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Parish & Company Summary:  The following story resulted from original Parish & Company research regarding an analysis of Bain Capital's Profit Sharing Plan in addition to presidential candidate Mitt Romney's IRA.  See blog at for related posts.

SOURCE:  Wall Street Journal

Bain’s Unusually Young Retirement Rollover Age: 23

April 2, 2012

By Mark Maremont, Senior Editor

Bain Capital, the private-equity firm that Mitt Romney used to run, appears to have an unusual early-retirement age: 23.

That’s the age at which, according to a federal filing (PDF, page 25), Bain employees are allowed to roll over their retirement funds from a Bain profit-sharing plan into their own individual retirement accounts, or simply withdraw the money.

Federal law allows employees in such profit-sharing plans to roll over their funds into an IRA only under certain circumstances, such as when they leave their jobs, when they’ve been in the job a certain number of years, or when they reach a specified age, pension lawyers said. Normally, that age is something close to retirement, such as 50 or 55 years old.

“I’ve never seen or drafted a plan permitting a distribution as early as 23,” said Charles M. Lax, a pension attorney at Maddin Hauser in Southfield, Mich. He said the Bain arrangement fits within IRS regulations, but “it’s inconsistent with the underlying premise of qualified retirement plans, which is that money’s supposed to be put away for your retirement. There aren’t too many people retiring at 23.”

A spokesman for the IRS said the agency doesn’t comment on individual filers.

Employees at other companies often wish they had the ability to withdraw their retirement funds. Some may simply need the money, while others may be dissatisfied with the investment choices offered by their employer’s retirement plan and prefer to manage it on their own through an IRA.

An earlier Bain retirement plan was one focus of a Thursday page-one article in The Wall Street Journal. The article reported on the ability of Bain employees in the Romney era to invest their IRA money in Bain-acquired companies, through a special inexpensive share class designed to skyrocket in value if Bain increased the value of those companies, as it often did.

Although employees had money at risk in these investments, some were able to dramatically increase the size of their retirement accounts through this method. The arrangement may be one reason for the unusual size of Mr. Romney’s IRA, which as of August was worth between $20.7 million and $101.6 million, according to his finance disclosures.

The previous Bain plan was a so-called SEP-IRA plan, which is mostly used by smaller companies or partnerships in which the employer contributes funds into the IRAs of individual employees. That arrangement allowed employees of any age full control of their retirement money.

Because Bain has grown so much, a SEP-IRA may have become unwieldy, lawyers said. Bain in 2008 switched to a profit-sharing plan with certain features that mimic the old plan, including the ability to roll the funds into an IRA at almost any age.

The Bain Capital LLC Profit Sharing Plan provides a generous annual payout to employees of 14.3% of salary and bonus, up to the Social Security wage limit, and then 20% on compensation above that amount, up to a maximum of $42,912, the plan’s 2010 federal filing said. All assets are vested immediately, the filing said.

The most striking feature, lawyers said, is that Bain allows “in service” distributions at any time for anybody who has “attained age 23 years old.” That means current employees over that age don’t need to wait for the usual milestones, but can immediately roll over their profit-sharing money directly into an IRA — although the filing said that ability was limited to once a year.

It also means an employee over age 23 could simply withdraw the profit-sharing money at any time and keep it, although any withdrawals would be subject to tax plus, in most cases, a penalty.

Bain contributed $14.7 million into the plan in 2010, the filing shows. About $8.9 million was rolled over into employee IRA accounts, and $436,000 paid to participants.

Mr. Lax, the pension attorney, said withdrawal and rollover rules surrounding profit-sharing plans are looser than those for 401(k) plans. Still, he said Bain’s plan “smacks of a way to circumvent IRA contribution limits,” which for individuals is $5,000 per year, or $6,000 for those over age 50.

“This is a way in which you could get the employer to make a $42,000 contribution for you, then you could immediately move it into an IRA. It’s a way to stuff an IRA in a way that is otherwise impossible.”

Jeffrey S. Ashendorf, a pension attorney at Ford & Harrison LLP in New York, said allowing in-service withdrawals after age 23 is “unusual and may not be consistent with the purpose of a deferred profit-sharing plan, but I can’t say there is anything inherently wrong with it.” Bill Parish, a Portland, Ore., investment adviser, previously mentioned the unusual features of the Bain profit-sharing plan on his blog.

Bill Parish
Parish & Company
10260 SW Greenburg Rd., Suite 400
Portland, OR  97223
Tel:  503-643-6999 

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