Date post: | 26-Jun-2015 |
Category: |
Documents |
Upload: | brad-wexler |
View: | 106 times |
Download: | 0 times |
CASH BALANCE PLAN WORKSHOP
“THE RETIREMENT PLAN OF THE FUTURE”
Presented by: Brad Wexler, MBA,QKA,QPA, QPFCThe Tycor CompaniesNovemeber 28, 2012(610) [email protected]
Qualified Retirement Plans
• Defined Contribution Plans– 401(k) Plans– Profit Sharing Plans
• Defined Benefit Plans– Traditional Defined Benefit Plans– Cash Balance Plans
401(k) Plans
• Most popular• Has limitations for the highly compensated
employee/owner• Maximum deferral for 2012=$17,000
($22,500 if age 50 or older)• Maximum all contributions for
2012=$50,000/$55,500 (if 50 or older)
Solution
• Add a “Cash Balance Plan”• Can be used as an additional retirement plan
option• For companies with high income earners • For companies with consistent profits.
Cash Balance Plan
• A Defined Benefit Plan • Has features that resemble a 401(k) Plan• Participants have hypothetical account
balances• Account increases by employer contribution
and guaranteed interest rate (2.98% in 2012)• Not dependent on plan’s investment
performance
Key Features• Combines maximum benefit under a Defined
Benefit Plan with some flexibility/portability of 401(k)/profit sharing plan
• Individual Hypothetical Account Balance for participant
• Funded entirely by employer contributions• Interest rate guaranteed• Trustee-directed pooled investment account• Benefits are portable
Advantages
• Larger contributions/tax deductions• Acceleration of retirement savings for older
employees• Easy for participant to understand since benefits are
account balances• More predictable cost than traditional Defined Benefit
Plan• Competitive Advantage in Recruiting/Retaining key
executives• Asset Protection
2012 Combined Contributions Limits(salary > $250k)
AGE 401(k) Profit Sharing Cash Balance Total * Tax Savings
60-65 $55,500 $242.451 $297,951 $119,180
55-59 $55,500 $175,672 $231,172 $92,469
50-54 $55,500 $127,386 $182,886 $73,154
45-49 $50,000 $92,447 $142,447 $56,979
40-44 $50,000 $64,922 $114,922 $45,969
35-39 $50,000 $46,838 $96,838 $38,735
30-34 $50,000 $33,834 $83,834 $33,534
*assuming 40% state/federal taxes
Case Study
• Joe Smith, age 53, is a business owner of a distribution company and is having a good year.
• He has 4 employees.• He wants to contribute as much as possible
to a retirement plan on behalf of himself and wants to reduce taxes.
Case Study, continued
Salary 401(k) / PS % of Pay
Joe $250,000 $55,500 22%
Employee 1 $30,000 $1,500 5%
Employee 2 $30,000 $1,500 5%
Employee 3 $30,000 $1,500 5%
Employee 4 $30,000 $1,500 5%
Start with a 401(k) comparability profit sharing plan
It costs Joe $6,000 to save $55,500
More????
• How can we make the plan more valuable for Joe?– Increase Joe’s contribution
• Joe can have both a – 401(k) Profit Sharing Plan
And a– Cash Balance Plan
It Now Looks Like This!!!
Age Salary 401(k) /PS Cash Balance Total
Joe 53 $250,000 $55,500 $127,386 $182,886
Employee 1 25 $30,000 $1,500 $2,400 $3,900
Employee 2 30 $30,000 $1,500 $2,400 $3,900
Employee 3 33 $30,000 $1,500 $2,400 $3,900
Employee 4 40 $30,000 $1,500 $2,400 $3,900
Totals $60,500 $133,801 $198,486
Over 92% of the contribution goes to Joe
Investments • Assets are pooled and invested by trustee• If investment earnings exceed guaranteed
rate-reduces future employer contribution• If investment earnings are less than
guaranteed rate- must make up difference over seven years
FAQ
• Can Contributions change?• Is Funding Status an issue?• Must everyone participate equally?• Is it subject to IRS nondiscrimination
testing?• How do design/administration costs compare
with 401(k) Plans
Most Common Cash Balance Candidates
• Medical groups, Law firms, other professional firms
• Highly profitable companies• Principals / senior executives earning >
$250,000 (alternative to non-qualified plans)• Company willing to make employer
contributions (5% - 10% + of pay)
Where to Go From Here
• 2012 maybe a great opportunity to get a jump start on saving for your retirement and reducing your taxes.
• Any plan established by 12/31/2012 can retroactively be effective 1/1/2012.
• Retirement will not happen without proper planning.
• Tycor can plan and do analysis for you.
• Any Questions?