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Retirement Benefits Important for Family Businesses

By IVY WEISS Contributing Reporter The methods of, reasons for, and legal ramifications of offering a pension plan within a family business discussed on Nov. 15 in a panel discussion presented by the Family Business Center of California State University, Northridge. Family-owned businesses comprise a large section of San Fernando Valley commerce. Many of these businesses are closely held, or perhaps have only a few employees. Providing retirement benefits for the proprietors and those who work for them often seems impossible. However, as the panel discussed, the current tax code does allow opportunities for just these provisions. The panel was moderated by Morgan Stanley Financial Advisor Gary Hersch. The speakers covered the trajectory of the possibilities and pitfalls of creating a plan. They were Diana Cruz-Adams, vice president at Morgan Stanley Retirement & Equity Solutions; Bruce Gendein, president of The Senex Group, a diversified financial services firm that specializes in tailoring and administering tax-qualified retirement plans; and attorney Michael Hackman with the law firm of Lewitt, Hackman, Shapiro, Marshall & Harlan. All of the panelists have worked together to structure, implement and guide clients though the process of establishing and maintaining retirement plans. A basic reason to offer retirement packages is not only personal financial planning for the family running the business; it also creates an incentive for employees to stay with the company. Benefits are not easy to obtain in these times, and planning for the future is often overlooked by both employers and employees. Traditionally, these benefits had been offered by the employers, but recent times have seen the shift toward employee responsibility. Many contributory plans in the marketplace allow for sharing of the financial obligation with 401k plans being extremely popular. Plans set up with employer/employee matching have a 72 percent participation rate when offered. Auto enrollment, where the percentage of the amount deducted raises each year has participation rates of up to 90 percent. Because many baby boomers reaching retirement do not have sufficient funds, second (or third or fourth) careers are becoming a phenomenon. People are living longer and the Social Security system was not set up for this longevity. Many people receive payments that are lower than the cost of living. Having tax-deductible and tax-deffered money set aside is essential. Many plans, which can often be quite inexpensive, are available but it is important that the plan be properly set up. Administration and annual reviews of the contributions and equity placement is highly recommended. An employer who is offering a plan is considered the fiduciary and with that comes the responsibility of working with an expert to see that it is properly maintained, and is firmly placed within all IRS regulations. A “plan document” that clearly states all the parameters and obligations is essential. As with any long term investment plan, it must be consistent with the law, and the investments made must be consistent with the plan. The plan must also be fair. Benefits afforded the employer must match those given to the employee. It should also be appropriate as to size and type. Due diligence is essential. As stated, the plan in place should be reviewed each year to determine if investments remain appropriate and that the policy statement is always followed. Employers must also educate their employees on how it works, as well as what it does to assist in securing a financial future. Employees should know that they are getting the most return on their investments. It is best practice to have a team of experts work on the plan from inception throughout its entire life. This allows for expertise in each of the areas, as well as reviews, and compliance with laws. However, the employer must also remain responsible for certain aspects of the plan. The seminar was well-received. One attendant, Candice Gottlieb who owns Mediating Solutions found the information to be pertinent for her clients. “There are so many facets to be aware of,tax implications, legal aspects, and benefits to business,” said Gottlieb. “It gave me a sense of how overwhelming retirement issues are for family owned businesses and how they relate to my clients and the work I do with them on conflict resolution.” “Family run businesses face unique issues,” said David T. Russell, the Executive Director of the host of the morning’s panel, the Family Business Center at CSUN. He continued, “The Center reaches out to family businesses in the Valley.”

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