You will need to type on a separate sheet of paper which plan type you think would be best for each situation and why you have chosen that plan type. Each scenario will be worth 1 point. There are nine scenarios, so you will receive 1 extra point for turning the assignment in on time. Each scenario will have only one correct answer and you may not use the same plan type for more than one scenario. The plan types that you can choose from are:

1.    Straight Defined Benefit Plans

2.    Target Benefit Plans

3.    ESOP

4.    SIMPLE

5.    SEP

6.    401(k)

7.    403(b)

8.    Profit Sharing Plan

9.    Money Purchase Pension Plan

Scenario #1

An optometrist has a private practice in a medium-sized town. They specialize in unique eyewear. They are the only place within 75 miles where a consumer can find Lacoste and Gucci frames. This doctor is doing well for himself. He has decided that he wants to provide a retirement benefit for all of his employees. He has three full-time employees and four part-time employees that fill in during either busy or evening shifts. He also wants the contributions to have a discretionary nature on the chance that either competition or consumer tastes change his profitability. His employees have been very loyal workers and does not have any desire to use vesting schedules to enhance employee retention. However, the doctor has one employee who has a significant problem with overspending. He does not want to encourage this trend and therefore does not want to offer plan loans. What plan type is best for this potential client?

Scenario #2

A group of construction companies has formed a very small company that can handle union negotiations when the need arises. The company is really just 2 full-time people and a part-time administrative assistant. In order to keep the lead employee, who has a tremendous rapport with the union leaders, they feel that they need to offer some form of retirement benefit. They are willing to have a required contribution that is linked to a percentage of the employee's compensation, but they do not want to bear any investment risk. They also want to minimize costly coverage testing. Because the employee has limited investment knowledge they want them to be set up to roll their plan into an annuity once they eventually retire. This combination will give the valuable employee peace-of-mind and enable to company to retain this person's skills. What plan type is best for this potential client?

Scenario #3

One woman had a vision...a vision to change a community through a reading and math intervention program. She began her non-profit organization by purchasing supplies with her own money and relying on donated space and several retired friends to volunteer in order manage the operations of the program. Over time, she was able to find numerous donors and several foundations who provide predictable grants to the program. She now has an abundance in money to fund all of her program desires and then some. The program now has three full-time employees and numerous volunteers. She is overwhelmed with gratitude towards those who have contributed to the amazing success of this program. She wants to provide a way to help her employees plan for retirement, and she has enough regular excess in her donations to offer a plan. She wants a plan that will involve her employees in the saving process, but she does not want to bear any investment risk. What plan type is best for this potential client?

Scenario #4

A lumber mill in rural Pennsylvania owns 10,000 acres of prime forest property. They can sustainably harvest enough lumber from this acreage to provide the business with several million dollars of revenue year-in and year-out. The owner and his five sons all work at the company full-time. He also has other family members employed there as well. He and his three oldest boys have been working at the company for well over 20 years each. To this point, he has been focused on buying more and more property, but now that he has reached the age of 54, he feels that he has bought enough land for the family business to be viable for many generations. The owner has no intention of selling his interests in the business yet, but he does want to plan for his eventual retirement. He wants to consider a plan type that would enable both he and his children to receive a certain allotment for the past years of lost retirement saving. Since most of the employees are all family, he is willing to leverage the reliability of the lumber business' cash flows into providing a retirement benefit. His is most interested in providing a specific level of benefit for himself and his children in retirement. What plan type is best for this potential client? 

Scenario #5

A manufacturing company has just stumbled into a unique niche market. They once made flag poles for school districts all over the country. But now, they have discovered that they can use the same technology with meaningful enhancements to make drive shafts for very large pieces of equipment. They have recently won several US Navy contracts to construct 100-foot replacement drive shafts for reconditioned submarines. With this new growth opportunity, the company needs to find top-notch talent. They have been recruiting new employees and now have over 150 employees with a need for 30 more with specific engineering talents. They know that they will need to begin offering a retirement plan benefit in order to attract the right people and retain them once they join the company. The owners want the employees to be involved in the saving process and they do not want to bear any investment risk. What plan type is best for this potential client?

Scenario #6

A regional law firm has just recently won a case with national exposure. Since winning this suit, they have received a burst of requests for legal services in cases with a similar footprint as the one they just won. There are only three partners in the law firm with a team of five full-time paralegals and three full-time administrative assistants. The partners know that they need to admit several new partners to handle the potential case load. They also know that they will need to offer a retirement plan in order to attract the best and brightest. Being lawyers, they do not want to bear investment risk, but they are willing to make all contributions from the company itself. They also want both flexibility in plan design and the flexibility to adjust the annual contributions should the surge in their case load experience a dry spell. What plan type is best for this potential client?

Scenario #7

Fifteen years ago, a man inherited an ink-pump company, which he now wants to sell. The company makes all of the ink-pumps that print the bags for Doritos. The original owner of the company lived in London, but the company was physically located in a medium-sized town in America. Because the original owner lived overseas, they did not offer a retirement plan for the employees. The inherited owner has always regretted that situation but never fixed it because he was too busy learning how the company worked and the various nuances of the industry. The inherited owner is now considering retiring next year when he turns 60 and he is willing to sell the business as part of his retirement process since most of his net worth is tied up in his business. He has no children who are interested in the business and he wants to figure out how he could provide a benefit for his employees and retire at the same time. What plan type is best for this potential client?

Scenario #8

A medium-sized actuarial consultancy has been providing risk management services to the health insurance industry for years. The owners have been very focused on operating the business. When they retire, they will be able to sell the business for several millions of dollars each. They are not concerned about their own retirements. However, they have recently been approached by a trusted key employee who has informed them that several of the employees are not satisfied with the company's lack of a retirement plan. Two of the employees actually have job offers from another company. The owners met to discuss this and decided that while they are not willing to bear any investment risk, they are willing to make company-paid contributions. Since they are actuaries and love math, they have decided that they would like to aim for a certain benefit for everyone. While they do not want any liability to provide a specific benefit, they are intrigued by the "game" to see if their projections turn out correctly. What plan type is best for this potential client?

Scenario #9

Two friends from high school have stayed in touch over the years. Their husbands are both very successful business professionals and they have an urge to do something creative. They have decided to open a boutique grocery store offering local produce, high-end meats, and imported cheeses. They plan on having 25-30 employees, most of whom will be part-time. They have been inspired by Starbucks and want to offer a retirement program from day one. They want the employees to be involved in contributing, and they are willing to match up to 3% of total compensation for those involved with the plan. What plan type is best for this potential client?    

Answer rating: 100% (QA)

scenario 1 The best plan type for this potential client is a Profit Sharing Plan A Profit Sharing Plan is a discretionary contribution plan which mean... View the full answer