Determining an Appropriate Retirement Plan

The choice of what type of plan to use has many different factors such as employer goals and available cash flow.

When it comes to retirement plans there are two principal types of plans:

• Defined Benefit:
  These plans specify the dollar amount each participant will receive at retirement age and estimate how much must be contributed each year to accumulate the necessary future fund.
  
  Types of defined benefit plans include cash balance plans or traditional pension plans.
   
• Defined Contribution:
  These plans generally put a percentage of current salaries into the plan each year. The amount at retirement will depend on the investment return and the number of years until a participant retires.
  
  Types of defined contribution plans include Simple IRA, SEP IRA, 401(k), 403(b), and profit-sharing plans.

Both types of retirement plans provide several tax benefits and it could be appropriate for your business to utilize one or a combination of both of these.

At Planning Needs Financial Group, we work with our individual clients to develop a plan that is right for their unique needs. Please click here to contact us to discuss the option that is best for you.

 

 

Determining the Right Amount of Coverage

An employer’s decision to provide group insurance to its employees adds a significant fixed cost and is one of the toughest decisions an employer may have to make. However, the benefit to employees and your organization's efforts to recruit top talent is paramount.

Some of the types of insurance can include:

• Health insurance
• Dental insurance
• Vision insurance
• Disability insurance
• Life insurance

When deciding on group insurance options there are several considerations that an employer may need to account for. Who needs to be covered, how long should the employer wait before coverage is offered to a new employee, how much of the premium should the employer pay, and the tax benefits of an insurance plan are a few.

It is important to determine the most feasible and cost-effective solution that will allow you to offer group benefits to your employees. Consulting with a knowledgeable professional can help you determine the best plans for your business. Please click here to contact us to review your options.

 

 

Determining How Much Coverage is Necessary

The death or disability of a key person can have a dramatic impact on the operation of a business. In a small business, it can be devastating. Protecting your company from financial losses with key person coverage has long been recognized as invaluable.

Significant financial costs can be incurred in addition to the grief and stress of the untimely death of a key person, or a business owner. Some of these costs can include:

• The time and funds to find, hire and train a replacement.
• Missed business opportunities, because cash reserves are being used to recruit and train a new employee.
• Deadlines not being met due to distress and deteriorating morale of the employees.
• Immediate cash needs to fulfill promises made to the deceased's spouse or family members, such as salary continuation or deferred compensation.

If the key employee is the owner of the business, some additional considerations are:

• Possible disagreements between the heirs and the surviving business owners or key employees.
• Lack of liquidity to buy the interest of a deceased owner, requiring a sale of the business to an unknown, outside third party.
• Surviving owners may be forced to work with someone who is either not competent or not motivated enough to make the business thrive.
• The business may have to be liquidated to pay estate taxes.

It is important to identify the key employees and determine the costs associated with an unforeseen circumstance. Ensuring that you are covered should be a top priority for business owners.

If you would like to discuss your options in more detail, please click here to contact us.

 

 

Retain and Compensate Key Employees with an Executive Bonus Plan

An Executive Bonus Plan allows you to pay premiums of a life insurance policy on the employee’s life, owned by the employee, which can build a cash value. At the employee's retirement, they can access the cash value to supplement their cash flow. If they pass away before they use the funds, their beneficiaries will receive the death benefit. It is a great incentive that results in higher employee retention and can contribute to your overall bottom line.

Benefits of an Executive Bonus Plan:

• Creates an additional incentive for key employees to stay with the company, which saves the cost typically incurred to hire and retrain new employees.
• Tax deductions for employer contributions
• Setting up the plan is simple and there are no IRS issues with terminating the plan.

To learn more about implementing an Executive Bonus Plan, contact Planning Needs Financial Group by clicking here.

 

 

The Importance of Succession Planning

Retirement planning for business owners inevitably includes consideration for what to do with the business. A business owner’s decision to retire requires much more than just setting a retirement date. Succession planning thoughts are inescapable and on every business owner’s mind, whether to sell, transfer, or simply close the doors.

Also, if the unexpected were to happen, a succession plan can make the transition of the business smoother and less of a hassle for a business owner's beneficiaries.

Whether you are expecting to leave your company, or not, it is important to place some consideration in a succession plan. Life is full of unexpected situations so making sure that you are covered for any contingencies is vital.

Careful planning using buy-sell agreements can allow the business owner to successfully make this transition, achieve a profitable sale of the business, manage the risk associated during the transition, and reduce any potential income tax liability. Salary Continuation Plans can also be a useful tool when succession planning. Establishing a stream of income in retirement or in the case of death or disability can really help ease the transitional period.

 

 

Determining the Right Plan for Your Business

A buy-sell agreement is an essential contract for a business owner that can make the transfer of ownership a seamless process should the need arise.

If the business is a partnership, consideration should be given to the lifetime agreement among business owners as to the disposition of the business.

There are four common buy-sell agreements:

• Cross-Purchase Plan:
  Each surviving owner agrees to buy the interest of any deceased owner. This is the most common type of agreement.
   
• Entity Redemption Plan:
  The business purchases the interest of the deceased owner, the remaining owners then reallocate ownership so that it is split evenly. This type of arrangement is often used when there are several owners.
   
• One-way Plan:
  This is used when a sole proprietor wants an individual (a child, spouse, or key employee, etc.) to purchase the business should they pass away, retire, or become disabled.
   
• Wait-and-see Plan:
  The business gets the first right of refusal for the deceased owner's shares. If the business decides not to purchase the deceased owner's shares, the other owners may then purchase them.
   

There are some key advantages to establishing a buy-sell agreement, such as:

• Mutually agreeable sales price and clear terms of payment, which is easily funded with life insurance and/or disability insurance.
• An orderly transfer of the business to those that are going to continue to run the business.
• Establishing a value that is binding on the IRS for federal estate tax purposes.
• Stability for customers, staff, creditors, and investors.
• An agreement that is favorable to all parties that can be more easily drafted prior to a crisis.

There are also potential pitfalls of not establishing a buy-sell agreement: 

• Heated conflicts among the remaining owners and the decedent’s family.
• Unhappiness on all sides, and sometimes litigation.
• Delays in settling the estate and continuing business growth.
• Loss of customers.
• Possible liquidation of the business which may generate less than full value.

Taking the time now to see that the business will pass in an orderly manner at the time of death will benefit all parties and their heirs.

To discuss your situation and how a buy-sell agreement can help your business, click here to contact one of our Financial Planners today.

 

 

Determining if This is Right for Your Business

A salary continuation plan is an agreement between an employee and employer, whereby the employer agrees to continue the employee’s salary at retirement, death, or disability. The benefits are normally expressed in terms of a percentage of salary and length of service. It is usually done for key employees.

The ideal way to fund the plan is to purchase a permanent life insurance or disability policy for each employee involved in the plan. The employer applies for the insurance on the employee, pays for the premiums, and is the beneficiary of the policy benefits. Since these are individual policies, the employer can adjust the benefits as they relate to each employee.

If the employee becomes disabled or passes away, the benefit can be used to continue the salary obligation. If the employee retires, the cash value of the life insurance policy can be used to provide the necessary salary obligation.

The advantages of a Salary Continuation Plan are:

• IRS approval is not required and the plan can be provided to a select number of employees.
• Since the plan is not subject to IRS approval, it can be terminated at any time.
• These plans are easy to establish and administer.
• This type of plan can help to recruit key employees.
• The employee does not have to report taxable income until the benefits are actually received
• The employer can recover all costs of the plan through a properly designed program

If you would like to discuss how a salary continuation plan could work for your business, please click here to contact us.