If you take stock in all the recent propaganda around “Greed”, you would be led to believe that the words “Greed” and “Capitalism” are interchangeable synonyms. But as a business owner and an educated man who knows that capitalism is the only economic engine to pass the test of time, I resist this notion.
“Greed” and “Compassion” are as different from each other as they both are from “Capitalism”, “Communism” and “Socialism”. But…Greed does exist in Communism. Communist dictators like Stalin, Castro and Mao Zedong proved this. Greed also exists in Socialism. Socialist politicians are notoriously selective in their redirecting of tax dollars to only those who pledge support to their re-elections, as evidenced by FDR, Greece, France and modern day USA. And Greed can definitely exist within Capitalism. Moguls such as Henry Ford, Rockefeller and Carnegie were tyrants in their early years. But the big difference in all of these is that the “capitalistic greed mongers” usually ended up creating charitable foundations, showing “Compassion” in their later days. I ask you… name one Communist dictator or Socialistic politician that has turned to compassion as they neared their end.
So why do I cover this topic in a financial blog? It’s because, as a small business owner, I am always aware of the lure of greed, but just like most business owners, I am driven by compassion as much as my will to succeed. I desire for my business to be successful, not only for my well being, but also to provide employment and success for my employees and partners. In fact, as our businesses grow, the burdens increase as every decision now affects more and more lives. It is therefore my strong belief that countless other small business owners feel the same way. They too feel that if there was a way to help them better their employees lives and it also helps the company to be more successful then they want that for their employees and business. Which leads us to this week’s “Compassionate Capitalism” topic… helping employees to achieve a better retirement savings while reducing company costs and liabilities!
Originally, IRS regulations such as “401k” and “457” dictated a savings plan option that was designed to augment a company funded pension plan. These 4xx plans were never intended to be the only plan. In those old days… prior to 1978, pensions and Deferred Compensation Plans were the only retirement plans. Pensions became a constant struggle to keep solvent and the 401k evolved as its replacement. During all this time, deferred compensation plans lost popularity because the 401k was now the “savior”. But what has happened in the last 50 years… massive retirement failures of employees counting on their 401k’s, followed by more legislation and enforcement against employers??
Recent legal battles around employer “fiduciary responsibility” have placed more responsibility on the employer to make sure these plans do not “fail” the employees. But, as you can read in our book, “Future Proof Investing”, these plans will never succeed for the masses. Hence we are forced towards a plan destined to fail and then held responsible for it when it does. But what if there was a way to provide your employees a true self fulfilling way to create their own successful plan? A retirement savings plan that was around before the 401k was ever invented and is not a 4xx stock market gambling plan. Isn’t it high time that small business owners were once again offered this option?
But what is that plan?… the “Deferred Compensation Plan”… what ever happened to those? Well… It never went away. It is still hated by the IRS because it is an effective tax deferral plan and sometimes an effective tax shelter strategy. But it has evolved over the years into five major variations, each one focusing on the specific company and employee relationship status. These plans are still approved via IRS code, but they do not bring with them the 4xx regulatory controls or legal snares. They can be implemented at any company, big or small, and it does not matter whether you have a retirement plan in place or not. But the best part is that all those fees you expected, or are already paying for with a “Third Party Administrator” type IRS plan, are eliminated. Thus, it costs the company less and the employees get more. “Compassionate Capitalism” at its finest.
So why is it that more small businesses are not implementing these types of plans? The truth is that each day, more and more small businesses are doing just that. It is a low cost way to retain top talent because the big competitors can rarely compete with this type of retirement benefit. And once set up properly, even the owners of the company can participate. And all without the restrictions and complexity of those IRS 4xx plans.
But there is a catch. One must be pre-qualified to participate. Unlike the IRS 4xx plans, you cannot pay someone a large sum of money and “magically” all your employees are eligible. These plans are individually designed to specific employee(s)/employer situations. That is why most large companies use these plans very selectively for top management only. But for a small business owner it could double as a competitive talent retention tool as well as a possible cost savings. In order to get a plan like this started, you need to spend time with a knowledgeable advisor (like myself) and “kick-off” the process. Once implemented though, the plan runs on near autopilot, but the initial push is required by you the owner… the “Compassionate Capitalist” like me!
Remember… “Compassion” and “Capitalism” are not mutually exclusive, just as 4xx plans are not the only employee retirement savings benefit available to you. Investigate and decide for your business… or the federal government might decide for you first… and no one wants that!