Perspective: Helping Business Owners Accelerate Their Retirement Savings

Replacing a gasoline engine with an electric hybrid motor...doubling the number of intake and exhaust valves...installing ABS brakes instead of standard discs...When it comes to cars, advanced designs often lead to improved performance.

Retirement plans are much the same.  Many business owners and professionals are looking to squeeze more horsepower out of their defined contribution retirement plans to increase their savings and enhance their lifestyles in retirement.  But while they can easily turn to their local car dealer to swap their ride, many business owners are unsure of where to go for an advanced retirement plan design.  Some are unaware that advanced designs are even possible.

As a financial adviser, you can be immensely helpful to business owners in your neighborhood by helping them tune up their 401(k) plans.  You can pinpoint which businesses can most benefit from an advanced plan design by searching the Internet, cruising websites such as, or others.  Some retirement plan providers even provide proprietary search engines.

The best way to begin your search is to first select a target such as professional entities, service firms, retailers, machine shops or other types of businesses.  Then ask the search engine to list those firms in your zip code without an advanced plan design, that is, businesses or professional practices that currently rely on a basic profit-sharing plan for retirement savings.

Once you begin introducing yourself, you’ll find these business owners and professionals have several things in common besides an antiquated retirement plan that limits their retirement options.  They most likely believe they can’t increase their retirement savings without boosting contributions for all of their own employees, a potentially expensive and possibly unaffordable proposition.  They know they aren’t saving enough to continue their comfortable lifestyle in retirement.  And they’re worried about escalating business expenses and rising taxes.

Of course, you don’t have to be Nostradamus to peer into the future and know that many of these business owners would welcome help in setting aside more of what they earn without giving more away to others.  And there are several ways to accomplish just that.

Depending upon the need, business owners can implement any one of several advanced plan designs that allow them to accumulate the maximum annual amount possible—$49,000 plus another $5,500 for those age 50 and older—and do something less for other employees. Those designs can include age-weighted plans, integrated plans, new comparability plans, and cash balance plans that complement profit-sharing plans.

Integrated plans integrate with Social Security, allowing a business to make larger contributions on behalf of employees who earn above the $106,800 Social Security wage base for 2010.  Contributions are based on the principle of "Permitted Disparity," which accounts for the fact that Social Security will replace a lower percentage of income for higher-compensated employees than it will for lesser-compensated employees.

Age-weighted plans allow contributions to be made based on the age of each participant.  The older an employee, the less time he or she has to accumulate retirement savings and therefore the more generous the employer’s contributions on their behalf to the company’s defined contribution plan.

New comparability plans divide employees into two groups (typically highly compensated and non-highly compensated) with separate discrimination testing for each.  These plans take into account age, compensation and other factors to determine retirement plan contributions.

Cash balance plans are a type of defined benefit plan that may help certain business owners and professionals accumulate significantly more assets for retirement than defined contribution plans.  There also may be significant tax advantages and fewer fiduciary concerns.  Keep in mind, though, that these plans require annual employer funding in accordance with minimum funding standards.

These advanced plan designs can help business owners turbo charge their retirement savings without draining the corporate gas tank.  By establishing yourself as the “Joe’s Garage” of retirement plans, you will also steer your career on the fast lane towards the winner’s circle. 

E. Thomas Foster Jr., Esq., is The Hartford’s national spokesperson for qualified retirement plans. Foster works directly with broker/dealer firms and advisers to help them build their qualified retirement plan business and educate them about industry issues.

The websites referenced in this piece are not maintained by The Hartford.

“The Hartford” is The Hartford Financial Services Group, Inc. and its subsidiaries, including the issuing companies of Hartford Life Insurance Company and Hartford Life and Annuity Insurance Company.  PLANCO is a member of The Hartford Financial Services Group, Inc.  Hartford Investment Management Company is a subsidiary of Hartford Financial Services Group and the sub-advisor to several of the Hartford Mutual Funds. The Hartford Mutual Funds are underwritten and distributed by Hartford Investment Financial Services, LLC. a broker/dealer affiliate of The Harford Financial Services Group, Inc.

This information is written in connection with the promotion or marketing of the matter(s) addressed in this material. This information cannot be used or relied upon for the purpose of avoiding IRS penalties. This material is not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, you should consult your own tax or legal counsel for advice.