Industry Update Blog

Thinking About Selling Your Business?
A Cash Balance Plan Can Make It Work

Kathy Hickman - Tuesday, February 02, 2010

If you and your partners have been talking about your retirement, don’t let the tight credit market derail your plans. If your business is profitable, you can help to finance the sale via a cash balance retirement plan.

A 401(k) Plan Is Not the Only Game in Town

As a small business owner, you may already sponsor a 40l(k) retirement plan. Your 401(k) plan is a defined contribution plan. Retirement account balances grow via employee savings, company contributions from profits, and investment return. The plan does not provide for a guaranteed retirement benefit. When it is time for employees to withdraw their money, they are entitled to the balance in their account, i.e., what you see is what you get.

Contrast this with a defined benefit plan which guarantees a stated level of retirement income. Benefits are typically based on a percentage of career compensation. The 401(k) plan limits contributions to about $50K per year. Cash balance plans operate under defined benefit plan limits which are SIGNIFICANTLY higher. Thus, business owners can build a nice retirement nest egg in a relatively short period of time as compared to typical retirement accumulations under a defined contribution plan. Keep in mind, this is a tax qualified plan which means that contributions are tax deductible.

A cash balance plan is often designed to provide shareholders and employees with different levels of retirement benefits. At retirement, the lump sum due the shareholder from the cash balance plan is used to supplement the sale proceeds of the business. In addition, if a junior partner or key employee has been identified as the prospective purchaser, the lump sum to this person may be used to fund part of the buyout.

Cash Balance = Commitment

In considering a cash balance plan, it is important to know that the sponsoring company is contractually obliged to fund the plan every year. Plan assets are pooled, i.e., no individually directed accounts are permitted, and the plan sponsor bears the investment risk burden. An actuary determines the amount needed to meet the retirement savings goal of the owner and any employee who may be the successor. This process includes setting an assumed investment rate of return which is typically tied to U. S. Treasury rates. If the plan’s return on investments is lower than the assumption, the employer has to keep the plan on its funding track via larger contributions.

Getting Started

Is it time to start planning for an ownership transition? If you have the cash flow, the cash balance plan option is worthy of serious consideration. Your RPAS consultant and your CPA can put the numbers together based on your timetable and objectives. For more details, please click here and contact us for more details.

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Late 2009 Retirement Plan Legislation and Industry Reactions

Burl Bachman - Monday, December 21, 2009

The retirement plan industry has a dogged and effective advocate: ASPPA, the American Society of Pension Professionals and Actuaries. Led by ASPPA, there has been extraordinary industry response to recent proposed legislation, in order to support the stability and effectiveness of our retirement plan system. This article highlights what has been going on behind the scenes in recent weeks.

Attack on Cross-Testing

Just before Thanksgiving, a new issue emerged which would endanger many small business retirement plans. This was a serious attack on cross-testing. On November 19, Rep. Lloyd Doggett (D-TX) introduced and pushed hard for action on H.R. 4126, a bill which would repeal cross-testing. It also provides that (1) only vested benefits would be considered for non-highly compensated employees in discrimination testing and (2) non-highly compensated employees who work less than 2,080 hours per year would be counted as fractional employees for coverage testing. The bill appears to be triggered by 2008 press reports about an old (1999) plan design that created a qualified supplemental executive retirement plan by grouping high-paid executives with low-paid casual employees. Rep. Doggett persuaded seven of his Democratic committee colleagues to cosponsor the measure, and has continually argued for its inclusion in year-end legislation in Democratic committee caucus meetings.

The Government Affairs Committee of ASPPA reacted immediately and intensely. Education of more than 25 key House Ways and Means Committee lawmakers and staffers in under a week occurred - they were made aware of the important role that cross-testing plays in delivering meaningful benefits to rank and file employees, and how devastating this bill’s effect would be to the private pension system, especially to employees of small businesses. This resulted in many Ways and Means offices agreeing that the bill needs to change. ASPPA has pledged and has begun to work with Rep. Doggett, and other concerned committee members, to find a way to address lawmakers’ concerns about “inappropriate use of qualified plans” to provide excessive tax-favored executive compensation. It now appears that this issue will wait until next year for resolution, and a broader grass roots effort will be launched if this proposal seems to be gaining traction.

Incidentally, an attack on cross-testing also occurred in the 1990s. Concerted efforts by ASPPA and other industry groups served to educate the involved parties and convey the understanding needed to weather that particular storm.

Funding Relief, Fee Disclosure and Roth Conversions for Qualified Plans

A year-end bill may include temporary defined benefit (DB) pension plan funding relief, 401(k) fee disclosure, and/or unifying the 2010 Roth conversion rules so that conversions can encompass Roth 401(k) accounts as well as Roth IRAs. All of these issues are in a state of flux, and time is running short due to procedural issues, since the Senate has been tied up with health reform measures.

ASPPA and other industry groups will continue our efforts to win inclusion of DB plan funding relief and the Roth conversion proposal in a year-end bill. However, due to the short time remaining, there is little hope that the Senate will take action on fee disclosure provisions this year.

RPAS has always been a strong and enthusiastic supporter of ASPPA and its government affairs efforts. We will continue to work in your interests to address these issues and we plan to keep you posted over the coming weeks.

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Welcome to Our New RPAS Website

Burl Bachman - Friday, December 11, 2009

We Are Glad You Are Here

Over the past few months, we have been thoughtfully redesigning and modernizing our website.  We are pleased to welcome you to our new website.

Besides a new look and upgraded functionality, our new website will be a much-improved source for current industry information for clients and advisors. 

Purpose of the Industry Update Blog

This Industry Update Blog will be the location of a continuing series of updates about the retirement industry, written by members of the RPAS team.  We invite you to revisit our Industry Update Blog for these timely updates, which will spotlight our insights regarding the ever-changing retirement industry and how RPAS is responding on your behalf.

Enhancement Coming

A significant enhancement will be added in early 2010 - this is our Client Center, a client portal feature with password access to enable our clients to go to our website to pick up our reports and to populate our requests for information.  We will keep all of our clients well-informed in advance regarding how to make the best use of this new feature to save time and effort.  The goal is to boost the flexibility, control, timeliness and security associated with sharing the detailed information our clients need and RPAS needs.

A Suggestion

As you start looking around our new, we have a suggestion of what you may do to have the best experience.  Similar to nearly 90% of current business websites, our new website is designed for browsers Internet Explorer 8 (which we have installed on all RPAS workstations), and Firefox.  Unless you have already upgraded, we suggest you use one of the following links to upgrade your browser now to enjoy the best experience with the internet as a whole, including our new website:
- Internet Explorer:  
- Firefox:

Prior to installing any upgrade to your desktop, you may want to speak with your IT professional.  Even with none of the optional bells and whistles, we have found that the functionality improves a lot, including helpful visuals such as drop-down menus.

RPAS Goals

Two of our long-term goals are to enhance the quality of the services we deliver and to add additional value to the relationships of our clients.  Our website upgrade is a key step towards meeting these goals.

So, now that you are here, please take a look around, and feel free to share your observations or suggestions with us.

-Burl Bachman, President;; (800) 235-9649, X313

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  1. Thinking About Selling Your Business?
    A Cash Balance Plan Can Make It Work
    Kathy Hickman 02-Feb-2010
  2. Late 2009 Retirement Plan Legislation and Industry Reactions Burl Bachman 21-Dec-2009
  3. Welcome to Our New RPAS Website Burl Bachman 11-Dec-2009