Ken Marblestone, JD, a partner with The MandMarblestone Group LLC in Philadelphia, is a proponent of creative retirement plan design for closely held businesses. In this preview of his session at PICPA’s 2018 Personal Financial Planning Conference on Nov. 8, he discusses how financial planners can use defined benefit and cash balance plans to generate significant deductions and retirement savings.

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By: Jim DeLuccia, PICPA Communications Manager

Podcast Transcript

Creative retirement plan design for closely held businesses is one of many interesting topics which will be addressed at PICPA's 2018 Personal Financial Planning Conference on Nov. 8th at Penn State Great Valley in Malvern. Ken Marblestone JD, a partner with Mand Marblestone Group in Philadelphia, joined me to preview his session and further explain this concept.

I'm hoping you can provide a little about your background to start off here. I see you are an attorney. What inspired you to be a proponent of creative retirement design?

[Ken] Well, I've been practicing law in the employee benefits area, specifically ERISA since shortly after it came into law in 1974 and over the years, my practice evolved into designing plans for small companies which has proven to be very effective as a tax shelter for the owners of those businesses. And the more I got into it, the more we, my firm, saw the opportunity to develop designs that were extremely helpful to the owners of small businesses.

In your experience, have you found that many closely held businesses are not being creative with their retirement plans? And if so, why do you think that is?

[Ken] Well, over the years, retirement plans have become sort of a commodity. They have been taken from the realm of the tax practitioners and put into the realm of payroll providers, banks, insurance companies, and anybody who could invest the assets and these parties, while they offer a basic form of retirement plan design, do not get into the more effective ways of enabling business owners to put away significant funds for themselves.

How have the changes from the Tax Cuts and Jobs Act affected qualified retirement plans?

[Ken] Well, since we have not yet gone through the first year end of the Tax Cuts and Jobs Act, we're not entirely sure how this will play out. We do believe that there is a significant incentive to create these plans, where none previously existed, or to improve upon these plans in order to reduce qualified business income to take advantage of lower tax rates.

Now what is one way a financial planner can use defined benefit and cash balance plans to generate significant deductions and retirement savings? I know you're going to probably discuss this in your session.

[Ken] The most basic plan that most companies have is the 401(k) plan, where the maximum amount that an individual can put away for himself or herself during the year is $61,000, including a $18,500 basic 401(k) contribution, a $6,000 catch up contribution if the individual is at least aged 50, plus an additional company contribution, either match or profit sharing or a combination of the two, of another $36,500 to get to either $55,000 if the individual is not yet aged 50 or $61,000 if the individual is at least aged 50.

However, the addition of a defined benefit or cash balance plan can add significant amounts to that $55,000 or $61,000 maximum. We have clients who are putting away well over $200,000 for themselves on an annual basis by using a defined benefit plan or cash balance plan.

And finally, what is the main takeaway that you would like attendees of your presentation to leave with on November 8th?

[Ken] I guess the main takeaway is that qualified retirement plans are still the best tax shelter out there. It allows a business owner to get a current deduction, have tax free buildup, tax deferred buildup in the retirement plan trust, and then the income comes out after normal retirement age, perhaps as late as 70 and a half and can be stretched beyond that and into the next generation, if the owner does not fully exhaust the retirement plan funds while he or she is still alive.

So it is a significant tax shelter and we would hope that more closely held businesses take advantage of this because it's really the best thing out there. It's not a fly-by-night deal that may be gone in the next tax law. It's here, it's been here, and it will be here to stay.

You can hear more from Ken on this topic at PICPA's 2018 Personal Financial Planning Conference on November 8th at Penn State Great Valley. Sign up to attend in person or via webcast at www.picpa.org/pfp.