Masonry Magazine May 1961 Page. 8
PROBLEMS AND OPPORTUNITIES
IN PENSIONS FOR MANAGEMENT
By 1. Austin Kelly III
President, National Employce
Relation Institute, Inc.
The need to attract and hold key men and a desire for tax-free dollars are among major reasons for mounting interest in pension plans. Here, in the second of three articles, Mr. Kelly, nationally-know consultant, discusses various problems confronting owners of small and medium size businesses and how they can be solved in setting up pension programs of maximum benefit to all concerned.
Many mason contractors have discovered that there is a big difference between thinking about a pension plan for their key people and actually having one. It's easy to tick off the advantages which such plans offer- beginning with the tax-free extra compensation for owners and executives. But when it comes to setting up a plan which fits the company's needs and budget and is also acceptable to the Internal Revenue Service, the snags may seem insurmountable.
If this has happened to you, don't be discouraged. In my 28 years of working with firms, ineluding many in your own field, I can't recall a single instance where the problem was so great that it couldn't be solved. Usually it was merely the result of some earlier misconception or lack of facts. Once this gap was bridged, the difficulty disappeared.
Don't assume, elther, that looking into a pension plan always means looking for trouble. Often, such investigations turn up opportunities which the company never expected. They may even solve other problems that have already been written off as "impossible."
What are some of the obstacles- and opportunities which arise in considering a pension plan? Let's look at a few specifics, based on experiences taken from my own files. (Naturally, names have been changed here.)
Case No. 1
This small firm in New Jersey is owned almost entirely by one man. In reviewing his estate, he finally faced the fact that it was almost entirely frozen in the business. Over the years he had plowed back most of his profits into expansion, and now any money he attempted to pull out would be subject to high tax shrinkage. Furthermore, he realized that while his business was valuable as a going concern, if his wife became a widow she would have practically nothing but a lot of second-hand machinery.
His accountant suggested a pension plan. At first the owner was enthusiastic. However, he worried about how such a plan would affeet his cash position, because the plans he examined all called for a fixed annual deposit, something which he viewed as a serious handicap in any off-year. In fact he had all but given up the idea of a pension plan when we were called in.
We were able to show him that, by using a flexible plan, he could hinge his annual pension deposit to his profits. In any bad year, he could reduce or eliminate this deposit, with the privilege of making it up, if he wished, in any subsequent year. Furthermore, we recommended the tightest possible eligibility for participation in the plan. This meant covering only a few other employees and sured that approximately 80 per e of the annual deposit would be pla in his personal pension account. After six years he now has more than $70,000 accumulated without any l through corporate or personal tax. In fact, since the company is in a 52 per cent bracket, Uncle Sam has actually been paying more than he the annual cost.
Case No. 2
The big problem for the H & Co. was money. While the owners were sold on the advantages of a pension plan, they felt that they couldn't afford it even on a flexible basis which gave them year-to-year control over the amount put into the plan. Our solution was to design a plan which permitted the company to make indirect use of the money put into pensions, so that their cash position remained unimpaired. Once they discovered this was possible, the plan was immed'ately approved. Through this program they have not only solidified the loyalty of their key men, but are building sizable sums of tax-free deferred compensation for themselves.
Case No. 3
Sometimes the problem revolves around whether to install a pension plan or a profit-sharing arrangement. When this problem arises, it is merely a matter of evaluating which is best for the particular company.
The Holmes Co. is an excellent example. We were contacted after the firm had investigated both types of plans. Two of the key executives strongly favored pensions, while the president preferred profit-sharing. He had the impression that profit-sharing gave the company more say about the yearly cost.