My article was not meant as a “put-down,” but rather the exact opposite. For the past 60 years, Integrity Advisors Pension Consultants has been working within the CPA community. My sister and I were groomed by my father in this pension firm, and now so are my sons. We have spent our careers servicing the advisor community. I have offered seminars, lunch-and-learns, and one-on-ones with CPAs and their clients, trying to raise the level of awareness.
So while I respect and commend Joseph Bencivenga for his level of knowledge and am assured that he advocated these qualified plan attributes to his clients, I must respectfully disagree that today’s CPA/advisor community as a whole is advocating these valuable tax strategies as common practice. I say that not as criticism, but as a challenge for CPAs to educate themselves on what they can offer to their clients by recognizing the enhancements in the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) and the Pension Protection Act (PPA) of 2006, which I alluded to in my article.
Of course I am not referring to all CPAs, and the tone of the article does not imply that. It is very challenging as an advisor when speaking to business owners who are in need of real tax shelter but have been told by their CPA that they need to purchase more unneeded equipment/inventory, that they should open up a Simple or SEP IRA, or worse yet that they should just “pay the tax.” Clearly they needed a more sophisticated qualified retirement plan, such as a defined benefit plan or a combination/bifurcated defined benefit/401(k) profit-sharing plan based on the IRC section 404(a)(7) combined deduction limits under the PPA, but their CPA was unaware of this nuance. We are often asked to show a design to the client, he brings his advisor, and time and time again, the client sees a total contribution of not $50,000–$60,000, but several times higher than the defined contribution limits per plan owner. He turns to his CPA and says, “Why didn’t we do this sooner?” It’s frustrating to see.
My comment that, beginning in 1992, CPAs were not taught to view qualified retirement plans as resources for tax planning, refers to a shift in focus from actuarial design based on employee demographic understanding, job classification, compensation limits, non—highly compensated status, new com parability, and cross testing to the new, commoditized style of financial industry—sponsored, payroll-sponsored, product- and market-driven retirement planning, a onesize-fits-all approach. When EGTRRA was passed in 2001, the new breed of CPA/advisor was so embedded in that style of retirement plan that they did not realize the annual changes that had been phased in with the new law. EGTRRA changed the face of retirement, but most were so focused on the usual way of doing things that they missed the opportunities we were given. These provisions, made permanent by the PPA, allow us to create sophisticated designs for our clients and business owners, thus allowing them larger contributions and bigger deductions and a way to catch up on retirement. That’s what I was talking about.