The Reason

by +Matt Bagell 

(Financial Contributor for Humareso)

As a financial planner, I run into the same question all the time when talking to a business owner, hr specialist or controller.  Which retirement plan should we set up for our company?  They always seem to be leaning towards a solution but are not sure what the full details are with regard to the various plan options.  

You just need to know one simple thing; what is "The Reason" for creating one for your company.

Let's face it.  Some business owners are extremely interested in putting a lot of money away for retirement and taking advantage of as many tax deductions as possible.   In a perfect world, a business owner could do this while receiving a tax break from the government at the same time without limitations.  Unfortunately, there are caps to what you can do and it depends on what plan you choose.  On the other hand, a business may be solely focused on enhancing the benefits they are offering to their employees.  The company may see a retirement plan as a way of keeping their employees around and also attracting new ones as well.  

I could bore you with all of the details that go along with a SEP IRA, Simple IRA, and 401k plan but if anything else you have to first realize that these plans allow contributions to increase to a level much higher than an individual IRA.  In 2015, the traditional IRA contribution limits are $5,500 and $6,500 if age 50 or older.  The limit allows for a decent contribution but a business retirement plan such as a SEP IRA allows for contributions up to $52,000 in 2015. Now that is a huge difference.  If you put that amount against a 30% tax bracket, you would receive over $15,000 in tax savings in just this year alone. If your company has many employees or is likely to grow, a 401k/ Profit sharing plan might be more suitable.  You will have the flexibility to decide if you want to invest more or less each year and can limit the benefits provided to the employees based on actuarial testing.  

There are many factors that affect how a retirement plan will work including the age of employees, the number of employees, the salaries of employees and the contribution amount of the employer(s). This is why a decision should not be rushed.  A Simple IRA plan, for example, does not allow for higher contribution limits compared to other business plans but the out of pocket cost is less for the employer to set up. 

Retirement plans are great ways to really improve your company.  The business owner(s) can really take advantage of putting money away and the employees are also set up to come along for the ride. Think about it. When else does the government hook you up with a discount on taxes for saving your own money. By the way, they also let your money grow tax free before withdrawals. Not a bad situation if you are able to contribute steadily throughout your working career.

So, first start with "The Reason" you are considering a plan. From there, it will be a lot easier to figure out what fits your company's needs.

The information in this email is confidential and is intended solely for the addressee. If you are not the intended addressee and have received this email in error, please reply to the sender to inform them of this fact. We cannot accept trade orders through email. Important letters, email, or fax messages should be confirmed by calling 856-355-5905. This email service may not be monitored every day, or after normal business hours. Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment advisory services offered through Investment Advisor Representatives of Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Representatives of Cambridge Investment Research, Inc. do not provide tax or legal advice in their roles as registered representatives. Cambridge is not affiliated with BJL Wealth Management or Hardenbergh Financial Services.

What You Need

It cracks me up when an employee approaches me to tell me what he/she needs.  I know it shouldn’t, but sometimes it’s just too funny.  I got to be a part of a company once when someone asked for a nap each day, paid.  Funny, right?  Funnier still?  He got it.  Contextually, you can see why I crack up.  I have been asked for more money, more time off, more time on, to move another employee out of a department, to fire an employee who annoys others, to tell the CEO he/she stinks, to tap phone lines, to read emails, to reduce payroll across the board and not tell employees about the check changes in advance, to… You get the idea.  Craziness. 

Most times, I laugh.  I get up from my seat while laughing.  Place my hand nicely on the shoulder of the requester and laugh as I slightly escort the person out of my area.  I don’t respond verbally.  Just laughter.  I do this because if I let myself say what I would want to say, I would be out of a job.

What I know will help to alleviate many of these situations, though not all, is the connection to basic needs.  People have needs.  In the workplace, what can we do about it?  Ideally, we can address them and set them up for success.  It takes a little work.  It might undo a culture completely.  It might cause everyone to see how unhealthy things have been.  So what?  Productivity improvements are connected to the people we employ.  Set up standards that allow for goals to be achieved while motivating staff and meeting their needs, and you would be a hero.

So, what do people really want?

• Collaboration – the ability to work with others. Relationship is a natural desire of humans.  Some love it more than others, but we’re all wired for it.  Creativity, ingenuity and resourcefulness are enhanced through collaborative efforts
• Invested Leadership – seeing the leaders of the organization take an interest in the goings-on of a work group and/or an individual contributor.  A manager of a small group of employees portrays an understanding of the culture of leadership every day.  Leadership is to take a vested interest in the people it employs.  This gives employees an understanding of fit and of connection to the mission
• Viability in Advancement – is there really a chance to advance in the organization?  We often say that there is, but employees figure out rather quickly whether that’s going to be true or not.  The real trajectory within an organization should be evaluated.  Providing a path for real advancement in usage of skill sets, knowledge and relationship motivates an employee towards a sense of purpose
• Compensation – salary, commission, bonus, PTO, benefits, retirement, etc. are a reality of living.  Our staff have homes, apartments, significant others, families, a social life, vacations, holidays for which to pay and enjoy.  Compensation allows an employee to handle some of the bottom levels of Maslow’s hierarchy of needs so that the more analytical level is addressed
• Impact – simply, is what an employee doing impacting the purpose of the group?  When we challenge the status quo and (re-)introduce the concept of impact, we wake people up.  What each employee does allows a product to be delivered, a service to be given, or a resource to be offered while changing processes, enhancing knowledge and keeping the lights on!  The line worker who is placing four screws on the same piece on the assembly line is a superstar.  Those four screws hold something significant together.  No task or role is small

If you’re a leader, not matter how small your charge, sit with this list and evaluate what’s going on at your company.  Now evaluate what you are doing to move towards meeting these needs.  Be practical.

And I would be remiss not to point out that there is a grand difference between need and want.  An employee might ask for what he/she wants and try to cloak it as a need.  Rip the sheet off of that want.  Expose it.  Time off is a need.  Six weeks of vacation a year is a want.  Just because someone asks for it, doesn’t make it a need.

There are days I need people to leave me alone.  And then I am reminded that is a want.  So, now what?  Oh, I know.  I will rephrase it.  “I want people to leave me alone some days.”  That’s better.  Now, what do I do about the HR career and people thing?  Crap.

For the Love of Money

Is money the only reward we push?  I have had the consistent message of money in my face all week.  Money is all over the place and is a constant source of stress for individuals, couples, families and businesses.  Just look at the US Government; the shut down is all about money.  Who has it and who does not.

Everyone wants to make more and spend more.  Powerball and MegaMillions are national stories every week.  We want so much to make "bank." We regard success as based upon how much you make and what that gets you.  As I sit in Miami today, I see tons of Maseratis, Porsches and beyond.  The status behind the stuff has value here and elsewhere.  

Remember the first season of The Apprentice?  A bunch of people gathered together to learn from Donald Trump as to how to be successful (dysfunctional) business people.  It was a hit and we were glued.  And the main push for each "employee"?  Money.

And the rub is that most surveys show that compensation is not the primary driver for employees.  How can this be?  If we all want stuff and need cash-money to make it happen, then that should be tops, right?  Instead, we see recognition, efficiency, loyalty, purpose and effectiveness as tops on various reports and surveys.  Money cannot buy these things (the Mob tried to do this and it didn't work for them...how do we expect it to work for us?).

So, why the intense efforts around compensation as opposed to these other higher scoring characteristics?  Two realities seem to jump out to me.

First, putting the time into efficiency and effectiveness, for example, takes more time.  We seem to be okay to throw money at a problem or situation, sometimes even without a plan.  But, the thought of putting efforts into strategizing and being deliberate about enacting change is exhausting.  Here's the deal, though, if we don't start doing it, these same people will continue to leave our companies and take the knowledge, skills and aptitudes that we need.  As much as the effort costs, in terms of time and prioritization, we need to do it.

Set aside time to sketch out the framework of strategy around talent management.  Consider opportunities to influence recognition and purpose.  How can employees have some input in these areas?  Generate buy-in through inclusion.  Ask for ideas around efficiency and then recognize those great ideas.

But the second issue could be the executive team.  You may be on point with the planning component  and put together a framework, but when you presented it to senior leadership, they said "oh, thank you."  And after that, it went to the bottom of a pile never to be shown the light of day again.  So, what to do?  Build a business case.  Use real numbers around engaged employees versus non-engaged.  Use benchmark data to show stats behind your perspective.  Make it real to the bottom line.

Measure what productivity has been like over the past five years.  Is it down?  Up?  Why?  Just lucky?  More demand?  Great talent?  How do you know?  Answer those questions and you can start to lay a foundation for the business case.

Let's be deliberate in our business partnership in this arena.  We know what is ultimately driving employees and money is not the top answer.  By the way, I am not saying it doesn't matter because it does (it kinda helps to be able to pay your mortgage, you know?).  However, from a percentage standpoint, we spend more time on comp analysis and related issues than we do running after the real top answers.  Money is important, but it is not the primary motivator. We know it so let's act on what we know.