What contribution levels can you afford ? Where do you want to be in 15, 20, 30 years?

We have many clients who faced these same decisions years ago. Each person needs to answer in his or her own way. Some will choose Profit Sharing Plans, or 401k Plans....perhaps the Age-Weighted or New Comparability versions if you have employees; for example under the New Comparability type of Profit Sharing plan, after we perform a general test based on your workforce ( and especially required is that the owners be older than the average of the non-owner employees) you might set up a plan calling for the company to put in 15% of Compensation for Owners and 5% of Compensation for other employees after they have completed two years of service. Some will choose Defined Benefit Pension Plans; for example, if you have no employees, or have employees but the New Comparability Profit Sharing Plan doesn't get you enough of a contribution in good years. Our job is to make you aware of your options.

The numerical illustrations # 1, 2, 3 and 4 in the Section "Illustrations of Actual Situations" apply to a one-person pension plan, but also easily extend to your company if you have a number of employees other than the owner. Want to see your situation? Call us at 818-769-4600. Ask for an Actuary. We will ask you to get us your census data and general objectives and history, and we'll work out some alternatives for you, and discuss the prospects not only today but also for the future, especially in light of the pending pension legislation changes.

If you have employees and set up a pension plan calling for contributions for employees, keep in mind that while you cannot reduce salaries to reflect the fact that you have adopted a pension plan, you can certainly treat the pension plan as being a part of the employee's total package. In future years, when you consider what that job position is worth, you should come to a total figure, subtract out the pension and health care cost, and hence back into the salary level for that job. This may result in raises being less than would apply if you did not have a pension plan. We very often find that employees, and especially the higher paid employees, are very enthusiastic about saving income taxes and FICA taxes, which they can do with your help.

Also keep in mind that a pension plan can be a good tool to help you attract and retain qualified employees. If there is a special employee or group of employees you are want to benefit more from the pension plan, let us know when you send in your data. In many cases, we can look at a 401k plan with a New Comparability underlying basis, all in one Non-Standardized plan document. What's more, you can arrange it so that each employee can invest their money separately with an investment house of your choice. Typically, each employee can choose from among say 10 mutual funds at the mutual fund family or brokerage house you select, and can change around in the 10 funds as and when they choose, by calling directly without involving you. This is a pretty attractive arrangement for employees. You can further spice it up by allowing employees whose account balances are above the minimums for that mutual fund family or brokerage house to actually pick individual stocks, and you can even add on additional mutual fund families and brokerage houses as you see fit. You got the power, and our Non-Standardized plan documents let you be the boss. We are pension plan experts and Actuaries, and we work for you, not for the investment houses.

If you have employees, and you own a business and are somewhat older than most of your employees and want to put in 15% of Compensation for yourself in a Profit Sharing Plan, would you rather put in 15% of Compensation for your employees under a Standardized Adoption Agreement from a mutual fund family, brokerage house, or Bank, or 5% of Compensation for your employees under our Non-Standardized plan documents?

Our advice? Always keep your options open. At the outset, make sure you are asking for advice from a pension administration firm which has Actuaries on staff. Adopt the most flexible plan for your current and future needs. If you have some employees, but are older than them, the plan chosen is often a Defined Benefit Pension Plan, but just as often a Profit Sharing Plan or 401k Plan of the New Comparability type in our experience. If you don't have employees, we are seeing a lot of Defined Benefit plans and Profit Sharing Plans being adopted, all using our Non-Standardized plan documents which allow you to use several investment managers, and also allow you to consider buying real estate, trust deeds, and pre-IPOs. It is imperative that you and we review the situation year by year. Put in as much contribution as you are comfortable with, and in particular put it in in installments rather than all at the last minute.

If you have employees, understand how much it is costing each year for their pension benefits. Don't make the mistake of treating this all as a dead loss coming out of your pocket as business owner, and hence a reason for not adopting a pension plan. Ask us to prepare illustrations which show the real deal for you personally. Because the government has built in tremendous tax benefits for you the business owner under pension plans, you will end up with a lot more money in your personal fortune if you adopt a pension plan than if you don't adopt one. And your employees will benefit as well. It is a win-win situation in many, many cases.

If you have adopted a Defined benefit Pension Plan, always ask to talk directly with an Actuary. Contributions to a Defined Benefit Pension Plan are very flexible. Actuaries typically don't work for banks, brokerage houses or mutual fund families directly. Actuaries do work for pension administration firms. However, some pension administration firms either do not have Actuaries on staff, or do not market Defined Benefit Pension Plans. Some pension administration firms have Actuaries but the Actuaries never talk directly to clients. Ask to speak directly and regularly to an Actuary....you deserve it. The Actuary is the person deciding, in part, on your annual contribution. Every go-between you have to go through to get your annual contribution amounts is yet one more layer of inflexibility and clouding of the communication stream. Your pension fortune (and your nerves) will show the results over time.

Adopting a pension plan is a giant step ahead of not adopting a pension plan. The IRS is paying for you to build up a tremendous pension fortune (and your employees as well), by reducing your income taxes so dramatically. If you don't adopt a pension plan, you are losing out on all this IRS payment for your financial freedom. Then the question is...who's getting your benefit? Is it the Jones family next door, or your competitors? Are you paying for their pension benefits? On the other hand, if you adopt a pension plan, the the Jones family are paying for you, as are your competitors. Hmmmm.

So...what's the deal? Call us at 818-769-4600. Ask for an Actuary. Let's get this 30 year airplane trip planned out.

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