Reasonable NRA for a boxer for a DB plan

[Jakyasar]

Hi

I am looking into a DB plan design for a professional boxer and researching what a reasonable NRA is for a new DB plan. Currently, age is mid 20s.

I looked online and on average, it is age 37.

Some retire in the 20s, early to late thirties. On very exceptional situations, past 40.

So, using NRA of 35-37 seems reasonable with a 10 YOP for a DB plan. Apparently planning to retire within 5 to 7 years.

Any comments?

[Peter Gulia]

I imagine the questions are about whether “the normal retirement age is not earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed.” 26 C.F.R. § 1.401(a)-1(b)(2)(iv) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)-1#p-1.401(a)-1(b)(2)(iv).

Even if this plan is for only one worker, might the employer’s business—and the “industry” in which the business operates—be a little wider than just boxing prizefights? For example, does the worker intend, after retiring from being a boxer, to become a teacher, coach, or trainer? If so, might that business, even if done by a separate business organization, be regarded as the same employer and “industry” (whatever that word might mean in the context) as the prizefighting employer?

I have no experience with an issue of this kind, so look to other BenefitsLink neighbors for practical guidance.

[Bri]

At that age wouldn't a DC plan get him a higher maximum?

 

[Jakyasar]

Between a DB+401k deferral+6% of PS based on maximum salary and low NRA within 10 YOP may yield better results, did not yet do all the math.

However, with prior service and big income, can possibly front load for a few years and then cut back.

[MoJo]

Years ago, we set up a DB plan for a pro boxer - with an NRA of 35....  The IRS puked all over that and insisted it was unreasonable - and demanded at least 50.  We had no choice (nor appetite to sue) and went with 50.  The problem with Peter's excellent analysis is that the prime earning years get diluted with lower earning in the "related" activities post boxing, and that requires an interesting formula to still provide desired benefits (not to mention funding gymnastics).

[Calavera]

Usually having just PS/401k plan at that age is easier and comparable if the current compensation is high enough due to very low 415 benefits at the age of retirement. However, from the legal plan setting up perspective I would recommend NRA 62, ERA 55, benefits unreduced at ERA, expected retirement age for valuation and contribution purposes is whatever clients tell you.

[CuseFan]

You'd have an extremely low actuarially reduced DB maximum benefit, and to what point?

From my perspective you are dealing with a self-employed sole proprietor whose business is not just boxing but his persona/personality. The likes of Michael Jordan, Tiger Woods, Shaq, George Foreman (the original, not any of the multitude sons) - any major sports (or other industry) celebrity who developed a personal brand - has self-employment income long after their playing days are over. So Joe Boxer might retire from competitive boxing at age 35, but when does he really retire from being Joe Boxer the celebrity?

[ugueth]

On 7/30/2024 at 8:18 AM, MoJo said:

Years ago, we set up a DB plan for a pro boxer - with an NRA of 35....  The IRS puked all over that and insisted it was unreasonable - and demanded at least 50.  We had no choice (nor appetite to sue) and went with 50.  The problem with Peter's excellent analysis is that the prime earning years get diluted with lower earning in the "related" activities post boxing, and that requires an interesting formula to still provide desired benefits (not to mention funding gymnastics).

I guess it depends on the IRS agent. In the 1980s, we set up a DB plan for a pro boxer with an NRA of 35. The IRS did question it, but ultimately allowed it.

As a follow up note, he fought consistently until age 35, then sporadically for about 10 more years thereafter, finally retiring completely at age 45. So we were fortunate to be able to have a plan that fully funded his benefits while his earnings were high, and not diluted by his later year earnings, as MoJo accurately described.

[Bri]

"Rocky VII:  The new RMD regulations"

[Jakyasar]

A bit of update with real #s which came out better than expected. This is a 2023 run, FYI

415 limit at 12/31/2023 at age 26.5 approx 58k

So with 330k salary at 31% total deduction, maximum that can be between DB and PS is 102k+

58k is for DB and 44k for PS, better than 66k PS only

2024, adding 23k deferral, now over 125k

Just wanted to share my findings

BTW, used NRA 62 as 415 limits need to be observed especially with the short # of years that the DB might be around.

Not bad for a 27 year old.

[Gina Alsdorf]

On 8/1/2024 at 10:09 AM, Bri said:

"Rocky VII:  The new RMD regulations"

I'd see this movie.