298 - Courtenay Shipley - ENHANCED AUDIO
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[00:00:00]
Corey Kupfer: Courtenay Shipley is the founder and chief planologist of Retirement Planology, a consulting and registered investment advisory firm for corporate sponsored retirement plans. With a wealth of experience in the retirement plan industry, Courtenay not only offers her clients expertise in investment analysis, plan design, and employee education, but also helps them leverage their employee benefits.
In a way that supports their own business goals. And we'll talk about that because one of those goals could be M& A. She also, worked, with qualified, works with qualified retirement plans, developing strategies for third party administrators, and conducted over 10, 000 educational meetings.
Cordial's various designations, including accredited investment, fiduciary, charted retirement plan specialist, certified plan fiduciary advisor, and certified exit planning advisor. She is also, the esteemed president of the Retirement Advisors Council and her outstanding contributions have earned her accolades, such as Top [00:01:00] Woman Advisor.
Napa Young Gun and FT Top 401 Advisor. Courtenay, welcome to the podcast.
Courtenay Shipley: Hey, thanks so much for having me.
Corey Kupfer: So listen, I'm excited to have you on. And, as regular listeners of the show know, we, I love the fact that we cover all aspects of all types of deals, you know, and it's not only capital raising and M& A, although we do a lot of that, but it's other types of deals and even within.
the categories of what people think about deals. We cover aspects of them, that not everybody else covers. And that this is certainly gonna be one of those, in terms of the, impact of retirement plans. So I'm excited about that. But before we get into all of that, I want to take you back to when you were a little kid growing up, maybe 10, 12 years old, what did you want to be?
Because I'm guessing a, Certified Retirement Plan Specialist and Entrepreneur in an area probably wasn't it at that time, but you tell me.
Courtenay Shipley: Ooh, 10 or 12. No, that was definitely not on my radar. I think that if anything, I probably wanted to be, like a musical theater performer.
Corey Kupfer: Okay.[00:02:00]
Courtenay Shipley: Back then, for sure. Mm hmm.
Corey Kupfer: I love it. And did you do any theater, through school or in college? Yeah,
Courtenay Shipley: yeah. I did a fair amount of that. Mm hmm. Yeah. I did end up with a degree in music performance. So, you know, adjacent to that. So, yeah. Got it.
Corey Kupfer: So, it's interesting because there are a lot of lawyers who not really, fewer that do what I do but, I, a surprising number of litigators, or maybe not surprising.
You know, wanted to be actors or, whether it was theater or movies or whatever. And I think it's maybe why they went to litigation and they present before juries. Like it's very interesting, very interesting. All right. One other question looking back. What was the first deal of any type that you can remember doing?
Could be something young, when you were, young or something early in your career. Anything that's a deal that you remember that comes to mind? A
Courtenay Shipley: deal? Oh my goodness. Anything
Corey Kupfer: that comes to mind?
Courtenay Shipley: The first deal that I observed, in my professional career was, a chain of hospitals that were buying up other hospitals.
And that was fascinating because, I mean, you can imagine how many moving parts go into [00:03:00] those deals, let alone the retirement plans. Other deals though, hmm, let me think about that.
Corey Kupfer: That's an interesting example. I mean, there are healthcare lawyers that really focus on that, but I've been involved in some deals where we've had clients in the healthcare space and we bring in a healthcare expert.
Cause yeah, I mean, you want to talk about moving pieces. I mean, not only do you have all the, you know, but you have all the regulatory stuff that goes on and that kind of stuff as well. Yeah, no question. So obviously we covered a bit in your bio, but even before we get into the specific deal aspect of it, whatever, just, you know, tell us a little more, on exactly what you do and who your ideal clients are, you know, in terms of what you do in your core business.
Courtenay Shipley: Yeah, we're definitely super nerds. We're looking over corporate retirement plans. Like how exciting could that be? Right. But it actually is pretty interesting. So any company that's sponsoring like a 401k or 403b, 457, if it's got some sort of tax code like that, that's probably something we oversee.
Yeah, we work in the area of, fiduciary responsibility. So, you know, these plans are complicated. There's a lot of oversight. So we're there to [00:04:00] be. All hands on to help, the plan sponsor figure out what they're supposed to be doing and, like, what the best practices are and what works for their organization, but more importantly, what this plan is supposed to do for their organization because, as you know, the employees use it.
They want to retire someday, they want to have the luxury of deciding how they spend their time later in life, and the employer looks at it as a benefit, so there's probably some sort of constraint around the budget, as well as how do we make sure that it serves our employees in a way that's good for recruiting, as well as retention, so I would say everything that we do falls under those umbrellas, you know, be it that it's the investment choices, or it's how do we educate employees and help them understand the plan, To just being support for the plan sponsor.
Corey Kupfer: Yeah. I love that. And you know, it's just, I mean, we get into that conversation of employee, tax, attraction and retention, right? Yeah. Incentivizing is really, I mean, it's always super important, but you know, anytime that the labor market's a little tight or whatever, it even becomes more important, right?
Courtenay Shipley: [00:05:00] Absolutely. You know, you're
Corey Kupfer: competing for talent and you know, one of the things podcast is how. Deals can help solve business challenges and one of those business challenges certainly in, that we hear a lot from clients these days and my context is the ability to attract and retain, you know, key.
So, you know, sometimes we talk about things like phantom equity plans and other things that, profit sharing plans that we do to help folks, that might be non qualified plans or obviously, but yeah certainly the stuff that you do, it comes into that category, right? You know, how do you
Courtenay Shipley: Oh, yeah.
Absolutely. Yeah. And finding out like who are the most important people in your business and how are you keeping them around and whether that's through the qualified plan or like what you just mentioned, the non qualified, like a deferred compensation plan or something that gives them an ownership feel without having ownership or a profit sharing plan, something like that are so important in keeping those people because They're the ones that are the lifeblood of the business, you know, besides the ownership.
So yeah, anything to keep them around, to keep them incentivized is super important. [00:06:00]
Corey Kupfer: And not only on an operating level, but obviously, I mean, listen, you're doing, if you're doing a deal, if you're looking to sell your company eventually, or even raise capital, your investors and or your buyers are going to be really concerned.
You know, they look at management team, right? They look at
Courtenay Shipley: who
Corey Kupfer: the executive team is, especially in, and how dependent the business is upon you as an owner.
Courtenay Shipley: And
Corey Kupfer: one started Yeah.
Courtenay Shipley: There was one situation where it was really interesting. The ownership was definitely very important. But it was like these mid level managers that were like two levels down that were absolutely the most important ones.
There was only four of them in the business. They were extremely hard to, to replace. And You know, that's where you start to really get into trouble, right? It is, there's a small amount and they're super important and hiring is awful. And the job that they have is just, it's what keeps the company going.
And so that was like the perfect place for that non qualified plan. I always had a bonus that they were giving up if they left, with a longer vesting period that was rolling. So yeah.
Corey Kupfer: Good stuff. All right. So listen, I mean, I [00:07:00] think people can gather already just on a general level, What, the impact of obviously maintain, retaining and attracting key talent can be, have on enterprise value of a company and deals, but you also get involved much more specifically, right?
Related to retirement plans, when deals are happening when companies are buying. Other companies are selling. So talk to us a little bit about that aspect of your business and where your services come in, because I think a lot of folks, you know, I mean, they understand retirement plans, they understand the concept of being, of having them be good incentives for employees, and maybe they have them in the company, but I don't know that people really talk that often about.
What happens when you have a deal going on, in terms of the retirement plan side?
Courtenay Shipley: No, we are so far down on the to do list, unfortunately, in the deal. They're like, retirement who? What plan? Yeah. Oh, that's benefits. But, yeah, it's so important. That's one of the biggest things that, people can mess up, is just not realizing the impact that this plan can have.
Especially on, what [00:08:00] happens going on in the future. So when you think of it in terms of like asset sale versus stock sale and the asset sale, you got the house, but all you're buying is the furniture out of it, right? So that's not that big a deal because generally the retirement plan stays behind with a house, right?
With the seller. So there's not a lot to be thinking about necessarily other than. Like when you're, when the employees come over to the buyer's company, will they be eligible for benefits right away? Where are they going to be on the investing schedule? Are you recognizing prior service and things like that?
But on the other side, when it's a stock sale situation, I mean, you've got decisions you have to make because you're buying the house and the furniture. And that means. It's. You are buying anything that is hidden behind those walls too, right? And the retirement plan Oftentimes does not get the attention that it deserves and unfortunately, that's just bad risk management all the way around You know, do you know for sure that they've been using the right?
definition of compensation for matching people. Do you [00:09:00] know for sure that they haven't screwed up, you know, the accounting with the plan? And there's all kinds of stupid stuff that can really just waylay you in the future and be costly to fix. Did they accidentally not enroll a group of employees because the payroll system freaked out?
So having, just taking with some And I know that is not something that usually You know, people want to do when they're in the middle of the deal, they just want to get it done. But at least outsourcing it to somebody like us or an ERISA attorney who can take a look and just ask the questions about, you know, what's been happening in this plan?
Where are your meeting notes? You know, what kind of advisor were you using? Was it someone who was a specialist? Specialist in retirement plans versus just a regular, you know, financial advisor, broker off the street. Because that's where you make sure you, you keep yourself covered. If you are going to take over the plan.
Now your other option is to terminate right away before the actual date of the sale. And if that's the case, no big deal, right? You're terminating the plan, but it has to be done before you actually do the sale. Because then you lose the ability [00:10:00] to terminate it if the buying company already sponsors a plan.
And then you've got, you know, one year to figure out how to get everything in motion and lined up and the proper design features figured out because you get to aggregate those plans in the future.
Corey Kupfer: Got it. So, yeah, all right, so you raised a few things I want to drill down on some of them maybe in reverse order.
So, well, so let me just say this for the listeners as well. Obviously, you know, most people know if they're in the M& A space that most deals are done as asset deals, but there are a lot of reasons why a deal is done as a stock deal. I mean, we have one going on now with a company, with a selling company, who happens to be out climbing on the sell side, is a C Corp.
Corey Kupfer: And there's reasons why they formed as a C Corp. It's rare that you've, form any kind of growth company as a C Corp these days, but if they've been around for a while, or maybe they came about, due to, you know, some sort of, merger acquisition where they were net operating loss carry forward reasons that like, I'm not going to get into all these deals, but there were reasons why.
Companies like C Corps, that's a situation in [00:11:00] which, you know, you will often, see a stock sale. There's other situations, especially maybe with international players and, you know, things like that, that sometimes come into play. So there are, you know, although it's a minority of the deals, there are definitely deals that are being done as stock deals or equity deals, if it's an LLC, you know, membership in their sales, whatever you want to call it.
And you also certainly have that with minority investors, right? You know, if somebody's investing in a minority stake and those minority investors are going to want to do their due diligence as well, even though you don't have the Let's merger issues on a sale, right? You still have, you know, if, a minority investor is smart, they're going to want to know, I mean, that's part of the village with liabilities.
So you rattle off some things, you know, that could go wrong. How often do we see those issues? You know, how do people prevent them? I mean, I know. I'll be frank, you know, it's the reason why we work with somebody on our plans.
Right. Because I, I'm an attorney, but I'm not an ERISA attorney. I don't understand this stuff. I'll be frank. Right. You know, so [00:12:00] we pay a professional and we have our meetings every, you know, on a regular basis as required. And they go over it with us and we have minutes and all that kind of stuff.
You know, how often do you see these issues and why do they come up?
Courtenay Shipley: Well, they come up pretty much because what I said before is like it's the last thing on the list, right? Or if it maybe didn't even get on the list, so they're more focused on how do we structure the deal?
What's it going to look like going forward? How's the money getting transferred all those things and so or the synergies between companies and you know the purpose behind the whole deal in the first place how often is it? I would say it's more often than not. We've had You Probably a record number of merger and acquisition in our client base, I would say, in the last two, three years, which, you know, makes sense.
COVID certainly did ignite some things there. The issue that I've seen most commonly is that they, they've brought some companies together. With common ownership, where there's like an 80 percent or more common ownership across them, and they've completely ignored the fact that they're a controlled group for ERISA purposes, [00:13:00] which means that all the plans have to be tested together, and there's certain thresholds that they have to meet as far as criteria.
On the different plan design. And so we have one client right now where I said, wait hold on, back up. What did you say? You just purchased what? Who? And so they're like, well, that's so funny. We pay the attorneys a lot of money and they never pointed that out. And so I'm really upset because they should have told us that.
And I thought, well, if they don't have an ERISA attorney on the team or some, it's just not on somebody's radar, then it does slip through the cracks. And in this case, they've got two 401k plans and a simple IRA. Now they're going to have to put those plans together someday, but for right now they're in the one year waiting period.
So they do have some time before they have to get everything straight. And that's at least nice that you have that grace period. I would say the other situation we've seen is where, they did everything right. They just didn't consider what was going to happen. And so what I mean by that is it was, it was totally an asset sale.
So easy breezy, right? They're going to leave that plan behind. But what happened [00:14:00] was they didn't tell the advisor or the record keeper until like the 11th hour. And they're like, okay, we just signed these papers. Well, really it was after the 11th hour, I should say. But we signed these papers, we've sold, we need to terminate the plan.
It's like, okay, well that, that's fine. Doesn't happen overnight. That's going to take about 90 days at least to get everything set up, get the proper compliance stuff done, and then get everybody brought up to full vesting because now you have, you know, you're letting everybody go. There's no more vesting schedule in that situation.
And so, Just the amount of time that it took was very surprising because they hadn't said anything about it prior. And of course, there's non disclosure agreements and things like that that may prevent that from happening. But on the flip side, the more heads up you can give your vendors that something may happen, the better off you'll be as far as timing.
But what happened in that situation is that the buying company brought on the employees. They started them over. They didn't recognize any of their prior service. And in this case, they had some, you know, 10, 20, [00:15:00] 30 year employees, subjected them all to the waiting period of a year before they could get in the plan and get the match.
And they would have a six year vesting schedule. And so as you can imagine, no one's going to leave over the retirement plan itself, but that definitely sent. A message in my book when I read that and I was like, Whoa, hold on here. But, you know, phone call after phone call, I'm leaving. I'm not going to roll my money to the new company.
I'm actually going to this company over here. And I think they lost about 20 to 30 percent of the workforce within the first six months of that acquisition, just because it was clear they didn't really want those employees around, or at least that was the message that they sent.
Corey Kupfer: Right. So, I hear you saying that, well, the retirement plan itself, you know, if that's the only thing it's not.
But yeah, it's intuitive, right? And certainly one of the things we have talked about, you know, so I guess is, you know, is that integration, that cultural integration with employees and how you retain them, whatever. And odds are if they're not, recognizes people's prior service and they, you know, and they're putting [00:16:00] people on a wait, experienced employees when they acquired a company on a wait list, there's probably other things they're doing culturally along those lines.
Oh yeah. Create attrition. So there's
Courtenay Shipley: definitely only one in a number of things. And that was kind of the straw that broke the camel's back.
Corey Kupfer: Yeah, yeah. It's amazing how badly, companies do on that sometimes. It's like, you know, and especially because in some of these businesses, the talent is really, you know, crucial.
Courtenay Shipley: Yeah, it's really precious.
Corey Kupfer: All right. So in terms of the company on the sales side, like, so one of the things that we do with clients, from a, probably a little point of view on other things, and again, we're not a risk attorneys, but. You know, whether it's their contracts was, you know, we know the due diligence that a buyer is going to do.
So we try to do a pre due diligence process with the clients so that the issues that by the buyer, right. So the buyer is whatever, right. We try to get [00:17:00] ahead of it. Yeah. So, you know, in terms of if somebody is a seller and they have a deal, coming. One of those things that they should be looking at to say, Hey, you know, what might we need to clean up in advance of a deal so that, we don't have these problems, unless so, not only after the fact, but even in discovery and due diligence of issues and similar to what you said on the other point, right.
I mean, I doubt if the only thing that seems sloppy or whatever is the retirement plan, you know, and they get specifically leave it behind and clean it up. Maybe that's not a loan, but I'm, but I always preach that the thing is you want to be buttoned up and due diligence because the people who are doing the due diligence normally not the CEO or the head of M& A or whatever, who greenlit the deal, the people I send in the accounts, the lawyers the HR people, the, whatever.
They're always looking for a reason why they should do the deal because they don't want to miss anything because their job's online, right? So you don't want to, so everything that you, that, that isn't clean and due [00:18:00] diligence creates a risk of the deal not going through. So what would be some of the things that they should look for to get like their house in order before they even, you know, get into a deal if they want to really do it right?
Yeah.
Courtenay Shipley: Yeah. The requirement for retirement plans is basically that you want to, you don't want to have a file folder full of problems and then nothing that says, but generally speaking, we run this plan well. Right. You want to document the ordinary. Yeah. And it shows, you know, 99 percent of the time the plan runs well.
It's just this 1%. And we discovered it, we fixed it, and here's how we did it. Right? That's the type of stuff a due diligence, a good person doing due diligence on the retirement plan would be looking for is credible evidence that you keep an eye on the plan. You've got regular meetings. You take meeting notes during that time or meeting minutes that talk about what you discussed and how you made the decisions that you made.
So red flags would be, you know, that you haven't looked at the investments in years. You know, oh, [00:19:00] those are the ones that came with the plan. That's not how that works. Or, you know, you don't have a third party advisor. A lot of times that's not a good recipe for success. Or let's see what else, Employees, you don't have a record of like what the employees received, so there's these notices that are required to go out every year.
Normally the record keeper holds on to them, but it's just a good idea to download them and have them in your own file, right, to say these are the ones that went out for this year. So having all of that. readily available at your fingertips is super important. And if you haven't done it in the past, you've still I mean, start today, you know, you probably got a year or so before things actually close.
And so it's a good time to establish those good habits of showing that you've monitored the costs of the plan, that you've taken a look at the investments that employees have been informed about the plan, they understand it, they appreciate it. You look like you've done some numbers tying back to each other, at the end of the year, as far as compliance is concerned, and making sure [00:20:00] that your definition of compensation that you use for the plan is 100 percent button down, tied up, everything's good to go, T's crossed, I's dotted, the whole nine yards.
Because that is the number one thing that would get you in trouble, is if you have really screwed up your match because you forgot that you, excluded bonuses or you included bonuses or something like that. And there, now there's a discrepancy in numbers.
Corey Kupfer: This is a more general question, but I'm just curious, more sort of, less specific to the deal side, but more just what we're seeing out there, especially with, people looking for talent.
Is there a general sense on what people are doing in terms of the, you know, waiting periods, right? For eligibility periods or, or whether you go out to vesting or, you know, anything like that. Are there trends in that or differences that you're seeing or anything else?
I would say
Courtenay Shipley: things are shorter these days, than they have been. One year is the statutory limit for how long you can make somebody wait. And we're not seeing one year being exercised as often [00:21:00] anymore. Having said that though, Every industry is different. And so you may have, a general sense of what the turnover is, that you want to align with when they become eligible for the plan.
You may want to use that as a retention strategy as well. Like, Oh, look, in a month you get this, in three months you get that, that sort of thing. But overall, like the vesting schedules used to be something that would really keep people around, but people do not stay for vesting schedules anymore. So the longer five and six years I've seen go away, it's now down more to like three years in most cases.
If you do have a vesting schedule, you're not a safe harbor plan that gives everybody vested, you know, automatically. But those are the main things that I'm seeing. And of course, you know, a vesting schedule is not a bad thing. You never hire a person thinking they're going to work there less than five years.
Right. But , again it doesn't really, it doesn't really do much for you.
Corey Kupfer: And, you also talked about the fact that if it is a, stock deal or equity deal and you [00:22:00] don't, terminate the plans in advance, that there is this integration, you know, that has to happen without getting too technical audit.
Like, what's, you know, what's involved in that? Is it the kind of thing where. The seller's plans have to roll into the buyer's, plan somehow, or is it that they're, you know, it creates something new or the differences in terms amongst those plans? Like how does that integration work when you're, if you haven't terminated them?
Courtenay Shipley: Yeah. Yes to all of that. Basically, if you're going to be taking over the old plan, the seller's plan, then there's a lot of different things you need to be considering. So as far as provisions, there are certain protected provisions, usually having to do with like eligibility and, retirement age and things like that.
So If you do maintain their plan, and you want to merge it into your plan now, and so you don't have multiple plans to be keeping up with, you're going to have to look at the provisions and see how similar they are and see which ones are protected and which ones aren't and how you can amend [00:23:00] things to where it makes sense to, to merge those plans.
Or maybe you keep operating them separately, and That's when you have to consider the compliance testing and will it pass what the IRS says is okay and what DOL says is okay. So there's just a lot of comparing and contrasting, making sure that rules are followed. It's not a bad thing, but, it is, it does take a minute.
For sure. And at the end of the year, all of that stuff has to be aggregated together. And so when you get in a situation, like we had one client where they were purchased by a larger entity that bought, I don't know, like five or six different companies in that year at the same time. And I said, okay, well, what are we doing with this retirement plan?
Who do we need to send the compliance information to? And they're like, what, what are you talking about? And so, I mean, I know that plan was not being operated correctly because they needed to aggregate all those numbers. They were out of their one year period, so they needed to be tested together. And I'm sure it would not have gone very well because the plans that we were hearing about were [00:24:00] substantially different.
So it's just important to, again, stay on top of these types of things and not just trust maybe that the buying entity knows everything that they should know about it.
Corey Kupfer: And who would, if this is not done right?
Courtenay Shipley: Mm hmm.
Corey Kupfer: Who has the risk? You know, is this the thing where, both the seller and the buyer can have risks depending upon what happens or is it one side or the other?
Courtenay Shipley: I mean at that point it's pretty much the buyer. Yeah. Who's going to have all the risk. Right? And especially in a stock sale, you're buying the house and the furniture and whatever is hidden behind the walls. Yep. So, and an asset sale, it's less common for, Yeah.
Corey Kupfer: So, and, yeah, I mean, that's, sometimes I prompt questions that I know the answer to.
So let me show the audience. Yeah. Yeah. Obviously that's the case, right? You know, one of the things, although. I mean, so as a buyer, if you're buying equity, you by law default to taking all of the liabilities of the company. Now you can, and will have [00:25:00] indemnity provisions in the agreement for anything that happened prior to sale, but that doesn't mean you're not liable for it.
It just means that you can go. Back to the seller if it's something, you know, that's done, but then it's a prior issue but then depending upon how you deal instruction when you have back end money to secure it or not, whatever You know, you might have to chase him for the money You might you know, you might have something secured again So it brings up all the them the issues as well.
But as to Any governmental agency, you know, right. Or as to any participant, if there was an issue or whatever, you're taking on that liability if you're doing a, doing
Courtenay Shipley: that.
Corey Kupfer: But yeah, good stuff. Okay. What else? I mean, so this is an area, a lot of my guests who I have on this podcast, I'll tell you about stuff that I am, you know, that I do every single day.
And I know really well, and I know all the questions to ask. I am not an arrested attorney. I'm not a retired attorney. I know enough, when I do these deals to identify it as an issue to the client to make sure they're speaking to, you know, their [00:26:00] retirement plan administrators and record keepers and, you know, and specific counsel.
But, What else should, I be asking you? What else should the audience know about? You know, anything that is triggered by deals, in terms of these plans, if anything. I
Courtenay Shipley: would say one of them kind of comes back to the, like, compensation and benefits package. Yeah. So, there was a law firm deal, this is going back a long time, I can't remember all the particulars, but basically what it came down to is they had a really generous health insurance plan and a really generous retirement plan and the buying firm was not going to, did not have nearly as generous.
And so it was actually perceived as a huge compensation cut because they, had to come out of pocket so much more for their health insurance and some other benefits, and they were getting less of a match on their retirement side or less of a contribution from the employer. And, it really, you know.
started things with a pretty bad taste in folks mouths. So think about [00:27:00] that. And if you are the seller and you realize that this is going to happen, that this is something that's going to happen because the buyer's not, you know, they don't have as good of benefits or something along those lines, maybe try and negotiate some sort of pay raise in to cover, you know, the difference between what would be coming out of the employee's pocket or something along those lines.
But I
Because that's part of the compensation package overall. And so if they're feeling like they're just about to get a 15 percent pay cut, that's, the employees will not stick around for that. That's not going to be helpful for anybody. So that's one thing to be thinking about. Going back to what we were talking about before, with, how do you get your house in order prior, making sure that, You know, you know what the cost of your retirement plan is.
There's a lot of times that has not been benchmarked in a few years, or knowing how your plan stacks up against your competitors. That could be useful information to say, look, we got a pretty good plan and here's how we [00:28:00] know. And. This is why our benefits package, including our retirement plan, looks really good, against the people that we're recruiting talent from in the area or something along those lines.
That's going to be good information for your buyer as well. And then I would say, The other thing is just making sure the house is in order. So do you have all your plan documents at your fingertips? If somebody were to ask any questions about how did you make this decision two years ago to remove this investment from your plan, you would have an answer for that and one that makes sense.
So any sort of documentation that you can just kind of dust off and get an order just makes life so much easier.
Corey Kupfer: Yeah. And, I like, one of the first things you said about sort of anticipating this, you know, if the, let's say if the buyer's plan isn't as generous as the sellers, and listen, if you're a bigger company and it's not always the case, but it's, you know, most deals, usually the buyer's bigger than the seller.
And so, they're not going to go change their entire plan in most cases. Right.
Courtenay Shipley: No. Yeah.
Corey Kupfer: Upgraded to what they're, you know, they're not going to let the tail [00:29:00] wag the dog. But I like the way you said it, you know, they can, they got to understand that that's effectively a pay cut. So maybe they can make it up some other way and have that communication.
Right. Cause it's also one of the things I found that, I don't know if you know, you've seen this and again, I know you sort of see this sleeve of it, but I've seen in other situations where Like, the messaging out to the employees is super important because it's easy for them, there's a certain number of the employees just have the kind of mentality where they're going to be comparing each slice to the same slice on the other side.
So the retirement plan is not as generous, okay? That's a negative. You know, they might be getting a bonus to come over, they might be getting equity in the, you know, in equity class or some sort of FANUM or profits interest or something like that, and the buyer, which they didn't have before, but they get focused on this thing that's lesser than, right?
And if you don't hit it well with the entire package to show that overall they're going to be doing at least as good and hopefully better. You know, it becomes a problem. So I [00:30:00] don't know, you know, I see you shaking your head. So it sounds like you've seen that as well.
Courtenay Shipley: Yeah, definitely. I would say total compensation statements are the most like underrated, but so stinking important things that a company can do to say, look how much we do pay for your health insurance that you don't see.
It's all invisible until you put it out there. Right. And, so yeah, I mean, even just as a healthy company that you're thinking about, Yeah. Selling in the future, you want employees to appreciate the benefits that you offer. You want them to use it. You want them to be relevant, all that stuff. And then as the transition happens, you will absolutely have those employees.
And you know them, you already know them. We're going to go line by line and say, well, this isn't better. Well, this is better. Well, this isn't better. And if you think about employees as a whole in a transition, they're scared. They don't know. Like they have the devil that they know. Now they're going to the devil.
They don't know. And so they're looking for indications that everything's going to be okay or everything's not going to be okay. And unfortunately, most people view it through the lens of this is change and [00:31:00] change is bad. And so the messaging, the communication, the thinking about what's going through their minds, getting it out in the open in the town hall.
Yeah, you're right. You know what? The match isn't as good, and I'm sorry about that. But I want you to know, That we've considered X, Y, Z, or whatever, you know, but being, having that transparency, with them because they know they're going to know it's really important, really important.
Corey Kupfer: And if one of them is not going to know, they're going to speak to somebody who knows, and then they're going to know because hold it, especially when it's a deal going on everywhere.
So everybody, talks. So, yeah. Yeah.
Courtenay Shipley: Something on the buyer side. So I think that this is also a forgotten thing about retirement plans is that if you have a situation where it's like a cash balance pension plan that's going to need to have a contribution made every year, how much is that?
What's it look like going in? What are you buying? What kind of liabilities are you buying on a pension plan? Also for, 401k. Or, you know, there's been a, an ongoing profit sharing contribution made [00:32:00] every year to 401k that the employees are going to expect, or a mandatory, contribution because you have a safe Harbor plans, you have to put in 3 percent or you have to match up to 4%, something like that.
Knowing where that falls in the balance sheet. I mean, it's on there, but just keeping that in the back of your mind, cause that can be a large liability. If you think we're about to pump all this money into this, company to hire a bunch more staff. So make sure that's not something that becomes a, a larger expense than you meant it to be, especially with how the plan is structured.
Corey Kupfer: Yeah, no, that's, that's great advice. So I want to throw out a question just because I think it may be on some people's minds and, you know, this is something you used to hear more about in the news with big companies about this. You know, and it's I know it's, it's because the industry has evolved in terms of the type of plans that most companies have versus what they used to have.
Right. So, you know, but, you used to hear a lot more in the news about these underfunded like pension plans, right? Whatever. And obviously if you're a buyer that could, you know, that could be a liability. You want to just give a little insight as to, [00:33:00] you know, if you're aware, as to where those came up and why I believe it's the case that's less of an issue as the way plans have evolved these days, but you want to talk about that a little bit?
Courtenay Shipley: Yeah. So the defined benefit plan kind of gone the way of the Dodo. And the reason is because the company had to fund it. And it's based on your pool of employees, the actuarial, numbers that come back, and interest rates. So it's a giant math equation with very smart people calculating it that are paid more than, and know more than I do.
However, what ends up happening is you get this surprise bill, right? And companies don't like surprise bills at the end of the year, especially when interest rates change or there's new mandates or something like that. So the defined benefit plan, because it was defining the benefit in the future to be paid with a pool of money that they're investing today, It was a lot of liability, quite frankly.
And so companies just didn't want to tolerate that, and would rather have a [00:34:00] defined contribution, meaning that they are defining on the front end what they will put in. And then it's up to whatever happens with the investments for how much that person gets in the future, rather than defining the outcome.
And so there's been a, large shift over time away from the defined benefit plans. Most of them have been frozen. Many of them have been terminated, towards something that's contributory, where the employee is also putting some money in, i. e. the 401k plan. So You are special if you still have a defined benefit plan.
As far as employees are concerned, they're like, wow, they're really taking care of me. But, you know, how attractive that looks to a buyer, I'm not sure these days. But it
Corey Kupfer: is, yeah, like you said,
Courtenay Shipley: but there are some, you know, some pretty decent tax, benefits to having a defined benefit plan too. So, it is definitely not something to be thrown out for sure.
But, certain industries and certain size companies, I think, still have them. But, I would say in the smaller mid market, it's pretty unusual to see the defined benefit plan. [00:35:00] Now, I say that, and then there's professional practices like law firms, dental firms, What else? Medical practices where it made a lot of sense for the owners to set up those plans to tax shelter more for their own money.
And anytime you go into a deal and it's a solely owned business, the owners, taxes and the owners, desire for what their retirement should look like in the future, always plays into how the retirement plan has been structured in the past. Yeah. And so it is something that.
That buyers who are buying those types of firms need to be aware of and take into consideration as well.
Corey Kupfer: Yes, I just want to put that out there just because it's something that people have heard about and yeah, I mean, that's obviously why, I mean, you know, I've been doing this for 38 years.
So there was a time when this was a much bigger area of my block because, you know, that was something that was, much more common, and, it's not totally extinct, but, but certainly, yeah, and you're right like we've occasionally seen it with long, you know, older, large companies, but even most of those have moved off of it.
But, yeah so the [00:36:00] plans we have now that is in the odds are, if you're a buyer and especially in these days in a small and medium size that you're not gonna, that that's not gonna be a risk you're dealing with just because of the type of plans that You know, even if taking them on, exist in this day and age, but it used to be a much bigger problem great anything else you're saying whether it's you're related or not just in terms of you know, these plans or what's happening or anything new on the, you know, on the horizon, that people might look forward to.
I mean, I know there's often talk about, you know, changes and obviously sometimes they get political and we don't have to get into the politics of it, but like I said, anything proposed? You know, it's always interesting because listen, and it comes up to me, right? You know, we've investigated the different types of plans and there are certain, you know, and a lot of times I don't know, this is a hundred percent true.
But a lot of times, you mentioned the special services firms and the benefits even though the defined, benefit plan, potentially the, you know, a lot of times there is some correlation between the ability of, you know, an owner or owners to put away more money and the amount [00:37:00] they need to commit to their, you know, Employees, right?
And it's sort of a trade off. And I guess it's one of the things that's sort of logical. I mean, the government has said, Hey, you know, if you want to get more of a benefit, you gotta, you know, we want to have a policy that actually, you know, create some opportunities for your employees. But in any case, any, anything that's interesting that you're saying or anticipating?
Courtenay Shipley: Yeah, two things come to mind. Back in, the end of 2019, right before COVID. What? When was that? There was, SECURE, 1. 0, ACT. That's an acronym for a long, name of a bill. And then also, SECURE 2. 0, which came out, a year and a half, two years later. And so, One of the, one of the goals that they had was to make some things easier, and kind of restructure some existing IRS, language and, some ERISA language.
But the other thing that it did, so there's 95 provisions that are related to retirement plans in there. But the other thing that it did was it was trying to expand coverage. And so a lot of states [00:38:00] nowadays are requiring. companies to have a retirement plan for their employees when they, you know, didn't necessarily have that mandate prior.
And, the Secure Act duo, also has made it to where if you have long term part time employees, so you've got these part timers who've worked for you for years, let's say two years. And they've worked 500 hours in those two years, then you have to let them in the plan. You have to let them use the plan.
They can just put their own money in. You don't have to match them or give them profit sharing or, you know, the normal employer contribution, but you do have to at least give them the opportunity to contribute. And I think that's great because, You know, how do people save for retirement? Through a work sponsored plan.
I mean, they're 13 times more likely to save if they have it there than if they have to go set up an IRA on their own. So that's an important thing that employers all over need to be tracking those hours. And they're part time. workforce. And you know, park timers are fantastic additions to your [00:39:00] company.
In many cases, they do a lot of work that, couldn't otherwise be done or they need the flexibility in their own lives or whatever the case may be. So I'm a big proponent of that, but it's important for employers to know that that's there. And then the other is that those mandates are, in certain states already.
I think it's 13 states that require you to a retirement plan of some sort, either the state IRA plan or some Start your own 401k or other type of, IRA plan.
Corey Kupfer: Great. Okay. Well, this has been great. I mean, listen, you know, as you've indicated, it's way down the priority list from, you know,
Courtenay Shipley: so far down,
Corey Kupfer: But, you know, but it's those kinds of things.
And,
Courtenay Shipley: well, I think it goes back to establishing that you need a really good team around you when you go through these deals, like bottom line, you can't just wing it. Right? You've got to bring in the right people like you to advise on these sorts of transactions, what the best way and what the most successful way, to have the right outcomes is.
Corey Kupfer: Yeah. And it's, you know, as we sort of indicated, I mean, at a minimum, these things that you put low on the [00:40:00] priority list can then become a scramble or a headache later. And beyond that, they could be even more so, meaning, like the situation we talked about where it's just one of the indicators of things that you didn't focus on that, let's say, you know, affects employee retention, right.
You know, and then the lack of employee retention can become a much more serious issue. You know, so these are, the, these are important and it's, and frankly it's why, you know, you look at, you know, we do deals on the sell side, on the buy side, on the buy side, we have clients that are serial acquirers and.
Do this all the time. And then we have some folks who are doing their first, you know, their first, second deal. Right. And it's one of the reasons why, the serial acquirers get so good at this stuff, right? Because they've got teams and they got checklists and they got experience and whatever. And, you know, if you go with a serial buyer, trust me, they're going to have.
You know, it may not show up on the first few items or even maybe the first page of there, but on their due diligence list, they're going to have a, they're going to have the checkpoints to take a look at the retirement plans, right? Because they've been doing them so many times, you know, and maybe before they became serial acquirers they got burned on it once, you know, once or twice.
[00:41:00] So, yeah, good stuff. So, it's been great having you on. So Two final things. One, let people know, where they can find out more about you and your company and your services.
Courtenay Shipley: Yep. You can follow me on LinkedIn at C. Shipley. Or you can go to our website, which is retirementplanology. com slash learn more.
And you can book a call to have a quick chat about your retirement plan. There's also a bunch of other resources on that website as well to help guide you in the right direction.
Corey Kupfer: Right. And all that's going to be in the show notes as well. I mean, if you take it down, so you can definitely check it out.
So, Courtenay, my, final question on the podcast is always about my highest value in life, which is freedom, and for me, that means everything from freedom from all people around the world, from oppression to why I've been an entrepreneur, why it's, you know, for decades now and haven't had a boss, What does freedom mean to you and how does it impact your life and business?
Courtenay Shipley: Oh my gosh. As somebody who's married to, someone in the special forces, De Oppressum Liber, you know, to liberate the oppressed, you know, I would say it has a huge impact on our family. For me, freedom of choice, [00:42:00] right? That's what that means. The ability to, down the line, have the luxury of deciding how I spend my time.
And being able to choose, how I do things and spend my time today. That's what it's about for me.
Corey Kupfer: I love it. And listen, it doesn't, it's not lost on me the fact that helping people with their retirement also, you know, right, provides them with that choice and that freedom, you know, that they wouldn't otherwise have for those too many people who don't have, you know, not adequately covered in retirement.
Courtenay, thanks for being such a great guest on the Open House Podcast.
Courtenay Shipley: Hey, thanks so much for having me. I enjoyed it.
Corey Kupfer: Excellent.
