Combining a defined benefit pension plan with a profit sharing plan allows small firms to provide the maximum allowable benefit to partners, while providing more modest benefits to all other staff members.
Owners of small- to mid-sized businesses and professional practices (law, medicine, etc.) often face a common dilemma — how to contribute enough to their tax-qualified retirement plan to meet their future needs, without the cost of contributions to cover other eligible employees making the retirement plan unaffordable to the business.
There is an innovative solution — one that will outperform the maximum allowable pre-tax contribution to a stand alone profit sharing plan.
Wealth Accumulation Vehicle (WAVe) By adding a new defined benefit pension plan to an existing or new profit sharing plan, firms can meet their goal of providing the maximum allowable benefit to the partners, while providing modest benefits to all other staff members. Below is a hypothetical example of a possible plan design:
A profit sharing plan with a 3 percent safe harbor 401(k) component (non-elective contribution) was implemented.
A profit sharing contribution was made where partners received an allocation of 10.3 percent of pay. All other staff members received an allocation of 6 percent of pay (each in addition to the 3 percent safe harbor contribution).
A defined benefit pension plan with a contribution of 2 percent of pay on behalf of each non-partner and 16.6 percent of pay on behalf of each partner was implemented.
Partner/Staff
Defined Benefit Plan
Traditional Profit Sharing Plan
Total
Adams
$117,000
$18,000
$135,000
Baker
$45,002
$14,000
$59,000
Cox
$104,500
$14,000
$118,500
Totals
$266,500
$46,000
$312,500
Staff members
$23,600
$33,500
$57,100
Totals
$290,100
$79,500
$369,600
Percent of Total
Owners
92%
57%
85%
Staff Members
8%
43%
15%
Highly Efficient Combining a defined benefit plan with a defined contribution plan to achieve your retirement goals is highly efficient:
The percentage of contributions allocated to the partners is much higher with WAVe than with a stand-alone profit sharing plan.
The tax-deductible contributions far exceed the maximum contributions to a stand-alone profit sharing plan.
But with such efficiency comes the need for experienced and knowledgeable consultants to implement and administer the design.
For more information about Symetra’s retirement plan programs, visit www.symetra.com or contact our Sales Center at invest@symetra.com or 1-800-706-0700. This article was submitted by Symetra partner McGladrey Retirement Resources, which comprises RSM McGladrey Business Solutions Inc. and Birchtree Financial Services Inc.
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