In this episode of PeopleWork, we are joined by Ryan O'Connor, CLU®, RICP®, CFP® and partner at Williams & O'Connor Financial Planning Group. Ryan joins CJ to discuss the importance of sound benefit planning for your business, and the potential consequences of undervaluing key employees. You can watch the full conversation and read the complete transcript below.
Watch the Conversation
You can watch the full conversation between CJ and Ryan below:
Read the Transcript
Hey, everybody, CJ Maurer with Complete Payroll, back for another episode of People Work. People Work is our video series where we talk to various professionals all through the human capital management industry. And, as you may have noticed already, this is a unique People Work episode because this is the first one we have not done through virtual video conferencing. I'm here with Ryan O'Connor. Ryan is a partner of Williams and O'Connor Financial Planning Group. They're actually a complete payroll client and they happen to be located right around the corner from Complete Payroll's Buffalo office so we thought, what the heck, why don't we swing by and Ryan and I can have this conversation in person?
So, this is really fun for us. Ryan, I'm super happy to have you here. Ryan is gonna talk to us today about benefit planning for businesses, for employers. But before we get into that, Ryan, why don't you tell us, and everybody else watching, a little bit about who you are and what you do?
Sure, CJ. So, as CJ mentioned, I'm a partner in a planning practice. Our parent company is Northwest Mutual, which is a very broad and comprehensive financial planning company. I'm a certified financial planner professional by trade as well as my business partner and with that, we have a lot more knowledge as well as expectations from what that allows us to do. Not only from a knowledge perspective but from how we operate our practice which is a little bit differently.
When most people think of the term financial advisor, tends to be very broad, much like calling a tree a plant. But financial advisor, most people think of wealth management or managing money, which is part of what we do. Some advisors concentrate their practice to just that or maybe some other advice. And we have much broader and diverse planning practice that helps business owners with various needs. Which led CJ and I to talk about really benefits planning and really going by benefits planning beyond the basics.
Yeah so, talk about that for a second. Now when we were talking about what we were gonna talk about today, we kind of latched onto this idea of business benefit planning. And when I was first wrapping my head around this, I said to myself, well, Ryan, I understand what employee benefits are. I understand that employers plan out their employee benefits packaging. And I also know what a financial advisor is and what financial advisors tend to do. I didn't necessarily put them in the same box.
So, why don't you give us a little bit of background as to how, I guess you but also maybe financial advisors in general might play a role in helping employers with their business benefit planning.
Sure. I guess most financial advisors, if at all, when they're working with a business, would help with something like a 401k or a simple IRA which is another similar employer sponsored retirement plan. We work in a more unique area with doing some things that are more unique like key person planning. We also do some welfare benefit planning, but we tend to stay away from the things that are mandated by either New York state or federal is usually is handled by a payroll organization.
Really quickly, key person planning. I've not heard that term before. I can guess what it means because i know what each of those words mean. But can you actually tell me what key person planning is?
Yeah. In a simple term, a key person is often is defined by certain federal entities as a highly compensated employee. It does not have to be though. And in smaller business, it is not rare to find a key employee is someone that manages a lot of things and wears, as the term goes, many hats. So with key person planning, you can be more flexible as far as the benefits that you provide. And unlike most things people might be familiar with: mandated benefits, health insurance, 401k things, you don't have to offer them with discriminatory testing or to each employee.
Okay. So, basically, the key person can really be, and tell me if I'm actually understanding this properly. So the key person may be a highly compensated employee as defined by the IRS. Right? But really the key person can be anybody that the employee designates, you know, this is somebody, most employers don't wanna lose anybody on their team right? But maybe there's some people in their work force that would cause a lot more problems if they were to leave. So essentially it's all the things that you would do to make sure that those key people stay? Including retirement accounts and other things? Is that the gist of it?
Yeah. Welfare benefits are things that you do for employee retention across the board. But key employees typically are defined as management level or above. It's when a highly compensated employee is kind of automatically a key employee if you're paying above a certain wage level which is defined by the IRS.
And if they meet the requirement defined by the IRS, then the employer may offer them certain benefits that they don't also extend to everybody else?
Right. These types of benefits are typically offered to a select group of usually management of above.
Okay all right. So maybe we could talk about that more a little bit further on in the conversation. But before we get into that, what do you think is the biggest mistake that employers make? Let's start here, when it comes to their benefit planning?
Yeah that's a broad question. I would say, what I see most in practice is working and really not having competent advisors or professionals that they're working with to provide benefits. That's probably number one. An example of that could be and I've experienced this, a property and casualty insurance company that has an investment license but isn't really a financial advisor and they offer a simple IRA and the business owner excludes 1099 employees. That isn't allowed under the planning rules. So, not having awareness or experience within the rules or, a lot of time, not even engaging another professional like an accountant who would know that information if it's something that they don't deal with regularly.
Another example would be really just I need to have this or it's something I have in place and just setting it and forgetting it. Industry changes a lot - particularly in my world - so it's really not looking at things or revisiting things particularly as the business grows. And probably, and I think this is common with all business owners, they're really busy. They're dealing with the day to day business operations. It's really difficult to get most business owners to actually stop and think of what they want their benefits to do. Both for every employee and then maybe those key employees. And then also themselves personally. Most business owners think of themselves last. Similar to the contractor always having their own home be their last project. It's very similar with business owners.
So, you mentioned something that was interesting to me. You said a lot of business owners don't really know to begin with what they want their benefits to do. Has anybody that you've ever worked with asked you that question? Do you field that question often? And if not, maybe how might you go about helping somebody figure that out for themselves?
Yeah. A lot of times that really just a discovery conversation. And I think, most business benefits tend to be business to business in nature. And that typically is through a sales organization or through a top down approach so to speak. So really having a more unique conversation of what really the business owner is looking to do. And it might be that they're just trying to go and minimize costs while providing some baseline benefits. That might be an answer. But a lot of times you hear very different and unique things that aren't necessarily always covered by the traditional business to business or sales model, if you will.
Okay. I mean normally when I think of employee benefits and why a business would voluntarily offer something to their employees that they didn't have to, thus making it a benefit, right? I would think part of it is you just wanna retain your work force. But, it seems like there could be a lot of other things that go beyond that and that business owners could be motivated in a variety of ways.
Yeah you're right. Attract and retain employees is something that's common with any benefit plan.
So what are some of the biggest challenges that you see as you're working closely with businesses as they grow as it related to employee issues and competition with the more established corporate benefits plans that you alluded to?
Yeah I think it's really to deal with the challenges of growth and that extra layer of things you wanna do as your organization continues to grow and evolve. And really looking at turnover being a huge issue. We're in a tight labor market now meaning unemployment is very low so finding quality people is increasingly more challenging. So looking at salary and benefits is also another layer of that to attract better quality employees. So that's probably the biggest challenge and I think that's industry or market specific currently which is a good challenge to have if you're a worker.
You know, I'll interject really quickly, I've been speaking to some people recently and hearing a lot of feedback about how what we're calling right now is a candidate driven market which is what you talked about. The demand for quality people exceeds the supply, right? Where unemployment is a little bit lower right now and so employers have to work harder to attract people. And I have heard somebody characterize it from the recruiting perspective where you have to come in with your best offer. You have to act fast. It's really hard because a lot of, like let's say you have a really good software engineer or public relations director or whatever, that these people are going to likely have a lot of options.
So I've heard some people talk about it from the recruiting side of things. It's interesting though because I had not thought about it from the benefits side of things the way you just talked about but it makes perfect sense.
Yeah and I think a lot of that, CJ, is really, the key person issue is, with a little bit more established businesses, not being aware that they can do that. But kind of hearing the need of, oh I wish I could do something for this employee or this group of employees that are more focused on growth or sales maybe. And really just not knowing those things are available. And another misconception is thinking that certain benefits beyond health insurance which tends to be an expense benefit, anything really above that or in addition to that tends to be more inexpensive. And there's some HR and some payroll work that needs to be done but it's not very difficult to offer those benefits.
So what are some of those other benefits that you see outside of the more expensive healthcare benefits that you see employers offering that may be at the top of the list?
Well yeah certainly and healthcare doesn't have to be expensive because the employer has the determination of how much they subsidize or they don't necessarily have to in certain scenarios. But really they group benefits with things like life insurance or long term disability insurance or even voluntary benefits like voluntary vision, dental, or short term disability, which those tend to be the volunteer benefits that are most common, all employee paid. So really there's no employer cost of those benefits aside from managing them which typically is done through a payroll service or an office manager or HR either in the office or a third party individual.
Sure. What about life insurance?
Yeah. I mean life insurance is probably the single most inexpensive benefit that you could offer employees and for the first 50 thousand dollars of coverage, premiums are deductible 100% to the business. There's not FICA taxes owed on that and that benefits are tax free to the employees and their listed beneficiaries.
Do you see any emerging trends in the, when it comes to employee benefits right now as we close out 2018 and go into 2019?
I think where I see a lot of trends heading, it is towards those non qualified benefits, the ones that aren't 401k and health insurance that tend to be, you can have discriminatory, as far as selection in who you offer it to. Particularly with some tax changes. It makes some of those, the recent tax changes, some of those plans, a little bit more economical depending on the business.
Okay. I wanna talk about 401ks for a second. Because I think that most people when they think about employee benefits and if you had to visualize the venn diagram of employee benefits and professional financial partners, where they would overlap the most is 401ks right? And so that's probably a very common benefit that I would assume you're working with businesses on. What are some of the things that you think business owners should be most mindful of when either thinking about administering a 401k plan for their employees or not and maybe if they feel like they don't have the right plan and they wanna switch. Like if you're speaking to an employer about 401k plans, what are some top level considerations you would wanna offer them?
Yeah I think with the 401k there's a match. It's often good for encouraging as well as rewarding employees to match up to a certain dollar amount in their contribution. So those are things that, most 401ks are designed that way. However, if an employer doesn't want to have to match for one reason or another, they don't have to have that option in their 401k. The thing about 401ks is they're ... very common in the workplace but each one is unique. Even if the 401k is through a certain provider. The plan document which governs the rules, the business owner has flexibility in how they design that plan.
There are certain rules that they can't do certain things so it tends to be a little bit more restrictive but you can have flexibility with your match, certain things like a vesting period if you have elective profit sharing plan, and when employees become eligible for that plan for instance.
What are some of the normal welfare benefits that you feel like most employees under utilize?
I think looking at a lot of employees don't offer health insurance in the subsidy. That tends to be if you don't have a lot of employees that utilize that. Not as expensive as you might think. And really being intimidated by some of that I think is I see a little bit. And also, misconceptions, thinking having an employer-sponsored retirement plan like a 401k but that's not the only option out there. So it's really just the fear of unknown or perhaps the procrastination because we talked about, with the day to day being so focused on the operations or other elements of someone's business to offer it.
Yeah well, it's early December and everybody is shopping either at the malls or online. So I think this is the season where a lot of us are reminded of our procrastination. So, I think everybody can relate with those employers that you speak of in that instance.
Yeah and the other one I would say is having a bonus plan. A bonus plan is simple, can be documented, and there's a tremendous amount of flexibility with how you wanna design that. You can do that as a cash bonus plan that might be incentive based or profit driven. Or you could design a bonus plan through a 401k. For instance that has an elective profit sharing component where you can contribute a percentage or profits and then that helps add to the benefits of employee's retirement contribution and an employer can take a very large deduction from their own taxes.
I like that. Bonus planning. Give big bonuses. Are you listening, Boss? I'm just kidding. Just kidding. Not really. I mean, yes.
Okay so, are there any other benefit planning opportunities that you think employers generally miss?
Yeah I think it's those things that, if a business, and the more niched a business, the more common it is that they have an employee that's very hard if not almost impossible to replace. At least in a short amount of time with the training, the learning curve, etc. So, it's having long term additional retirement incentives, those can also be in the form of non qualified benefit plan. So you can only offer to select group of employees as opposed to each employee.
Okay. So, clearly, as you guys can see, I came with some questions here that I wanted to ask Ryan that I thought would help us have a productive conversation, but I am also not the expert. You are the expert. Before we wrap up, is there anything that we didn't talk about or something, a topic that we brushed up against that you would like to explore more that you think would be valuable to anybody watching?
No I think that more or less covers the basics. And again, not the specifics but going on that, piggy back, it isn't just a benefit. I think with any good benefit planning, you should always consider the needs of the business owner as well as the employee. And a lot of things that you can do can help protect the business in the event of a loss of an employee whether it be because of a death or disability or more likely, they go to a competitor. So you can have plans that are kind of a golden hand cuff design where there's specific benefits set aside but they're tied to either retirement, a ten year work period, or an incentive that might be driven based on sales or profit.
Now I know there are, thank you for saying that, you brought up something that I think is kind of interesting right now. I know that there's probably a lot of employers out there watching right now that have at least one person that they employ in mind right now that they're probably scared of losing, right? Are they happy enough here? Do they feel like they're valued enough? Do they feel like they're being paid enough? That is absolutely a normal concern for employers. Without getting into too much detail, what advice would you have for those employers right now who know that they have a key employee or a couple or key employees that they really don't wanna lose and, in terms of what steps they might be able to take to...
Yeah, I mean, this is probably the antithesis of self serving but, asking the employee is usually a good start. With businesses and how tight knit a lot of businesses are, it's kind of like marital relationship. Sometimes problems can be solves just by asking or having the conversation. And some people are driven differently. A benefit could be another week of paid vacation which is a cost to business but it doesn't have anything to do with a benefit plan.
So, with that being said, that I think is a good idea as well as speaking to a qualified professional. And a lot of times these plans, there is some cost involved because you have to put a legal document in place, but the amount of things you need to do generally are less with a non qualified plan, but speaking with your tax team and legal team and making sure if you're putting a benefit together, you're talking with an attorney that has specialized knowledge in ERISA laws which are how these plans are governed.
Cool. All right. Ryan, that was awesome. Thank you so much. What you may or may not know is that we are going to, where we house this video and this transcript of this conversation, we're gonna include links for people to see your website, your Linkedin profile, and list your basic contact information in case anybody wants to get in touch with you to talk about any of the things that we covered right now. Is there anything you'd like to say to somebody who may or may not be interested in speaking with you more about business benefit planning?
No, everything we do is really individualized and tailored so there's not really any blanket advice that I give. But I think the first step is starting a conversation and often times that's the hardest with time and everything else in someone's personal life.
Yeah sure. Well, Ryan, thank you so much. Ryan O'Connor, Williams and O'Connor Financial Planning Group. Appreciate your time.
Thank you, CJ.
See you soon.