If You Sponsor a 401k Program, You Need H.E.L.P. (the Happy Employee Loyalty Program)
Many businesses believe that to be competitive in the employee space, they need to offer a 401(k) or equivalent plan. But the costs of implementing and maintaining a 401(k) program as an employer are hardly insignificant.
Even small businesses setting up small plans (with a total value of less than one million dollars) have to pay up to $3,000 to start a 401(k) program.[1] That cost, which doesn’t include any of the regular and annual maintenance fees, is one many employers willingly bear to provide this retirement benefit and remain competitive with other employers.
The costs of maintaining a plan are even higher. Even small employers can pay over $10,000 annually to maintain these plans.[2] This includes administrative fees, monthly charges per employee, and compliance-related fees.[3] There can be thousands more in investment and consultant fees, too.
One of those compliance-related fees relates to the annual testing that is mandatory for all 401(k) sponsors (employers). The IRS requires employers to treat all employees equally with the 401(k). They enforce this with annual testing,[4] and the employer has to pay for it.
The rule was created so employers could not contribute a disproportionate amount to their own 401(k) (or to high-salary or other favored employees) while contributing little or nothing at all to other qualifying employees.
Perhaps one reason employers are willing to pay all these fees for a 401(k) is that they aren’t aware that defined-benefit pension plans and 401(k)s, though certainly the most well-known options for employer-sponsored retirement plans, are not the only options. They’re not even the best options.
Indeed, the Insurance Contract can be used by any employer as a substitute. Not only is it better for the employee, but it is also better for the employer. When used in this way, we call it the Happy Employee Loyalty Program, or H.E.L.P.
We have compared and discussed at length how H.E.L.P. compares to the 401(k) from the plan owner’s (in this case, the employee’s) perspective.[5] But looking at the plan from the employer’s perspective is just as compelling.
One of the biggest benefits of H.E.L.P. for the employer is its flexibility. Because it is a private plan, not a government plan,[6] it is not bogged down by a labyrinth of bureaucratic hoops, limitations, and hidden costs.
If an employer wants to set up a retirement plan for its employees using H.E.L.P., it can do so on its own terms. It can set up as many or as few as it wants, for whatever employees it wants, in whatever amount it wants.[7] If the employer is helping its employees convert their qualified accounts to H.E.L.P., there are some modest governmental costs.[8] Otherwise, the cost to the employer for setting up H.E.L.P.-based retirement plan is zero. Nor are there any maintenance fees.
As incredible as it may sound, if an employer wants to set up an employee retirement plan using H.E.L.P., there are no set-up or maintenance costs, and the employer will never have to pay any more than what it chooses to contribute to the plan.
Other benefits to the employer of this plan are its contributions that are 100% tax deductible.[9] It can choose to use the cash value of the employee plans for its business (like a growing cash account), and these plans breed employee loyalty and longevity.
Unlike the 401(k), the Insurance Contract is not an “our way or the highway” plan. It is not one-size fits all, but can be tailored in an almost infinite number of ways to fit the needs of the employer and the employee.
For example, the employer can set up H.E.L.P. so that the employer owns the cash value, but the employee gets the death benefit. Then, if it wants to, the employer can set up a vesting program where the growing cash value is transferred to the employee in stages or all at once to reward longevity or as part of a promotion.
The employer can set up a match program, with our without contribution limits, and can set up different plans, with different attributes, with different employees. The sky is the limit.
These plans cost the employer nothing to set up or maintain and are tax deductible. The employer just has to make the contributions, and it is creating either a growing cash account that it can access for its own purposes, a tax-free retirement for its employees, or both. And it is also providing a permanent death benefit for its employees, which comes with living benefits baked right in.
It’s a win-win-win.
[1] “How Much Does a 401(k) Cost Employers?,” Human Interest, June 15, 2020, last accessed July 9, 2020, https://humaninterest.com/blog/how-much-does-a-401k-cost-employers.
[2] Id.
[3] Id.
[4] “401(k) Plan Fix-It Guide—The Plan Failed the 401(k) ADP and ACP Nondiscrimination Tests,” IRS.gov, last accessed June 5, 2020, https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-the-plan-failed-the-401k-adp-and-acp-nondiscrimination-tests.
[5] Open up the book to any random page and you’re bound to hit one that illustrates this point.
[6] See discussion beginning on page 49.
[7] The employer would obviously have to stay within the insurability limits of the insurance company. But there are so many options for maximizing or multiplying cash value that this seldom becomes an issue, and even then, only after far more is contributed than would fit in a qualified plan.
[8] See discussion beginning on page 159.
[9] Mark P. Cussen, “Insurance-Based Tax Deductions You May Be Missing,” Investopedia, January 19, 2020, last accessed July 9, 2020, https://www.investopedia.com/articles/tax/09/personal-business-tax-tips.asp.