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Spotlight on Retirement Plans


What you need to know about recent law changes and creative retirement plan strategies

By Dick Kaplan, Benefit Planning, Inc.

When businesses are highly profitable, retirement plans should be considered because these plans can have a dramatic impact on your tax bill. I know from working with SPS over the years that many of their clients have very successful businesses and like most business owners are looking to keep the tax bill down. Since there have been some major new law changes in the retirement plan area it’s probably a good time to review your retirement plan strategy.

The first thing to note is that Defined Benefit plans and Cash Balance plans are becoming more popular than ever as vehicles to create big tax deferrals for company principals. Also, reporting and tracking is now much easier on Cash Balance plans and some of the uncertainty that existed on these plans has gone away with the recent law changes.

Every business has its own unique situation, but here are two examples of the kind of impact that a creative retirement plan strategy can have for business owners. The objective in these examples is to maximize retirement plan contributions for the owners while keeping the cost for the non-owner employees to a minimum.

Scenario One: Five owners over age 50, each with compensation in excess of $225,000 and 20 employees with an average age of 35 and average income of $40,000.

Recommendation: A combination of a Cash Balance pension plan and a Profit Sharing plan.

Results: A total annual contribution to the plans for each owner of up to $150,000 ($750,000 total for the owner group), with a total annual contribution of $64,000 for all of the non-owner employees combined.

Scenario Two: A service company owned and operated by a married couple. Both spouses are over 50; one earning in excess of $225,000 and the other earning $50,000. There are five younger employees earning an average of $30,000 each.

Recommendation: A Defined Benefit pension plan with an add-on 401(k)/Profit Sharing plan.

Results: A total annual contribution of $240,000 for the owners at an annual cost of just $34,500 for the employees.

SPS clients who are interested in learning about similar opportunities for their own businesses should contact SPS. Benefit Planning will be ready to come in as part of their team to solve any specific issues you may have.

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