Presentation is loading. Please wait.

Presentation is loading. Please wait.

For producer use only. Not for presentation to the public. OLA 1290 0209 Is There Still Life in These Plans?

Similar presentations


Presentation on theme: "For producer use only. Not for presentation to the public. OLA 1290 0209 Is There Still Life in These Plans?"— Presentation transcript:

1 For producer use only. Not for presentation to the public. OLA 1290 0209 Is There Still Life in These Plans?

2 2 For producer use only. Not for presentation to the public. This material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. This material was written to support the promotion or marketing of the products, services, and/or concepts addressed in this material. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely solely on their own independent advisors regarding their particular situation and the concepts presented here.

3 3 For producer use only. Not for presentation to the public. Why 412(e)(3) Now? Uncertain economic climate Clients leery of investing solely in stocks or bonds Desire for guaranteed retirement income Favorable Pension Reform: EGTRRA 2001 compensation/contribution limit changes no plan aggregation no family aggregation

4 4 For producer use only. Not for presentation to the public. 20052006200720082009 Compensation IRC 401(a)(17) $210,000$220,000$225,000$230,000$245,000 Annual Benefit IRC 415 100% of pay not to exceed $170,000. Reduced if benefit starts before age 62. 100% of pay not to exceed $175,000. Reduced if benefit starts before age 62. 100% of pay not to exceed $180,000. Reduced if benefit starts before age 62. 100% of pay not to exceed $185,000. Reduced if benefit starts before age 62. 100% of pay not to exceed $195,000. Reduced if benefit starts before age 62. EGTRRA Increases Compensation and Benefit Limitations

5 5 For producer use only. Not for presentation to the public. What Is a Section 412(e)(3) Plan? Defined benefit qualified retirement plan Funded exclusively with guaranteed insurance products Level annual funding is required Plan benefits equal contract benefits Exempt from usual defined benefit plan minimum funding requirements Contributions based on present value of future benefits

6 6 For producer use only. Not for presentation to the public. Investment Options Annuity-only option Annuity and life insurance option Contract selection does not change benefit Life insurance adds family security

7 7 For producer use only. Not for presentation to the public. Benefits of a 412(e)(3) Plan Maximize contributions and deductions Limit complexities of traditional defined benefit plans Minimize market risk Benefits can increase over timewhich can help offset effects of inflation

8 8 For producer use only. Not for presentation to the public. Traditional Plan412(e)(3) Plan Limited early contributionsLarger upfront contributions May become over-/underfundedAlways fully funded Quarterly contribution deadlinesFunding extended to tax filing deadline Traditional Defined Benefit vs. 412(e)(3) Fully Insured Plan

9 9 For producer use only. Not for presentation to the public. Traditional Defined Benefit 412(e)(3) Plan Cash at Age 65$2,206, 088$3,796,729 Interest Assumption5%3% Actuarial MortalityCurrentGuaranteed Normal Retirement AgeReasonable Calculations provided by The Heritage Group, LLC. Assumes plan participant is 50 years old. Funding for maximum retirement benefit allowed at age 65. Participants compensation in all years is in excess of $245,000. Defined Benefit Plan vs. 412(e)(3) Plan Comparisons

10 10 For producer use only. Not for presentation to the public. GATT vs. Lump Sum Monitoring Limits imposed by Congress Look at current IRS interest rates to determine present value of annuity Interest rates change annually 412(e)(3) vs. traditional defined benefit planreach GATT limit earlier Choice to annuitize 412(e)(3) or roll over lump sum depends on a variety of planning factors

11 11 For producer use only. Not for presentation to the public. Guaranteed ReturnsWhy Bother? Why should someone consider a guaranteed life insurance policy and annuity vehicle for retirement? For Clients Larger upfront tax deductions with guaranteed benefits For Advisors Possible opportunity for long-term money management

12 12 For producer use only. Not for presentation to the public. Transamericas Approach to a 412(e)(3) Plan Offers Planning Flexibility Life insurance is no longer needed Life insurance is needed receive policy as plan distribution roll life insurance policy into profit-sharing plan purchase life insurance policy from profit-sharing plan Change the policy to meet new objectives buy spousal protection for estate planning keep individual insurance protection

13 13 For producer use only. Not for presentation to the public. TransFreedom ® II (Form AF715 101 186 104) is a flexible premium deferred fixed annuity issued by Transamerica Life Insurance Company, Cedar Rapids, IA 52499. Contract form and number may vary, and this contract may not be available in all jurisdictions. Life Insurance Protection No Longer Needed Plan Participant Retires or Separates from Service

14 14 For producer use only. Not for presentation to the public. When Life Insurance Is Needed Plan participant Retires or Separates from Service Receives the Policy as a Plan Distribution Policy transferred as plan distribution Income tax paid on fair market value of policy less taxable economic benefit

15 15 For producer use only. Not for presentation to the public. When Life Insurance Is Needed (Contd) Plan Participant Retires or Separates from ServiceRoll the Life Insurance Policy to a Profit-Sharing Plan (PSP) Policy transferred directly to PSP Not a taxable distribution

16 16 For producer use only. Not for presentation to the public. When Life Insurance Is Needed (Contd) Plan Participant Retires or Separates from Service Purchases the Policy from the Profit-Sharing Plan ®® ®

17 17 For producer use only. Not for presentation to the public. TransSecure ® II and TransSecure ® II NY Flexible for 412(e)(3) and Beyond Current company practice ISWL policy can be surrendered cash surrender value rolls into profit-sharing plan or IRA For same net amount at risk, Transamerica may issue new second-to-die universal life policy No evidence of insurability required on former plan participant

18 18 For producer use only. Not for presentation to the public. TransSecure ® II (Policy Form #1-18011108, #ICC08-180) and Transecure ® II NY (Policy Form #3-18038108) are nonparticipating, limited payment, fixed premium, interest-sensitive, whole life insurance policies issued by Transamerica Life Insurance Company, Cedar Rapids, IA 52499 or Transamerica Financial Life Insurance Company, Purchase, NY 10577. Policy forms and numbers may vary, and these policies may not be available in all jurisdictions. In most states, in the event of suicide during the first two policy years, death benefits are limited only to the return of premiums paid. In Missouri, suicide is no defense to payment of benefits unless the Company can show that the insured intended suicide at the time of application for coverage. TransSecure ® II and TransSecure ® II NY Flexible for 412(e)(3) and Beyond (Contd) Evidence required on spouses life Owner can be irrevocable trust so death benefit avoids estate inclusion Cost of insurance based on insureds current agesubject to new surrender charges New compensation Offered by company practice

19 19 For producer use only. Not for presentation to the public. TransSecure ® II and TransSecure ® II NY Flexible for 412(e)(3) and Beyond (Contd) Buying Spousal Protection for Estate Planning

20 20 For producer use only. Not for presentation to the public. TransSecure ® II and TransSecure ® II NY Flexible for 412(e)(3) and Beyond (Contd) Single Life (offered by company practice) Available when policy is no longer part of 412(e)(3) plan and is surrendered Available beginning the 8th policy year Insureds age and surrender charge period remain unchanged May roll cash surrender value into profit-sharing plan or IRA New premium must be paid to prevent policy lapse New death benefit will be net amount at risk

21 21 For producer use only. Not for presentation to the public. The Role of a Third-Party Administrator Develops suitable 412(e)(3) plan proposal Assists in preparation of plan documents Annual administration calculates plan contributions performs incidental benefits testing prepares required reports handles distributions

22 22 For producer use only. Not for presentation to the public. Planning Considerations There is a huge tax bill accruing on the backside of the 412(e)(3) planall were doing is deferring taxes

23 23 For producer use only. Not for presentation to the public. Planning Considerations (Contd) What makes Transamericas approach to Section 412(e)(3) plans safer than those offered by the competition now that the IRS issued regulations that will change the valuation of life insurance policies?

24 24 For producer use only. Not for presentation to the public. IRS Guidance on Valuation of Life Insurance Valuation Notice 2005-25 Modifies and supersedes 2004-16 Provides guidance on fair market value of life insurance policies Provides safe harbor formula

25 25 For producer use only. Not for presentation to the public. Who Might Benefit from a 412(e)(3) Plan? The best candidates for a 412(e)(3) plan might be: Highly paid business owners and professionals: looking to maximize tax deductions who can make a multiple-year commitment; and/or who prefer security and guarantees over a fluctuating stock market Smaller, closely held businesses Companies with few or no common law employees S corporation owners with W-2 salary Independent contractors Companies with larger employee groups wishing to create defined benefit carve-out plans

26 26 For producer use only. Not for presentation to the public. 412(e)(3) Summary Enhanced retirement benefits Enhanced contributions/deductions Enhanced security

27 27 For producer use only. Not for presentation to the public. Professional Advice Professional advice is critical Tax, ERISA, and legal counsel Risk/benefit analysis Financial projections Careful drafting

28 28 For producer use only. Not for presentation to the public. Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company (collectively Transamerica), and their representatives do not give ERISA, tax, or legal advice. This presentation is provided for informational purposes only and should not be construed as tax or legal advice. Clients and other interested parties must consult with and rely solely upon their own independent advisors regarding their particular situation and the concepts presented here. Discussions of the various planning strategies and issues are based on our understanding of the applicable federal income, gift, and estate tax laws in effect at the time of this presentation. However, tax laws are subject to interpretation and change, and there is no guarantee that the relevant tax authorities will accept Transamericas interpretations. Additionally, this material does not take into consideration the general tax and ERISA provisions applicable to defined benefit retirement plans or the impact of applicable state laws on clients and prospects. Although care is taken in preparing this material and presenting it accurately, Transamerica disclaims any express or implied warranty as to the accuracy of any material contained herein and liability with respect to it. This information is current as of February 2009.

29 For producer use only. Not for presentation to the public. OLA 1290 0209 Is There Still Life in These Plans?


Download ppt "For producer use only. Not for presentation to the public. OLA 1290 0209 Is There Still Life in These Plans?"

Similar presentations


Ads by Google