In this week's episode of the Practical Tax Podcast, Steve Moskowitz sits down to discuss Pension Planning with Stephen Dobrow; the President of Primark Benefits. Steve Moskowitz and Stephen Dobrow have served clients of Moskowitz LLP for many years, as part of the Moskowitz tax planning and business services practices. Today, we will discuss why would a business owner, decision maker want to consider retirement plan, changes in law or procedures this year, key deadlines and some common questions.

Listen to the full episode to learn more!

Episode Transcript

Intro:

You're listening to the Practical Tax podcast with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz LLP, a tax law firm.

Liz Prehn

Hello, welcome to Practical Tax. Today, we are discussing retirement plans with Steven Moskowitz and Stephen Dobrow. Stephen Dobrow is the President of Primark Benefits. A firm that provides pension consulting, plan administration, actuarial services and record keeping. As a retirement plan expert, Stephen regularly meets with Congress, the Treasury Department, the Department of Labor to advise and serve private retire systems. Steve Moskowitz and Stephen Dobrow have served clients of Moskowitz LLP for many years, as part of the Moskowitz tax planning and business services practices. Today, we will discuss why would a business owner, decision maker want to consider retirement plan, changes in law or procedures this year, key deadlines and some common questions.

Steve Moskowitz:

Welcome to all. Thank you for joining us. And Stephen, we've worked together so many years and here is a common question I hear all the time. You know what? I'm paying too much in taxes, I know there's some secret. I see all these big companies making way more than I do and not paying taxes. What's the secret? And the first thing I start off with is the big four in pensions. And the big fo- I'm gonna ask you to talk about the details in all of them. And the big four are saving taxes, not having to pay taxes on the income until you take it out of the plan. Cash flow, where unlike everything else, almost everything else we have to write the check by December 31st of year two. Here, there's a way to write the check in year two and still deduct it from year one. And asset protection, where if something bad happens to you, like you get sued, the plaintiff can't take away your pension. Although I hate to mention his name, the perfect example for this is OJ Simpson. So let's begin and Stephen, tell us about the pensions and all about the big four.

Stephen Dobrow:

Well, thank you. Primark Benefits has been doing retirement plans for now, 50 years here in the Bay Area, San Francisco Bay Area. And we have 34 employees, about 700 clients at any given time. What we do is take the retirement tax dollars you would normally send to the government and find a way to put it in the retirement plan just like what Steve was saying.

You've heard of a 401k plan, you've heard of an IRA. Those are actually just two of 24 different types of retirement plans that a planned sponsor and employer can put in. And so the really secret is, and part of the answer to this question is, well, there's lots of choices and there's lots of ways that we can help and why would people want to get our help? Well, first of all, this is a lot about recruitment and retention. It's an employee benefit, you wanna take good care of your employees and you wanna be able to keep them, you wanna be able to get them. And Steve, you'll remember that just recently, I caterer came to us and he said, "You know, I'm having trouble attracting people to work at my catering business. And I really wanna have something that gets them to here, you know?" The catering business never offers benefits. If I offered benefits, that would be an attractive feature. And so we talked to him and he decided to set up a program where if people put in their money, they got a matching contribution and that matching contribution would be made after the end of the year. So they had to stay working for the catering company all year. And then it was on something called investing schedule. So they'd have to work multiple years to eventually take all the money off to their IRA or to spend in retirement.

And so that's an example of someone was using a retirement plan to attract employees and then to keep 'em once they got there. Another big reason is, let's say you're mandated, you know? There's this thing called CalSavers in California, where by June 30th, if you don't have some sort of retirement plan for your company with five employees or more, you're gonna have to have the plan, the state of California wants you to have. So we have many things that are better than what the state can offer. The other thing is that, you know, employees are better when they are able to build their nest eggs. They have a different view of life eventually, and they're happy with their employers, but some of those employees are the business owners and are the owners and managers, and we're able to put together retirement plans that cover all of the employees and help all of them have a nest egg and help employers have enough, now that they've put all their blood, sweat and tears in the business, finally get around to putting in a retirement plan so that they can have a nest egg. So those are some of the reasons why a plan sponsor will come to us.

Steve Moskowitz:

And, you know, Stephen is so modest because some of our current and past pension laws are partially based on his testimony to Congress. And he is so familiar with this and does so much for our clients. And Stephen talks about the fancy things. I'm just a simple guy. And when I talk to clients, I give 'em a tough question to answer. And I say, "Do you wanna pay more taxes or less taxes?" And if they want to pay less taxes, we do the pension. If they wanna pay more taxes, we worry about their mental health. And what happens is we say, "Okay, look, you basically have a choice, you have a check to write. Do you wanna write that check to the IRS and your state, if you're in a state that taxes, or do you wanna write it to yourself?" That's the first thing. The second thing is Stephen, tell us about what happens when we have earnings? 'Cause normally if we have earnings, we get taxed on and if you're in a top tax bracket, basically you're giving away half of your earnings to the government. What happens if we have earn- well, what happens to the earnings that we have in our pension plan?

Stephen Dobrow:

Well, you know, we have waves of setting up pension plans and retirement plans, IRAs and profit sharing plans, and other kinds of things where the money that is in there grows without any taxes being taken out. Now, if a plan sponsor, if a employer or a gig worker wants to set up one of these programs, they get a tax break for everything they put away. So it's as if they never earned it or it's like if they get deductions for car allowances or rent and those kinds of things, pension expense is just another thing that's on the expense line that they will never have to pay taxes on. But the money goes into a trust and or an IRA and it grows and grows, and grows without any taxes being taken out. Some other people decide that they wanna pay the taxes up front because if you do that, it's called Roth. You put the money into a plan, it can grow tax-free and forever, you'll never get taxed on it. But even in the pre-tax environment, you're gonna be able to defer those taxes for a long period of time and probably never pay the taxes on them even once you get to the estate kind of thing later on.

Steve Moskowitz:

Now, Stephen, most people know that with most things in tax planning, you have to write the check by December 31st year one to deduct it from year one, but with pensions and I use the term, and Stephen's very generous, but I use the term pensions and retirement accounts interchangeably. There are really some differences, but we're just gonna continue doing that for the purposes of our discussion here. But the bottom line is, let's assume somebody is watching this in year two and they say, "Oh no! I could have saved so much money if I only had one of those pension plan. I sure wish I did that last year." How late in year two, can somebody open this and then fund it and still deduct it from year one?

Stephen Dobrow:

Okay, so like most of the retirement plans out there now, you're able to establish them now and make them be retroactive to the first of last year. So you have until the time you file your tax return, including extensions in order to fund the plan. So here we are before April 15th, people are gonna start to file and some people in April 15th will make their IRA contributions, other people will go on extension. Some companies, small employers they'll wait until September before they figure out what kind of profit they had and come to you, and get the taxes done and say, "Okay, well here's the amount of taxes I have if I don't put in a contribution and here's how much lower it is, if I take some of those dollars and put them into a retirement plan." So there's lots of room for flexibility, including the extensions.

Steve Moskowitz:

And Stephen, tell us about what happens with the safety of the plans, the protections under ERISA? Somebody gets an automobile accident, or you have a medical doctor that gets sued from malpractice, or somebody gets sued because somebody says you looked at me the wrong way. Tell us about the protections that we have on these plans.

Stephen Dobrow:

Well, the Congress is very much interested in making sure you have a nest egg and that nest egg is there for you when you retire. So they've passed very strict laws that say when it is that people can get at this money. First of all, when a money goes into an account and a regular retirement plan,