Club Management - May/June 2008 - (Page 12)

40-YEAR-OLD PLANNING TO RETIRE AT 60 Today’s salary Inﬂation assumption SERP annual contribution Growth $120,000 3.5 percent/year $20,000 6%/year This scenario would provide 50 percent of the individual’s earnings for 10 years. Club owners and boards are taking note of the challenge their employees face and are establishing supplemental retirement plans, creating a “win-win” by retaining and rewarding key employees. “It’s widely known in the industry that service industry employees are not good savers,” said Mike Steiner, general manager of Eagle Springs Golf Club in Wolcott, Colorado. One possible solution to closing the retirement gap is to use a Supplemental Executive Retirement Plan (SERP), a nonqualiﬁed deferred compensation plan that can help provide employees with additional future retirement income beneﬁts. “A SERP is a way to ensure a dedicated long-term employee has a meaningful retirement income, as a way to reward the years of service provided,” Steiner said. Annual contributions to a SERP are eligible for income tax deferral until they are received by the employee, usually at retirement. Participation must be limited to key employees, which means not all employees need to be covered under the plan. Many smaller 401(k) plans further limit participant contributions to less than $15,500 because of the top-heavy nature of some small 401(k) plans. A SERP provides a way to compensate key employees with supplemental retirement income in addition to their qualiﬁed plan. Many of us envision a long retirement with time to travel. If you are 40 years old and plan to retire at age 60, it may seem like a long way off. However, if you plan to retire at age 60 and live for another 30 years, comfortably, with an annual income of $100,000 in today’s dollars, you need at least $4.4 million in retirement income sources (assuming inﬂ ation of 3.5 percent and an 8 percent annual return on your money). Let’s say you have $150,000 in your 401(k) and you max out your annual contributions at $15,500 per year. If the account grows by 8 percent a year, combined with the maximum Social Security beneﬁt available at age 67, you’ll have less than $2 million, leaving you short by more than 50 percent (assuming a 25 percent tax rate and 2 percent annual Social Security growth). A SERP has no limit on what can be contributed each year, and the contributions made on behalf of the participant are not taxable as income until beneﬁts are received. Non-proﬁt entities have additional opportunities. Deferred compensation plans used by non-proﬁts can have an excess plan to allow for larger contributions each year. Large or small, the need to save and to be efﬁcient with overall costs and taxes on invested accrual accounts should be a priority. Valued staff can be rewarded for years of continuity and service. A SERP may contain speciﬁc distribution ages and longevity requirements. In a SERP, club owners and boards can tie the employee beneﬁt to employment years, speciﬁc retirement age or other requirement. The club beneﬁts by retaining valued employees and avoiding costly turnover. Employees enjoy deferred income and taxes and have added retirement security. A $20,000 annual contribution to a SERP growing at 6 percent a year, for a 40-yearold planning to retire at age 60, can provide almost 50 percent of his or her last year’s earnings for 10 years, assuming a salary of $120,000 today, adjusted for inﬂation by 3.5 percent a year. Club owners and boards hold the keys to these plans by keeping ﬂexibility for plan modiﬁcations in the future. Future beneﬁts paid by the employer can be ﬁnanced by numerous funding vehicles, including corporate-owned life insurance or a diversiﬁed investment accrual account. A SERP also provides a source of risk management and ﬂexibility for meeting future club needs and for future generations of key club management. The time to address retirement shortages forecasted in the EBRI study is now. For the 40-year-old wanting to retire at age 60, waiting just ﬁve more years to begin additional savings means you will need to save almost 60 percent more each year than if you begin saving today. You reduce the number of years to save by ﬁve (assuming an 8 percent annual return on your savings). Careful consideration and customized design should be used to meet your club’s beneﬁt needs. Talk with a specialist about how a SERP can be integrated with other beneﬁts. It’s a strategy to make your retirement as green as a summertime fairway. ❚❘ About the author Stephen R. Shanley, CLU, ChFC, specializes in executive beneﬁts and is a representative of Northwestern Mutual Wealth Management Company (WMC), Milwaukee, a wholly owned company of The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) and limited purpose federal savings bank. The information in this article is not intended as legal or tax advice. “It’s widely known in the industry that service industry employees are not good savers,” said Mike Steiner, general manager of Eagle Springs Golf Club in Wolcott, Colorado. 12 • CLUB MANAGEMENT

Table of Contents Feed for the Digital Edition of Club Management - May/June 2008

Club Management - May/June 2008 Contents President’s Message Accounting & Financial Management Board Governance Wine Society Quenches Thirst for Knowledge, Camaraderie Building & Facilities Management Tennis Pro Education Increases Your Bottom Line Cover Story: BMI Golf Management Golf/Sports & Recreation Management Human & Professional Resources Relationship Building in the Internet Era The Ultimate Cellar Raid Products and Services Marketplace External & Government Influences HFTP Insight: HITEC 2008 Features Latest in Club Technology New Directions Global Outreach Advertiser Index/Advertisers.com Club Wrap

Club Management - May/June 2008

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