A Financial Advisor Discusses Financial Planning for Small Businesses
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Three Financial Planning Ideas for High Net Worth Small Business Owners
Retirement Savings Ideas for Small Business Owners
We bring EZTPA’s founder, Adam Hunt, in to talk retirement savings ideas for small business owners. We cover a couple of main points:
1. Consider a 401k
2. Consider a Cash Balance Plan
CHAMBERS: Hey everybody. It's Trevor Chambers, Olde Raleigh Financial Group here in overcast today, Raleigh, North Carolina. Welcome to the Soundtrack to a Financial Advisors Life from the lively production studios here at Olde Raleigh Group; Olde Raleigh Financial Group, where my firm helps provide wealth management consultation to high-net-worth families and business owners. Today, I've got a special guest. This is a gentleman who heads up a firm called EZTPA. His name is Adam Hunt from the vacation capital of the world, Malvern, Pennsylvania. What's up.
HUNT: Hey Trevor. Thanks for having me on.
CHAMBERS: Of course, man. I appreciate the time. So, we tried this once and, you know, compliance said, hey guys, you gotta (sic) tighten this stuff up. So, we decided to take another crack at it. So, I appreciate you lending some time here.
HUNT: Absolutely.
CHAMBERS: Adam is truly one of the -- he’s fabulous to work with. Adam helps companies, sole proprietors, set up retirement plans. For example, things like 401k’s and the like and even those things like cash balance plans. Which if you haven’t heard of it, we're going to talk about it today. So, Adam, thank you so much for your coming. Hey, can you just give us a brief overview of EZTPA and yourself and then let's get into some questions?
HUNT: Yeah, absolutely. So, I launched EZTPA about four years ago. We're a small boutique firm located in Malvern, Pennsylvania, which is just an earshot to Philadelphia. We currently administer over 400 retirement plans, roughly 5,000 participants plus, about $300 million in assets under management. And really, we help small business owners and financial advisors work on their wealth planning with their clients, in terms of designing retirement plans around, kind of really three premises.
DESIGNING YOUR RETIREMENT PLAN
One is to help reduce current year income tax for the owners. Second is to create an income stream in retirement for the staff and the owners. And then third is also to create a retirement program that you can use to recruit and retain employees in what is really a very difficult employment market right now. So, we've had a lot of success in helping both advisors and clients really kind of accomplish those three primary goals.
CHAMBERS: Thank you for that. That was a very succinct introduction, my friend. You were working on that?
HUNT: I -- I practiced in front of the mirror this morning, just for you.
CHAMBERS: Thanks, man. So, I want to talk -- so basically guys, here's -- I want to tell you just a couple of things about Adam. Plug for Adam. Okay, so Adam has this firm. He and his lovely wife. And he partners with wealth advisors, like us, often times, right? And, as a wealth advisor, we're always looking for the best professional services people to assist our clients; our high net worth clients, our business owners clients, with whatever professional services they need to better the health of their -- financial health of their company, and their personal health, right, or their personal financial health. So, but so, what I'm trying to say is we deal with a lot of vendors like Adam, and we go through -- like we talk to a lot of them, but once I had met Adam, he was over on the -- on the TPA, and here's why. He calls you back. And I want to plug in, I want to thank you again, Adam, for being responsive. You’re one of the few people in, possibly North America that calls you back when you call so I want to thank you for that.
HUNT: Just doing my job.
CHAMBERS: Got it. So, we're gonna (sic) jump right into it. What is a 401k? And what is it. I'm -- I'm running a, you know, I'm a real estate or you know, a real estate agent or I'm a high net worth consultant, and I want to set up a 401k. What's a 401k, my friend? And -- tell us about it.
WHAT IS A 401K?
HUNT: Yeah, absolutely. So, 401k kind of falls under what in a broader term, we call a defined contribution plan. So, what that means that we're defining what the person gets today. What they get in the future is entirely predicated on how their investments perform, right? So, they are individually responsible, excuse me, for their -- the investments that they are selecting and, you know, hoping those investments perform. So that's how you define contribution. That's kind of the general term of it. 401k is a nomenclature that came up in the early eighties. And basically, it's the way that you can reduce your income taxes by tax sheltering some of your own money. So, if you receive a W2, you would see that as a reduction in your W2 wages, right? Now, if you're a self-employed individual, let's say you’re, you know, a real estate agent, you can still do a 401k. You're just going to show it as a deduction on your net schedule C. So, but basically, it's the idea that it's your own money that you're allocating into the plan. When you have a 401k, the other component piece that goes in is the employer component. This is also part of the code section under the defined contribution. You’ve heard the term, money purchase, profit sharing, matching, a whole bunch of different terminologies for it, but it's the employer side. That's the other half of the equation. If you're a self-employed individual and you're a net schedule C you can do up to 20% of your net schedule C, not to exceed $305,000. So, if you were fortunate enough to make a million dollars, your 20% isn’t based on a million, it's based on 305. And -- and if you're a W2, let’s say for example, you own it -- you have a business that’s an S-corp. Your K1 income is through your S-corps are considered passive. So that's why you get that tax -- preferential tax treatment. But your W2 wages is considered earned. So, if you took a $100,000 W2 wage, for example, you're 20 -- you would get a 25%, believe it or not, a little higher, based on that W2 wage. So, the aggregate though, across all of this is that the most that you can put in for 2022 is $60,500 into one of these plans, if you're under the age of 50. And $67,000, if you're over the age of 50. And these are all set by the IRS every year. Kind of gives you a little bit of a quick ballpark on 401k.
CHAMBERS: All right. That's cool. So essentially guys, I don't know if you knew this, but if you're, you know, a sole proprietor out there, you can set up a 401k for yourself. And it acts largely right, Adam, like a 401k would in like, if you work for some big company, right. Same sort of functionality, except for you are the company. And so there you are responsible if you are the one in the same, you and the company, right?
HUNT: Yeah.
CHAMBERS: You are responsible for your 401k. So that's, which is a really cool thing. And by the way, what’s great is one of the biggest things is you can put away as he just said up to $61,000 into your 401k. Whereas if you're with a company you can only put in, depending on your age, 20 grand up to what, 26,5 or something like that?
HUNT: Twenty seven, yeah. If you’re over 50, yep.
CHAMBERS: So, yeah, so there's a big pro right there. You can just put away, you know, America loves entrepreneurs, right, Adam? They love them.
HUNT: Oh yeah. The tax code is geared towards entrepreneurs. If you're willing to take the risk to run a business, definitely are rewarded for that risk. It might be helpful to kind of give you an example, I think, because I know I threw a kind of, a lot of technical stuff out there to kind of give you the -- the background. But the easy way to think about is let's say I’m a self-employed. I don't have any employees and -- and having employees is a big item. I mean, there are different rules when you have employees, when you don't. We can spend hours on that podcast alone, but let's just pretend I am a self-employed individual. I have no employees. And let's say I'm an S-corp, right? Most -- a lot of small businesses are S-corps these days. So, I make a hundred thousand dollars W2. And I made 500,000 in addition as what we call K1 income, right? So, I made 600 grand. Right? So that's what I’m going to say I made in taxes. So, what would happen is I could put 20,500, because I'm under 50, in. So, my W2 wage instead of being taxed at a hundred thousand dollars is now taxed as if I made 79,500, which is great. Right. Then, I can also do 25% of my a hundred thousand. I don't have to net out that the 401k, so I take the hundred grand, multiply by 25%. That's $25,000. So combined between the two, I put away 40,500. Now the 25,000, that was the quote, unquote employer piece, right; profit sharing is kind of the nomenclature, that's used. That comes off my K1. So instead of showing the government that I made 500,000 K1, that I'm going to show 475. Right. So, and since it's coming off at the top of your highest marginal tax bracket, right, every dollar as your income increases, it becomes that much more valuable. If you're a 30 or 35% marginal bracket, it's obviously a lot more beneficial than if you're in a 10 or 15, right. Just kind of straight linear math. But that's kind of a good example to think about is that you've got those two pieces. And when I combine them together, Between the two of them, if I'm under 50, I couldn't go over 60,500. And if I'm over 50, I couldn't do more than 67. So same example, I'm making $200,000 W2. Right? My 401k is 20,500, which means my profit sharing is the lesser of 25% of 200 grand, which is 50 or the $40,000, so I can only put in 40. But you do get a tremendous amount of benefit. And the good thing with these types of plans is that they're discretionary. I mean, if you have a good year, put it in. If you didn't have a good year, you don't have to make the contribution.
CHAMBERS: So, flexibility.
HUNT: A lot of flexibility.
CHAMBERS: Okay, so a lot of positives. Anything you gotta (sic) look out for? I wouldn't call them cons, but is there something, oh, I'm going, I got, is there something that you, as a business owner thinking you're doing this just should ask a potential TPA partner or your wealth advisor, who then will direct you to a TPA and they better be, well, there's nobody as good as you, but is there a couple of things you've got to look out like, when can you draw the money out? When can't you? What penalties? What does it -- and what do these things cost, roughly? You know, like what -- so let's talk about that.
HUNT: Yeah. So, when you don't have employees, it's just yourself as the business owner, you know, there -- the -- all the liability falls entirely on you. Now it's always going to fall on you as the business owner, but when you're an owner of a business and you're the only employee, the only liability is to yourself. So, the IRS code is a lot more lenient on that piece. You know, when you're only yourself, there's no employees. The costs are fairly low. You know, it's a couple hundred bucks to set them up. It's a couple hundred bucks a year to manage them in terms of hard dollar fees, which are all deductible. Then you have the investment expenses, right. And that's going to range depending on how the assets are managed, right. That could be anywhere from 10 basis points to, you know, 175. It runs the gambit because again, it's just about your investment discipline and approach and what you're trying to accomplish. Right. But the, the ultimate goal of the defined contribution plan is to allow you to get reductions today in taxes. And then, you know, your nest egg at retirement is really crepitated on, you know, how well you perform or your risk profile or any of those other fun investment related pieces. Now when you have employees, the paradigm does shift. So, with employees comes what we call fiduciary responsibility. So, you have to make sure you have a financial advisor in place. You need to have somebody who's going to be the investment fiduciary to support. You need to make sure you're monitoring the investments. You need to make sure that the participants have, you know, array of funds and then they understand them, right? So, giving them access to a thousand funds, doesn't actually help you any more than if you only gave them three, right. You got to kind of find a nice marriage between the two. You know, from a cost perspective, when you have employees, you have the investment management expenses. Kind of -- it's customary for the employee, obviously, to bear those costs. But any type of hard dollar fee, whether it's from the TPA or the record keeper, any type of that fee is customarily paid for by the employer. That's not normal to really pass along to the staff, especially, you know, if the fee is, let's say a thousand dollars. I'm just picking a number, and there's four people that sit there and say, everyone pays $250. Well, if I only put in 500, that's pretty egregious to take half my account. So, we usually say allow the bigger balances to support the smaller ones with levelized fees across the board for everybody. And then any type of hard dollar fees have the employer bear that cost because it is a tax deductible business expense.
CHAMBERS: Got it. Okay. So, cash balance plan. Let's shift gears a little bit. Another retirement vehicle, let's define it and then a couple of, you know, again, what should we -- what should you, if you're considering it as a business owner, what should you be asking your wealth advisor and your TPA about? So, what’s a cash balance plan? Not a lot of people know about these things.
WHAT IS A CASH BALANCE PLAN?
HUNT: Yeah. So, I'll give you the broader strokes of what cash balance falls under. So-- so cash balance is a type of defined benefit plan. So, a defined benefit plan is basically saying that we're going to define a benefit at a specific age. The luscious age, pick age 65. Right. And we're going to say that based on that employees or that owners length of service, compensation, age, right, that they're going to have certain dollar amounts guaranteed payable to them at specific periods in life. So, a really simple example is I, you know, Trevor, you offer a defined plan. Right. And I work for you and you say, hey Adam, great news. We're going to give you a DB. We're going to do a traditional pension. We're not going to do cash balance, we're going to do traditional pension. And we're going to say that Adam, for every year that you work for us, I'm going to give you 2% of your final years income. So, I work for you. I worked for you for 30 years and at the end you're paying me a hundred grand. Great. So, I take the 2%, multiply it by 30 that's, 60%, right. 2%, times 30. And then I take that a hundred-thousand-dollar amount and I go take 60%. And so, Trevor, you owe me an annuity of 60,000 a year, or I can take a lump sum and let's say that lump sum is $750,000, right. Just kind of picking a number. What happens is I can either roll that out as the individual, right, in the defined benefit plan, this traditional pension. Or I can take the annuity option. Right. The benefit of a traditional pension, like I described, is if you have lots of really young employees, right. Or if you're a sole practitioner, right, and let's say for years you were a -- you were self-employed. So, you paid a lot in FICA taxes, right? You had many years where you're paying, you made hundreds of thousands of dollars in income. But now you switched to an S-Corp. So, you have a really low W2. The advantage of the traditional pension that I just described is that we can use your historic three-year high watermark for three-year consecutive years of income to base the benefit on. Okay. So that means that let's say I had a couple of years ago, I was making four or 500,000 a year. And then my accountant came to me and said, hey, Adam, it's gonna (sic) be a lot more tax beneficial for you to go to this S-corp. Now you're gonna (sic) have a W2 of a hundred grand and you’re still going to be making the 400,000, but we can't use that for calculations. Right. What I can do in the traditional pensions, I can use those old -- those old incomes to create a really high deduction today for you. Okay. So there -- there's a lot of benefit of that. Now the one that's really popular that we see is what we call cash balance. Cash balance works a little bit differently. It works where we're going to say to again, Trevor, I work for you. You're going to say, hey Adam, you work for me. I'm going to give you 10% of your pay every year into this plan. And Trevor you as the business owner, right, you're going to guarantee several things. You're going to guarantee that a, the payments are made every year. It's a liability. So, you have to make it. Now, you, when you, as an owner, when you set up these plans, one thing to remember is you have to run them for a minimum of three years. Okay. So, if you set up a plan, you ran it for one year. You said, oops, I made a mistake. That's a problem because the IRS is going to call that a windfall DB. They even have a term for it. And they're going to disqualify your plan. So can't run these things for one year. You run them for two. If you have some justified business reasons, you're shutting. I sold, hey, I got a great offer. I'm selling the business. There are plenty of reasons to do it, but generally you want to run them for three years. Okay. So, you're going to say, Adam, hey Adam, I'm going to give you this plan. You know, you're going to get it for probably three years, possibly more, but, you know, you got this benefit and I'm going to give you 10% of your income. You're also going to guarantee the rate of return. Now we're typically assuming somewhere between 5 to 6% rate of return on these investments which, you know, obviously in this market can be, you know, it's easy and it's hard, right? So, you have to kind of think about how you're constructing the portfolio because if you have too much money, it's a problem in the future. Because you -- you're -- we're guaranteeing a benefit, right? So, what the IRS is saying, Adam based on a hundred-thousand-dollar income, at age 65, has to have 750,000. If I have more than 750, I don't get to get it. There's taxes and penalties that the company pays. And if I'm short, let's say they only have 740, the company has to make up the differential to me. Right? As the employer. So, but the nice thing about the cash balance is that if you have, if you're taking a W2 wage or your net schedule C, if your income goes up and down, right, your benefit can go up and down, right, in terms of what you're contributing to these plans. And it also allows you, if you have business partners to create different amounts for different partners. It can allow you to create different amounts for different key employees and staff. But the one thing that you really do need to remember is that the business itself is the one that's sponsoring it. So, the liability and the cost all falls back on the employer. So, the investment expenses, those are all a cost of managing the plan. That's born by the employer and any of the administrative costs, the legal -- the legal costs, all that stuff has to be born by the employee camp. There's no way to pass that onto the employee. But when you're really looking at these types of plans, where they become really powerful is that as you're getting closer to retirement, if you're looking to catch up, you can tax shelter hundreds and hundreds of thousands of dollars into these predicated on really your age and your income level. So, for example, if I was, you know, 55 years old and let's just pretend I don't have any employees to make it easy. So, it's just me and let's just say, I make, say I'm a schedule C filer and I made half a million dollars. Right. I'm just kind of picking a number. At age 55, you could tax shelter into the defined benefit, whether we do the traditional right, which is that percentage formula that I described or the cash balance, where its percentage based on today. You know, you can tax shelter 200, 250,000 possibly more really, it's depends on a number of factors. Your profession does make a difference. But you're getting a huge write-off. So again, so if I was able to tax shelter 250,000 out of a $500,000 income, well then my taxable income drops line directly, the key piece is, you know, do you have the funding available? Right? Because you know, that's the key pieces, but it does allow for tremendously large tax deductions for business owners. And that's the real, one of the big reasons to do it, is large current year and then, you know, large lump sums at retirement.
CHAMBERS: So that's -- that's just it guys. I mean, if you, you know, if you're making a lot of money, you're just getting hammered on taxes. This is something to consider because, if you can, that's the biggest thing, but there are some, you know, as Adam has mentioned, there are some limitations to it. So, you gotta (sic) be aware of those too. For example, limited growth. You know, you gotta (sic) be limited approximately between five and six percent, but that all depends on, you know, the situations of your company. They're also running a little bit more expensive, right, Adam? These plans, the cash balance plans, to administrate these are a little bit more expensive?
HUNT: Yeah. I mean, typically, you know, a cash balance is going to run you a couple of thousand dollars to set up, you know, in that 2,500 to 5,000 range, depending on a number of factors, right. Complexity, you know, number of employees, there's a whole bunch -- of your profession, you know, we can go to the government to get a ruling on some things. So, you have some upfront costs and then your annual administrative costs can run you easily four or five, 6,000 a year. So, when you're setting these up, it's really important to look at the cost, but the -- the tax deductions that you generally receive, relative to the expense, which are all the deductible, they offset, right? I mean, they generally pay for themselves. When we counsel clients with these types of designs, really it's predicated around what you're doing over the next three years, because really it can really look in through your windows, right. And that kind of falls into that IRS rule for three years. And the reason being is that your demographics are extremely important. You know, when you're an employer and you have employees that are younger than you, these plans are very inexpensive because the employee has a long time horizon until retirement, right? When you have older employees, especially if you have employees older than you, they could -- there could be -- they can be more expensive because their time horizon is shorter. Right. So, there are some factors. So, but part of what the responsibility of a TPA is, is that if you provide a census, right, and this is just basic indicative data names, dates of birth, date of hire, compensations, there's a couple of other questions. But no one should ever ask you for social securities or anything like that. Right. They can give you some designs. And say, hey, look at, based on information provided, here's what these deductions look like. And I would say those are all within 95% plus accuracy, right. Because you're using kind of projected incomes. But the big wild card that we always say to clients, is like, what are you doing with your business? Are you growing? Are you expanding? Or are you static? If you are an expanding business where you're going to be rapidly growing, this is probably not a great solution for you, just because your costs will go up as you add more bodies, right. More employees come in, cost you more money. It's a great design when you have a static employee population or if you're kind of saying, hey, I'm going to be selling the business. Maybe I’m going to, you know, start working less. I want a tax shelter more. There's a number of scenarios, but these are all conversations that we would have at the outset and kind of that counseling session, Trevor, to make sure that it's a good fit for the client and that they understand the liabilities and the benefits, right, which are tremendous, before even engaging in setting up a design like this.
CHAMBERS: Got it. Yeah. And all that is very important. That's what Adam does really well about figuring out the best solution given the population -- your employee population and you. Because again, when you sign up for one of these things and -- and correct me if I'm wrong in this checklist, but it's -- it's pretty, it's serious. If you've gotta (sic) (inaudible). First of all, you're locked in, like you said, for three years. You gotta (sic) do it for three years. You also have to be responsible and make sure that -- that these cash balance plans get funded at the end because you don't want to over fund -- well, like you want to make sure your employees get what they're due and owed. So that's very important. And how are things invested to make sure that you have the funds there at the end? All those things are really important. Then of course, the costs you talked about. But it's hard look -- it's something you gotta (sic) to look at you in terms of your overall financial planning, because in the outer years, maybe your career where you're making a lot of money, it's a great way to save for retirement, and it's a great way to lower your -- your taxes. So, because you know, Adam, maybe you can chime in on this but just as another kind of real world example, but let's say, you know, you’re a baby boomer person. Right. And let's say you've been involved with real estate or even commercial real estate. Right. Okay. And you've got tens of millions of dollar, you know, whatever you got a bunch of real estate, a lot of money in real estate, but maybe you don't have a lot of exposure to the markets. Right, Adam, so here's a great way to lower your taxes, get some exposure to the market that compliments your real estate and -- and it really helps you transition to that next step of your life where maybe you're phasing it down to your point. So, I don't know if you want to, you know, comment in any of that, but I really think that what I'm trying to say is guys like Adam and good TPA’s are a huge part of the planning process. Wouldn’t you agree, when it comes to the --
HUNT: Yeah, one of the -- one of the things to think about too is with real estate, right, is that if you want to diversify your risk, these types of plans are protected from creditors. So, you know, if you're in the real estate business or you own property, and you're looking to diversify your risk away just from a liability perspective, the money that you sock in here can't be pierced by creditors, you know, even in the event of bankruptcy. So, and that's all federal statute, so it's a really nice -- there's some nice compliments to it. The other thing that I'll -- I'll -- I didn't mention, but I should is that the IRS changed the way that we plan for these, right? So. Right now we actually have clients on extension for their taxes right today. So, you know, corporate taxes were due yesterday, right? Personal taxes are due on the 15th of April. But we have clients going on extension because they're like, look, we want to do it. You know, the funding, right? When can we fund? And it's like, well, you have to fund these by your tax filing deadline, including extension. So, you know, let's say it's, you know, for our corporate clients it's until September 15th and they’re like well, we don't know exactly what we want to do. We're still thinking about it, you know, can you give us some rough numbers? So, we have one client, I'll give you an example, you know, he's does very well. Came to us last year, said someone showed me this. I came back and I said, well, here's some things to think about. I said, they included people here that were 1099. That was a problem. They -- which you don't include 1099 employees on here. I said, secondly is like, you didn't note that this was your son. I said, that's a big issue because he's really young. And so, when we went through, basically he came back, he goes, so when you're -- he goes the way you design is, he goes, so you're basically saying that my -- my son can only put in a 401k contribution, that's it? And I said, that's it. And you know, it's gonna (sic) cost me X for my employees and I can put in Y and I said, yeah. But one of the things that you --we have an issue with is that depending on -- you have one employee who's really young. There's one employee who's like 23 years old, I said is literally making this entire design work. I said, if you lose her, right, and we can't use her young age as -- as a -- as a way we calculate the benefit, it will increase your cost by a hundred percent to your staff. And I said, you know, don't get me wrong. You're putting away, between you and your wife, they were putting away almost $600,000. Really large benefits. There's someone's putting away 20,000. That's fine. But the staff, we were, because of the ages of the employees, they were only putting away about $20,000. But if this one employee left, the cost would go from 20,000 to 40, which is a massive jump. Now, if your tax sheltering 600,000 and it goes from 20,000 to 40,000, you know, you're probably still going to do it because it's still tax beneficial. Right. But it's not a surprise that anybody wants to have. Right. And nothing makes your clients more upset, or my clients more upset, when part of what they're paying us for is to anticipate the problems that are going to come down the road and give them the option, so they have a full understanding of what they're actually going into. And I have found in my experience that a lot of -- of shops will throw out a number, put an illustration together without doing the consultative and I don't understand, to me that's like going to a doctor and the doctor's go here, here's Percocet. And you're like, yeah, but I got a broken toe. Oh, all right, let me examine you now. Doesn’t help anybody.
CHAMBERS: And this is -- this goes back to the -- to the scope of these things, right, Adam? So what he just described was you got to really kind of look at your staff when you're setting these up and go, you know, I run this small business and it's a family, you know, and everything good, but are these guys are going to stick around. So, this is what he's saying. Like, you are responsible -- if you set these things up and like, you know, you got a young, you know, person in the firm and then they jet and go onto, well, that's -- that's going to jam you up, but guess what, you’re locked for three years, right?
HUNT: You are locked in for three years.
CHAMBERS: So it --
HUNT: -- and that can be --
CHAMBERS: Yeah, go ahead.
HUNT: -- expensive.
CHAMBERS: I was just going to say, it makes you really assess who's your team because in an age where labor is a real problem, right, these can be extremely great ways; 401ks, cash balance plans, to retain people. And this is a huge problem for all of us. But this is sometimes when you need to look at these things that you may overlook as tools that are going to help them retire better, help you, you know. But there's responsibilities. So, it's really important that you understand these.
HUNT: Correct. Correct. Yeah. Because we've, you know, we've not had a situation yet where a client has set this up without being kind of fully informed. But we have plenty of clients like during COVID, I mean, we had clients where they came to us and said, my business revenues are down 50 percent. What do I do? I -- I just set this up a year and a half ago. I didn't see COVID coming. Now, the good news is, is like anything else in the world, everything is very manageable, right? There are plenty of things that we can do. We helped all of our clients through them. Actually, none of our clients terminated their DBs. But we were also always the -- you know, the -- the kind of the motto I always operate under is, I hope for the best by I always plan for the worst, right, for all my clients. So, I hope that their businesses do well. I hope that they make all the money in the world that they can. But I -- my job is to plan that what if it doesn’t, right? That's one of the things you're really paying us for is to go, what happens if it all goes wrong for our client? And they've got this now benefit that almost becomes a liability. Like how do we help them address that, so that they're protected right. Protected from making mistakes, they're protected from incurring the wrath of the IRS, or the department of labor. Right. And those are the -- those are the most important pieces with the team you have, like the financial advisor, like me working with you guys, Trevor. That's where it becomes really important because, you know, it's -- everyone's always happy when things go well, but you know, things go bad it's -- if as long as we have a plan, we're always in good shape.
CHAMBERS: Exactly. Managing smiles is very easy.
HUNT: Yes.
CHAMBERS: We manage smiles all day long. Yeah. Yeah. But that's -- all right. That's cool. Well, I think, Adam, that was more well-rounded interview regarding 401k and --
HUNT: Yeah.
CHAMBERS: -- and your cash balance. Hey, by the way, real quick, and I know you gotta (sic) run to a nooner -- a noon meeting here and it’s 11:56 here. But you can actually slap, you can -- you can do, you can take your cash balance plan and add it on, add on a 401k and put away --
HUNT: Correct
CHAMBERS: -- a ton of money.
HUNT: Yeah. So --
CHAMBERS: That’s like -- wrap it up with that and, you know.
HUNT: Yeah, yeah, that’s -- so good Segway. Right to the end, right --
CHAMBERS: I just (inaudible).
HUNT: -- leave everyone wanting, hoping for more. But yes, so normally what we would do is we would pair the defined contribution with the DB plan, right. So, we call them DBDC combos and that's really prevalent. So, when you're -- when we're designing these types of plans, yeah, you're going to see really kind of, all right if I build it as a pyramid for you, right? You're going to have the 401k kind of at the bottom. The 401k is most likely going to be designated a Safe Harbor 401k. And we can go into that at another time.
CHAMBERS: I’ll link to that definition.
HUNT: Yep, down the road but everyone can Google Safe Harbor 401k. It’s a, you know. But we'll do that, and then we'll have a profit sharing on top. And then the capstone is really the -- the defined benefit plan. And whether we're choosing the traditional pension formula or we're using a cash balance formula, the fun part is this. They both end up with the same lump sum number. It's just how you get there and what the business needs, and the conditions are of the business. What's the best way to approach getting to that number? So, whether I'm in a traditional pension format or the cash balance, if I’m -- unless I'm a sole employer, my final number is the same. Let's say it's my lump sum is 3 million. It doesn't matter what formula I utilize. The way that we get there is a little bit different. The way that it's treated at retirement is a little bit different in terms of the rules. But they are, we have clients that are kind of split between the 2, 50, 50. But, almost -- I don't have a client without a 401k that has the defined benefit plan. It is -- it is an absolute must sidecar to the DB plan.
CHAMBERS: So, check that out guys because it might be the right fit for you, may not, but make sure that you're at least looking at it. You're making a lot of money and you're a sole proprietor, or you're like say, you know, a doctor's office with -- with -- or, you know, older partners and you've got younger partners or younger staff. These solutions could be -- could be a good fit for you. So, it's all of that. So, and, you know, that kind of a little segway perfectly to another podcast for us. We'd be focused next time -- maybe we can just focus on like a medical practice. That might be cool. So, well, listen, I’ve run up against it.
HUNT: You have. You took your time to the 10th second. It’s fantastic.
CHAMBERS: I love it. I love it. All right. Adam, we'll talk again obviously, and I wish you nothing but well, and that the Cowboys absolutely destroy you in the coming season inside of your own stadium? Sorry, (inaudible).
HUNT: We got jail and hurt. It's all good, man. We'll be just fine. We'll be -- we're just going to spend all of our draft picks on defense this year. It'll be great.
CHAMBERS: You guys even have -- I don't even know who that is. You guys have a team up there? Okay, anyway.
HUNT: We did. We went out -- we did win a super bowl a couple of years ago. You might remember that one.
CHAMBERS: Actually, I'm very (inaudible). But anyway, I’m a fly by night Cowboy fan, whatever. Thank you for the time. Say hello to Mrs. EZTPA for us.
HUNT: Will do, my friend. And we'll talk to you soon. Thanks, Trevor.
CHAMBERS: Thank you so much, Adam. I appreciate it.
HUNT: You’re welcome. Bye-bye.
(INTERVIEW CONCLUDED.)
Trevor Chambers
Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing. Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”
Adam Hunt
Adam has more than 25 years of retirement and investment industry experience. Prior to launching EZTPA, Adam held institutional sales roles for several prominent investment banks and global insurance companies. In 1997, Adam received his Bachelor of Science in Finance from the Bartley Business School at Villanova University. In 2003, Adam received his accreditation as a Certified Financial Planner (CFP ® ). In 2011, Adam received his Master of Business Administration in International Economics from the Gabelli Business School at Fordham University