Retirement Plans for Small Business Owners with Jean Smart

November 14, 2023 by Emily Garman

Small Business Matters Episode #20

Retirement Plans for Small Business Owners with Jean Smart of Penelope

In a world where 401(k) plans have long been considered a perk exclusive to large corporations, Penelope is a company on a mission to level the playing field. Penelope’s founder, Jean Smart, is working to make retirement savings accessible to everyone, specifically entrepreneurs and small business owners. Penelope provides a turnkey solution for retirement plans for small businesses with (and without) employees.

Penelope doesn’t just offer a solution; it’s a testament to the power of passion and perseverance, shaped by Smart’s years of experience in the financial services industry. With a background in product marketing and sales strategies for large companies, she intimately understands the value of 401(k) plans. These plans, which enable employees to gradually build wealth through regular contributions and investments, had been instrumental in securing her own financial future since she started working at 21.

However, the COVID-19 pandemic served as a wake-up call for Smart. It prompted her to reflect on her own life and the broader challenges faced by small business owners and entrepreneurs, especially those closest to her heart—her family. She reflected on the relentless dedication of her parents, who operated a small business, and their lack of knowledge about retirement plans for small businesses with employees, like themselves, and how their future could have been different if they’d had that knowledge. This revelation struck a chord with her, igniting the spark that led to the birth of Penelope.

Penelope, named after Smart’s daughter, represents a personal journey, too. For Smart, It’s about creating meaning beyond one’s profession and ensuring future generations have the financial security they deserve. Smart took a leap of faith and embarked on a mission to democratize retirement savings for small businesses and entrepreneurs.

“We want every employee, even the lowest paid employee
of the smallest company, to actually have a shot at having a million dollars
if they’re working 40 or 50 years.
Penelope gives them the tools to be able to do that.”

Jean Smart, Founder, Penelope
retirement savings for small business owners
Penelope makes retirement planning accessible and easy to navigate for small business owners.

Overcoming the Hurdles of Small Business Retirement Planning

The challenges faced by solopreneurs saving for retirement, and small business owners, no matter their business structure, in offering retirement benefits to their employees can be overwhelming. Financial constraints, coupled with the myriad complexities of retirement planning, often deter them. Penelope, however, sees these hurdles as opportunities for innovation.

One of the biggest misconceptions is the belief that 401(k) plans are prohibitively expensive. While the cost can be a concern, Penelope leverages government incentives and offers a streamlined approach to make it affordable. Smart points to the Secure 1 and Secure 2.0 legislation, which provides tax credits of up to $16,500 for businesses getting started with retirement plans.

Penelope also simplifies the entire process. Instead of drowning in a sea of questions and options, small business owners only need to answer a few essential questions to get started. “A lot of the plan design, it’s sort of 1,2,3,” says Jean Smart. “Instead of making you answer 130 questions, we just ask a few questions around eligibility. A big portion of our plans are what we call safe harbor, which has a matching component, and we do that because that will save small business owners a significant amount of time in administrating and going through auditing and compliance testing down the road.”

Another common myth is around the perceived complexity of investment choices. With over 6,000 funds available, choosing the right ones can be daunting. Penelope takes a straightforward approach by offering index funds based on an employee’s birth date, known as target date funds. These funds are managed by a world-class asset manager, ensuring a balanced and safe investment strategy that adjusts with age.

Technology Empowering Small Business Owners

Penelope’s innovative model extends to its pricing structure. While many providers employ assets under management pricing, Penelope opts for fair, flat pricing. They charge for the general expense ratios of maintaining and administering the fund, eliminating the costly asset-based pricing that accumulates over time. This forward-thinking approach potentially saves employees hundreds of thousands of dollars over their working lives.

The heart of Penelope lies in leveraging technology to provide maximum value. Their goal is to ensure that every employee, regardless of their role in the smallest of companies, has the chance to accumulate a substantial retirement fund. By automating processes, integrating with payroll providers, and simplifying the entire experience, Penelope makes retirement planning accessible and hassle-free.

401k plans for entrepreneurs
For younger entrepreneurs and business owners, the Penelope platform is tailor-made.

Strengthening the Next Generation of Entrepreneurs

For younger entrepreneurs and business owners, the Penelope platform is tailor-made. The digital nature of the service aligns perfectly with a generation comfortable with online tools. Starting early, even if retirement seems distant, is a crucial piece of advice from Jean Smart. “The only thing that I could say is start early. The best time to save for retirement is 20 years ago. The second best time is today. The third best time is tomorrow. That’s it. There’s nothing after that. And it is much easier through these technology platforms when you’re taking a little bit of your salary every two weeks compounded over time, and everything is automated.” The earlier you begin saving, the greater the potential for wealth accumulation.

The platform’s ease of use, automated features, and integration with various payroll providers resonate with the tech-savvy Millennials and Gen-Z entrepreneurs and workers. It’s an opportunity for them to take control of their financial future without the burden of complicated administration.

A Special Focus on Women and Women of Color

Smart emphasizes the importance of retirement planning, especially for women and women of color. Women tend to earn less, live longer, and take on primary caregiving roles, making it imperative to start early. Penelope aims to empower women through education and simplified processes, reducing the intimidation factor often associated with financial planning.

Recognizing the unique challenges faced by women and women of color, Penelope offers multilingual support and strives to eliminate financial jargon. Their goal is to ensure that every woman, regardless of her background, can confidently navigate the path to financial security.

“The best time to save for retirement is 20 years ago. The second best time is today. The third best time is tomorrow. That’s it. There’s nothing after that.”

Jean Smart, Founder, Penelope
retirement plans for small business owners
Penelope also simplifies the entire process of retirement planning for small business owners and entrepreneurs.

Success Stories That Inspire

Penelope’s impact can be seen through the success stories of its clients. Take, for instance, Roberta, the founder of a nonprofit theater company in New York. Penelope provided a streamlined solution that allowed her to offer retirement benefits to her employees, enhancing their financial well-being.

Jefferson, a former Wall Street trader and restaurant owner, chose Penelope to simplify retirement planning for his diverse group of employees. The platform’s user-friendly approach and multilingual support made it a natural choice.

Another client, a former lawyer who started her own practice, found Penelope to be the answer to her retirement planning needs. It offered the simplicity she required as she transitioned into entrepreneurship.

These stories reflect the diverse range of businesses that Penelope serves, united by their shared need for accessible and efficient retirement planning solutions.

A Bright Future for Retirement Savings

In a post-COVID world, entrepreneurship is on the rise, and Penelope is at the forefront of helping the people behind these new ventures secure their financial future. Through innovative technology, fair pricing, and a commitment to education, Jean Smart and Penelope are empowering small business owners, especially women and women of color, to take control of their retirement planning.

Penelope’s mission is not just about numbers; it’s about securing brighter, more financially stable futures for those who dare to dream and build. Penelope is not just a retirement platform; it’s a beacon of hope for a more inclusive and financially secure future.

To learn more about Penelope and its mission, visit www.Penelope.co, and take advantage of their complimentary consultation to explore how they can help you secure your financial future. “We want every employee, even the lowest paid employee of the smallest company, to actually have a shot at having a million dollars if they’re working 40 or 50 years,” Jean Smart says. “Penelope gives them the tools to be able to do that.”

Read the transcript of our interview with Jean Smart about retirement plans for small business owners, or listen to her on Episode #20 of our Small Business Matters podcast!

Watch Our Interview

What follows is a lightly edited transcript of our interview:

Emily Garman: Hello, and welcome to Experian’s Small Business Matters podcast. My name is Emily Garman. Joining us today is Jean Smart, the founder of Penelope, a company whose mission is to make 401K’s and retirement plans available to everyone, especially entrepreneurs and small business owners.

They develop software to make this not only affordable and possible but simple. Usually, 401Ks can only be offered by large companies that can afford the infrastructure to provide this benefit to their employees. Penelope believes that anyone, no matter their business structure, should be able to open a retirement account if they want to.

Well, Jean, thank you so much for joining us today. I’m really excited to talk to you here. So tell us a little bit more about your background and what inspired you to start Penelope.

Jean Smart: I have been working in financial services for most of my life. And a big part of what I was doing was helping large companies set up their workplace and employer benefits, doing product marketing, sales strategies.

So, I was very familiar with it and I’ve been doing it for so long that one of the things that I noticed, and this happened for me personally, is that this 401k product that large companies offer when an employee starts putting a little bit of their paycheck over time, compounding that interest and putting it into the markets that it was generating wealth for a lot of people, a lot of households. So I always knew that.

And for me, it was something that I had started when I started working at 21. And after a couple of decades in corporate America, that had grown to a really good nest egg. And it was something that I really felt compelled to do. and I think for a lot of us, COVID was a reset. What are you doing with your life? How are you working? How are you spending your time? I mean, truly, it was life or death.

It gave me pause to think about, is there a way I could turn what I’m doing and do it in a very different way? So Penelope was born; it’s a very personal journey on a lot of different fronts.

I spent a big chunk of COVID very near my family. I live in New York, but my parents are in Southern California, and I got to see them a lot, of course, outside being safe. And I got to see all the hard work that they put in, in their small businesses. But they just didn’t know what a 401k plan was.

And I thought, man, if this is something that they knew about earlier on, they could be in such a different position now. They’re doing great, but it’s just something I thought about a lot during COVID. And finally, Penelope’s the name of my daughter. It’s named after literally the direct beneficiary of my 401k plan, my husband’s plan; she will benefit from everything her parents and her grandparents have done.

And I think, often when we work, we’re looking for meaning beyond just what we do and what our professions are. And a lot of that is for this next generation. So it kind of cobbled together, came through like in that moment. And, then I jumped off a cliff and made the big leap to starting the company.

Emily Garman: Wow. That’s really inspiring to know. And I like that, thinking about the why and the reason why we’re doing what we’re doing. So I would think that a lot of small business owners, if they’re thinking about this, they’re thinking, well, I just couldn’t afford it for my employees. Or, it’s just me, I’m a solopreneur.

So, what are some challenges that solopreneurs and small business owners face when thinking about offering these kinds of benefits to themselves and their employees. And how are you addressing those challenges?

Jean Smart: So first of all, the good news is I feel like there’s more support. There’s more help at both the Federal, State and just in the public sector space.

So there’s probably more support today than there ever has been. But I will say there are a lot of choices and a lot of confusion. So I think for solopreneurs and small business owners, you’re counting every dollar, every penny, you’re looking at your customers, you’re looking at expanding your business, you’re looking at keeping your employees and you’re dealing with a lot of the pressures of running the business across a lot of dimensions.

So when you’re thinking of benefits, oftentimes people go to health. Medical, dental health benefits, and that can be quite sizable. Then you’re looking at other benefits, like maternity, family, there’s so many different options, but the 401k plan right now is our singular most, proactive stance that we could take for employees and ourselves to creating financial security when we’re older.

I don’t know if you have seen this or not, but if you actually go to the Department of Labor website, Social Security is running out in 10 years. So that security that we all banked on are certainly generations before us. I don’t think it will ever go down to zero, but it won’t be the fulsome amount we’ve had in the past.

So the government has passed some legislation. It’s called Secure One and Secure 2.0, to actually incentivize a lot of small businesses into taking action. So there’s up to $16,500 tax credit for starter cases. People have never had a plan to get started to help support matching, to help support the cost of it, et cetera.

Also, we’ve got Google. When you go on Google there, there’s so much, but again, you can get to analysis paralysis. What we designed specifically for small businesses and employers, is something where we did a lot of the thinking for them. So a lot of the plan design, it’s one, two, three; instead of answering 130 questions, we just ask a few questions around eligibility.

A big portion of our plans are what we call Safe Harbor, which is a matching component. We do that because that will save small business owners a significant amount of time in administrating and going through auditing and compliance testing down the road. So again, we designed it so that they’re answering four questions versus 130.

And a lot of people can get overwhelmed by investment options too. There’s 30,000 funds, 50,000 funds; how do I choose? We take index funds based on an employee’s birth date. They’re called target day funds, working with the world class asset manager. And we automatically put them in a set of investments that help investors manage the risk. Which is basically the ratio of equity to bonds over time so that the portfolio is a little more safe or conservative as they get older. And then a big part of what we also do is, we price fairly, we have flat pricing. So a lot of the providers today customize a robust plan based on complexities, maybe sometimes proprietary funds. There are a lot of intermediaries in the mix. We just pay per use.

And one of the things that really differentiates our plan from others is this thing called AUM, which stands for Assets Under Management pricing. We don’t charge that. We do charge the general expense ratios of the cost of maintaining and administering the fund that our providers use.

But we don’t do it because we’re using a very modern tech platform and service model to simplify it. What that translates to, it could be just, a couple of cents a day, a couple of dollars a week. But that additional asset based pricing over a lifetime can mean hundreds of thousands of dollars to go into the employee.

And our north star building this has always been to leverage technology, not to take away from the experience to provide the most maximum value. So we want every employee, the lowest paid employee of the smallest company to actually have a shot at having a million dollars if they’re working 40 or 50 years.

So you can do that. And, and that’s how we structured our product.

Emily Garman: And that seems really appealing for a young entrepreneur, a young business owner, even though that person may not be thinking so much about retirement. It seems like a really long time away, like they’ve got all kinds of time in their life before that happens.

And as those of us who are a little bit older know, it really does creep up on you pretty quickly. But for a person who’s young, not necessarily seeing that this is something that maybe they need to think about right away, he process you’ve described is just a few questions instead of hundreds of questions. It’s an online platform. They can communicate with experts via chat, instead of making phone calls; those things sound really like they’re appealing to a younger generation of entrepreneurs.

Jean Smart: Yeah. I think if you’re young, younger, the better. I actually think are the younger generation, millennial Gen Z; they’re probably the smartest, most robust generation. I really have a lot of hope for the future, but I do think they’re overwhelmed. I think there’s so much information out there. But they’re comfortable with digital tools. And the only thing that I could say is start early.

The best time to save a retirement is 20 years ago. The second best time is today. The third best time is tomorrow. That’s it. There’s nothing after that. And it’s much easier through these technology platforms when you’re taking a little bit of your salary every two weeks compounded over time, everything is automated. We integrate with over 150 payroll providers. So no matter who you’re using, we’re able to make it really fast. So you’re not having to manually do reports or check on it all the time.

You want to set it and forget it. But before you set it and forget it, you want to make sure you’ve got the right funds. You want to make sure you know exactly what you’re paying for at each step.

And you want to make sure that you’re checking in and your provider is accredited and can provide all the education and support that you need. I think one of the things about these flat based pricing or subscription models, a lot of the younger business owners are already using it for small business enablement.

They may already be using their PO, their payroll, their accounting software already. So just integrate this into your core step and make it as easy as possible for you.

Emily Garman: I’m curious if you could talk a little bit about how important this is, particularly for women. A lot of women are becoming entrepreneurs. They’re becoming small business owners, creating jobs and particularly women of color. I mean, we see Black women are far and away that the highest percentage of businesses being started are by Black women now and during COVID as well. I think of a few people in my life who are older women, whose entire retirement livelihood is dependent upon what their husband did when he was working.

So talk about just the concept of preparing for retirement for women, young women, women of color.

Jean Smart: I am a woman of color. I am an immigrant. I was born in Seoul, Korea. I didn’t really, we didn’t talk about stocks and bonds at the dinner table growing up. My parents were really busy starting their businesses. Getting their family in order and making sure everything was right. I mean, they just had a lot going on.

So I think they had a lot of big dreams about their children going into professional services and business and, having things become easier and looking back, starting my own business and having been in corporate America. I think all of it’s hard, and especially for women of color. We know particularly how hard that is. And when I think of women, not just women of color, and retirement investing, women still make less, live longer and are the primary caregivers, are responsible for children, primarily a lot of the work at home as well as for their parents.

So to start early, you’ve got almost all the things kind of going against you. So you’ve got to start earlier. And I did a lot of thinking about that. And I thought a lot, actually, of my mom. And when they were at their businesses, I actually, I remember growing up reading a lot of their business mail because English wasn’t the first language and they certainly didn’t understand some of the tax laws or business letters and notices that they were getting.

So I remember how stressful that was. And a big part of what she really wanted was, can you give me oversight? Can you read this and tell me what I should do? Can you do this for me? So a lot of what we built in Penelope in terms of cutting out the intermediaries, pricing it per use and putting the best investment with the least amount of effort was kind of designed with her in mind.

And so it is one, two, three, a few clicks. You can on board in 15 minutes and we’re going to be doing it in a couple different languages next year for minority business owners who are more comfortable with other languages. So we’ve got that feature built in. And I mean, I’m there, I’m right there.

I had the fortune of birth to have parents who stayed together, who took care of us, who paid for my education; that really set me off. But I realized there’s a lot going against us, but you know what? We show up, things are hard every day. We know what to do and we are committed to doing it. This is something we can’t short out on. This is something we have to do. And whether it’s with our platform or another platform, get educated, spend 15 minutes a day doing research or 30 minutes, and then make the decision in a couple of weeks and just check it off and then you’re done. You can put it aside and move on to your next challenge. But it is something particularly for women and women of color to own and to do, especially if we are parents, to teach our children about.

So,I get it. We have a ton of loom videos and education sessions and a significant portion of our clients are women-run businesses, are foreign-born business owners. And we welcome that group. I absolutely understand what that seat is like. And we try to do our very best to reduce jargon and just speak plain English. So that they’re not intimidated, and they can get started right away.

Emily Garman: So when you’re talking to those folks, in those interactive sessions, I’m curious. Obviously knowledge, just understanding how this all works, is a barrier because people may be reluctant to engage because they just don’t understand it.

But what are some myths or misconceptions that people have about 401Ks, and retirement plans that maybe you could share with us?

Jean Smart: I think the biggest one is should I match or should I not? I can’t afford it. And I think a big part of what we do is, we’ve got a tax calculator that provides a general estimate about how much their savings can be, and what they imagine is thousands of dollars every month ends up being a few hundred and it is accessible.

And that there are all new sorts of new tax regulations and tax changes that come into play. We are not CPAs, so we always make sure that we encourage them to talk to their accountants, but part of it is just that education. And I think the other part beyond the cost is, how much work do they have to put into it?

What do I have to do every two weeks? Am I going to have to create spreadsheets? What do I have to communicate? And we take care of all of that for them. We give them a welcome kit with sample emails to educate and send to their employees. We have many triggers, alerts, emails, and communications set up.

We’ve got security built-in with two-factor authentication. We’ve got so many things that are automated that the idea of cost and labor is probably the biggest inhibitor. And once we do a quick demo and share what we’ve got, it’s a fairly easy conversion, honestly, for small business owners to take any time talking to somebody is a big deal.

So when they’re there, we do our best just to answer their questions and make sure that they get what they need so they can move on to the rest of their day.

Emily Garman: Well, in that vein, do you have any success stories that you’d like to share?

Jean Smart: Yeah, so I’m thinking of a couple of clients. Our first client is Roberta. She’s the founder of a non-profit. It’s a theater company here in New York. And as soon as you hear the word non-profit, people don’t go into non-profit thinking “I’m going to make a lot of money.” They’re going into it for a passion for, in this particular case, for the arts. She’s had this company for about five plus years and always wanted to do this, but just didn’t have an opportunity or find a solution where she didn’t have to then learn about financial services and learn about investments or pay high advisory fees. She wanted to get something set up reasonably quickly and have her employees understand and adapt to it. So we helped her set up a plan, and her employees have been happy. They’re high participation rates for her. So we’re really glad.

Another client of ours, Jefferson, is one of our very first clients, he heard about us on a Motley Fool podcast and was really interested. And he’s a former Wall Street guy, a trader, he knows investments, knows everything about this space.

And he’s got a restaurant in Boston, four of them in a big holding group; they’re using different payroll providers, but many of their employees are wage earners. He’s very committed to making sure that his managers, the prep cooks, and the front group are saving and really thinking about it.

Certainly, it’s something he’s done in investments for a long time. So he chose our plan over the Massachusetts Restaurant Association plan knowing it would be easier for his employees. Some of them speak different languages. Some of them were born in other countries. He was also very much thinking about costs and about the decisions that a lot of his team would have to make. So we’ve been working closely with his manager teams to make sure that the education component, the onboarding component, and the experience are as seamless and as straightforward as possible. So, that’s a client that has been with us from the very beginning that we’re really honored to serve.

A third one is a professional; it’s a former lawyer who took some time off. She was a partner at a law firm and took some time off to spend more time with kids, starting her practice and going into our own business and setting that up. And she’s getting older, thinking, oh my gosh, I’m forgetting to set up my 401k.

This is something I’ve got to do because there was that gap. So finding a platform, a product set, finding us, who would make it easy to serve, she’s got two people right now, I think was a huge plus for her. So these stories are a little bit every day we cross, and we serve many different industries.

But I would say the common denominator is they’re often smaller in employee size. They’re just getting started. They’ve got employees. Generally, this is their first investment vehicle, so they would need it to be really simple. And the education is a big component of it. And they want to make sure they’re getting the best deal.

There are small business owners, and all the budgets, in the world are important. So those are the things we try to make sure that we’re focused on all the time.

Emily Garman: It’s so interesting that so many entrepreneur stories are coming out of COVID. I mean, yours included, and the people you’re helping are coming out of COVID, a lot of people decided to change the trajectory of their careers, or they decided they wanted to do something completely different. And so what you’re doing is helping them prepare for the future.

Jean Smart: I think it was something like 700, 000 new businesses started during COVID. And then more and more people are leaving larger organizations to try it on their own.

And a big part of it is technology. With the platforms we have, you can set up your online store. You can do your own advertising. You can actually get customers and do presentations and demos through Zoom. The way we work and the way we operate is completely different. And many had a full-time job and a side hustle. And during COVID, they decided to turn that side hustle into a full or full-blown business. So it is exciting to see a lot of creativity happening for sure.

Emily Garman: Yeah. People doing things that they love makes a difference for them and for the world and their communities. And I think that’s terrific.

So, thank you so much for being here. I’ve learned a lot about what you do. So please tell us where our listeners can find you online and get in touch.

Jean Smart: Sure. You can find us at www.penelope.Co. Please join us. We’ve got a complimentary consultation. It’s just 15 minutes to talk to any of our specialists about what we can offer.

So please sign up there. And we’re also on Instagram, LinkedIn, Facebook, and all the social media outlets, so please check us out, find us. And again, thanks for listening.

Emily Garman: Thanks so much, Jean. We’re really glad to have you on today.

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