need the old provider to share certain information with the new provider to complete ERISA compliance following the close of the year.

2. The time it will take to change providers or up/down grade a plan must be taken into consideration - there tend to be more steps here than starting a plan from scratch and if we have selected a 401(k) plan, there are IRS “successor plan” rules that must be followed. 90 days minimum is ideal.

Aforementioned caveats aside, the process of choosing and communicating a new retirement plan is similar to setting up a new plan:

1. Understand current priorities

2. Research and track alternatives

3. Share top choices with the team for feedback

4. Confirm plan provider

5. Sign documents

Once we have chosen a new provider, the steps included in a retirement plan conversion generally include:

1. Asset transfer – Transfer plan assets from the outgoing provider to the new provider

2. Document preparation – Draft a new plan document to govern the operation of the plan. Generally, the terms of the new document will mirror the terms of the current document unless you want to make changes.

3. Investment selection – Select plan investments for plan participants to choose from.

4. Participant enrollment – Permit plan participants to make new salary deferral and investment elections.

New plan setup then proceeds as it does for setting up a new plan.

Process Changes

To change how we select a retirement plan provider, we should do the following:

1. Document what needs to change and why

2. Make a proposal for updates to the process within this Slab document and share with the team for awareness via Slack.

3. Confirm changes in Slab.

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