richard

The traditional thinking is the client should use all of the tax-deductible tax-favored vehicles available (like qualified plans) before using after-tax fax-favored vehicles (insured private pension plans, tax-deferred annuities, etc.). However, qualified plans come with a price, namely the cost of covering other employees and administration. After-tax tax-favored products come with a price, namely being limited to the insurance product offered. (Qualified plans have "almost complete" investment flexibility -- "almost" because certain investments like collectibles aren't allowed.) If the ONLY FACTOR is maximize the owner/minimize everyone else, then I agree that there comes a size where the qualified plan route isn't the most advantageous. Probably when 50% to 75% of the contribution goes to the owner is that point (as indicated in the article). However, the value of the client's business is perhaps his/her largest asset. To the extent they believe that providing benefit to their employees enhances that value means that we shouldn't ignore the cost of providing some benefits to employees. (Of course, it is entirely the client's call. If the client believes that employees are a dime a dozen, then the pension plan, if any, should reflect that belief. If the client believes that employees are valuable, then the pension plan, if any should also reflect that belief.) Also, the article indicated that 85% of Fortune 500 companies have non-qualified pension plans covering their executives. Of course, they have qualified pension plans covering all employees (including executives), as well. The Non-qualified plans are a supplement for the executives. Now, since the private pension plans are funded through a specially designed high quality insurance product, according to article, I would ask why these products are not the mainstay of the qualified plan arena?

I suggest that you think of your pension the following way. You have earned a pension based on your employment to date of, let's say, $1,000 per month starting when you turn age 65. Your employer has offered you the ability to take a lump sum of X dollars instead of the monthly pension. They have not changed your monthly pension -- you have still earned (based on your employment to date), and are entitled to, a pension of $1,000 per month starting at age 65. They cannot take that away from you. They are still offering you the alternative of taking a lump sum instead of the $1,000 per month pension; however, they have reduced the amount of the lump sum. (As Dave Baker indicated, this is one of the few time the government has allows such a cutback.) However, if you choose to take your pension as a monthly benefit, you are not affected by this cutback -- nothing has changed. By the way, think of a true purpose of a pension plan as providing you with a monthly lifetime pension. I know that it is common for employees to be offered lump sums instead of their people (and employees like this because they would like to invest the money themselved), but THE PRIMARY PURPOSE OF A PENSION PLAN IS LIFETIME MONTHLY INCOME. (OK, I'll get off my soapbox)

We have always been fee for service, but have observed the product-based consultants over the last 20 years. To step out of the box, however, it is interesting that the trend in the investment industry, which has alway been commission-based, is to fee-based consulting. The fees sometimes are disguised commissions (the 1% of assets gets you 50 "free" trades), but sometimes they are legitimate fees (particularly from financial planners). Now, sometimes they use these "fees" as a loss leader to sell traditional commission-based products, but some "experts" suggest using a financial planner to design the investment program, and actually invest elsewhere. That would be consistent with the idea of paying consulting fees for advice, and paying the actual cost of trading by using a discount broker. Of course, some people refuse to pay fees at all ...

For a company that has a 401k plan (with 401m company matches and after tax contributions) and a money purchase plan, which of the following "account balances" are included in top heavy testing? Are there any options? 1. Employee pre-tax deferrals (plus investment earnings 2. Company matches (plus investment earnings) 3. Employee after tax contributions (plus investment earnings) 4. Employee Rollovers (from a qualified plan of an unrelated company to this 401k) 5. Defaulted loans Of course, the money purchase account balances are included. Thanks