Author Topic: Should my company create/start a pension plan?  (Read 1928 times)

Freedom2016

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Should my company create/start a pension plan?
« on: February 04, 2015, 12:20:21 PM »
I am 1 of 5 partners in a boutique consulting firm. We are currently shopping our 401k plan around to try to get lower fees/better service (looking at Schwab, Fidelity, Vanguard). I will be able to contribute up to the 53k limit if my income is high enough in 2015.

My tax prep guy suggested that my firm look into a defined benefit plan, as it would allow us to sock away even more $$$ in tax-deferred accounts. Among us partners there's a wide range of incomes but I'm pretty sure we're all over 100k, with one or two approaching $1m in any given year. I'm between the two extremes but usually closer to 100k.

Does anyone have experience setting up a pension plan for their own company, and if so, what kinds of questions should we be asking/considering?

I don't really know/understand how they work, and am not sure that my annual income is always going to be high enough to contribute a set amount per year to a pension AND max out a 401k.

Thoughts? Advice? Thanks in advance!

Catbert

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Re: Should my company create/start a pension plan?
« Reply #1 on: February 04, 2015, 02:07:43 PM »
Never set one up, but as I understand it, it is only worth considering if you can consistently put considerably more than your 401k limit.  Unlike 401ks you can't make a choice to add more/less in a given year.

 

Freedom2016

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Re: Should my company create/start a pension plan?
« Reply #2 on: February 05, 2015, 01:03:25 PM »
Thanks Mary - that's good to know. Makes me a bit wary...I don't know how much I would consistently be able to contribute given that my annual income can fluctuate considerably year to year.

maizeman

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Re: Should my company create/start a pension plan?
« Reply #3 on: February 05, 2015, 02:02:06 PM »
Also, ceiling on amount contributed to the plan each year for each partner will vary greatly depending on age. Are the five partners all approximately the same age? Potentially this could cause friction if a couple of the partners are in their late 50s early 60s and others are decades younger.

mxt0133

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Re: Should my company create/start a pension plan?
« Reply #4 on: February 05, 2015, 02:30:30 PM »
Basically defined benefits plans will cost you more to administer than a profit sharing plan that has a 401k component plan because you will need an actuary to do your projects and how much the company need to contribute.

Also as someone that has mentioned defined benefits/pension plans need a pretty consistent cash flow because the required contributions need to be meet by the company.

But in your situation if all of you are partners and high earners then a defined benefit plan/pension will allow you to contribute more vs a profit sharing plan.

Let me know if you have any other specific questions.

Freedom2016

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Re: Should my company create/start a pension plan?
« Reply #5 on: February 05, 2015, 09:12:45 PM »
Also, ceiling on amount contributed to the plan each year for each partner will vary greatly depending on age. Are the five partners all approximately the same age? Potentially this could cause friction if a couple of the partners are in their late 50s early 60s and others are decades younger.

Partner ages are 57, 54, 50, 50, and me @ 41. We are also likely to add another partner or two in coming years my age or younger.

Quote
Basically defined benefits plans will cost you more to administer than a profit sharing plan that has a 401k component plan because you will need an actuary to do your projects and how much the company need to contribute.

Also as someone that has mentioned defined benefits/pension plans need a pretty consistent cash flow because the required contributions need to be meet by the company.

But in your situation if all of you are partners and high earners then a defined benefit plan/pension will allow you to contribute more vs a profit sharing plan.

Let me know if you have any other specific questions.

That's good info to have, thanks. It's starting to sound like this isn't quite the right thing for us given administrative fees and the necessary cash flow.