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Case Studies

You deserve a retirement plan that serves your unique needs and helps you reach your financial goals. We analyze every client’s situation to optimize their plan. Here’s four real-life examples where we did just that.

Success Story #1

Converting from a SIMPLE IRA to a 401(k) Plan

Plan Goal:

Increase retirement plan savings for the company owners, while keeping plan costs down.

Opportunity:

An investment broker presented PPS with a client that currently has a SIMPLE IRA for a business owner, his spouse (an employee), and his employees. The owner’s compensation is greater than $290,000 per year, and he and his spouse would like to increase their annual plan contributions.

Our Solution:

After terminating the current SIMPLE IRA, we structured a new 401(k) plan to include Safe Harbor contributions to allow for maximum deferrals by the company owner and family members. Since the owner and his wife want to make higher contributions, we also added a New Comparability allocation formula to boost the Profit-Sharing contribution up to the maximum allowable contribution to the owners, while keeping contributions to his employees as low as possible.

Results:

The client is pleased with the significantly increased total contribution for he and his spouse.

Simple IRA:

Annual Compensation
Owner
$290,000
Spouse
$80,000
Employee 1
$35,000
Employee 2
$30,000
Totals
Employer Contribution
Owner
$5,800
Spouse
$1,600
Employee 1
$700
Employee 2
$600
Totals
$8,700
Total Contribution
Owner
$18,300
Spouse
$14,100
Employee 1
$2,700
Employee 2
$1,600
Totals
$36,700

401(k) PLAN:

Annual Compensation
Owner
$290,000
Spouse
$80,000
Employee 1
$35,000
Employee 2
$30,000
Totals
Salary Deferrals
Owner
$19,500
Spouse
$19,500
Employee 1
$2,000
Employee 2
$1,000
Totals
$42,000
Safe Harbor
Owner
$8,700
Spouse
$2,400
Employee 1
$1,050
Employee 2
$900
Totals
$13,050
Profit Sharing
Owner
$29,800
Spouse
$8,221
Employee 1
$700
Employee 2
$600
Totals
$39,321
Total Contribution
Owner
$58,600
Spouse
$30,121
Employee 1
$3,750
Employee 2
$2,500
Totals
$94,371

Owner’s contribution increased

+ $39,700

Spouse’s contribution increased

+ $16,021

Overall increased contribution to employees

+ $1,950

Success Story #2

Solutions for Failed Discrimination Testing

Plan Goal:

Increase employee participation to avoid the deferral refunds to the company owners.

Opportunity:

A financial advisor introduced PPS to a client that currently sponsors a 401(k) plan with 90 employees. There are four owners participating in the plan. Regardless of the type or amount of education provided to the employees, the employer cannot encourage enough employees to defer into the plan. The lack of participation by employees is also causing the owners to have significant contributions returned to them due to failed discrimination testing.

Our Solution:

Option 1: Automatic Enrollment

This plan is a good candidate for the addition of automatic enrollment. For all employees that have not completed an enrollment form, we suggested auto-enrolling them at a level of 3% deferral. Instead of having the employees “opt-in” by completing an enrollment form, they must “opt-out” of deferring by completing an enrollment form. Automatic enrollment increases participation, allowing the owner group to defer more and helps employees save for retirement – the ultimate goal of a retirement plan.

Option 2: Safe Harbor Plan

This plan was also a good candidate for a Safe Harbor Match contribution. With low employee participation, a matching contribution to all participating employees could result in a relatively low cost to the employer. The Safe Harbor Match allows each of the owners to make the maximum salary deferral into the plan, automatically satisfies the normally required nondiscrimination testing (lowering plan operating costs), and eliminates any future owner deferral refunds.

Results:

After carefully considering their options, the company owners decided to implement the Safe Harbor Plan, which better suited their retirement goals.

NON-DISCRIMINATION TESTING

Compensation
Owner 1
$290,000
Owner 2
$290,000
Owner 3
$290,000
Owner 4
$290,000
Owner Average
NHCE Group 1
$1,950,000
NHCE Group 2
$1,200,000
NHCE Group 3
$750,000
Employee Average
Salary Deferrals
Owner 1
$19,500
Owner 2
$19,500
Owner 3
$19,500
Owner 4
$19,500
Owner Average
NHCE Group 1
$33,000
NHCE Group 2
$6,060
NHCE Group 3
$0
Employee Average
Deferral Percentage
Owner 1
6.72%
Owner 2
6.72%
Owner 3
6.72%
Owner 4
6.72%
Owner Average
6.72%
NHCE Group 1
1.69%
NHCE Group 2
0.51%
NHCE Group 3
0%
Employee Average
0.73%
Refund Amount
Owner 1
$11,576
Owner 2
$11,576
Owner 3
$11,576
Owner 4
$11,576
Owner Average
$46,304
NHCE Group 1
NHCE Group 2
NHCE Group 3
Employee Average

SAFE HARBOR MATCH

Compensation
Owner 1
$290,000
Owner 2
$290,000
Owner 3
$290,000
Owner 4
$290,000
Owner Average

$1,950,000

NHCE Group 1

$1,200,000
NHCE Group 2
$750,000
NHCE Group 3
Employee Average
Salary Deferrals
Owner 1
$19,500
Owner 2
$19,500
Owner 3
$19,500
Owner 4
$19,500
Owner Average

$33,000

NHCE Group 1

$6,060
NHCE Group 2
$0
NHCE Group 3
Employee Average
Safe Harbor
Owner 1
$11,600
Owner 2
$11,600
Owner 3
$11,600
Owner 4
$11,600
Owner Average
$46,400

NHCE Group 1

$18,800

NHCE Group 2
$5,610
NHCE Group 3
$0
Employee Average
$24,410
Refund Amount
Owner 1
$0
Owner 2
$0
Owner 3
$0
Owner 4
$0
Owner Average
$0

NHCE Group 1

NHCE Group 2
NHCE Group 3
Employee Average

Owners’ contributions increased

+ $92,704

Increased contribution to employees

+ $24,410

Success Story #3

Adding a Cash Balance Plan for Greater Retirement Savings

Plan Goal:

Reduce the tax burden and increase the retirement savings for the owners of a successful medical practice.

Opportunity:

The owners of a highly profitable private medical practice were concerned about the amount of taxes they were paying and their options for retirement saving. Being high-income earners, the doctors had significant saving opportunities, but like so many others, were limited in how much they could save for retirement on a pre-tax basis.

Our Solution:

We met with the medical practice owners and reviewed different plan options that would meet their tax and retirement savings goals. The doctors decided to add a Cash Balance Plan to their 401(k) Profit Sharing Plan. By adding a Cash Balance Plan, they can significantly accelerate their personal retirement savings and decrease their income tax burden.

Cash Balance Plans give business owners the chance to put away up to four times the tax-deferred contributions of a 401(k) plan alone. This makes them an attractive option to small businesses whose business owners earn over $290,000 a year, whose business has a steady revenue, and who want to take advantage of an annual tax deduction of more than $58,000 a year (the maximum permitted).

Results:

After adding a Cash Balance Plan to their 401(k) plan, the business owners increased pre-tax retirement savings substantially above the annual 401(k) plan limit.

Success Story #4

Attracting and Retaining Employees

Plan Goal:

To retain high value employees and offer an attractive benefit to draw top talent in a competitive industry.

Opportunity:

The owner of a vehicle sales and service chain noticed a slow, but steady trickle of valuable employees leaving his business to work for competitors. Therefore, he decided to offer a 401(k) plan to encourage people to stay and be happier in their present job. He also believed offering retirement benefits would give him a competitive edge in attracting top talent. After he polled his employees, he felt confident this was the right approach, and decided to move forward with the plan.

Our Solution:

We guided the business owner through the process of determining which retirement plan features best matched the needs of his workforce and his company culture. Most importantly, they focused on offering a benefit that provided the competitive advantage he was looking for.

With increased education surrounding the new 401(k) plan, employees were able to see the significant value added to their overall compensation package.

Results:

By adding a 401(k) plan as an important employment benefit, the company was able to attract new talent while also achieving a higher retention rate of their current valuable employees.

Wondering if your plan could better meet your goals?

Let’s find out Together.