HELPING WORKERS SAVE SMARTLY
When it comes to businesses helping employees put money away for retirement or emergencies, the best way is to make it as painless as possible, preferably through a payroll deduction
Donna Skemp of Bend, Ore., struggled to save before she signed up for an automatic savings plan offered by her employer’s payroll services company. Now, some of her pay goes into a federally insured, interest-paying savings account that she can access any time with a debit card. for the nonprofit Every Kid Sports, which pays sports registration fees for children from low-income families. is lucky — more than one-third of private-sector workers don’t have access to workplace savings plans via payroll deduction. Many small-business owners may think such plans are too expensive or complicated to administer. But that’s not necessarily so.
Payroll deduction makes a difference
Americans don’t save nearly enough for emergencies or retirement, but we’re more likely to save if the money is automatically deducted from our paychecks. People are much more likely to contribute to a retirement plan, for example, if they’re offered payroll deductions, according to AARP’s Public Policy Institute. In addition, 7 in 10 working adults say they probably would participate in an emergency savings program via payroll deduction if their employer offered it.
Unfortunately, the smaller the business, the less likely it is to offer a workplace savings plan. In the past, that made sense, because the cost of setting up and administering these plans could be high. Technology and competition have lowered costs in recent years, however. Some startups and robo-advisers have been targeting the smallbusiness 401(k) market, as have some large investment companies. Costs vary, but they don’t
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“It’s painless, and it’s so easy,” says Skemp, accounting and office manager
have to be exorbitant: JPMorgan Chase, for example, recently announced a workplace plan for small businesses with monthly charges that start at $75 a month plus $5 per participant.
Looking beyond 401(k)s
Small-business owners who want an even lower-cost option could set up payroll deductions deposited into SIMPLE (Savings Incentive Match PLan for Employees) IRAs, says Mackey McNeill, a certified public accountant and personal finance specialist in Bellevue, Ky., who works with small businesses.
Workers can’t save as much in these as they can in a 401(k), McNeill notes. The regular contribution limit for SIMPLE IRAs was $13,500 this year, compared to $19,500 for a 401(k). But SIMPLE IRAs typically have few fees and regulatory requirements, with only one IRS form to fill out annually, McNeill says.
Those lower fees open up a way for employers to help workers save. Instead of paying $1,500 to $2,500 a year in administrative costs for a 401(k), which McNeil says is typical for her clients, small employers could use that money to help match their employees’ contributions in the SIMPLE IRA.
Another potential option is state-sponsored retirement accounts, which typically use payroll deductions to deposit money into Roth IRAs for employees. Three states — Oregon, Illinois and California — currently offer programs that are or will eventually become mandatory for most employers that don’t have retirement plans. Several other states are setting up these plans or considering it.
Adding an emergency savings plan
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A big problem with retirement accounts is that they can be costly to access in an emergency because of taxes and penalties. Skemp, 60,
SEE
Skemp
for the Wall Street Journal, who had some insights about Quibi’s history.
As the project evolved, their article says that other executives and advisers “recommended, to no avail, that the service allow social-sharing features similar to YouTube, TikTok, etc.” Unfortunately, those ideas were also rejected. Do you think that there is any correlation between not listening and rejecting ideas with the fact that the two co-founders were of “a certain age” and their audience was much younger? Remember, it’s what you don’t know that you don’t know that will kill you.
The next leadership opportunity for greatness arrived in April. The product was ready, and the pandemic was starting to rage. And there was a discussion about whether to launch or pause.
You can imagine this moment, all eyes on the co-founders, standing at the front of the glass conference room, looking at their executive team with the infamous line from Adm. David Glasgow Farragut, “Damn the torpedoes, full speed ahead” circling in their heads. They looked out across the landscape and decided that the pandemic was their friend, the moment that would give them the catapult. After all,
people would be at home. How could we miss, caution was for losers, fortune favors the bold? And the business model was simple, only $8 per month. Who could turn that down? Imagine the convenience of viewing meaningless content for those “in-between moments” of the day when people are waiting in line at the dry cleaners. (Did they ever interview anyone who was actually waiting for their shirts?)
Now one of the reasons they pushed ahead in April is that they had “committed to advertising campaigns and had high fixed costs on content and staff.” The issue of fixed and variable costs is a good one for startups to consider carefully.
But by the same token, there is an equally pernicious concept called “sunk costs.” Does it make sense to throw good money after bad simply because you are already halfway down the rabbit hole? Do you really think there is a golden rabbit at the bottom or just a very deep hole?
Six months after Quibi launched, it was shut down, the company declared bankruptcy, and $1.4 billion could be found at the bottom of that rabbit hole. It seems those torpedoes were right on target.
The master and mistress of the universe did a post mortem. Katzenberg and Whitman said the company “likely failed because its idea wasn’t strong enough
and the timing wasn’t good enough.” Likely? Are you kidding me?
Now, let’s go back to the beginning. Why did they feel that had to do this deal? What was the driving force, when after all, you were already rich and powerful and famous and let’s be honest, delivering content on a phone is not “likely” to change the world?
The Quibi adventure was a massive miscalculation. But leaving aside their arrogance and stupidity, the real question is — why did you even do it?