This article was written by Jeffrey S. Coons, Ph.D. – Chief Risk Officer High Probability Advisors, LLC
A year ago, businesses operating in the construction industry faced the uncertainty of pandemic lockdowns and a deep recession, which dampened their mood heading into 2021. Yet, as the uncertainty lifted and projects were taken back off the shelf, this year proved to be an unanticipated success for many companies in the industry. In fact, you could call this year an overwhelming success, with strong demand clashing against staffing constraints as well as the limits of hours in a day and days in a week. It has been “all hands on deck” all year, so attracting and retaining employees has become a bigger priority than ever before.
Just as important, strong demand leads to big profits, but also big taxes unless you are prepared for the success. So, congratulations on your success in 2021, but are you ready for continued success? After all, Washington’s infrastructure spending and the economy’s continued recovery mean these pressures are unlikely to abate any time soon. Is your retirement plan coming to the rescue with your staffing and tax challenges, or is it holding you back?
If done right, your retirement plan can be an important part of the reason why workers choose to work for your company. After all, many are getting older and need help to start saving what they can for their future. Likewise, most of your employees are making more than at any time in their lives, so they have a newfound ability to prepare for retirement. Few benefits you provide can offer the “win-win” of a well-communicated retirement plan.
What is the win for you beyond help in retaining employees? Plan design can allow owners to defer taxes on the success of the business more effectively:
- Maybe you are still using a SIMPLE IRA and can only put away ~$14,000 tax-deferred (up from $13,500 in 2021).
- Maybe you have a 401(k) and profit sharing plan, but you are not taking full advantage of the $61,000 limit on contributions (up from $58,000 in 2021).
- Maybe your business is strong enough to commit to a cash balance plan that could allow you to save up to $245,000 tax-deferred (up from $230,000 in 2021).
If your retirement advisors have not talked to you about ways to optimize your plans’ effectiveness in reducing your tax bill, then it’s time for you to reach out for help!
Another tool available to help you meet the challenges of success is a Pooled Employer Plan (PEP). How can a PEP help reduce the strains of success on you and your staff? If you are managing your retirement plan by the book, then it is taking time and focus from running your business. Responsibilities include regular/documented investment committee meetings, ongoing fee and fiduciary due diligence, Form 5500 and (possibly) audit prep work, signing the 5500 Form, loan and hardship withdrawal management, and the list goes on. In fact, an important new responsibility is preparing for Department of Labor cybersecurity audits, which will impact plans of all sizes.
A PEP can take much of the responsibility of running the retirement plan off you and your staff’s shoulders, allowing you to focus on the demands of running a growing business. The Pooled Plan Provider of the PEP serves as the plan sponsor and Named Fiduciary, taking that role and burden from you and your company. Importantly, the PEP files one Form 5500 and plan audit, which can greatly reduce the time your staff will spend administering your retirement plan. All of this can be accomplished with a flexible plan design and competitive pricing that benefits from scale as employer continue to join the PEP. The Logical Retirement Solution® is the PEP we work with at High Probability Advisors.
Congratulations on a successful 2021! While the byproduct of this year’s success has been the dual challenges of staffing constraints and higher taxes, help is on the way! High Probability Advisors can work with you to evaluate whether your retirement plan is effectively protecting you from taxes, as well as determine if The Logical Retirement Solution® is the right solution for reducing the burden of offering a retirement plan.
If you need further guidance or have any questions on this topic, we’re here to help. Please do not hesitate to reach out to our trusted experts to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
