Compete for Cannabis Employees with a Top-Notch Retirement Plan

Article updated April 2024.

With each industry comes a wide array of disputed topics, many of which are shared throughout multiple industries. One of those shared disputes is the question of employee attraction and retention. Specifically, how can an employer within a specific industry attract and retain talent? As markets and businesses mature, attracting and retaining talent is becoming more and more competitive. There are numerous valuable incentives that Companies can offer to compete at the top of attracting and retaining talent. One of those incentives that can be beneficial to offer is a retirement plan. When a prospective employee is weighing options at different companies in their consideration, typically, pay, health benefits, and foundation are included in their choice. Often, those qualities are similar across multiple employers, and that is why a top-notch retirement plan could make the difference between accepting and rejecting your job offer. While a retirement plan can help solve the problem of attracting and retaining employees within an industry, it can be difficult for a typical industry to develop the perfect plan. One specific industry, however, faces unique challenges from banking to regulatory and tax laws, and developing the right retirement plan can be another difficult addition that a Company may face. That not-so-typical industry is known as the cannabis industry and this industry will most benefit from cannabis-specific professionals to help them navigate through these challenges.

HBK Cannabis Solutions was among the first CPA firms to specialize in accounting services for the cannabis industry and we have worked beside entrepreneurs in all industry segments—cultivators, processors, and retailers—from small businesses with a single facility to multi-location and vertically integrated operations. We can assess your current accounting system, advise, and install accounting that complies with GAAP and IRS rules. In addition, HBK is a member of the American Institute of Certified Public Accountants (AICPA) Employee Benefit Plan Audit Quality Center. Our professional staff serving employee benefit engagements uses this affiliation to keep abreast of the latest developments in accounting for employee benefit plans, communicating with AICPA staff and other members on technical benefit issues, and continuing education and technical research in the field. HBK CPAs & Consultants can help you determine whether you need an audit, help prepare you for an audit in the future, and conduct the audit.

HBK has summarized some tips to help your Company get started and remain guided along the way:

• Consult with your financial institution: A financial institution representative will be able to establish a meeting with potential third-party administrators, advisors, and investment managers who are familiar with the cannabis space.
  
  
• Structure: Your Company should be as transparent as possible with third parties when discussing the structure of your business. Advisors may back out due to your Company’s relationship with cannabis and that issue is best addressed at the forefront of the process. For example, if there is an entity structure in place where plant-touching employees are employed by a different company that does cannabis accounting and provides the retirement plan, it is best to share that information with all parties.
  
  
• Honesty: Businesses in the cannabis space are known to face challenges. The challenges that are specific to most cannabis companies and clients in your Company should be communicated with the professionals you are working with. It is important to be honest and upfront with cannabis clients as early in the process as possible.
  
  
• Advising: An advisor is a good choice of a professional to develop a relationship with, because advisors may understand many of the challenges faced by a cannabis business. Advisors are not just likely to understand these challenges, but they can aid cannabis businesses in solving them. One way to find out if an advisor is familiar with the cannabis industry is to ask trusted advisors for their past experiences with cannabis Companies and request to review a copy of their most recent SOC1 report.
  
  
• ERISA: Retirement plans are beneficial for companies and employees if operated efficiently. The cannabis industry, medical or recreational, is scrutinized enough by federal law; you don’t want compliance issues with the Department of Labor or the Internal Revenue Service over a retirement plan. It will be an important step to consult with an ERISA attorney to keep these issues out of your Company.
  
  
• Budget: Developing and maintaining a proper retirement plan does not come free of cost. It is important that your Company knows the potential cost of establishing and maintaining said plan. Your Company’s plan should make financial sense as there are many questions that factor into the cost of the plan. For example, will the employer or the plan be responsible for paying administrative expenses?
  
  
• Legal obligations: The focus of an employee benefit plan is that it is a long-term commitment to provide a financially secure retirement to participating employees. While outsourcing certain administrative functions of the plan is an option, you are ultimately responsible for plan oversight. It is crucial that your Company understands all of the legal obligations that are attached to the plan.

After a Company has implemented a retirement plan, the work may not be done. It is wise to consult with your individual CPA or CPA firm, as a substantial number of employee benefit plans are going to be subject to an employee benefit plan audit.

The first step in determining if your retirement plan needs an audit is to determine if your Company’s plan is classified as a “small plan” or a “large plan”. As of 2023, this determination is measured by the number of participants with account balances at the beginning of the plan year. Small plans generally have under 100 participants at the beginning of the plan year, while large plans have more than 100 participants. However, there is one exception to this determination which is called the “80-120 Participant Rule”. Exactly as it sounds, if the number of participants is between 80-120 and a Form 5500 was filed in the prior plan year, then your Company may elect to complete the return as it was filed in the prior year, whether that was small or large.

The main difference between the “small” and “large” plan is the type of form that is required to be filed. A small plan requires a Schedule I, which will not trigger an employee benefit plan audit. On the contrary, a large plan requires a Schedule H, which will. In the case that your Company is required by state laws to have an employee benefit plan audit, it is wise to acquire consulting services of a strong CPA firm to assist you with this process.