Why Your Retirement Plan Needs a Consultant
Most retirement plans get set up once and never get a serious design review after that. These two client situations show what that costs.
Earlier this month I had a call with a prospective client — Rosa, a nurse practitioner and medical spa owner, age 50, who'd had a Defined Benefit pension plan for ten years. Her TPA had been handling the filings, contributions had been steady at about $100,000 a year, and the plan had built up to roughly $1.5 million. Solid by most measures, but her TPA had just told her she'd hit the plan's maximum benefit limit and couldn't contribute anymore this year despite significant cash flow and Rosa wanted to know if that was actually true. Her CPA connected her to me.
I pulled up the plan's valuation and the answer was obvious. Her W-2 salary had been $100,000 the entire time. The maximum benefit limit in a Defined Benefit plan is tied directly to compensation, and with that salary, yes, at age 50 Rosa was bumping up against the ceiling, however the ceiling isn't fixed. It moves with income and age and she wasn't at the absolute maximum, she was just at the maximum her salary would support.
The fix is straightforward: take a higher salary from the business, bonus herself up to $300,000 or $350,000 for the next two years, let the three-year average compensation build, and her annual contributions could jump upward of $300,000. Over another five to ten years, she could contribute and deduct another $1 to $1.5 million on top of what's already in the plan. This is an owner with a profitable business who had been sitting at $100,000 in W-2 comp for a decade because that's what she started with. Ten years of contributions well below what her plan could have supported, not because the plan was designed wrong at the start, but because the plan design and strategy was never revisited as Rosa's income grew.
When an owner sets up a pension plan, they often pick a contribution level that makes sense at the time, and then that same contribution goes year after year without anyone asking whether the numbers still fit.
Pension plans are typically designed around a ten-year horizon, and the math can shift significantly over time as the owner ages and compensation changes. A plan that worked well at 40 may be leaving real money on the table at 50. It is vital to check in on the design periodically so the plan doesn't run on autopilot and leave deductions on the table.
I'm working through a related situation right now with a group of architects, although their problem started even earlier. When the firm opened, they set up a 401(k) through their payroll company. California requires employers to offer a retirement plan, so the payroll provider pitched them a bundled option: safe harbor, 3% automatic enrollment, basic match. For five years the owners participated in their own plan the same way their staff did — a small deferral on a modest salary, a match, and that was the extent of it. No profit sharing, no consulting, no advice on what the plan could do beyond the basics. As an employee benefit, the plan was fine — the staff had access to deferrals and a match, which is exactly what it was designed to do. But with good consulting, the owners could have been getting far more out of a plan that also benefits their employees. The payroll company runs payroll, and that kind of plan design work simply isn't part of what they offer.
Now the firm has grown enough that the partners want serious deductions and need a Cash Balance plan. However, we are limited in modifications to a safe harbor plan mid-year, the 401(k) is locked inside the payroll provider's system, and the whole thing needs to be pulled out and restructured before a combo plan is even possible. They missed the 2025 deadline entirely. We're working on making 2026 happen, but it's requiring creative plan design to get around the constraints that the original setup created. If they'd had an expert consulting them from year one, the profit sharing would have been designed properly, the owners would have been getting real value out of the plan all along, and adding a pension plan later would have been clean.
Both situations come back to the same gap. A retirement plan needs someone reviewing the design on a regular basis, not just processing the annual paperwork but actually looking at whether the plan still makes sense for where the owner is today. That's the consulting piece, and it's what most plans are missing. If you or your client has a plan that hasn't had a real review in a few years, it's probably worth a conversation. You can also subscribe to receive articles like this monthly at heliodorus.com/newsletter.
— Alex Free, EA, CPC, QPA, QKA
Principal & Enrolled Actuary, Heliodorus LLC
