Simplifying 401(k) Plans with Keith Clark

Unknown Speaker 0:00
Come on

Unknown Speaker 0:11
Well, Michael, this is George G. And the time is right welcome today’s guests strung apart for Keith Clark. Keith, are you ready to do this? I’m ready to go. Thank you. All right, let’s go keep his retirement industry experts. He’s the managing partner of D. WC, they are the 401k. Experts Keith, excited to have you on. Tell us a little about your personal life’s more about your work and why you do what you do.

Unknown Speaker 0:36
Excellent. So we have 20 minutes to the show, I’ll bring that down to about 30 seconds, maybe a little bit more fun.

Unknown Speaker 0:42
I’ll start on the fun side. Love to run love to bike.

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I got when I graduated University of Minnesota way back when 401 K’s were just starting nobody knew knew what they were at the time. In fact, only actuaries are doing the work. So when I was gonna go to grad school,

Unknown Speaker 1:01
that I said, Hey, I’m gonna interview with two or three of the top firms fell in love with a company that offered, they said they’re very, very difficult to get a job with. And if you got a job there, you had def free lunch, free dinner. Hmm. So coming out of college, that’s the route I went. So I started in Hewitt way back when really two or three buildings and ended up being one of the top five consulting firms worldwide. So I’ve been in a foreign key business almost from day one.

Unknown Speaker 1:28
When folks asked me, what I do is a little easier to tell him today than way back when cuz you don’t want to say you work in a foreign key industry. It’s it’s just a wonderful industry to be in. So from that perspective, I spent the first 1012 years of my career just working up in the industry working on all components. And many of my friends kept coming up and saying, Hey, you got to write a book. I mean, you’re awesome to hear it at, at speaking gigs, you should start your own firm. By talking to my parents, my parents said, You should never start your own firm. There’s no way you don’t know what’s gonna happen. They’re just all they’re all nervous about the next paycheck. Me and the other hand, we started this business with a dog, he was a fantastic individual.

Unknown Speaker 2:11
The he also has the University of Minnesota. He’s a football player, I’m the track guy. You just said we got to go after it control our destiny. And the really cool thing when we started our business is we just went after it. I mean, we you start in day one, it is the scariest day, you’re super excited. You can’t sleep for the first day, first few weeks, because you’re all excited about the business. But then you have to bring in clients. So without clients, that excitement starts going down to hitting the phones. And in Doug’s case, in my case, we had plenty of clients at our previous gigs, but we had non compete.

Unknown Speaker 2:47
So we really had hit the phones. And once we started getting a few clients, things really, really escalated from there. So we started a consulting firm, it was really a consulting firm to industry, really turnaround experts. And today we, we branched off and we had a chance to chat before this, we just added a third consulting firm because two of our recurring consulting clients, we kept telling them, you’re not really doing a good job and your compliance services in the 401k side. So they said TPE

Unknown Speaker 3:15
you know this stuff, once you do it for us. So duck, and I said, Yeah, let’s do it. But we’re gonna be way different the rest of the industry, and that is just exploded when I say exploded when you’re different. And you get it in clients and advisors see the differentiation. It’s wonderful. So it is we’re in the 23rd year now still growing.

Unknown Speaker 3:38
So I didn’t go 20 minutes, and I want more in a minute. But there’s a little bit of the story more than perfect. No, I appreciate that. So

Unknown Speaker 3:48
you talk about how you run a consulting firm, you’re in the 401k space.

Unknown Speaker 3:55
What do you really do? Do you make 401 K’s easy for businesses so they can offer it so people can save money? Do you think about you are helping people to save for retirement? How do you think about the work you’re really doing?

Unknown Speaker 4:11
Again, that’s a great question. You obviously have a knowledge of the industry and the way you enter that. So we love it. We’re not out there to save the world. We’re not out there to say hey, you hire us, you have a better chance to reach a realistic retirement goals where the folks behind the scenes. So most companies have a 401 K plan.

Unknown Speaker 4:31
They have phoned everything call into a call center or they can log on to get their account information. That’s not us. So we’re not on the cool side. We’re that firm that creates a legal documents. We’re the firm that performs the compliance test. Some of them are easy, some are difficult, but our role is really to make sure our plan sponsors are compliant. So the at the end of the day, we have folks here that love math, and they love legal documents and enjoy communication

Unknown Speaker 5:00
So we’re the nitty gritty folks, were the ones behind the scenes. Easiest way to say it, you go to a baseball game, you don’t go to there to watch the umpire. So with us, you really don’t want to talk to us. Because if we find something that is the worst call, sometimes we get blamed, and it’s not us. I mean, just this morning, we had, we had to resign from a client, because they weren’t making their foreign key deposits timely warning after warning, say, Hey, you can get arrested for this.

Unknown Speaker 5:26
Finally, we just say you’re not going to do it, we’re resigning.

Unknown Speaker 5:29
That’s kind of an extreme example. But that’s the compliance stuff we deal with. And we have 55 folks there that love the compliance side.

Unknown Speaker 5:38
Why are 401k so complicated?

Unknown Speaker 5:44
Well, we can thank the government for that we’ve all we’ve all file their own individual taxes, that’s not easy. It goes back to the to the mid 80s.

Unknown Speaker 5:53
When foreign key plans were just starting, most company had defined benefit plans. So you had a guaranteed benefit, a participant didn’t have to put any money in the company just said, Hey, you’ve got a defined benefit plan, when you retire, you’re going to get a nice check, monthly, quarterly or annually. So that’s easy to explain. So in the forum case came about what the government said is, hey, wait a second there, if we’re going to put these in place, we’ve got to make sure every employee or every participant participant, the plan is accounted for fairly. So when I say that the government’s thinking, Wait a second, we don’t want these owners to have this great tax advantage or defer money into the plan, then the rest of the folks don’t really give that much of a benefit, especially in the profit sharing and company contribution side. So that’s why we have a bunch of fun tests out there. And I can rattle off some names that scare me away, but covers testing ADP, top heavy, the bottom line is the government saying we got to make sure this benefit everybody in the company, all of our jobs have been so it actually is a good thing that they do that and it works. Yeah, I appreciate that. So it’s been a it’s an interesting transition. And I don’t know if interesting is a euphemism from your traditional pension plan to now I’m totally responsible for saving all the money that I will eventually have, hopefully, for for retirement. And to protect people, we need a little bit of complexity and rules to make sure that the company, the owners of the company, are just putting money in the plan for themselves and not for the employee. So I totally get that.

Unknown Speaker 7:27
And

Unknown Speaker 7:29
sometimes I think that the perceived complexity of it prevents business owners from starting 401 K plans. What do you say to that?

Unknown Speaker 7:41
That’s spot on. Again, try not to go too much in the details, the government getting better on offering the tax advantages. To start a 401 K plan, a smaller company, there’s several states that are requiring companies to have a 401 K plan or join their their state mandated plan. And those are essentially Roth Roth IRA comes from a cost perspective, you get you get a tax deduction for the first two years, it’s not a lot. But at the end of the day, it’s really not that much. From a perspective of the overall compensation and benefits. If you hire the right service providers, I would tell any small company or medium sized company, your most important hires probably your investment advisor, because they get it they’re going to be the ones that are selling the plan to your participants and communicating, they’re the ones going to help you put together the investment menu to make it easier. What a lot of the direction you’re going is it cost something, it seems complex, and I really don’t want to deal with these payrolls? Well, if you go backwards, then those with technology, today, it’s so much easier to operate a 401 K plan with the service providers, they could get 510 20 years ago, then from a cost perspective, we have clients that actually ask us, can I pay for the services out of pocket? Or

Unknown Speaker 9:01
should I just charge the fees to the participants. So that’s one way to to lower the cost. I’m not a big fan of clients loading all the expenses on the the participants because that obviously takes away the return. So I would say it’s about 25% of clients that will actually write the check out of pocket and they get a tax deduction for that as well. But if I’m a small company, the first thing I would look at from a compensation benefits perspective, is my my health care plan, and then the 401k because right now we’re in a labor market. It’s tough to hire folks. And there’s firms like us, we’re in the business. My goal every year and I, I have a note right here, I want to get 10% profit sharing for our firm every year. So in the last 15 years, we’ve averaged anywhere from eight to 13% profit sharing, which is a really cool benefit, because now we’ve got a retention factor. And obviously for those that are in the park a plan when you have a profit sharing contribution, if you’re

Unknown Speaker 10:00
If you provide a profit sharing contribution of $5,000, I can bet that over time, I can graduate in six years, or I can do a clip year and three, so the person leaves, then I can take all that money with them. So that’s kind of a long answer, I would, I would tell, plan sponsors are considering this find advisor, find a firm like me, let us run a plan design projection. So we can tell you what the benefits are, to the owners, to the participants and your actual costs from a company contribution perspective. And our administration at the end of the day, it really isn’t that much. Sorry, for the long answer. No, not at all. I think that it’s, I think it’s such an important thing. I know how important it is, when you read stats, like half of American employees don’t have a 401 K plan at the company that they’re working at. And the government is working to incentivize companies through tax rebates or credits, to put 401k plans in place, the more we can reduce friction or roadblocks from that, and I’ve really view the complexity as an unnecessarily an unnecessary roadblock. Yes, 401k plan is complex, but it’s far from insurmountable. And so working with a firm like yours, who has experience and processes for helping a business owner to implement and actually manage the plan safely, effectively. And to the point where it’s not an incredible headache, I think that’s the key.

Unknown Speaker 11:34
You got to make it easy. That’s why hire a finance, hire a investment advisor, someone who gets the business knows the industry knows the service providers like us, if we’re not making easy for the plansponsor they’re gonna hate the plan. But if you get the right folks,

Unknown Speaker 11:52
it’s really easy. And then then it’s rewarding for the for the plan class and ever, just as I’ve said, for a long time,

Unknown Speaker 11:59
there is a value for your HR dollar. And that’s twofold. One, it’s, it’s a benefit to providing, but it’s also is the cost of your service providers. It’s funny yesterday we were gonna get we were talking beforehand, I was on the TD Ameritrade show, and they were talking about the impact of this volatile stock market. And I go way back, it was really hot. Right now, the popular press is focused on the volatile markets, which is gearing 401k participants look good, it’s the last thing we want to do is foreign key participants. They don’t know investments like we do. In fact, it’s kind of a scary thing out there. So the markets are going down. I used to say back in the 80s and 90s.

Unknown Speaker 12:40
All you had to do is watch what foreign key participants are doing. When they’re selling you should be buying when they’re buying, you should be selling. So they’re always missing that because you’re the following with the popular press that that scare piece is part of the interview yesterday. Make sure that the plan sponsor investment advisory, you get the message to the participants. This is a long term game, stick with your plan, review your plan, if you have any question, call your advisor or call your rescuing service provider. They usually they’ll they’ll provide the insight and can answer your questions. So it’ll be interesting to see what happens with the money market rates, because they’ve been zero for so long, or almost below zero. And now they start ratcheting it up and that gets to three, four or 5% not saying it’s gonna get too low. And they do. That’s where a lot of market participants go because you can get three to 5%. That’s kind of easier for them and go into the equity markets and playing that though, that 10% annualized game. Yeah, I appreciate that. And there’s so much complexity just everywhere we talk about the stock market. It’s scary. And frankly, I mean, I think that the majority of us ordinary investors, I certainly consider myself to be that as well. Even though I work in the work in the financial industry. We’re just trying to figure out, you know, how much I need to be saving and get my budget together. So I’m not living paycheck to paycheck, and oh, my goodness, now I need to actually invest in the stock market. And I’m totally responsible for this. Well, the easier that things can be made. I think that that’s how we really position people, myself included, again, for success on things. So

Unknown Speaker 14:19
how do you how do you think about? Or are you excited about just to kind of change gears, the student loan provisions that have been kicked around or talked about?

Unknown Speaker 14:33
not exciting.

Unknown Speaker 14:36
If you’re talking about the government, right, it goes off or the component of the 401 K plan. That’s not easy for plan sponsors.

Unknown Speaker 14:45
With Easy is salary deferrals of one and Raqib are done now bringing in a student loan component. Now you have another outside party back in it, do you go back 15 years ago, 20 years ago, I have the hot thing was you’re gonna have you can take a loan out which

Unknown Speaker 15:00
obviously is a nice feature for K plan. But the hot thing was we’re gonna give participants credit cards. And thank goodness that didn’t go through. But I was with a company that was one of the initiators, and at the time of that, it’s pretty cool, but it’s an administrative nightmare. So I liked the idea of the student loan component. With the 401. K, it’s just an administrative nightmare. And when when I hear that, that makes me nervous, because that’s,

Unknown Speaker 15:23
that gets messed up. Then you have the potential IRS or the DOL audits and they’re gonna say, wait a second that doing this right, and then you get a slap on the hand, hopefully, you don’t want to get the big fines and penalties. So, yes, I like it. But oftentimes, the government when they put items in place, if it’s not administratively feasible, it’s not gonna go anywhere.

Unknown Speaker 15:46
Yeah, that’s that’s a really good point. Adding additional complexity to an already complex thing is not necessarily wouldn’t formula. Yeah. Can we fix all this complexity with more complexity? Yeah.

Unknown Speaker 16:01
What do you wish? And certainly it Yes, having a health insurance, health care provided? And then a 401k, from a recruiting and retention standpoint are I consider this to be sort of must haves? What do you wish?

Unknown Speaker 16:18
Or if you could wave a magic wand, more plan sponsors knew about 401 K’s or when I say plan sponsors, companies?

Unknown Speaker 16:28
That

Unknown Speaker 16:29
I like that question.

Unknown Speaker 16:32
We work with a lot of clients, there are, I would say 20 30%, that are that really get it is a key component of their, their total comp and benefits package. I would say another

Unknown Speaker 16:47
50% They’re doing it with you just said, Hey, I got to do it here. Because it’s, it’s kind of a competitive thing. And then there’s a 20% that kind of do it because I thought it was the right thing, or I’m just doing it for the owners. I would my message the plan sponsors is in this tight labor market.

Unknown Speaker 17:06
There’s not a lot of differentiators beyond the compensation. And you and I notice, when folks are looking, they’re often just looking at this number here how much I might get paid. I would, I would encourage plan sponsors. If, if the budget allows,

Unknown Speaker 17:24
leverage is strong profit sharing leverages strong company match, because that does help retention. And that is a differentiator by making up numbers, whether it’s a 50,000 copper at 100,000. com, well, if I’m if I’m looking at the, if I’m looking at somebody at 90,000. Or if I have a chance to go someplace for 90,000, or 100,000. But the 100,000 is just $100, I don’t want to get a bonus. But over here, if I get a profit sharing of eight to 10%, if I get a song company magical so that I get great PTO, and I get great health coverage. Well wait a second, now this 90 is 110. So it’s really that total compensation benefits package. So I would encourage plant sponsors to really look at their compensation benefits package, especially in these times and in all of us are hiring, and we don’t fall for the game, and somebody says I gotta get this, we don’t alter our compensation, just an individual, because that’s gonna throw everything we have off internally. So a lot of companies were, we’re probably going through a reset now for two reasons. One, the labor market issues the last two years. So a comp has moved up a little bit. But the tough thing we’re all facing as companies and plan sponsors is inflation, because we’re going to have to increase our prices. And obviously, you’re gonna have to increase compensation as well. But as another long answer, focus on your total compensation benefits baggage, just don’t look at this shiny object, I gotta pay this X amount, and that’s what gonna get the person and because that’s really doesn’t tie into culture, this compensation benefits package is a big part of culture. Love it. It’s extremely possible I just stepped on your difference making tip. But Keith, people are ready for that difference making tip. What do you have?

Unknown Speaker 19:05
Well,

Unknown Speaker 19:06
I would say from an individual perspective, and we have a lot of things internal I have a lot of stays internally.

Unknown Speaker 19:15
I focus on three things positive energy, base positive energy, make everyone around you look good. And I can’t emphasize that enough. It’s it’s easy it frustrated a teammate or a client or a service partner. Just make everyone around you look good. And then those in those tough situations, obviously, they’re easier. And the last item is you’ve got to be excellent and do today’s work today. And you do that and your family life, your work life. Things work out pretty well. So that’s my all encompassing gift for the day.

Unknown Speaker 19:47
Well, I think that that is great stuff that definitely gets caught.

Unknown Speaker 19:51
Thank you so much for coming on. Where can people learn more about you? How can they engage with you and D WC.

Unknown Speaker 19:58
Do you could find us database

Unknown Speaker 20:00
People are on k.com. You can also send me an email if you go to the site, you just click on my name and you’ll be able to find me. You have any questions in the forum case? We’d love to have you. We do say where the forum Casper so thank you for putting that advertisement in front end. We’d love this stuff. So it’d be a plan sponsor. Do you think you’re starting a company? Or if you want to start working in this industry, you know how to find me. Love it. If you enjoyed as much as I did, so keep your appreciation and share today’s show with a friend who also appreciates good ideas, go to D WC 401 k.com and check out the great resources and if you are curious about getting into the business of the industry. Ping Keith about that as well. Thanks, Ken. Keith,

Unknown Speaker 20:44
thank you every day, and until next time, keep fighting the good fight. We’re all in this together.

Transcribed by https://otter.ai