A business owner wants to save more money for his own retirement, plus wants to attract and retain top employees without breaking the bank.
Doctor Johnston owns a successful private medical practice and oversees 4 doctors and a support staff of 11. He wanted to jumpstart his own retirement savings but kept running into “testing” issues. He also had an extremely loyal and valuable support staff and wanted to reward and retain them.
Annual “testing,” required by the Department of Labor, ensures that benefits for rank-and-file employees are proportional to benefits for owners/managers. This limits the amount of money highly compensated employees and owners can contribute to a retirement plan and is highly contingent on employee participation in the plan itself, making it tough for Dr. Johnston to save as much as he felt he needed.
The LionsBridge team stepped in to help the good doctor. This was a plan design issue, and with the proper design, everyone wins. The first step was to migrate the company’s current 401(k) plan to a safe harbor plan design. This means the company guaranteed a 3% contribution to all employees. Safe harbor plans automatically pass testing, so Dr. Johnston was now able to max out his own contributions without fear of unbalancing the plan contributions.
In addition, through consultation with the Dr’s accounting firm, we helped Dr. Johnston add a separate cash balance plan as an employee benefit. This is a good strategy for owners nearing retirement to save a lot of money. It is tax-deferred with very high contribution limits. This 100% company funded plan included all employees, young and old, minimizing risk while keeping costs down. Through this type of plan, Doctor Johnston was able to meet his savings goals while also providing an additional benefit to his employees for their own retirement.
LionsBridge can helps business owners design top quality employee benefits while minimizing cost and risk, and save the maximum amount for their own retirement. Our role is to help business owners make financial decisions that affect all aspects of their lives. Are all your advisors rowing together?