Saving for the future

   Having had a decent year, and with our fiscal year-end fast approaching, I called my accountant, Fran, and asked him what I could do to help reduce my taxes.
   "Well," he replied, "you could pre-pay my bill for preparing your business tax return and write it off as an expense for this year rather than next."
   "That’s very generous of you. What else?"
   "The only other thing I can think of right off the top of my head is to set up that profit-sharing plan we’ve talked about."
   Oh yeah. That.
   For years I’ve thought about establishing a profit-sharing/pension plan payable at retirement for me and my employees. I’ve hesitated because, although there have been profits, there never seemed to be enough cash to fund a plan. Expansion, debt reduction and payment of taxes had a higher priority.
   This year was a little different. For a variety of reasons, there was a piddling amount of cash available that I could responsibly put into a retirement fund. Then, if I put an equal amount in every year, by the time I was 107 or so I’d be living high off the hog.
   But this wasn’t just for me. The federal government, in its infinite wisdom, makes certain that any company retirement plans include a comparable contribution (based on a percentage of annual compensation) to all employees of a company who are over 21, have had one year of continuous service and work over 1,000 hours per year.
    Like they tell you in kindergarten, you have to share. If you don’t want to share, says the IRS, you get nothing.
   The contributions to the plan, of course, are tax deductible, thereby reducing taxable income. The money goes into a retirement account for each employee which they can’t touch until they’re 59-1/2 years old. If they leave the company, they can roll the funds into an Individual Retirement Account (IRA) or take the cash at that time, paying taxes and a strict 10 percent penalty.
    There’s another catch. While a contribution is made for every eligible employee, the plan can be set up on a five-year vesting schedule, meaning an employee leaving the company after only one year of eligible service would receive only 20 percent of the money in their account. The remaining 80 percent would be redistributed among the active participants in the plan.
    "Mmmm, now we’re talking," I said to Tom, the pension expert who was explaining all this to me in great detail. "I win both ways. The fund creates loyalty from the employees, and disloyal employees who leave prematurely have their wealth stripped from them and redistributed. Sounds fair."
   Actually, from a purely financial standpoint, I was still losing. As the sole owner with dozens of eligible employees, I’d be better off reporting the income and paying taxes. But the loyalty factor coupled with the forfeiture factor helped me decide to go ahead with establishing the plan.
   Now I need a marketing person interested in working on one of the great marketing challenges of all time: How do you sell a retirement plan to a 22-year-old?
   While there are a few older, mature employees who are beginning to contemplate their golden years, the majority of people working for my company are in their 20s. Socking money away for retirement is not high on their list of priorities.
   The strangest part is watching the expressions on the faces of the younger employees when they are told of their participation in the plan and their respective amounts.
   I just know, no matter what they say, they’re thinking, "Yeah, right. Like I’m ever going to see that money."
   Given the choice, they’d surely take half the amount if they could get it in cash. Or they’d probably trade it for a free dinner. Something they can taste.
   But there were some employees who were grateful for the opportunity to save for the future. For instance, Ralph, my highly sophisticated general manager, was very enthusiastic.
   "I think it’s a great idea," he said when told of the plan. "It’ll help to reduce turnover and anyone who sticks around can build a little nest egg. One question, though – who makes the investment decisions regarding the money in the retirement account?"
   I leaned back in my chair and clasped my hands behind my head, savoring the moment. "As sole trustee, I do."
   Ralph’s enthusiasm, should we say, soured. His only words were "Uh, oh."



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