How the PGA jumped into a huge retirement pool

This year, the PGA Tour’s contribution to the players’ retirement fund is expected to reach $47 million, up from $28.5 million last year and nearly nine times the amount when Tiger Woods joined the tour in 1996. “I don’t think the players appreciate it as much as they should. It’s exponentially better than any plan in sports,” says Dave Lightner, a partner in FSM Capital Management LLC, a Cleveland-based financial planning firm with 60 professional golfers as clients. “It was already a big pool, and now it’s even bigger,” he said. Former PGA Tour commissioner Deane Beman conceived its retirement plan, which the Internal Revenue Service approved in 1983. Revenue-generating business ventures such as the tour’s TPC Network of golf courses and other marketing and licensing agreements allowed the tour to defer some compensation without compromising purses. Getting a plan approved that wouldn’t jeopardize the tour’s 501c6 tax-exempt status was no small accomplishment. It took several attempts. Experience counts Mr. Beman credits Victor Ganzi, then a managing partner at New York law firm Rogers & Wells, for masterminding a plan that would pass muster. It helped that Mr. Ganzi had experience. In 1982, he designed a deferred-compensation plan for the LPGA. As one former tour employee said of Mr. Ganzi’s intellect: “You want him for a Trivial Pursuit partner.” Mr. Ganzi now is president and chief executive of New York-based Hearst Corp. and has served on the tour’s board since 1994. He devised a performance-based plan that rewarded players with one deferred-compensation credit for making a 36-hole cut. After the 15th cut made, the value of the credit doubles. “The double-cut provision at a certain level was a linchpin that helped get us approved [by the IRS], because you had to play more to get more,” Mr. Beman said. Any type of retirement plan must have some level of vesting and risk of forfeiture. Under current rules of the tour’s plan, players are vested in the so-called cuts plan after they have played a minimum of 15 official events annually for five seasons. (Seasons need not be consecutive, but the gap between two qualifying seasons can be no longer than five years.) Incentive-based programs have been added to the cuts plan (and since eliminated) to reward players who compete more frequently. “We have the most unpredictable jobs in sports from a tax standpoint,” said Joe Ogilvie, a player director on the tour’s policy board, noting that there are no guaranteed contracts in golf. “The tour’s retirement plan gives you a sense of financial security.” Baseball players, by comparison, receive a pension tied to days of service. It doesn’t matter whether a player has won four World Series rings as did New York Yankees shortstop Derek Jeter or is a left-handed reliever who makes a living facing one batter every couple of games. So how can Tiger Woods sock away close to $700,000 — earned last year through three programs that comprised the tour’s retirement plan — while most professional athletes participating in “qualified” plans can’t contribute more than $44,000 (the maximum allowed by the IRS in 2006)? Independent contractors That is because qualified plans have funding limits and are available only to organizations, including sports teams, that have true employees. The tour isn’t eligible to offer such a plan, because its members are independent contractors. But there is a drawback to the tour’s non-qualified plan. Although there is no funding limit, players’ money can’t be set aside in separate accounts and is held as general assets, making their retirement funds — at least in theory — vulnerable to tour creditors. Retirement assets, valued at $433,425,501, according to the tour’s 2005 Form 990 filed with the IRS, could be at risk if the tour loses a major lawsuit or files for bankruptcy protection. Suffice to say, the tour has taken virtually every precaution to safeguard the retirement funds. It has insurance coverage and has pledged every other asset it owns (worth a combined $600 million to $700 million, according to Mr. Ogilvie) before it will sacrifice the retirement plan. He said: “I think the only chance that money is not there is if we are hit by a meteor, and everybody dies.” Adam Schupak is a Golfweek senior writer. This article was reprinted with the permission of that publication.