The Kennon-Green & Co. Retirement Savings Plan

Beginning on January 1st, 2023, the Kennon-Green & Co. Retirement Savings Plan (“RSP”) is designed to operate as a Safe-Harbor 401(k) plan with discretionary profit sharing. Eligible employees become Participants of the RSP after meeting the minimum service requirement of one year of employment during which 1,000 hours or more were worked.

Annual Contributions Limits

The Firm Makes Pre-Tax Safe-Harbor Non-Elective Contributions: Kennon-Green & Co. contributes an amount equal to 3% of Participant’s annual compensation regardless of whether the Participant contributes anything to their 401(k). This money is immediately 100% vested.

The Participant Can Make Pre-Tax Salary Deferral Contributions: Participants can have money withheld from their paycheck and contributed to the plan in an amount equal to the greater of 100% of compensation of the maximum contribution limit permitted by law during the period. For example, in 2022, these elective deferrals can be as high as $20,500. Participants 50 years or older can contribute an additional $6,500 on top of this amount (“catch-up contributions”) for a total of $27,000. This money is immediately 100% vested.

The Firm Can Make Pre-Tax Profit Sharing Contributions: Each plan year, Kennon-Green & Co. can make discretionary profit sharing contributions. These profit sharing contributions can range from 0% to as high as 25% of eligible compensation less any safe-harbor contributions (i.e., 25% maximum – 3% safe-harbor = a net 22% of eligible compensation remaining potential profit sharing contribution). Given the potentially large profit sharing contributions, and to reward long-term employees, these funds are subject to an initial 6-year vesting schedule. To protect Participant’s families, and provide greater peace of mind, the RSP grants immediate 100% vesting in cases of death or disability.

Across these sources of pre-tax contributions, the maximum total amount that can be added to a Participant’s 401(k) account in a year as of 2022 is $61,000 before any catch-up contributions. For participants 50 years who take advantage of the maximum catch-up contribution limit of $6,500, this becomes $67,500. These amounts are adjusted annually by the IRS to reflect inflation.

The Plan Allows for Incoming Rollovers

For Participants who want to consolidate and simplify their retirement portfolio, the RSP allows pre-tax funds from most previous employer retirement plans to be rolled into the account. There is no limit to the amount that can be rolled into the plan and any funds rolled into the plan do not count towards the annual contribution limits.

Gratis Bespoke Portfolio Management for RSP Participants

In reflection of its fiduciary duty to Participants, and the significantly greater investment capabilities Kennon-Green & Co. has over most other employers by virtue of being an investment advisor, the RSP is designed and administered to encourage long-term retirement security.

Kennon-Green & Co. Designs, Constructs, Monitors, and Maintains a Bespoke Portfolio for Each Participant Account– Plan assets are held in segregated “For the Benefit of” accounts established for each Participant as part of the Kennon-Green & Co. Retirement Savings Plan and Trust. These FBO accounts are maintained at Charles Schwab & Co., an independent third-party custodian, with third-party administration by Ascensus. Each FBO account is managed by Kennon-Green & Co., which designs, constructs, monitors, and maintains a bespoke retirement portfolio based upon the unique needs and circumstances of the Participant.

Significant Cost Savings – To remain compliant with its obligations under the Employment Retirement Income Security Act of 1974, Participant accounts pay no investment advisory fees to Kennon-Green & Co., which provides its services to the RSP gratis.

In addition, since the Firm builds each Participant account from the ground up, just as it does for its private clients, this means that it is likely the bulk of each account consists of at any given time of individual common stocks and other securities, resulting in little to no “look-through” management fees to third-party funds. This also provides a benefit to Participants of allowing them extraordinary transparency as can see the individuals holdings of their account.

Furthermore, it is the current policy of Kennon-Green & Co., as employer, to subsidize a significant portion of plan operations including administrative expenses rather than have them charged to plan assets to further help employees accelerate their retirement savings. This means more money is available to compound for the Participant’s benefit.

The RSP Is Designed to Improve the Odds of True Long-Term Retirement Security

Consistent with the intention of Congress in creating the 401(k), and with its obligations under ERISA, the design philosophy of the RSP is based upon the belief that it was created and funded to help Participants enjoy a secure, comfortable retirement. It is not an alternative to other forms of saving, nor is it meant to be used as a form of short-term or intermediate-term liquidity. As such, with few exceptions, Participant accounts must remain in the plan until the Participant reaches the age of 65. This means that, while the plan has the ability to offer significantly more generous profit sharing contributions than are possible with the 401(k) plans of many other employers, unlike a typical run-of-the-mill 401(k) plan:

• The RSP does not permit hardship withdrawals.
• The RSP does not permit other specialty withdrawals, such as to use funds to buy a home or follow the birth or adoption of a child.
• The RSP does not permit loans.
• When a Participant’s employment with Kennon-Green & Co. ends, the Participant cannot “rollover” his or her plan assets into an outside Rollover IRA (except for funds that were previously “rolled into” the plan from outside retirement accounts non-attributable to employment at the Firm, which are not subject to this protective restriction). Rather, the money stays invested in the retirement trust for Participant’s benefit until the Participant reaches 65 years old, at which point the assets can either remain invested in the plan or can be transferred to an outside Rollover IRA.

These restrictions provide multiple benefits to Participants including a long-term investment horizon that allows Kennon-Green & Co. to better serve in its fiduciary capacity by selecting the most appropriate investments in pursuit of risk-adjusted retirement returns, ignoring day-to-day, or even year-to-year, fluctuations in quoted market price.

In addition to the low cost, tax deferral, and access to Kennon-Green & Co.’s private client services offered by the plan, another particularly beneficial aspect of structuring the RSP this way involves a legal concept known as “asset protection”, which helps shield retirement funds from an employee’s creditors. This asset protection arises because, with only a few notable exceptions, virtually all ERISA-qualified plan assets held for the benefit of an employee are exempt from seizure and/or excluded from bankruptcy filings should the Participant suffer a significant financial setback and be forced to seek the protections of a court; an extraordinary safeguard that can provide peace of mind which otherwise might not exist were the funds made accessible, even indirectly via transfer to a Rollover IRA post-employment but prior to retirement.