Windfall Inc. is managed by Gary. He also owns 30% of the company. Windfall Inc., has two employees who are critical to the success of the firm who are also part owners, Scott and Steve. Justin, who is Gary’s brother-in-law also works at Windfall, Inc. He is not an owner of the company, but his wife, Sarah (Gary’s sister), owns 5% of the company. Wendi also works at the business and she is married to Gary’s other brother, Greg. Greg owns 8% of the company. Gary, Scott and Steve feel that cash flows from Windfall Inc. are sufficiently strong that they would like to look into implementing a retirement plan. They don’t want the plan to jeopardize their business continuity, but they do want to shelter as much of the current income as possible from taxation. All three of them have invested in the company, and the company represents the bulk of their entire savings for retirement. They have asked you to help them develop the most cost efficient retirement plan to implement that will give them the greatest benefit without having to pay too much of their money out for other employee’s retirement benefits. Gary, Scott, and Steve believe strongly that each employee is responsible for their own retirement savings. Gary currently has about $160,000 saved for retirement and wants to retire with about 65% of his preretirement wage. Between him and his wife he expects to receive $24,000 (today’s dollars) in SSB starting at age 62, when he retires. Plan to age 100. Please assume that investment returns will average 8.0 % and inflation will average 3.5%. Gary will sell his share in the business at retirement and he expects to be bought out for 1.5 X his ending salary. This may be a conservative amount, but that is all he wants to plan on for the sale of his business.

Listed below is a brief employee census. Normal retirement age for any plan is 65.


Gary, 30% ownership, age 48, salary is 315k, owner, 14 years of service
Scott, 25% ownership, 280k salary, owner, 12 years of service
Steve, 25% ownership, age 53, 280k salary, owner, 12 years of services

Cherrie, age 42, 55k salary, exec assistant, 9 years of service
Jim, age 38, 75k salary, manager, 6 years of service
Clark, age 35, 85k salary, accountant, 7 years of service
Wendi, age 34, 105k salary, sales, 3 years of experience
Pennie, age 46, 40k salary, clerical, 5 years of experience
Heidi, age 20, 22k salary, clerical, 2 years of experience
Matt, age 18, 16k salary, production, 2 years of experience
Jackie, age 23, 24k salary, production, 1 year of experience
Allison, age 26, 23k salary, production, 2 years of experience
Justin, age 58, 65k salary, production, 4 years of experience
Verlan, age 29, 56k salary, IT, 3 years of experience
Sherry, age 27, 50k salary, IT, 4 years of experience
Bob, age 33, 24k salary, production, 5 years of expereince
Susan, age 19, 19k salary, production, 2 years of experience
Kyle, age 36, 22k salary, production, 6 years of experience
Elise, age 38, 43k salary, production, 2 years of experience
Dilbert, age 21, 25k salary, production, 3 years of experience

Using the basic needs method, how much should Gary have at age 62? (Round to the nearest dollar.)

How much will Gary’s current savings of $160,000 be worth at age 62 when he retires? (Round to nearest dollar.)

How much with the sale of Gary’s business interests be worth when he retires at age 62? (Round to nearest dollar for your answer.)

What is Gary’s projected shortfall given his capital needs, his current savings of $160,000, and the value of his business interest when he retires? (Round your final answer to the nearest dollar.)

How many employees are effected by Covered Compensation rules? (2014)

How many employees are ineligible to participate in the plan?