Medium Size Law Firm Seeking a Custom Plan

(24 partners/30 Associates/108 staff)

The Perfect use of a Split Funded Cash Balance Plan


Twenty-four partners – class action litigation firm – were contributing a total of about $1,080,000 for themselves to a profit sharing/401(k) plan. Each partner earned between $600,000 and $1.2 million. With a $7.9 million dollar Associate/Staff payroll, the firm was spending 8% in the profit sharing plan ($632,000).


The partners were frustrated that the “leverage” in the existing plan was poor at 63% – (only 63 cents of every dollar was going to the partners, the balance to the employees). The partners wanted to make larger contributions to a qualified retirement plan and they did not want to increase employee cost. Asset protection was also a concern.

New Plan:

A new plan strategy which was agreed upon as follows: 1) maintain the existing profit sharing/401(k) plan; 2) layer a custom Split Funded Cash Balance Plan on top of the existing 401(k)/profit sharing plan.

The custom plan structure allowed the partners to increase their contributions from $1,080,000 to $3,552,000 (a $2,472,000 increase) – a partner avg. contribution of $148,000 – with NO increase in employee cost (cost remained at 8% of employee payroll).

Note: The above fact pattern is typical of many law firms and medical groups – the partners are spending a lot of money on their employees and each partner is limited in contribution under defined contribution rules – between $50,000 and $60,000.

Disclosure: PensionQuote and its representatives do not provide tax, accounting or legal advice, and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise). Any tax statements contained herein were not intended or written to be used for the purpose of avoiding U.S. federal, state or local tax penalties that may be imposed on the taxpayer. Individuals are urged to consult their own independent tax and legal advisors as to any accounting or legal statements herein before establishing a retirement plan and to understand the tax, ERISA and related consequences of any investments made under such plan.

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We are pioneers in retirement planning, featuring tax-advantaged defined benefit pension plans as exit strategies for high net worth clients. We partner with top industry Advisers to bring their clients preferred solutions to achieve large income tax deductions.


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