Sapers & Wallack
Case Studies
Executive Compensation Case Study
Client:
Owners and executives of a closely-held medium-sized company.
Issues:
The owners and executives formed an executive group. The group wanted to maximize their own pre-taxed earnings into a retirement account and were searching for a method to do so that would exceed the amounts allowed by IRS 401(k) elective deferral limits (which were increased to $16,500 for those 49 years of age and younger and $22,000 for 50 years of age or older in 2009).
The Solution:
The plan Sapers & Wallack created a profit sharing and cash balance plan design which allowed for maximum qualified plan deferral and tax benefits for the executive group and additional benefits for other employees.
Highlights of the solution included:
- The professionals at Sapers & Wallack’s design helped enable the owners to maximize their yearly contributions into their retirement plan. The age-weighted cash balance design enabled the executive group to take advantage of the total IRS qualified plan contribution limit of $244,000 as opposed to just simply maxing out their 401(k) plan limit of $16,500 or $22,000.
- In this case study, on average the executive group was able to contribute 10 times more to their retirement plan than what they previously were contributing before instituting the new plan.
- 90% of the retirement dollars spent went to the executive group under this plan and because they could defer more of their income to retirement, they collectively enjoyed a tax savings of $650,000.
- The employees received additional benefits beyond the 3% contribution including additional contributions into their profit sharing and cash balance plans.
- The plan design was structured such that all applicable IRS testing, benefit limit and top heavy requirements were met.
Outcome:
The owners are now able to defer as much as ten times the 401(k) limit while still passing all of the statutory testing requirements and the employees received an added incentive to their 401(k) savings.
Case study for illustrative purposes only. Individual results may vary.