The CATT Syndicate 401(k) Primer
1. The CATT 401(k) Syndicate – How does it work?
2. Understanding the State retirement plan mandates
3. Understanding Safe Harbor Plans
4. How do the tax credits work for new 401(k) plans?
5. How are the CATT Syndicate 401(k) costs structured?
6. WLA and 401GO – What are their roles?
7. Why is a 401k smart Money / How much can you contribute to a 401(k)?
8. Understanding matching, auto enrollment
9. Why should existing 401(k) plans consider switching to the CATT 401(K) Syndicate?
10. Key Dates / Next Steps for new 401(k) plans in 2024
1. The CATT 401(k) Syndicate – How does it work?
The Syndicate concept is a type of group 401(k) plan offered by 401GO.com, a high quality, low cost, bundled 401(k) plan provider. Western Level Advisors is partnered with CATT and 401GO to support each business that joins the Syndicate.
The CATT 401(k) Syndicate is an excellent benefit for members:
· Reduced cost of a 401(k) plan by 20-40% from 401GO’s already low cost structure.
· Advocate the benefits of retirement savings for members, both owners and employees.
· Introduce high quality professionals to help manage the Syndicate.
Each CATT member establishes their own, confidential, stand-alone 401(k) plan with 401GO and Western Level Advisors. The Syndicate simply allows CATT members to gain economies of scale and reduce the cost of their plan by a considerable amount. CATT members must maintain their membership to receive the discount.
Existing 401(k) plans are also able to join the Syndicate and may be able to lower their costs and improve the quality of their 401(k) plan. If you don’t know your plan’s expenses (most people don’t), contact Jon at Western Level and he will perform a detailed cost analysis.
2. Understanding the state retirement plan mandates
Who should adopt a 401(k) – who is required?
Employers with more that 2 or 3 employees should consider a 401(k) plan. It’s never been cheaper, the tax credits are significant, it’s great for the owner(s) and an important benefit for your employees. Other popular options include a SIMPLE IRA or SEP IRA. Jon at Western Level can help navigate the options and which might be best for you.
Understanding the mandates: Employers with 5 or more employees will be required to offer a 401(k).
State legislation is beginning to mandate small businesses offer retirement plans. California’s mandate is already active and effects businesses with more than five employees. Nevada’s requirement will become more clear in the summer of 2025; businesses with more than 5 employees are likely to be effected.
Can a Single Member LLC (no employees) create a 401k plan?
Yes, single member LLCs can create a 401(k) plan. It is called a Solo or Individual 401(k) plan. However, Solo401(k)s are not able to join the CATT Syndicate, please contact Jon Fritzinger jon@westernlevel.com to discuss the attractive benefits of a Solo401(k).
3. Understanding Safe Harbor Plans
The Safe Harbor 401(k) Concept – It’s Great for the Owner(s)
A Safe Harbor 401(k) plan is a simplified version of a 401(k) where compliance requirements have been simplified in exchange for standardized employee contributions (matching and vesting). The goal of the Safe Harbor structure is to incentivize small business owners to offer a 401(k) plan for the benefit of both the highly compensated employees (HCE) AND non-highly compensated employees (NHCE). In exchange for removing the compliance testing requirements (which benefits HCE’s), Safe Harbor plans require standardized employer matching contributions and instant vesting (which benefits NHCE’s).
A safe harbor plan is best suited for small businesses because:
· They are low-cost and easy to maintain.
· Large income disparities between the owners and the employees are mitigated.
· NHCE participation rates are hard to manage and have no effect on the plan.
Non-Safe Harbor 401(k) plans are still popular and are typically best suited for plans with more than 50-100 employees. Either type of plan can exist in the Syndicate. There is no plan size limitation.
There are three types of Safe Harbor plans, they are defined by their matching program:
· Basic: A dollar-for-dollar match of the first 3% of an employee’s compensation and 50 cents on the dollar for the next 2%.
· Non-Elective: A contribution of 3% to all employees. This goes to every employee, even those who don’t contribute themselves.
· Enhanced: The employer matches 100% of the first 4% of an employee’s contribution.
For the three plans listed above, each has immediate vesting on employee match and each allows the owner and/or HCE to maximize their contribution independent of the participation rates for NHCE’s.
4. How do the tax credits work for new 401(k) plans?
Given the tax credits and the marketplace becoming more competitive, it’s never been cheaper to provide a 401(k) plan for a small business.
The tax credits are available for new plans and they are able to offset a meaningful portion of the costs for an employer. There are three types of credits…the cumulative total of the credits is quite attractive.
The Secure Act 2.0 Tax Credits; A simple review:
· Start-up credit: $250 per NHCE, for three years.
· Matching credit: up to $1,000 per employee for employees earning less than $100k, for 5 years, declining incentive schedule.
· Auto enrollment credit: $500 per year, for three years.
Let’s ball park the numbers with two examples:
· A 10 employee business with 2 HCE’s can expect about $25,000 in cumulative tax credits over the next five years.
· A 5 employee business with 1 HCE can expect about $15,000 in cumulative tax credits over the next five years.
There are limitations and phase outs with each credit – check with WLA or your tax advisor to estimate the tax credits your business may be eligible to receive. Credits are only possible for new 401(k) plans.
HCE = Highly Compensated Employee
NHCE = Non-HCE
More info: https://www.irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit
5. How are the CATT Syndicate 401(k) costs structured?
401GO costs per plan:
· $65/mo per plan (Syndicate discounted from $79/month)
· $8/mo per participant (the portion that declines with the Syndicate’s growth*)
· 0.10% AUM fee (Syndicate discounted from 0.30%)
· 116 investment funds are provided with expense ratios starting at 0.02% (ultra-low cost)
Estimated annual plan cost; three examples**:
· 5 employees $1250, 10 employees $1750, 15 employees $2250
The total discount for CATT Syndicate plans is about 20-30% versus 401GO’s already attractive pricing. Larger plans gain greater savings.
WLA costs per new plan:
· Set-up fee, $250 per eligible employee ($1500 min, $3500 maximum at 14 employees)
· Advisory fee: 0.50%
· WLA’s set-up fee is eligible for the tax credit
Western Level Advisors LLC helps each business with the plan set up process, plan design options, plan education, employee enrollment, model portfolios, traditional / ROTH 401(k) options and ongoing support.
6. Who are 401GO and Western Level Advisors, what are their roles?
401GO.com is a low cost, bundled 401(k) provider that integrates with your existing payroll provider. 401GO provides the operating hub for both the employer and employees to manage their 401k plan. The platform provides 116 low cost investment options in 401GO’s standard offering. Each plan is also assigned a dedicated 401GO relationship manager to help maintain the plan.
Western Level Advisors is partnered with 401GO and able to serve as the Advisor to each plan within the CATT Syndicate. Western Level will help each CATT member navigate the plan set up process, provide education, enrollment support and model portfolios on an ongoing basis. Western Level is a Registered Investment Advisory firm.
7. Why is a 401k smart Money / How much can you contribute to a 401(k)?
Why is a 401(k) smart money? (Traditional 401(k) Safe Harbor Contributions):
1. Lower your taxable wage income (pay less in taxes)
2. Build your retirement savings that grows tax deferred
3. Receive an attractive, immediately vested employee match (additional compensation that grows tax deferred)
How much can you contribute to a 401(k)?
401(k) contribution limits are set by dollar amount, not percentage of income.
2024 401(k) limits: If over 50 yrs old
Maximum employee deferral $23,000 $30,500
Maximum employee match/profit share $46,000 $46,000
Total $69,000 $76,500
8. Understanding matching, auto enrollment
Employer Matching
Understanding the impact of adding a 401(k) is important for business owners, assume a 3% increase to payroll expenses or create a financial model for your business. WLA can help you estimate your matching obligation.
Auto Enrollment
Before committing to auto enrollment, understand the requirements, how the opt out works and the impact to the profit sharing portion of the plan. Expect auto enrollment to become standard in the near future.
9. Why should existing 401(k) plans consider switching to the CATT 401(K) Syndicate?
1. Lower recurring plan costs
2. Better service
3. Better investment support
4. Better fund options, lower cost
5. Expert support: education, enrollment, investing
6. The larger the Syndicate, the lower the cost for all CATT members
10. Key Dates / Next Steps for new 401(k) plans in 2024
Key Dates for new plan start ups
August 1, 2024: Soft deadline for setting up a new Safe Harbor 401(k) Plan for 2024.
September 1, 2024: 30-day plan creation notice must be sent to employees.
October 1, 2024: Last day of 2024 for a Safe Harbor 401(k) Plan to become effective.
Next steps – how to begin the process?
A Safe Harbor plan can be set up in less than a month. Email WLA to schedule a call to discuss your business and the 401(k) options that might best suit you.
Access Jon’s calendar here: