Raise your hand if your company has a qualified retirement plan (QRP). Your QRP can be a 401(k), profit-sharing plan, SEP-IRA, pension plan or any one of the many other QRPs. If so, listen up. Chances are this column is going to
make you and your employees money — lots of money.
First, a little warning: Your author is a tax guy, not an investment advisor.
The nature of his professional work — estate planning, business succession
planning and the many related areas — has allowed him to review the personal financial statements of about 1,500 business owners over 50 years of
You would be amazed at what I have learned over the years about my business- owner clients. Much of what I learn — and need to know in order to
put a comprehensive estate/succession plan in place — is based on questions I
ask my clients about their goals, business, family and key employees.
This column is based on the answer to one of the questions I ask every client:
“What is your average annual rate of return on your investments … personal
funds, QRP funds, excess funds in your business and other funds you
The shocking answer is that 80% earn less than the general market (measured
by the Dow or S&P) average percentage growth (about 10% a year). About onethird average only 6½% or less. Ah, but here’s what’s even more interesting. Almost all of those in the 80% group do their own investing. They may be great business people, but lousy investors. What about the other 20% who, most of the time, beat the general market growth? Almost all of them had a professional money manager. When this 20% group used professionals to
manage their QRP funds, their employees enjoyed the same investment success. My client files are bulging with hundreds of examples.
So, over the years, I’ve done some extensive research, which is an ongoing
labor of love, to show you the best way to improve your and your employees’
investment results. Let’s start with a chart demonstrating what a better rate
of return can do for your retirement nest egg over time. I’ll bet you’ll want
to join the better-rate-of-return club. The following chart shows you what
happens to $1,000 contributed to a QRP and invested over a 36-year period
(the typical length of employment time for the business owner or a longtime employee in a QRP) at various rates of return. Hold on to your chair. The differences are astounding.
You don’t have to be a rocket scientist to see the results. It’s easy to see if
you put about $10,000 per year into a QRP for about 36 years and earn just
10% a year on average (a good money manager — including the one we prefer — consistently earns more), you’ll have many millions of dollars by retirement age.
So why do about 80% of you mess up? You sign up your QRP with a “cookie-cutter” type plan. Cookiecutter plans focus on two things that
sound terrific but in practice put you in that unwanted 80% group:
1) low cost and 2) lots of investment choices.
Actually, I could write a small book about the pros (not many) and cons
(a long list) of a cookie-cutter plan that almost automatically puts you and your employees in the low-return 80% group. This happens because you and your employees are expected to become investment gurus and beat the pros. A few do. Most fail. Let’s face it, if your QRP has about 142 investment choices, you are locked out of every other possible investment. Worse yet, it is a rare employee or business owner who knows which of those 142 to pick in the first place or when to switch to another investment. Many of the employers, including the boss, are overwhelmed by the investment choices and invest a large portion of their funds in cash — a disastrous longterm investment choice.
Think about this example to drive the point home: Every year about 81%
of mutual fund managers (remember, they are paid professionals) fail to do as
well as the general market. Why? They too are locked into a limited choice of
investments because almost all mutual funds specialize in something. For example, some of the popular funds invest in emerging companies, energy
stocks, large-cap, small-cap and about 6,000 more funds. You want a fund or
a money manager who can select any and all of the wide range of investment
possibilities. Here’s the suggestion I’ve made to everyone who has a CC plan
or is in the horrible 80% self-investment group: Go professional. First, hire a professional QRP consultant to create the best plan (there are many important decisions not available in CC plans) for you (the boss) and your employees.
Second, hire a professional money manager. Surprisingly, the costs are
competitive with CC plans. They are easy to check out. Just check their rate
of return after fees for the years they have been in business.
One more point: The boss (usually the business owner) probably has the
largest account in the entire QRP. So, having a professional money manager
to manage your account is a terrific tax-free perk. That’s a big deal! How
big? Well, you judge. Stop for a moment. Write down the balance in your
account and add just a 1% increase in growth, on average, that your account
would enjoy for each year your account might be in existence. Take one
more minute and estimate what that 1% (or more) would mean to all your
employees in your company QRP.
Exciting? I invite you to call me (847/674-5295) and share your enthusiasm
or ask any questions you may have. This is an important subject. It’s important to you and all of your QRP employees. So, if you think you are one of the many companies that are inadvertently being ripped off, here’s what I have arranged for readers of this column: professionals who specialize in the QRP area, to review your QRP and investment return potential. To get started, fax (847/674-5299) me the following information: 1) your name, company name and address; 2) all phone numbers — work, home and cell; 3) approximate number of employees in your QRP; and 4) type of QRP.
Irv Blackman, CPA and lawyer, is a retired founding partner of Blackman Kallick Bartelstein LLP and chairman emeritus of the New Century Bank, both in Chicago. He can be reached at 847/674-5295, email [email protected], or on the Web at www.estatetaxsecrets.
KSW Chose as trade manager NEW YORK — KSW Inc. has been selected
as the HVAC trade manager on the new Center for Science and Medicine at
the Mt. Sinai Hospital here. The preliminary estimate for HVAC construction
costs is approximately $58 million. During 2008, the company will provide
pre-construction services on a fee basis. Working in conjunction with the owner, design professionals and the construction manager, the company also
will provide value engineering and generate a final HVAC construction budget.
While there is no guarantee that the company will continue to serve as trade manager during the construction phase, it has, in the past, been selected as construction phase trade manager on projects where it has provided preconstruction services.
KSW, through its wholly-owned subsidiary, KSW Mechanical Services Inc., furnishes and installs heating, ventilating and air conditioning systems and process piping systems for institutional, industrial, commercial, high-rise residential and public works projects.