Scenario #1 Spam Inc. has a quickly growing workforce of 200 full time employees

Question

Scenario #1

Spam Inc. has a quickly growing workforce of 200 full time employees. Spam has a consistent cash flow for a relatively new company. In order to attract and retain good employees, Spam’s management wants to install a qualified retirement plan. The Spam’s CFO is concerned with administrative costs and would like to keep the costs to a minimum. Spam’s HR head wants a plan that is easily understood and communicated for recruitment purposes. So far, Spam has had little turnover of employees but it is almost too early to tell if that will be an issue.

Scenario #2

Brian is a self-employed public speaker. His business has recently started to grow significantly and he is making a lot of money. He has 12 full-time employees. He is paying a lot in taxes as he is single, without children, and has no mortgage.   In addition, his business recently failed to receive 501(c) charitable status. He would like to share a significant amount with his employees (Brian is a charitable soul) and save a good deal for himself (tax relief is Brian’s first concern). So far, Brian has had no turnover of employees.  

Scenario #3

Lumberjacks Inc. has 10 full-time workers year round. In addition, they have a significant workforce that is seasonal (typically 50-100 workers/summer). These seasonal employees typically work less than 300 hours/year and only last 1 or 2 years tops due to the grueling lifestyle. The CEO wants to make sure to provide for the full-time employees but would like to exclude the season employees to whatever extent is possible. He also has some concerns about flexibility of making contributions every year.

Scenario #4

Waffer Thin Inc. produces a high-end edible treat.   While they have been in business for years, they have no qualified plans in place. Of their 5000 employees, less than 20 have the important trade secret and can actually produce the product. The management of Waffer Thin Inc wants to tie these employees to the company for fear of them selling secrets to the competition. If this can be done as a part of a retirement plan, they would like to do so.   Management would also like to provide some benefit to the rest of the employees, but would like this to be of minimum, consistent, and foreseeable cost. This plan does not need to adequately provide for retirement income for these employees.   

Scenario #5

Shrubberies Inc. has 14 full-time employees and has been in business 2 years. Cash flow is not consistent for Shrubberies Inc. just yet. Shrubberies Inc. would like to contribute the employee’s retirement, but only if they are contributing themselves. Also Shrubberies would like to be able to budget for the contributions and be able to decrease contributions during bad years. Shrubberies Inc. does not want to be responsible for selecting investment vehicles for the individual employees. Stability of the workforce has been consistent to date, but may vary as a competing company has moved into the area.

Scenario #6

Flying Circus INC. has six owners and several full time employees. The company has plenty of cash. The owners/key employees are looking to provide the maximum retirement income for themselves. Administrative costs aren’t ideal, but will be tolerated. The owner/key employees are significantly older than the rest of the employees. Sheltering significant income is definitely a bonus. The owner/key employees are also looking to eventually pass on ownership to the employees and/or potential buyers.

Read all scenarios 1 to 6 in the Overview and complete the following:

Select a qualified and/or nonqualified plan type for each business described.

Provide justifications on how your recommended plans could best suit the need for each business.

Discuss alterations you may make to a standard plan to benefit your client in the given fact pattern (e.g., vesting, participation, etc.).

Explanation / Answer

Scenario 1:

Since the organization is having enough cash flow and need talented employees to run their new business the qualified plan, profit sharing method would be appropriate. This would attract the talented employees as they can also yield benefits out of the organization’s growth. It is the most recommended employee attraction plan. The alteration which can be made in the standard plan is the non discrimination in implementing the profit sharing plan.

Scenario 2:

Here the employer is single and has to pay more taxes. The qualified plan which the employer can adopt is the employee stock ownership plan. This enables the employer to pay less tax and also can benefit the employee through getting the retirement benefits. The employer can also include good coverage for its employees so that it can enhance the loyalty towards the firm.

Scenario 3:

The workforce mentioned in this scenario doesn’t seem to be flexible since they are seasonal employees. The non qualified plan which the employer can opt here is the non qualified plan, true differed compensation plan. Through this plan the employee contributes a portion of their income and the employer also contributes to the bonus income of the employee. Participating the employees in the implementation of the plan can add value.

Scenario 4:

For the important ten employees the organization can provide the qualified plan, employee stock ownership plans. Through this the employer can restrict them to share the secrets through making them the stock owners. For the rest of the employees executive bonus plans should be appropriate which can enable the organization to maintain the talented employees. Vesting or provision of authority can make them loyal and committed towards the organization.

Scenario 5:

True deferred compensation plan would be appropriate here. Under this plan the employee themselves contributes for the retirement benefits for their salary. Participation and vesting can make the plan more effective as it can provide authority to the employees to operate effectively.

Scenario 6:

The employee stock ownership is the perfect option qualified plan for this organization. Through this the key employees would be benefitted. Since the organization doesn’t face any administrative issue and also it is posing strong financial situation this would benefit employees as well as the employers. Non discrimination should be implemented here.

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