This article is a continuation of our most recent blog post, "The Best Pension Plan for each Company Type - Part 1." We are going beyond just plan types, but into situational solutions to give you a glimpse into what we consider when discussing plan design with a business owner.
RESTAURANTS or RETAIL ORGANIZATIONS
Some companies have a lot of staff that is not very highly paid, and that turns over with regularity. These companies often have trouble passing 401(k) compliance testing that compares the rate of deferrals of the Highly Compensated Employees (owners), and the staff. The best pension plan may be one of two different options that we often introduce to owners of these companies:
The SIMPLE 401(k) has the advantage of a longer eligibility period (2-years), but there is no hours restriction for eligibility. All employees, including the owners, can participate at the start of their third year of employment.
Since the 401(k) plan in option 2 excludes the Highly Compensated Employees the advisor may recommend a non-qualified deferred compensation plan or other cash incentive plan for the Highly Compensated Employees.
NON-PROFITS
Non-profit companies that have §501(c)(3) status have several options for retirement. The best pension plan choice for them might depend on their demographics.
If you have a non-profit client who would like to explore the different options, click here for more information.
COMPANY IN TRANSITION
A strong company can continue to be strong even in transition. It is important for the business owner to consider its alternatives in advance for the transition to be smooth. The best pension plan to transition the company to the employees may be an Employee Stock Ownership Plan (ESOP).
ESOPs work for many different sized companies, but the ones that we work with are typically between 50-100 employees. The steps for a leveraged transaction are summarized here:
ESOPs are extremely complicated vehicles that involve significant testing and valuation every year. They are the only way that a company can deduct both principal and interest paid on a loan. If a company is 100% owned by an ESOP, and the company is an S-Corp, then since all taxes pass through to the shareholders and the shareholder is a tax exempt entity (ESOP), then the company can completely eliminate corporate taxes! We are just touching the surface with the description outlined here. Click here if you would like to learn more about ESOPs and how you or your client may be able to take advantage of this vehicle.
SUMMARY
There is so much more to finding the best pension plan for your clients than 401(k). At Benefit Resources we pride ourselves in working with our advisor partners to help them truly find the right solution in every situation. We can also administer every type of plan we have discussed here, so we will continue to provide the service and oversight that is so critical to a successful plan. Click here and we will schedule a call so that you can learn more about our services and how we can help you build your retirement plan assets under management.