Need some help with the below case study. Hopefully as soon as possible. Thanks!
You received a call from Austin Anderson on behalf his company, Windfall Inc., a local manufacturer of parasailing equipment. Windfall Inc. is managed by Austin. He also owns 30% of the company. Connor and Bradley are Austin's partners in Windfall and they each own 25% of the company.
Austin, Bradley and Connor feel that cash flows from Windfall Inc. are sufficiently strong that they would like to look into implementing a retirement plan. They don't want the plan to jeopardize their business continuity, but they do want to shelter as much of the current income as possible from taxation. All three of them have invested in the company, and the company represents the bulk of their entire savings for retirement. They have asked you to help them develop the most cost efficient retirement plan to implement that will give them the greatest benefit without having to pay too much of their money out for other employee's retirement benefits. The management team believes strongly that each employee is responsible for their own retirement savings.
Austin currently has $485,000 saved for retirement and wants to retire with 75% of his preretirement wage. He and his wife expect to receive $30,000 (today's dollars) in SSB starting at age 62, when he retires. They are comfortable with a life expectancy of 100. Assume that investment returns will average 9.0% and inflation will average 3.5%. Austin will sell his share in the business at retirement and he expects to be bought out for 1.5 X his ending salary. This may be a conservative amount, but that is all he wants to plan on for the sale of his business.
An employee census is presented here but also available as an Excel spreadsheet. Austin has shared some other information about the employees.
- Morgan, who is Austin's brother-in-law, also works at Windfall, Inc. He is not an owner of the company, but his wife, Angela (Austin's sister), owns 5% of the company.
- Gretta also works at the business and she is married to Austin's brother, Artie. Artie owns 8% of the company.
Your assignment is to recommend for a retirement plan for Windfall to Austin. Present to him the following plans:
- straight profit sharing plan,
- integrated plan,
- age-weighted plan,
- a combination plan of one of the profit sharing plans with a 401(k) feature.
Remember, Austin, Bradley, and Connor are seeking to maximize their retirement savings. Clearly present and discuss each of the plan designs as well as a recommendation for a plan for Windfall to implement.
Your response to Austin should include an executive summary, an explanation of each plan presented and supporting spreadsheets. You will also want address Austin's personal retirement goals and advice on reaching them.
The following non-credit quiz questions are intended to help you get started.
Using the basic needs method, what is Austin's retirement capital need at age 62? How much will Austin's current savings of $485,000 be worth at age 62 when he retires? How much with the sale of Austin's share of the company be worth when he retires at age 62? What is Austin's projected shortfall given his capital needs, his current savings of $485,000, and the value of his business interest when he retires?How many employees are affected by Covered Compensation rules? How many Highly Compensated Employees work at the business? How many employees are ineligible to participate in the plan?