The Client:
PensionPro is a leader in workflow management software for third-party administrators supporting over 175,000 retirement plans.
The Challenge:
Harrisburg, PA-based PensionPro was founded in 2010 as an LLC taxed as a partnership. Nearly a decade later, the leadership team decided to convert to being taxed as an S Corp entity type for financial and operational benefits. There are a number of IRS mandates involved in such a change, including marketable compensation levels for owners, so PensionPro needed to tackle the endeavor comprehensively and thoroughly.
PensionPro was already tapping into RKL for reviewed and compiled financial statements, but the leadership team was unaware of the firm’s specialized capabilities. After engagement partners Mike Eby and Duane Moyer introduced RKL’s reasonable compensation analysis developed by its Workforce Strategies, Data Analytics and Tax teams, PensionPro decided to embark on this cross-disciplinary process with the firm.
The RKL Approach:
RKL’s human resources consultants have long analyzed compensation for companies throughout the region. When provisions of the Tax Cuts and Jobs Act of 2017 opened the door to new planning opportunities related to owner compensation, RKL developed a more robust compensation analytics tool to translate these new rules into concrete tax benefits for clients.
In the case of PensionPro, a change from a partnership to an S Corp requires a determination of what the IRS deems “reasonable compensation” for owners. The IRS applies a nine-factor test to determine compliance for S Corp taxpayers, so RKL customized a data analytics and reporting tool to ensure that Pension Pro’s compensation levels met this standard.
RKL analysts gathered a wide range of information about PensionPro, including compensation philosophy, headcount, revenue and more. Questionnaires and interviews captured the full scope of responsibilities and duties for each owner. RKL’s model then compared PensionPro’s data and compensation levels with industry benchmarks, market averages and historical salary information to identify patterns or opportunities for realignment.
The Results:
RKL’s analysis provided PensionPro with the confidence to move forward with its entity type switch. The company gained an understanding of the necessary S Corporation shareholder W-2 compensation amounts that are required by the IRS, while still being able to effectively manage distributions to optimize tax savings, knowing that RKL’s detailed and thorough report substantiated the compensation amounts.
According to PensionPro’s leadership team, the reasonable compensation analysis brought clarity around owner responsibilities and gave the company an opportunity to reallocate and reprioritize time and expertise in ways that drive more value.
To learn more about how RKL can drive real results for your organization, send us a message or contact one of our local offices.
