A Retirement Plan Decision Model for Small Business
开发了一个计算机模拟模型，帮助小企业主管理者评估不同退休计划（利润分享、固定收益、简化员工养老金、个人IRA、无计划）对其退休后税后财富和收入的影响。
A computer-based simulation model is developed as a decision support tool to investigate the feasibility of alternative retirement plans for an owner-manager of a small business. The model consists of a corporate income and dividend statement plus an owner income and investment statement. Five different retirement plan models are applied: a profit sharing model, a defined benefit model, a simplified employee pension model, an individual IRA for the owner, and no retirement plan. The main criterion for plan selection is owner after-tax personal wealth at retirement; annual after-tax retirement income is also considered. Results show that which retirement plan is best depends upon several variables including tax status, ownership status, relative salary, years to retirement, and others. In some instances, owner wealth is actually higher after contributions to a retirement plan than no plan existed. A Retirement Plan Decision Model for Small Business While several incentives exist for business firms to install a retirement plan for their employees, it is postulated that concern for the owner-manager's after-tax wealth and/or income at retirement is one of the most important single factors motivating such action. This is particularly true for small business owner-managers' because for them personal wealth and business *The author thanks the Institute of Constructive Capitalism at The University of Texas for a grant that supported the beginning of this research. Thanks also go to David Goldstein, who was co-producer of an earlier profit sharing model with me, and to Dr. John McGlothlin, who provided valuable assistance on the defined benefit model. Both are pension consultants in Austin, Texas. In addition, appreciation is due to two anonymous reviewers, and to the editor and associate editor, whose comments resulted in several valuable improvements in the paper. The author, however, takes full responsibility for all research and statements in this paper. Jerry D. Todd is the chairholder of the Charles E. Cheever Chair in Risk Management at St. Mary's University. He earned a Ph.D. at the University of Wisconsin-Madison. Dr. Todd is also a Chartered Property and Liability Underwriter and a Chartered Life Underwriter. Prior to teaching at St. Mary's he taught at the University of Texas at Austin, the University of North Carolina at Chapel Hill, and the University of Wisconsin. He is a Past President of both the Southern Risk and Insurance Association and the Western Risk and Insurance Association. He has published numerous articles in professional journals and is Associate Editor of The Journal of Business Research and The Journal of Insurance Issues and Practices. ' A small business, in this study, refers to a closely held corporation in which the owner or owners' salaries constitute a major part of the budget. Typically, it would have from 1 to 20 employees, although more might be included, especially in the case of a professional corporation where owners' salaries constitute a major part of the budget. This content downloaded from 157.55.39.163 on Wed, 23 Nov 2016 04:22:18 UTC All use subject to http://about.jstor.org/terms 266 Retirement Plan for Small Business wealth are inseparable. What is not paid in salaries and expenses is available for dividends. Also, is not received by them as salary can be received as dividends, Hence, the decision to establish a retirement plan affects their wealth through reduction individends and/or value of the business. The tax advantages enjoyed by qualified retirement plans often motivate small business owners to consider them [4, 6, 15]. The decision whether or not to install a retirement plan, however, also involves a decision about the kind of plan. Each type of retirement plan has certain benefits and limitations. The purpose of this research is to develop a computer-based model that projects future business and personal financial balance sheets and income statements to assist the owner-manager in making decisions on whether to adopt any plan and, so, which plan to adopt. Projection of future financial statements using alternative retirement plans can be helpful to the individual who has 5-35 years before retirement and seeks to maximize his or her wealth at that time. The model is designed to project wealth at retirement for the owner-manager without any retirement plan and with alternative retirement plans. An earlier paper investigated the profit sharing plan as a retirement vehicle [ 13]. The current research extends and makes certain revisions to that study, encompassing several alternative retirement plans. Description of the Model The model consists of two segments, a corporate income and dividend statement plus an owner income and investment statement. Five different retirement plan models are applied to the model: a profit sharing model, a defined benefit model, a simplified employee pension plan model, an individual IRA for the owner, and no formal plan. The defined benefit model is the most complex, requiring a program for computing contributions under various plan and work force assumptions on an annual basis. An income statement and partial financial statement is generated for each sector each year. The time horizon is the year of expected retirement of the owner. If the business has more than one owner, the model would be run for each owner. The model was constructed using the Interactive Financial Planning System (IFPS), a computerized planning system developed by Execucom for financial and Monte Carlo simulation modeling. The system generates annual statements and has flexible characteristics that permit interaction, such that any variable may be changed through what if statements; in addition, variables created by random generation of values around a mean may be assigned. In applying the model, the following input factors must be determined at the outset. Growth rates and rates of return on assests can either be generated randomly around an assumed mean, or fixed. (1) initial business balance sheet and income statement (main ingredients being qualifying salaries, profits before tax, and owner's salary) This content downloaded from 157.55.39.163 on Wed, 23 Nov 2016 04:22:18 UTC All use subject to http://about.jstor.org/terms The Journal of Risk and Insurance 267 (2) assumed rates of growth of each of the above factors (3) tax schedules, both for the business and the owner (including deductions and exemptions) (4) consumption rates, expressed as a percentage of salary (5) percentage of profit retained in the business (6) percentage of ownership in the business (7) rates of return on plan assets and the owner's outside investments The main input factors that vary by plan include: (1) the level of contribution (2) taxation of lump sum withdrawals at retirement General Characteristics To compute after-tax wealth of the owner at retirement, a lump sum tax on withdrawal must be paid. An alternative comparison is also made of after-tax annual retirement income for each plan. Since salaries, profits before contributions, and the wealth of the business (i.e. the amount of cumulative retained earnings) are designed to remain unaffected by the decision, the different levels of contribution of the various plans only impact the amount of dividends paid to owners. On the one hand, the combination of tax sheltering of contributions to a plan and the double taxation of dividends works as an advantage for plans. On the other hand, the owner has the ability to generate greater investment returns on his or her own investments, it may be advantageous not to adopt a plan. If no plan exists, the owner receives greater dividends. The attractiveness of the no plan alternative is reduced, however, the owner is a minority owner who must share the dividends. The Corporate Model. The corporate model computes the amount contributed to a retirement plan, then shows the effects of such contribution on taxable income, taxes, and dividends. These primary variants are all reduced when any plan is adopted. The formula is as follows: Dividendst=(l-k)P t-Ct-Tt Where Pt= Net Profit Before Contributions Ct= Contributions To Retirement Plan