Administration August 25, 2020

Retirement Plan Providers Opening Up to Serving Cannabis and Other Companies

A few financial firms have entered the cannabis, hemp and CBD market, being careful to manage any legal risks for their clients and themselves.
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Despite being able to legally sponsor 401(k) plans, cannabis, hemp and CBD—or cannabidiol—companies have found it difficult to find plan providers willing to take them on as clients.

One reason, according to Jewell Lim Esposito, an attorney with FisherBroyles in Washington, D.C., is plan providers are nervous and jittery about dealing with “traffickers.” Add nervousness to the confusion over dealing with the tax code, the Employee Retirement Income Security Act (ERISA) and “single employer” concepts, she says. “Companies that produce proper hemp are legal under the federal Controlled Substances Act (CSA). Yet, if those hemp companies are treated as related, under common control, or as a single employer with the companies that produce cannabis (illegal under the same federal CSA), plan providers have difficulty reconciling the intersection of tax, ERISA, and cannabis rules,” she explains.

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Providers will be hesitant to engage with hemp businesses that are part of a controlled group with cannabis businesses. Providers are reluctant to do business with cannabis companies even though those businesses are legally able to adopt 401(k) plans, and U.S. Attorney General William Barr is on record saying he intends to refrain from pursuing trafficking prosecutions against otherwise legally operating cannabis companies, according to Esposito.

Recognizing that cannabis companies didn’t have access to traditional services, including 401(k) administration and recordkeeping, in 2015, Keegan Peterson founded Würk in Denver, a full human resources (HR) and payroll services firm for the industry.

Heather Smyth, director of marketing at Würk, says many financial services firms aren’t willing to support these businesses because cannabis is still illegal on a federal level and moving money and funds can be risky if not done within the boundaries of the Bank Secrecy Act (BSA), which provides rules for financial institutions to assist government agencies in detecting and preventing money laundering.

“We’ve established relationships with cannabis-compliant financial partners and identified ways to be compliant,” Smyth says. “We’re still very much aware of the risks we’re taking, but we are extremely diligent. We go through a rigorous process in vetting clients because we want to be able to support them in the long run without putting other clients, financial partners and ourselves at risk.”

“Vetting customers in the cannabis industry is extremely difficult. In order to operate in this industry, Würk built a proprietary Compliance Cloud in partnership with financial institutions and banking regulators. This Compliance Cloud enables Würk to facilitate payments to 401(k) and benefits providers so they are ensured the cannabis companies they are supporting are compliant,” Peterson says.

One of Würk’s partners is ABG Rocky Mountain (ABGRM), which provides Würk’s employees with a 401(k) plan. “We were the guinea pigs,” Smyth says. “It is a great relationship, so we expanded it to our clients.” Würk and ABGRM officially announced their partnership on the MJ 401K BY ABG product in the spring. “We recently finalized a full 360-degree integration that allows data to seamlessly flow between our system and ABG’s system, simplifying things for clients,” Smyth says.

Erica Bonser, director of marketing at ABGRM, says it also provides 401(k) plans for hemp and CBD companies. “ABG does not discriminate in providing retirement benefit plans for any legally organized company or industry,” she says. The firm has between 50 and 60 hemp, CBD or cannabis company clients.

The number of Würk clients signing on to the 401(k) program has grown, but Smyth says she feels the COVID-19 pandemic may have stalled adoption of plans. A survey conducted in April by the LIMRA Secure Retirement Institute (SRI) and the Retirement Leadership Forum confirmed that many retirement plan contracts were delayed by COVID-19.

The only difference between plans offered by cannabis companies and those offered by other corporations is that not many offer an employer match, Smyth says. But, she says, she thinks that will come. Bonser says if the company is set up with a Cannabis Tax ID, there may be issues regarding the tax deductibility of employer contributions. “We recommend that each plan sponsor contact its CPA [certified public accountant] or other tax professional for directed tax advice,” she says.

Cannabis companies have another choice for a 401(k) provider. Leading Retirement Solutions offers the Leading Cannabis 401(k), which its website says was developed by a group of financial, legal and retirement industry veterans who are already serving the cannabis industry with tax and employee benefits solutions. Kirsten Curry, the founder and president of Leading Retirement Solutions in Seattle, Washington, says cannabis companies may claim a cost-of-goods adjustment for indirect production-related business expenses, including employer contributions to a 401(k).

“As a consequence of being vastly underrepresented by financial institutions over the years, many cannabis companies do not currently offer any retirement benefit options to their employees,” Curry says. “In numerous cases, cannabis owners and executives are simply unaware that these services exist for their industry. “

Curry notes that cannabis companies have traditionally struggled when it comes to employee retention, with nearly 60% of workers lasting less than two months. She says a company-sponsored retirement plan is one of the best methods to reduce these high turnover levels and attract employees who are interested in building a long-term career with the company. She cites a Glassdoor survey that found around 40% of employees working for small businesses said they would leave their current company to work for a company that offers a 401(k) plan.

“Over the past five years, several retirement plan providers that already specialize in non-traditional investments and innovative plan setups have worked side-by-side with cannabis organizations to create a solution,” Curry says. “Through collaboration with financial, legal and retirement industry experts, cannabis companies can now legally offer employees retirement plans like a 401(k) or cash balance plan.”

The United Food and Commercial Workers Local 27 union offers a retirement plan for companies with union employees, and it recently signed a health benefits contract for cannabis company union members; however, a question about whether employees of cannabis companies are covered by its retirement plan was unanswered.

Smyth says it’s important to streamline workforce management and offer solutions that cannabis, hemp and CBD companies can trust, as well as be transparent about providing services for the industry. She adds that, slowly, more and more financial institutions are entering the market.

“We truly believe that every person has the right to retire with dignity. Part of that is the ability to save money in a 401(k) plan. Under ERISA, it is legal for these companies to sponsor a retirement plan, therefore we sought out partners who were willing to service them,” MJ 401K said in a statement.

Benefits August 20, 2020

Rethinking HSAs

With the high cost of health care, employees are using HSAs as spending, not savings, vehicles, and if more people had access to them, it might help with America’s health care crisis.
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Art by Sergey Isakov

Health savings accounts (HSAs) have been touted as an optimal vehicle for employees to save in to cover health care costs in retirement, but not many employees are doing that.

A survey released this month from Further, a national health savings administrator, found 65% of consumers report leveraging their HSA as a spending resource, with 23% stating they use their account equally for saving and spending. Yet, more than two-thirds of employers associate HSAs with savings only, suggesting a gap in how employers are positioning these accounts compared with how employees are using them.

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Matt Marek, CEO of Further, says, “By positioning HSAs as saver only tools, employers are missing the opportunity to help their employees meet a critical need: paying for health care costs today. As an industry, we need to change the narrative regarding HSAs to empower employees to be active health care consumers and provide resources on how to navigate this complex industry.”

Particularly during COVID-19, when people may have seen their income drop, the use of HSAs as spending accounts has accelerated, says David Speier, managing director, benefits accounts, Willis Towers Watson, in Washington, D.C. “They are tied to plans with higher deductibles; employees have spending needs and they are already saving in retirement accounts,” he explains. “We see in all our data that pure savers are a small fraction of overall account holders. When more are living paycheck to paycheck, there will be more spenders, not savers.”

It’s also an education issue, Speier adds. Employees don’t understand how to use the accounts, that there is no use it or lose it feature as there is with flexible spending accounts (FSAs) and that HSAs offer a triple tax advantage. He also says people don’t understand what they would be saving for in an HSA. There’s not a lot of understanding among employees about the significant cost of health care in retirement. “They know that with a DC [defined contribution] plan, they are saving to pay their bills, for what they need to live, but it’s not clear to people that Medicare doesn’t pay for all health costs in retirement,” Speier explains.

But HSAs aren’t just for retirement, he says. “It’s a continuum. Maybe five years in the future an employee will have a baby.” Speier says HSA education can be important at different moments in an employee’s life, so having it be part of a financial wellness program is a good idea. It can also be linked to health benefit education and retirement benefit education. And, he adds, enrollment is the perfect time for education as employees make their initial savings decision.

Beyond basic education, Speier says he believes good decision support tools offered during open enrollment or savings election apps, online spreadsheets or Q&As with suggestions will help employees personalize their decisions.

Expanding Availability and Aiding the Health Care Crisis

Sean Engelking represents the HSA Council before Congress, the White House and the U.S. courts. As founder and CEO of Starship, a venture-backed HSA startup in New York City, he says he is “laser-focused” on establishing partnerships with gig-economy companies so they can provide adequate benefits to their independent workforces.

Engelking says the creators of HSAs wanted individual retirement account (IRA) providers to pick them up, but, instead, they got picked up by benefit providers. Starship looked at workers for whom HSAs are not available. “We want people to take advantage of HSAs, to be able to open one up over the phone, and have one that automatically invests for them,” he says.

He points out that the average American thinks they have to have an employer-sponsored high-deductible health plan (HDHP) to contribute to an HSA, but, in reality, roughly 10% of Uber drivers, for example, who are gig economy workers, are HSA-eligible. “If someone gets insurance on their own or is covered on a spouse’s plan, we check to see if they have the right health insurance to be HSA-eligible, and we do a final check before we cut a tax form for them,” Engelking says.

“Part of the issue is having an HSA tied to employment and having a high-deductible health plan,” Engelking says. “Everything is a high-deductible plan, basically, if you look at the national numbers about health plan deductibles.

“Why wouldn’t we try to do something about the crisis [regarding the cost of] health care? It shouldn’t matter how or whether people work, they should be able to have HSAs,” he adds. “We are essentially asking Congress to decide that if someone has insurance,” any Patient Protection and Affordable Care Act (ACA) plan, “they can have an HSA.”

It is too restrictive to have an HSA tied to a certain health plan; letting everyone have one is a simple solution, Speier says. It is restrictive not only to employees but to employers. If employers want to encourage employees to see certain specialists or they want to subsidize cancer treatments, it makes the plan ineligible for HSA-pairing, he explains. “Why should designing a health benefit for a better outcome take away employees’ ability to have an HSA?” he queries.

Speier points out that the IRS said HDHPs will not lose their special status merely because they cover the cost of testing for or treatment of COVID-19 before plan deductibles have been met, but if there has to be an announcement or guidance for every single situation, it will be cumbersome. “They could make it tied to more a generic threshold amount of covered services for an exemption,” he suggests.

Engelking says lawmakers are in kind of a “posturing stage” when it comes to legislation to expand HSA availability. He says he believes the conversation will evolve over time. However, Engelking contends that something is needed in the next relief bill. “We have optimism that something will happen,” he says.

Several legislative proposals, including the recent Pandemic Health Care Access Act, have already introduced the idea of extending HSA eligibility to health plans beyond HDHPs. And Engelking says legislation to do so was introduced last year.

“The benefits industry is asking people to do more on their own—think about the move from pensions to 401(k)s. Employers used to take better care of employees. In that sense, we need a better health care regime,” he says.

Engelking also notes that employer-driven benefits are not flexible when it comes to the new way of working—with gig workers, contractors or freelance employees. “We should rethink the way benefits are offered because of the way people work. Some people work multiple jobs, but consider themselves full-time employees even though it’s all 1099 work,” he says. “Why wouldn’t people think this is a privileged person’s handout if not everyone can have one?”

Even if everyone were allowed to have an HSA, many would not use them and many would not use them for retirement savings. “But it can’t hurt to allow them,” Speier says. He notes that more sources would provide education that would encourage HSA use, such as banks or brokers that sell Medicare.

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