The Boost: When determining how much owners and top staff can defer into their retirement plans, prevailing wage contributions made for field staff can be treated as if the employee chose to defer those dollars.

The reason this is so important is that if these contributions are not made, the participation of the owners and key employees would likely be extremely limited due to strict IRS rules.

Here's an example of a plan without the "boost".

The Problem:

"HCE Taxable Excess" is the amount which would be refunded to HCEs and subsequently subject to income tax.

Note: The maximum salary deferral limit for 2009 is $16,500. Those age 50 or above may defer an additional $5,500 for 2009.

The Fringe Solution

Here's the same plan you saw on the previous page, but this time the owners have chosen to use the prevail­ing wage contributions for a "boost". Doing so allows the owner and manager both to max out their retirement contributions without creating taxable excess income.

Simply by treating prevailing wage contributions as if they were elective deferrals, both the owner and manager can now defer $16,500 into their retirement plans. This compares to $3,810 and $2,540 respectively without the "boost".