Combination Plans For One^SM

Combination Plans for One^SM is a streamlined, easy to operate retirement program whereby owner-only businesses (spouses can be included if they receive income from the business) can take advantage of the greater tax deductions allowed in recent law changes. For each employer, a defined benefit plan is operated in conjunction with a defined contribution 401(k) profit sharing plan.

A defined benefit plan is a plan type which promises to pay a certain benefit at retirement. The benefit payable to an employee is based on a formula set forth in the plan that often considers both length of service and compensation. The annual contribution is determined by an actuary based on factors such as an employee’s years to retirement, compensation and investment earnings. The commitment of the plan sponsor is needed to satisfy funding requirements to provide retirement benefits. If the plan is fully funded, no contributions may be required.

Why do I need to add a 401(k) profit sharing plan?

With the passage of the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"), employers are allowed greater deductions for retirement plan contributions. 401(k) deferrals are no longer taken into account when determining the maximum allowable retirement contribution. For an owner-only business, this can yield an additional $13,000 contribution for 2004. Furthermore, in some cases, the defined benefit plan may not equal the 25% maximum contribution limitation for a combination of defined benefit and defined contribution plans. The employer can make up this difference as a profit sharing contribution.

Is this the right plan type for me?

This combination of plans is best suited to those individuals who are of a relatively young age who which to retire at an early age. A common adopter of these type of plans are professional athletes who are not covered by a players association retirement program and professionals who which to retire at a young age.

How much can I contribute to this Plan?

Annual required contributions vary widely depending on age, compensation and previous investment performance. For a first year plan, here are some sample contributions using common assumptions. We will design specific assumptions to suit your needs and circumstances.

A 25 year old making $200,000 who wishes to retire at age 35 (for illustration purposes only)

You will likely need to fund approximately the same amounts for the next several years. However, depending on actual investment performance, you may be required to contribute more or less in the defined benefit plan. Care should be taken in selecting investment options.

If the above illustrations do not meet your anticipated needs, or if you have employees, please call our office for more information, including Defined Benefit For One^SM and 401(k) For One^SM plans.

How is my money invested?

Current law allows plan sponsors to invest in a wide variety of assets. Stocks, bonds, CD’s, mutual funds, etc. are all common in retirement plans. If you are utilizing the services of our strategic partner for corporate trustee services, you are also able to invest in real estate and deeds of trust. Unusual assets such as art work, gemstones, coins, antiques, etc. are generally prohibited as a matter of law.

If you elect to use the services of our strategic partner* as your corporate trustee, you can still utilize the services of your current financial advisor or broker. Please contact California Pensions’ Trust Operations Department for additional details as there are specific operating conditions for the accounts. You will receive quarterly statements of your account detailing assets, transactions and fees. California Pensions can provide duplicate statements to brokers, CPA’s, or other interested parties if you so desire. The services of a corporate trustee relieves you of the duty to provide California Pensions with annual trust reconciliation forms and schedules which are needed for annual calculations as well as annual government filings.

There is a $1,750 one time set up fee (submission to the IRS is billed separately) and an annual administration fee of $1,650. Other fees may apply based upon specific services which may be required, or if you choose to utilize corporate trustee services. (Please see the Client Service Agreement in the downloadable brochure for more details.)

What steps are involved in opening a Combination Plans For One^SM account?

California Pensions makes sure that minimal work is required for our clients to open an account. Following is the very simple process involved: