II. “Big” Plan vs. “Small” Plan Mentality
Counseling small
businesses requires identifying the motivation
of the owner(s). Benefits goals range from:
-
"I want to be generous to
employees.”
-
"I want to match my
competitor(s)’ benefit plans but otherwise
have no desire to benefit employees.”
-
"I want to pay the employees
fringe benefits of “X” amount and pay, if
possible, “Y” (a much larger amount) to
“myself.”
-
"I want to give nothing, if possible to
employees and keep all fringe benefits for
myself.
Threshold of “Big” Plan mentality
vs. “Small” Plan mentality varies but here is a
chart we often use as guidepost:
Comment: It is a myth that a
deduction saves taxes equal to the tax savings
and that it is a wash to give the amount equal
to tax savings to employees. Example – Pension
Plan contribution of $20,000 at 28% federal
bracket and 6% net state bracket. Savings?
$6,800. Assume $6,800 goes to employees.
$13,200 goes to owner. Owner later withdraws
$13,200. Tax on it is $4,488. The cost is
assumed to be $11,288. Owner ends up with
$8,712 out of $20,000.
