What are New Comparability Profit Sharing Plans?

What are New Comparability Profit Sharing Plans?

To retain their tax-qualified status, 401(k) plans are prohibited from discriminating in favor of key owners, officers, and highly compensated employees. Some small businesses that want to help their employees save for retirement may put off offering profit sharing contributions due to the financial burden of a “pro-rata” allocation compared to what the owners might get.

For these types of small businesses, a specific profit sharing plan design may provide the solution. Called new comparability, it allows businesses to remain in compliance while making larger contributions to its older participants, typically owners and highly compensated employees.

Different Testing Approach

Most profit sharing plans (i.e., pro rata, integrated plans), are deemed to pass nondiscrimination automatically using the safe harbor approach, while new comparability plans are required to pass the general test to prove its not discriminating against non-highly compensated employees.

New comparability allows employees to be segmented into more groups so that owners can be considered separately from, say, non-owner HCEs.  In addition, testing is based on projected benefits at retirement that are derived from contributions, rather than on the contributions themselves. This “cross-testing” is a bit of a hybrid approach whereby the 401(k) (a defined contribution plan) is tested as if it were a traditional pension (i.e., defined benefit) plan.

Plans using this method are able to pass testing and be compliant because younger NHCEs have more time until retirement, and so their projected benefit based on lower contributions falls within an acceptable range of the projected benefit of older HCEs receiving a larger contribution.

Using the new comparability plan design, a plan could, for instance, make 401(k) contributions of 10% to owners and 6% to NHCEs. Or contribute 10% to one owner, 8% to another owner, and 5% to NHCEs.

Minimum “gateway requirement”

To take advantage of the new comparability profit sharing plan design, the contribution to all NHCEs must be a minimum of:

One-third of the highest contribution rate given to any HCE; or5% of the participants gross compensation

Firms Well-Suited to New Comparability

The new comparability profit sharing plan design is a good solution for companies with fewer than 50 employees that have a group of older owners and/or HCEs that are important to the success of their organization.

Companies that tend to implement this design feature include:

Law FirmsMedical PracticesAccounting FirmsService Companies

Plan sponsors interested in this feature can include the profit sharing contribution in their plan documents as discretionary, meaning they are never obligated to make a contribution in any given year.  This is helpful, too, since your employee demographics will likely change from year to year and so may your profit sharing allocation decisions.

In addition to the benefits that a retirement plan provides to employees, profit sharing plans provide real benefits to small business owners. Profit sharing contributions are tax deductible and not subject to payroll taxes (e.g. FICA).

The new comparability profit plan design gives small business owners significant flexibility to offer a 401(k) that meets the needs of their organization.

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How to Close an Investor Leads Program

How to Close an Investor Leads Program

Using an Accredited Investor Lead Program is a great way to build your investment business quickly and efficiently. Accredited investor leads are highly qualified, experienced investors who have completed thousands of private transactions and earned top ratings in the investment industry. These highly skilled professionals are ideally suited to give you the insight, education, and contacts necessary to grow your online business. They also offer a host of services that can assist you in managing the day-to-day operations of your lead generation system.


The Accredited Investor Lead program connects investors with qualified entrepreneurs looking for private equity and venture capital investments. Providing investment capital to companies registered with the National Association of Securities Dealers (NASD) and the Financial Industry Regulatory Authority ( FINRA) investors help you achieve your revenue goals quickly and easily. In addition, through the investor leads, you will have access to companies that are ready to launch their online businesses and are eager to invest in your company.

In the past, investors acted as sole proprietors, acting as the sole funding source and taking all responsibility for capital raising and business operations. Since the advent of the internet and online capital raising opportunities, it has become increasingly difficult for an individual investor to raise capital. It has also become more difficult for a company to explore the online market to raise the money it needs. The result has been less capital raising and more limited opportunities for business growth. The goal of the Accredited Investor Lead Program is to bridge the gap between entrepreneurs and businesses by providing entrepreneurs access to the capital they need through an Accredited Investor.

Through the Accredited Investor Lead Program, investors have access to thousands of companies ready to start their online businesses. They can act as a middle-man for these companies in brokering deals, getting involved in negotiations with brokers, funding, and providing general knowledge of operations. In addition, through the accredited investor program, investors have access to companies that are willing to bid on specific pre-con condos or other real estate investment properties. 

The first step is to contact some local real estate investors to see what they are interested in. For example, you can go to investor clubs or investment groups and talk with other investors about investing in pre-con condos. Alternatively, you can visit the websites of some large publicly traded real estate investment companies. Usually, these companies will list information about their investments, properties they are selling, contact information for their sales representatives, and sometimes details about their overall performance. Many of these websites also offer directories of independent real estate investors. For example, some of these directories include realtor databases from local markets.

When you contact investors about investing in pre-con condos through an investor leads program, you should provide them with detailed business plans for each project, financial projections, and information about your team. If you are serious about making a profit, you need to know the number of units you expect to sell over the project’s life. In addition, you should provide investors with copies of your credit reports or your business plan if you are self-financed.

Once you have identified potential investors, you should arrange a meeting with them. At this meeting, you can present the opportunity for investors to invest in pre-con units and discuss the details of the investment opportunities. It would be best to talk about your team and the business plan for the projects you are targeting. If you can, take the time to answer any questions the potential investors may have before you enter into negotiations for investing in pre-con units through an accredited investor leads program.

There are some final steps you will want to take to close a deal. If you have identified at least four investors, you will want to have a definitive “step-by-step” closing before selling the pre-con units. Your sales pitch should end with a formal thank-you note. This will ensure that you don’t forget any of the vital information you shared with the potential investors, and it gives the investors a chance to take their time before committing to your offer.

Helping Latinx Employees With Their Unique Retirement Needs

Helping Latinx Employees With Their Unique Retirement Needs

National Hispanic American Heritage Month spans from September 15 through October 15 and, as a part of this month of recognition, we asked ourselves at Betterment for Business: What are the unique challenges facing Latinx-American employees today? How can we learn about these challenges and address them as a part of our ongoing effort to promote Diversity, Equity and Inclusion at Betterment?

It turns out that not only do Latinx-Americans—the largest ethnic group in the U.S.—have disproportionately low retirement savings, but they also have disproportionately low access to savings. Plus gender and age also play a factor.

For employers committed to building out a financial wellness program that helps all employees, understanding the intersectional issues and how Latinx employees have unique needs and challenges is key. In this article, we’ll cover three important learnings that can help inform your wellness programs, and build support for Latinx employees during this National Hispanic American Heritage Month and beyond.

Latinx Employee Savings Lag Behind White Employees

According to a 2018 report by Unidos US and the National Institute of Retirement Security, “four out of five Latino households have less than $10,000 in retirement savings, compared to one out of two White households.”

And when comparing otherwise similar White and Latino households, researchers also found that “69% of working Latinos do not own any assets in a retirement account, compared to 37% of White households.”

When Latino families are saving for retirement, they are saving significantly less money than their White counterparts. That said, younger Latinxs are eager to save. For example, they are 25% more likely to own an investment property than non-Hispanic White households, according to the Hispanic Wealth Project.

Encourage Latinx employees to continue to diversify their investments and to set aside retirement savings in addition to their other assets—especially if you offer an employer-sponsored match that can help them reach their goals even faster.

ccess to Employer-Sponsored Retirement Plans is Also an Issue

For Latinx-Americans, access to retirement-sponsored retirement plans is “significantly” lower than it is for White workers. Overall, about 31% of Latinx workers participate in a retirement plan, compared to 53% of White workers.

But, to put this into further context, when Latinxs have access and are eligible to participate in a plan, “they show slightly higher take-up rates when compared to other races and ethnicities.”

In other words, when a retirement plan is offered, Latinxs are more likely to take advantage, but they are significantly less likely to have that access in the first place.

As such, Latinx-Americans, particularly younger populations, feel the pressure of providing a social safety net to their families and loved ones. They are 77% more likely to live in multi-generational households than non-Hispanic White households and, when surveyed, one half agreed that it was more important to help friends and family members now than to save for their own retirement.

It is important to offer a full-picture financial wellness solution that helps to address the unique needs of Latinx workers, which can include planning for the retirement of their loved ones or investing in additional real estate for their growing families.

Older Women are Disproportionately Affected

More than one in five Latinx women over the age of 65 live in poverty. And without the income from work, this population would not be able to meet the cost of basic living expenses.

Separately, Black and Latinx women make up a disproportionate share of domestic workers, with Latinx women making up over 29% of domestic workers as compared to only 17% of all other workers. Only 19% of domestic workers have access to health or retirement benefits, compared to 49% of other workers.

COVID-19 exacerbated this disparity. According to the UN, domestic workers were particularly vulnerable to the economic effects of COVID-19 globally, causing 46% of Latinx survey respondents (compared to 42% of non-Hispanic Whites) to draw from their savings to cover expenses since the beginning of the pandemic.

Consider your employee population and how factors like the pandemic may have affected them and the members of their household. Offer financial planning services and remind them that it’s never too late to get started with their savings, debt repayment, or other financial goals.

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Betterment Raises $160 Million in Growth Capital

Betterment Raises $160 Million in Growth Capital

Today, we’re announcing that Betterment has secured $160 million in growth capital comprised of a $60 million Series F equity round and a $100 million credit facility. This moment comes as Betterment is the largest independent digital investment advisor with $32 billion in assets under management and nearly 700,000 clients.

The Series F round was led by Treasury, with participation from existing investors, including Kinnevik, Bessemer Venture Partners, Francisco Partners, Menlo Ventures, Anthemis Group, Globespan Capital Partners, Citi Ventures, and The Private Shares Fund, as well as new investors Aflac Ventures and ID8 Investments. The financing valued the company at nearly $1.3 billion.

The $100 million credit facility was established with ORIX Corporation USA’s Growth Capital group and Runway Growth Capital. ORIX’s Growth Capital group acted as lead arranger and agent.

The additional funding will be used to accelerate the record growth Betterment has delivered year-to-date across its core retail investment products and advisor solutions, and particularly its rapidly growing 401(k) offering for small and medium sized businesses.

“From day one, Betterment’s mission has been to make people’s lives better with easy-to-use, personalized investment solutions. The record growth and demand for Betterment products and services proves how well we deliver,” said Sarah Levy, Betterment’s CEO. “We are thrilled to have the support of new and existing investors who believe in our business model and are excited by the opportunity to support our growth. We’re using these funds to further cement our category leadership with rapid innovation on top of our already differentiated product suite and unique, multi-pronged distribution model that serves retail investors, advisors and small businesses.”

“I’ve seen first hand the strength of Betterment’s business model since its founding over a decade ago. Participating in Betterment’s next chapter as an investor is an exceptional opportunity,” said Eli Broverman, a co-founder of Betterment and a founder of Treasury. “I believe in Betterment’s team and vision, and we are thrilled to support the company’s future success.”

To all of our customers, we couldn’t have achieved this without you. Thank you!

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