This Week's White Paper Wednesday Project is from Michael Weiner, CFA, Chief Investment Officer @ Unified Trust Company. According to multiple surveys, somehow accumulating enough assets to retire comfortably, given all other demands on our savings, remains a top five concern of Americans. This is a major reason why Cash Balance plans are on the rise throughout the U.S. and why it may be something to consider for your business both from a tax efficiency (Buffet style) and a retirement savings perspective.

1. Cashing In on Cash Balance
The Buffett Rule
Warren Buffet, the “Oracle of Omaha” might be the
most accomplished living investor. His homespun
commentary is often quoted and his example emulated
where possible. For instance Mr. Buffett often
admonishes us to “invest in stocks as if you were buying
a business” and “the stock market is the only thing we
want more of when prices are high and less of when
prices are low.” Much like EF Hutton of a generation
ago, when Warren Buffet
speaks, people listen.
Mr. Buffett famously
opined that he pays less
tax dollars as a percent
of his income than does
his secretary. This
innocuous statement
morphed into “The
Buffett Rule” that nearly
became policy in our
nation. Millionaires
or thereabouts would
have been subject to a
minimum 30% tax rate
as a ‘fair share’ had
legislation been passed.
For perspective, the majority of Mr. Buffett’s income
is capital gain, which up until recently was taxed at
a maximum of 20%, a rate probably lower than the
marginal rate paid by many middle class Americans.
However, last spring, the Oracle described the real
Buffett Rule: “I will not pay a dime more of individual
taxes than I owe, and I won’t pay a dime more of
corporate taxes than we owe. And that’s very simple,”
Mr. Buffett told Fortune magazine. The billionaire also
gave a clue about his thoughts on corporate inversions
(an American acquirer taking the tax domicile of a target
foreign company to gain that country’s lower tax rate).
“I will do anything that is basically covered by the law to
reduce Berkshire’s tax rate,” he said. Interesting.
Mental connections are funny things. Just the other
day we came across an article regarding Cash Balance
Plans and it made us think about the real Buffett Rule.
Cash Balance plans offer the chance to do what Mr.
Buffett does, not what he says, namely, pay no more
in taxes than you owe. Cash Balance plans are
becoming increasingly more popular and you may
not have heard much about them yet. At small and
midsize firms, when used in conjunction with a 401(k)
program, these plans can help participants save more
towards retirement in a tax deferred manner and help
business owners improve the cost and tax efficiency
of their organization. Not
too shabby.
Cash Balance plans are
considered a bit of hybrid
plan as they combine the
high contribution limits
of a defined benefit plan
with the flexibility and
portability of a 401(k)
plan. According to
the US Department of
Labor, “A cash balance
plan is a defined benefit
plan that defines the
benefit in terms that are
more characteristic of
a defined contribution
plan. In other words, a cash balance plan defines the
promised benefit in terms of a stated account balance.”
The stated account balance is a function of the plan
sponsor’s contributions and a crediting rate.
According to multiple surveys, somehow accumulating
enough assets to retire comfortably, given all other
demands on our savings, remains a top five concern of
Americans. This is a major reason why Cash Balance
plans are on the rise throughout the U.S. and why it
may be something to consider for your business both
from a tax efficiency (Buffet style) and a retirement
savings perspective.
To learn more about Cash Balance plans, contact
Jason Grantz, QPA, AIFA®, Institutional Retirement
Consultant at jason.grantz@unifiedtrust.com or (732)
227-9252.
Michael Weiner, CFA®, Chief Investment Officer, Unified Trust Company
Mr. Weiner received his Bachelor’s Degree from Duquesne University and his MBA from the University of North Carolina at Chapel Hill.
He is responsible for establishing and implementing investment policy, including research, policy development, asset allocation, mutual
fund and separate account manager selection. His position leads the Trust Investment Committee for both the Wealth Management and
the Retirement Plan Consulting Group business lines. Mr. Weiner joined Unified Trust in 2013 with more than 29 years of experience in
the investment management industry and is an accredited CFA (Chartered Financial Analyst).
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