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You are here: Experts > People/Relationships > Retirement Planning > Accounting, Payroll & Pension Issues > pension
Expert: Allen
Date: 4/17/2008
Subject: pension
Question
QUESTION: As an employee owner of an S corp I am seriously displeased with the increasing amount being paid into SS which I will never recoup if I continue to work another 3 1/2 years til age 66. Will a defined benefit plan permit me to reduce contributions to SS or do I have to decide to either eat it or just say the hell with it and stop working. I calculated it would take me living til I'm about 120 just to get back what I pay in the next 3 years without interest.
ANSWER: You can establish a defined benefit plan and make substantial contributions to the plan. Since you will be making contributions, you will not be able to pay yourself as much and therefore your Social Security and/or Medicare taxes will be reduced. If you have employees, they will also be covered by the plan.
If you want to establish a defined benefit plan, I may be able to help you. Alternatively, if you tell me where you are located, I may be able to give you the name of a local actuary who can help.
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QUESTION: I currently have a self directed defined contribution profit sharing plan drafted by Korbel in 1992 at my previous office. I no longer contribute to it. Current S corp has one 50 yr old partner, a part time and two full time. One fulltimer is 40, has been with us 6 years and will probably be with us indefinitely, the other position employees usually change once a year, current person here a month. My income is appx $200k, parner's is 110 and longtime employees is 50, the latter probably being unwilling to transfer salary into this, though that might be subject to discussion. I will probably retire by 66. What would be the maximum my partner and I could put into this to reduce SS and how much would the contribution for the 40 yr old. If I can't reduce my required SS contribution significantly this won't be of interest.
On another issue, do you know anything about a qualified disclaimer to an inheritance I am due to receive I'd like to have turned over to my son to reduce estate tax he will otherwise eventually have to pay? Thanks
ANSWER: You might be a candidate for a defined benefit pension plan. In this type of plan, you could contribute up to approximately $150,000-200,000 for yourself and half that for your partner (if he wanted to participate). You would also have to make a contribution for your long term full time employee and possibly for the short term full time employee. Part time employees would not be eligible if they were paid for less than 1000 hours per year. Since you will be making substantial contributions, your wages would decrease and therefore your Social Security payments would be lower.
I might be able to help you with the design and administration of the plan. Alternatively, I might be able to give you the name of an individual in your area who can help you. If you have any interest write back.
As far as your estate planning question, I don't know the answer since I do not practice in this area.
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QUESTION: given the information provided, my decision to do this would depend on how much our two unappreciative of what's not in their paycheck employees would have to be given and how close to zero our contributions would go. Also the administrative costs are a factor--any ideas about these questions would be appreciated. If you can address these concerns in a way that makes $ sense, we'd be happy to have you design a plan for us.
Answer
Your objectives are not unusual In order to give you an estimate of the contributions for each participant, I'll need a listing of employees showing date of birth, date of hire, approximate compensation and approximate hours paid for on an annual basis. For you and the other shareholder I'll need the same information and also the amount of W-2 income each year for the last four or five years. The adage garbage in garbage out applies here. So please try to give accurate information especially the W-2 income history for you and your partner.
Since this is a public bulletin board, it's better if you send the info to me by fax 301-762-6607.
As far as plan design, there are two possibilities:
1. A traditional defined benefit plan
2. What is known as a cash balance defined benefit plan
The recommended plan will depend on the census information and other factors. As far as costs I do not want to quote on a public bulletin board. You can call me at 301-762-6600 x3013 and I'll give you figures.
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