In the ever-competitive market for talent, one of the tools in employers’ benefits toolbox is a company-sponsored retirement plan. But for a significant portion of U.S.-based companies – especially small and startup entrepreneurial businesses – offering competitive plans can be cumbersome, expensive and rife with risk.
But in 2019, businesses were given a lifeline with the passing of the Setting Every Community Up for Retirement Enhancement (SECURE) Act. YPO member Stephen Carl and his partners at his Rochester, New York, USA-based investment firm, High Probability Advisors, had seen the legislation coming and were ready to support their fellow business owners and entrepreneurs.
The legislation offers several benefits to investors, but the one that interested Carl was the ability for unrelated employers to pool their resources and offer their employees retirement savings plans, sharing in the administrative expenses of offering and running the plan.
Carl explains that pooled employer plans are not exactly new; they are a new twist on an old product – multiple employer plans, which have been around for decades. What is new, he explains, is that companies in a pooled plan do not have to be associated in any way – they do not have to be in the same industry or similar geographic area, for instance.
The legislation first passed the U.S. House of Representatives in 2019 on a very rare bipartisan 417-3 vote, before hitting some roadblocks in the Senate but eventually being signed into law in 2020 and updated again in 2022.
“I laugh, saying the government rarely gets things right,” Carl shares. “But this might be one of those rare times. The pooled employer plan is a concept that really makes a lot of sense. Most employers want to provide their employees this benefit; they want to be competitive and attract good employees. They also want to get the tax benefit of running the plan, but they want to do it at a reasonable cost and with as little administrative burden and with as little fiduciary responsibility as possible.”
All of that can be hard, particularly for smaller businesses without dedicated staff, the clients that Carl and his partners built their firm to serve.
A firm built on experience
Prior to High Probability Advisors, Carl’s career kept him close to the investment world, as in-house counsel at an investment advisory firm, then Chief Operating Officer and later President of another. When that firm was acquired, he pivoted to the entrepreneur life, launching and running several privately held businesses. That’s when he and a few former colleagues discussed starting their own firm, one that was markedly different.
“We all agreed that the world does not need just another investment firm,” he says.
But he figured if they could take their collective knowledge and experience to structure the new firm in what he calls “the right way,” he would be in.
“Let’s take all the best practices we know are out there,” Carl says. “Let’s take the data and the science and the research – we have decades of research – and let’s start an investment advisory firm based on that.”
As Carl and his partners built High Probability Advisors, he says, “We came out of the gate asking about the simple things people need. You need to have lower costs. You need to be tax efficient. And you need to manage risks.”
A plan built on logic
For business owners, offering and successfully running an employer retirement plan can be the equivalent of holding another full-time job.
“The fiduciary responsibility goes to the business owner,” Carl says. “You’re trying to do right by your employees, but it’s a lot of work – keeping up with the regulations, offering the right combination of investments.”
He points out that many brokers get a kickback on the solutions they offer, which raises the cost to your employees. “And you may not even realize it,” Carl adds. “When you look at the old ways of investing – buying and selling individual securities – that’s not efficient in a retirement plan.”
Simply keeping up with cybersecurity can also be a full-time responsibility, Carl points out. “It used to be hackers would attack hospital systems or other really large organizations for a big ransom,” he explains. “Now they are going after smaller businesses. If you’re a small business, you’re three times as likely to get hacked.”
And until the 2019 SECURE Act, the old multiple employer plans had a ‘one bad apple rule.’ Of the hundreds of companies that could make up the plan, if just one was out of compliance, everyone was out of compliance. “Why would anybody want to sign up for that, for something you cannot control?” Carl asks.
With the new legislation, as long as your plan is done correctly, you’re not liable for anybody else in the pool. Carl adds, “That makes it way more attractive.”
The U.S. Department of Labor approved High Probably Advisors to be one of the first firms to offer the new products, and they named theirs ‘The Logical Retirement Solution®.’
Carl explains, “We felt like it’s just the logical way to do this. We incorporated the low cost, tax efficiency and managed risk. But the biggest thing is making sure we take as much of the fiduciary responsibility off the business owners.”
He adds that in building the offering, they wanted to ensure the savings from the economies of scale were shared by the investors and that the plan remained flexible.
“What we’re trying to do is help people get out of the business of running a retirement plan,” Carl says. “Because right now, you have two businesses. Yours, and even though you may not realize it, you’re responsible for running your retirement plan.”
A future built on success
The update to the SECURE Act in 2022 expanded the pooled employer plans to include nonprofits such as large charities and even school districts.
“Allowing them to be part of pooled employer plans shows this is working,” Carl says. “The government, in a bipartisan way, said, this is the right way to go. Let’s keep going.”
The only downside to the pooled employer plan, as Carl sees it, is if the business owner really, really likes to control every aspect of their plan.
“You do see that,” he explains. “Some people say, ‘I want this investment, this fund, and this stock in the plan,’ but we’re not going to approve something in our Pooled Employer Plan’s investment platform that we don’t think makes sense. Sometimes I feel like it is important to save people from themselves. If a business owner wants exposure to art collections in their retirement plan, they’re treating the plan like a play toy. And that’s too bad because you have your employees’ retirements riding on this.”
And, Carl points out, that is an enormous responsibility – from a moral, human perspective as well as considering your legal and fiduciary roles.
“We’re really excited that we’re on the forefront of this movement and that we’re seeing it grow,” Carl says, adding that people were somewhat hesitant at first. “But now that it’s been working, they’ve seen how it makes sense.”
For YPO members only: Reach out to YPO member Steve Carl for more information. His firm will prepare a full due diligence report for your current retirement plan, complimentary for YPO member companies.
