An Overfunded Retirement Plan
Like many wealthy individuals, this hedge fund manager wound up with an overfunded plan and no way to recover the money in it without a heavy excise tax. His problems stemmed from the fact that he was seduced by retirement plan tax deductions, so he put away more than he should have, and his portfolio overperformed which led to further overfunding.
Fortunately, in this case, the solution included incorporating family members into the plan. This included the hedge fund manager’s son who was a veterinarian and his daughter, who owned a small preschool. In addition to his children, his grandchildren were included as were some of the hedge manager’s son’s and daughter’s employees. By using family members to create a control group it allowed for the redistribution of the plan. Therefore, this solution not only got the money out of the plan, but it also served as a retirement benefit for the veterinary practice’s and preschool’s employees, and, as an estate planning tool for his grandchildren.
For a modest employee cost, not only was this gentleman able to recover the excess funds in his plan, he was able to pass the wealth along to family members and to allow other businesses to attract and retain valuable staff, and avoid the excise tax on the overfunded plan.
Retirement Plan Redesign
We were asked to take over a plan for a New York based law firm, with approximately 300 employees. They had a safe harbor 401(k) plan because the owners felt this would be the best way for them to maximize their contributions. We were brought in because the owners now wanted to also use the plan to attract and retain mid-level associates.
The existing safe harbor plan did not require testing and had a set contribution for all participants. It was expensive for the firm to run but did not require much from an administration standpoint. Once the firm’s partners realized that the plan design no longer met the needs of the firm we eliminated the safe harbor requirement and applied different testing methodologies, which enabled us to use “carve outs” by employee class. By redesigning the plan the firm was able to allocate the same dollar amount to its partners, but also reward specific attorneys who brought value to the firm.
The plan was originally utilized as a retirement plan for the firm’s owners, but later became an employee benefit tool. As an added bonus the shift from the safe harbor to a cross tested plan saved the client significantly as the new plan was far less expensive to run.
Maximize Savings for Business Owners
The owners of a large, 750-person physical therapy practice, with several locations in the NY metro area, wanted to provide an employee benefit, but the plan had been designed to treat all employees equally. The owners were getting negligible value from this arrangement.
This is another example of how carving out classes of employees for testing purposes can result in better multiples for the owners. We were able to carve out three classes of people and significantly increase the contribution for the owners while maintaining a reasonable cost for the employees.
In this case, the owners are receiving an additional contribution of $570,000 with an additional employee cost of $80,000. The original legacy 401(k) plan remained intact.
Adding a Family Member to Boost Savings
A small dental practice, with a single dentist wanted to maximize savings. The group suffered from negative demographics meaning his employees were seniors.
Although the dentist’s wife wasn’t currently working, she was also a dentist so she was added to the practice with a small salary and would come in occasionally to do work. By adding her to the payroll the couple could maximize their deferrals. The additional contribution to the 401(k) was enough to get the owners to their desired contribution level as a family and keep the employee cost at 3% of pay. For a very modest FICA cost the family was able to save more.
My goal was to implement a retirement plan that, at first, seemed very complicated. Ron and his team helped me understand and implement the plan in a timely manner. All of the individuals that work at the company are very knowledgeable and responsive. I highly recommend CPD.
Retirement Planning cannot be managed by an 800#. Retirement Plans require personal review and consultations from experienced accredited Retirement professionals. Ron Stair represents one of those Retirement professionals, he is an endangered species of “Best Minds In Retirement Industry“!
We have worked with CPD for close to 30 years; they have never let us down. Ron Stair is the smartest man I know.This company has saved us hundreds of thousands of dollars. I can recommend CPD without hesitation.
I have known Dr. Ron Stair for over twenty years. The plans he developed have served me extremely well. His fees have been reasonable, I would certainly highly recommend his firm.
Creative Plan Designs is a company that helps me sleep well at night; they review my pension plan and 401k plan annually, and ensure that all legal requirements are met. The staff is professional and always timely in their responses, support, and providing of necessary documents.