Matt Ruttenberg joins the podcast today to discuss 401K plans, how attorneys can save for retirement using pre-tax dollars and create incentives for law firm employees to stay on board. Matt is the CMO and Director of Business Development for Life, Inc retirement services.
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Lindsey: Welcome to the Personal Injury Marketing Minute, where we quickly cover the hot topics in the legal marketing world. I’m your host, Lindsey Busfield.
As the owner of a successful law firm, you want to be wise in how you invest. This means making informed decisions on how you invest in your company, as well as in your retirement. As you seek out the best ways to fund your retirement, there are seemingly infinite complex 401(k) and IRA plans. So how do you decide which plan is right for you, your employees and your firm? Matt Ruttenberg is here to discuss just that. Matt is the CMO and Director of Business Development for Life, Inc. Retirement Services. Thank you for joining us.
Matt: Hey, Lindsey. Thanks. Thanks for having me.
How do you choose the right retirement plan for a law firm?
Lindsey: Well, ultimately, what we want to understand is how do you choose the right retirement plan for your law firm? Where do you start with that?
Matt: Yeah. Yeah, so the retirement plan world is so vast. There’s probably dozen different options to choose from depending on your income level, what your goals are. To narrow it down every time we have our first conversation with people, we ask them two questions. The first one is basically trying to narrow it down to at least three, maybe four options out of those dozen or so. Then the final question gets it down to one, maybe two, and then we choose from there.
The first question is really broad and simple. It’s, “What is your goal?” Why are you having this conversation with somebody? Is your number one goal to, or let me rephrase that, “What is your priority?” Why do you need the plan? What are you looking for? Is it to recruit and retain high quality employees or is it to stockpile for your own retirement, maybe save money on taxes or is it all of it? Because there’s certain plans that check off every box they need and some of them are narrowed down to one answer or the other. Really once you get that first question, we’ll bring it down to maybe two, three plans.
Then the final question is, “How much do you really want to save?” How much are you as the business owner going to save? That comes down to, is it just a few hundred dollars per month because you just want to get something started or are you really trying to stockpile, like really, maybe catch up to retirement because you have not done that yet? You haven’t done that to-date really started saving because you’re putting all your money and all your funds back into the business, which a lot of business owners do, which is a huge investment, which is great. But then really it’s getting down to, “Are we diversifying?” Let’s figure this out and go from there.”
Lindsey: Right and those are two hugely different priorities because a 401(k) can be a great tool to incentivize and attract new employees and especially in today’s market where you need to be able to offer something above and beyond what they’re getting somewhere else if you really want to be attracting and retaining the right people. As we all know, a successful law firm is more than just the lawyer itself or themselves and it takes your entire village to keep your law firm running and growing and going the directions that you want and a 401(k) plan that is set up to benefit your employees is going to be really attractive. There are several different plans out there that can look at what their individual priorities are and so working with somebody like yourself, you can set up a plan that’s going to have their best interest in heart, and that is one priority.
Then as you said, having a second avenue where you can, as a high income earner, help to maximize your own investment and leverage all of that to work towards a retirement. Let’s walk down both of those options really quick. Can you give a couple of examples of features that would be different between one account or another?
Narrowing down your options:
Matt: Yeah, and let’s start with the first question, I guess. Let’s just say your number one goal, you’re not really worried about your own retirement, your own bucket of money, if you will, because you really want to focus on building out the business because that’s a big revenue source for you. Let’s say your answer to number one was you want to recruit and retain, right? Question number two is you don’t really care how much you’re putting away.
So the goal there is how you’re going to be able to separate yourself as an employer, not just a business owner to bring in your clients and so on, so forth, but how do you separate yourself as an employer, like you said a minute ago. How do you create and mold this plan because 401(k) plans are a lot more customizable than a lot of people think. There’s a lot of turnkey. They call them prototype plan documents online that you can get to. A lot of your payroll services will do that too. That type of plan is called a prototype plan document. It’s kind of, “Here’s your plan. You cannot customize it in any way basically, but there’s a lot of gray area inside of 401(k) plan.”
A traditional 401(k) often and technically per IRS Code, it’s just called a 401(k). But really, I refer to it as a traditional 401(k) where you can create your matching investing schedules. So I want to create a 3% match, but I want to create a vesting schedule over five years because you want to retain your employees. You want them to stay with you and incentivize them, excuse me, to stay with you as long as possible.
Lindsey: What are some of the features of a 401(k)? Just showing my limited knowledge in here. What aspects of it are customizable? Walk me through how a 401(k) works at its basic core and tell me about the tools that are part of the 401(k) plans.
Matt: Yeah. When you’re designing a 401(k), one the match, the matching investing schedule is really, probably top of the list when people think about how do I design this plan. It’s how much are you going to give your employees if any, and you don’t have to give any, if it’s not part of your budget yet, but just giving them an option to save through payroll deduction is huge. That’s a psychological barrier people have and so that’s just number one.
Number two is how long is the vesting schedule, but eligibility is huge. How long do they have to be with you in the company before they’re even offered the plan and what do they have to accomplish, so their age, how many hours? Then designing the plan, where’s the money going? How are you investing the money? Because technically, you can invest in almost anything inside of a 401(k) plan.
So step one is designing the plan. Step two is where do you invest the money? And that’s the custodian, the record keeper also known as, and it’s do you want to invest in cryptocurrency? Do you want to invest in real estate, even, hard real estate assets, or is it just mutual funds and index funds, stock funds? So whatever you offer to yourself as the employer, you need to offer it to your employee as well so if that’s cryptocurrency. If it’s something a little bit outside of the norm of the mutual fund system, then you also have to offer that to your employees. So everything, almost everything is customizable.
Then let’s take a step back to that first question. Your number one priority is to save for retirement for yourself, but you also want to bring in the high quality employees. So then we’re going to put something called a safe harbor. It’s a safe harbor 401(k), and that’s, you’re basically putting a safe harbor stamp on your current 401(k). That is a pre-approved matching investing schedule per IRS standards that says, “Okay, you have created a fair 401(k) plan for your employees. It’s fair to them.” Fairness is the number one goal for the IRS to your employees. Is it as fair for them as it is for you? Then with that safe harbor stamp on your 401(k), and there’s multiple different kinds of safe harbors, you as the employer are allowed to maximize your contributions for yourself as an employee of your own business.
So if you don’t choose safe harbor, then there’s actually limitations to how much you can put into it. So if you are molding it, this customizable plan through the traditional 401(k) route, you’re only allowed to put in 2% over what everyone else is doing, whoever’s eligible. Even if it’s a bunch of 0% people that all averages out to let’s say 3%, and then that means you can only do 2% over that average, which would be five. That would be a reason. If you don’t want to worry about that, you want to just put in the maximum, which is 20,500 as an employee of your own company, then the safe harbor’s the way to go.
Then we get into more advanced options. So let’s say you really wanted to start stockpiling money into the 401(k). Then we talk about profit sharing. So how do we get most of that profit sharing to you as the employer versus sharing it? So the pro rata is it’s traditional profit sharing. For those of you who already have a 401(k) out there, a lot of the turnkey prototype plans, it’s just, pro rata. So whatever you give yourself, which is, let’s say 25% is usually the maximum of whatever you’re paying yourself, that’s what you have to give to your employees in terms of profit sharing. But there’s actually different ways to mold that and the goal is to get you more.
The overall profit sharing maximum in a company is 25% of your payroll, your gross payroll. Okay? Our goal is to get you above that 25%. So the average is 25%. We need to get you more as the employer. So that’s something that we specialize in and there’s multiple ways to calculate profit sharing.
You can actually segment out groups for larger companies. Meaning, let’s say the sales staff, they’re already getting bonuses based on their sales. So we don’t need to include them in their profit sharing, but we want to include the rest of the staff, like the clerical staff, or you want to remove maybe the janitorial staff or something like that. You can do that. You can make them ineligible for profit sharing, believe it or not. So there’s so many ways to do that.
The best way to look at this, think of a three-tiered upside down wedding cake. Okay? So smallest is now on the bottom. Mid-size is in the middle and then the largest size is on top. So the bottom is the 401(k) the $20,500 as an employee of your own company that we all know and love. That’s like when you think 401(k), 20,500 per year.
The middle is the profit sharing. That’s your employer contributions. So, and then you can even stack on top of that, something called a defined benefit plan or a cash balance plan that we do a lot of these high income earners. We get them into something like this and it’s basically the old school pension plan that Ford, GM, all these companies have now gotten rid of, but it’s more in a liquid state if you will. So, meaning you’re not stuck paying this monthly dollar amount to all your employees or yourself. These are really, really good for small teams. So if you only have a handful of employees, this is a huge, you can get over $300,000 pre-tax into a defined benefit plan. We’ve-
Lindsey: That’s huge.
Matt: Yeah, 350 or more. The older you are, the more you can get into it and there’s a lot of calculations that go into it. You actually have to hire an actuary, which we bring into the team. Basically, that three-tiered cake, everything you do on the previous layer is how the next layer is calculated and then the next. However you design the first layer, depends on what you can do in the second and the third. So it’s creating this non-prototype plan document, a custom plan document is super important to be able to really get the maximum benefits of these high level 401(k) plans.
Lindsey: Absolutely and it sounds like there are a lot of intricacies and different nuances that you need to be aware of in order to be able to fully maximize the benefits while also being compliant with regulations to make sure that everything is fair. So there’s a lot that goes into this very clearly and I appreciate you taking some time to share all this information with us. If anybody has questions or wants some more information, how can they get in touch with you?
Matt: Yeah, our website is 401k.expert. I think I sent you a link as well, Lindsey, to be able to share on there. There’s a direct button on there that you can get right to me if you like, but 401k.expert is our actual website. My email address is Matt.Ruttenberg@lifeIncirs.com, which I’ll give that to you so you can link to that as well.
Lindsey: Great. Will do.
Matt: Yeah, absolutely. And we’re on social media, LinkedIn, for sure, too.
About Life, Inc. Retirement Services:
Lindsey: Tell us a little bit more about Life, Inc. Retirement Services. What kind of services do you provide there?
Matt: Sure. Yeah. So, just taking a step back. There’s three roles in every 401(k) plan. There’s the record keeper or the custodian. That’s where you log in. That’s where the money’s being held and how you invest your money. The second one is the administrator, which we act as the administrator. That’s one of our roles and we’re the ones who design the plan and make sure you’re compliant. We file the necessary annual requirements. We do the annual testing for you. Then the third is the investment fiduciary who is creating that menu, who is making sure that these funds are working properly and who’s the one who is taking that fiduciary responsibility on their shoulders. We will take care of that as well. So we act as two out of the three.
We’ll bundle that, and then we will help you choose which custodian is available. Is it a more public version that everybody knows about, or is it something where you can put cryptocurrency in, like I said? You can have multiple ones in there. Basically we are a, I’d like to think of this as like a boutique style firm where we have a lot of hands-on expertise to build this for you and honestly, the costs are right in line.
A lot of the turnkey stuff you see online is actually more expensive than what we’re doing.
Lindsey: Oh, wow.
Matt: Quite often it’s because the convenience fee that you get, because it’s tied, but it’s 2022, integration with your payroll is not difficult. Everyone’s integrating with everybody. So don’t let that be the deciding factor for anybody because it’s truly much easier than you think. But yeah, I like to think of us as a boutique style firm that we are independent and we will absolutely go to the table and negotiate fees for you at the custodian level too. It’s like hiring a CPA versus having H&R Block doing your stuff for you. That’s the best way to explain it.
Lindsey: Right. Well, and when it comes to your retirement and when it comes to money in general, you want to make sure that you are being strategic and that you have somebody who’s going to advocate for you from a perspective of experience. When you are just a number at a general IRA factory or 401(k) factory, you’re not going to have somebody with your best interest at heart. So I think, absolutely reaching out to somebody like you, who has really great experience, who can have a one-on-one conversation with your clients to figure out what it is that their priority is and how to maximize their contributions and ultimately maximize their retirement and leverage all of the hard work that they have put into developing their law firms and the benefits that have come from that.
Matt: Yeah, absolutely. Yeah. Well put. I love that.
Lindsey: Well, thank you so much, Matt. I really appreciate you coming on today and I will make sure to put links to all of your contact information on the page.
Matt: Thanks, Lindsey. Appreciate it.