Owners could be missing out on retirement dollars

By Jim Kendall

This column originally appeared in the May 5, 2014 Daily Herald



Business owners could be leaving mounds of retirement dollars behind, simply because they don’t know all the options. For example, it’s possible that Baby Boomer owners heading for retirement can boost their retirement plan dollars in a relatively short time – if employee age demographics and the business’ income mesh well.

It also helps to have a third party retirement plan administrator who understands the possibilities.

Retirement plans can be pretty complicated, and the IRS is pretty unforgiving when plans aren’t structured the way the IRS Code says they should be structured. Within that context, however, and with the idea of staying within the rules paramount, Sam Schroeder has some ideas that are worth considering.

Schroeder is president of Administrative Retirement Services Inc., a TPA (third party administrator) in Glen Ellyn. ARS has more than 400 business clients; employee headcounts range from one to more than 1,000.

Look, for example, at a cash balance retirement plan, a qualified plan that allows business owners who have the right age mix of employees – the plan works best, Schroeder says, if the owner is the oldest employee – and good business income to create a retirement plan that assigns most of the benefits to the owner. If the employer sponsors both a defined contribution retirement plan – a 401(k), for example – and a cash balance plan, the resulting combo plan is what Schroeder calls “The best tax-deferred savings opportunity that exists for most business owners.”

Based on the combo plan, which Schroeder likes to call a Cash-K, a business owner who earns in excess of $255,000 can set aside dollars that come reasonably close to that amount in the company retirement plan.

There are caveats. The employer makes all contributions to the plan; the cash balance plan must be 110 percent funded for all participants before the owner can receive benefits, and the plan is costly to administer.

Still, for a business owner seeking to make up retirement dollars that might have been lost during the recession, Schroeder’s Cash-K might be worth investigating.

So might a cross-tested plan, which Schroeder writes in website materials “works best in a company which has a business owner who is slightly older than the best of the employees.” Basically, cross-tested plans allow a company to define different classes of employees and distribute profit-sharing contributions on a different percentage basis to each class.

Typically, highly compensated individuals in the plan – the owner, for example – receive a higher allocation than do other employees.

There are other options. Profit-sharing plans, which Schroeder says do not necessarily require a profit, can work as stand-alone plans or in combination with 401(k)s. Traditional defined benefit plans allow larger contributions than a 401(k) but work best when the business owners and their spouses are the only employees.

Given the intricacies of the IRS and its requirements, plan development likely is best left to specialists. You can read about ARS’ plans at


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