By Mark Maremont
In the tax returns he released Tuesday, GOP presidential
candidate Jeb Bush reported puzzlingly large deductions for
payments to "pension and profit-sharing plans." The payments
averaged $350,000 a year for the past five years, far more than
most people could contribute to an individual retirement account or
401(k) plan.
It turns out that Mr. Bush used a little-known but perfectly
legal tax strategy that involved establishing a personal pension
plan for himself and one other person.
The strategy has allowed Mr. Bush to defer paying hundreds of
thousands of dollars in income taxes since he established the plan
in 2007 and to rapidly build up a large retirement kitty, according
to attorneys who work with such plans.
"I have any number of clients in this age range, early to
mid-60s, who have used these kinds of tax-shelter, defined-benefit
plans," said Charles M. Lax, an employee-benefits attorney with
Maddin, Hauser, Roth & Heller, P.C. in Southfield, Mich. He
reviewed Mr. Bush's plan for The Wall Street Journal.
Between 2007 and 2013, Mr. Bush reported a total of $2.4 million
in pension payments that reduced his business profits by the same
amount. (Mr. Bush hasn't yet released information on his 2014
taxes.)
The pension plan, which resembles defined-benefit programs many
large companies gave employees before the advent of 401(k) plans,
appears to be one of the few examples of Mr. Bush using financial
planning to lower his tax bill. His effective annual federal tax
rate of around 36% is substantially higher than that paid by
average Americans and by the top 1% of earners.
Mr. Lax described the most common user of the tax strategy as a
small-business owner or self-employed professional, such as a
doctor, looking to save as much pretax income as possible for
retirement.
Details of Mr. Bush's pension arrangement are found in filings
by his consulting firm, Jeb Bush & Associates LLC, with the
U.S. Labor Department. The filings, not released by the Bush
campaign, show that the firm's pension plan had assets of $2.4
million as of the end of 2013.
The plan covered two individuals, who aren't named. Outside
attorneys said they presumably include Mr. Bush, who until recently
was the company's sole owner. The second person could be his son
Jeb Bush Jr., who worked at the firm, or Columba Bush, the elder
Mr. Bush's wife.
"By virtue of being predominantly a family business, the Bushes
were able to plan for their retirement through Jeb Bush &
Associates," said a campaign spokeswoman. She wouldn't provide the
names of the people covered by the company pension plan and didn't
respond to other detailed questions.
The consulting company had a separate 401(k) plan, covering five
unnamed individuals, the filings show. It is possible Mr. Bush also
participated in this plan, attorneys said.
In a blog posting, Bill Parish, a Portland, Ore., investment
adviser, called Mr. Bush's pension plan "aggressive," in part
because the defined-benefit plan assumes a retirement age of 62.
That allowed Mr. Bush, who turned 62 in February, to shelter more
money more quickly than if the plan assumed retirement at 65. Mr.
Bush's election as president wouldn't have any impact on the
retirement plan.
In releasing 33 years of his tax returns, Mr. Bush told
reporters he made a commitment not to take a public pension when he
was elected Florida governor. "Had I taken my pension I would have
started getting it this year," he said. "Someone asked about this
and I had totally forgotten that I had not taken the pension and I
would instead be receiving something like $29,000 a year. I just
never felt it was that important to do."
Mr. Lax, the employee-benefits attorney, said tax rules allow
Mr. Bush to roll over the balance in his pension fund into an IRA
upon reaching the planned retirement age, which he did this year.
Mr. Lax said that is what his typical client does.
Mr. Bush's pension isn't nearly in the same league as the IRA
held by Mitt Romney, the GOP's 2012 presidential nominee, who in
filings reported his retirement fund held between $20.7 million and
$101.6 million.
Jeffrey S. Ashendorf, a benefits attorney at Ford & Harrison
LLP in New York, said Mr. Bush probably didn't shelter the maximum
possible income through the pension arrangement, based on his rough
calculations from reviewing the Jeb Bush & Associates
filings.
Tax rules this year allow ordinary wage earners under the age of
50 to shelter $18,000 in a 401(k) plan. For those in the over-50
category, like Mr. Bush, the maximum that could go into a 401(k)
plan this year is $59,000 including the employer's contribution,
said Mr. Lax, and the current IRA contribution limit is $6,500.
The strategy used by Mr. Bush follows rules for traditional
pension plans. They allow employers to contribute much larger sums
to build up a kitty that could provide a pension of as much as
$210,000 a year for a retired employee's expected lifetime.
Mr. Bush, as owner of Jeb Bush & Associates, acted as the
employer in funding the pension plans, which reduced his taxable
income from the company. In 2013, for example, Mr. Bush reported
$7.5 million in gross receipts for his business, and $254,000 in
payments to pension and profit-sharing plans.
From 2007 to 2010, the percentage of his business income
sheltered through the pension arrangement was much higher, ranging
between 10% and 13%. In 2008, for example, Mr. Bush reported his
company made gross receipts of $2.4 million and paid $323,000 into
pension plans.
Beth Reinhard contributed to this article.