Swoosh2123

Mike Preston, you seem to be arguing about what should have been done in the past for owner-only plans, but this poster is considering adopting a plan for 2018. Now that we have pre-approved plan documents for CBPs exactly the same as for traditional DBPs, (no additional expense or risk) why would this person ever choose a traditional DB plan over a CBP? You are ignoring the biggest benefit of a CBP for an owner-only plan. The ease of understanding for the single owner. The lack of 417(e) is an additional bonus as well. Since the traditional DB has absolutely zero advantages over a CBP on May 8, 2018, why would anyone ever set up a new traditional DB plan? It seems like you are on board with that thought, but maybe I'm wrong. You can let us know what you think the advantage of a DB plan is if this person adopts a plan on a new pre-approved document with a 5% crediting rate. If you don't have one, then I think we all need to move on and agree that new traditional DB plans are dead and this person should adopt a CBP when his accountant says he is ready for larger retirement plan deductions. And I came up in the traditional DB world so it's not like I have anything against them. I'm still hoping that when the job market again becomes employee-driven instead of employer-driven, employees will come around and realize they want a monthly annuity stream in retirement from their employers. Until then, the CBP is the defined benefit plan of the present and future for companies of all sizes for good reason.

I have a few comments about this thread: 1. I agree with figure 8 about CBPs being the preferred DB plan type now that the IRS has come out with pre-approved plan documents. We stopped doing traditional DBs as soon as they started allowing 8905s for the exact same reasons he did. Using a traditional DB plan these days is making it harder for clients who don't make maximum income no matter what like the person in question. He could have a formula in a CBP that is dependent on compensation like 10% of pay up to $150k plus 900% of pay over $150k or something like that to allow him maximum flexibility. While that can theoretically be done in a traditional DB as well, it's much more difficult. 2. The interest crediting rate in a plan like this doesn't really matter. Why not pick 5%? In my opinion, there is no reason not to. But I also agree with figure 8 that choosing something lower only matters if the participant ever gets to be over Age 65. But still, asset return is such a small part of the minimum required contribution calculation, that we recommend 5% to all of our clients with no employees. 3. Regarding the timing of setting up a CBP, we recommend the following scenario for our young clients. Max out your profit sharing first because it is a use it, or lose it deduction. Contribute whatever is left in the 31% limit into your cash balance plan. If making maximum compensation, that's still just under 18% of pay (about $48,750). There is no need to limit profit sharing to 6% yet. After 5 or 6 years of running the plans that way, the plan sponsor can switch and start making 6% profit sharing contributions and much larger CB contributions for the last 4 to 5 years when the participant is older can take advantage of the prior years of participation available due to not maxing out for the first 5 or 6 years. 4. At the end of the day this poster should consult two very important people. First, his accountant to see how much of a deduction will even be helpful based on his entire tax situation, new tax law, etc. After he has done that and determined how much to contribute, he should talk to an actuary who specializes in small company plan design. While it may cost slightly more than a cookie cutter DB outfit, it is definitely worth the extra $500 - $1,000 per year.