Presentation is loading. Please wait.

Presentation is loading. Please wait.

DEFINED BENEFIT PLANS Presented by: Mary Read, CPC, QPA National Director of Qualified Plan Marketing For Financial Professional Use Only. Not For Use.

Similar presentations


Presentation on theme: "DEFINED BENEFIT PLANS Presented by: Mary Read, CPC, QPA National Director of Qualified Plan Marketing For Financial Professional Use Only. Not For Use."— Presentation transcript:

1 DEFINED BENEFIT PLANS Presented by: Mary Read, CPC, QPA National Director of Qualified Plan Marketing For Financial Professional Use Only. Not For Use With the Public.

2 DISCLOSURE 2 This material is intended as a general discussion of qualified plan concepts and strategies. It is not intended as specific advice concerning any individual legal, tax or accounting matter. Alliance Benefit Group-Pentegra does not provide legal, tax or accounting advice. Any questions regarding your individual situation should be directed to your personal advisor on such matters. For Financial Professional Use Only- Not For Use With Public

3 HOW MUCH DOES RETIREMENT COST? 3 60%, 75%, 80%, or more, of current income? $1,000,000? $2,000,000? For Financial Professional Use Only- Not For Use With Public

4 THE VALUE OF CERTAINTY Guaranteed Returns Guaranteed Death Benefits Predictable Costs Protection from Creditors Current Income Taxes 4 COST? For Financial Professional Use Only- Not For Use With Public

5 ADVANTAGE FOR BABY BOOMERS? The Defined Benefit plan is the only plan that may allow older employees to accumulate more assets than a defined contribution plan in the short period remaining until retirement.

6 COMPARE THE DEDUCTION – 55 TO RETIRE AT 65 6 Traditional Defined Benefit $137,358 Profit Sharing $50,000 The above example is purely hypothetical and for illustrative purposes only. The example shown above does not represent the setup of any particular plan and your results likely will differ. Contributions are actuarially determined and may change based on actual experience. For Financial Professional Use Only- Not For Use With Public

7 7 COMPARE THE ACCUMULATION – 55 TO RETIRE AT 65 Profit Sharing $739,180 Traditional Defined Benefit $2,261,465 ⁵ Profit Sharing plan assumes $50,000 annual contribution growing at 5% for 10 years. Traditional Defined Benefit amount is value required at retirement to pay the defined monthly benefit. The above example is purely hypothetical and for illustrative purposes only. The returns above do not consider inflation, taxes, changes of law, or management expenses which may reduce your return. The example shown above does not represent the setup of any particular plan and your results likely will differ. Contributions are actuarially determined and may change based on actual experience. For Financial Professional Use Only- Not For Use With Public

8 TYPES OF DEFINED BENEFIT PLANS ■ Traditional – Safe Harbor – General Tested ■ Fully Insured 412(e)(3)* ■ Cash Balance 8 * Guarantees are provided through life insurance and annuity contracts and are dependent upon the claims-paying ability of the issuing company. For Financial Professional Use Only- Not For Use With Public

9 DEFINED BENEFIT PLAN LIMITS  Maximum Annual Benefit (2012) is lesser of – 100 % High 3 consecutive year average compensation; or – $200,000  No specific contribution limit  Maximum Compensation $250,000 (2012)

10 HOW MUCH WILL THE CONTRIBUTION BE? It Depends… – Entry Age – Retirement Age – Years of Service – Average Compensation

11 ANSWERING THE “WHAT IF’S”  Defined retirement benefits, insured death benefits and large deductions for the corporation sound great, but what if business goes south? – Reduce formula – Convert from Fully Insured 412(e)(3) to traditional defined benefit – Terminate plan

12 MINIMUM FUNDING  Annual contributions must be paid  Contributions must be paid within 8 ½ months after the end of the plan year  Includes any interest on late quarterly payments  IRS penalties for failure to meet minimum funding requirements

13 PBGC  Pension Benefit Guaranty Corporation  Created in 1974  Insures monthly pension benefits  Funded by plan sponsor’s with premiums paid annually  May take over a plan in a distress termination *$4, monthly 2012 for age 65 straight-life annuity

14 ENHANCED BENEFITS Pre-retirement Death Benefits ■ Pre-tax premium payment ■ Provides survivor benefits in the event of premature death – Plan Self Completes for insurance face value ■ Pure death benefit passes to beneficiaries income tax free ■ Policy continuance after retirement 14 For Financial Professional Use Only- Not For Use With Public

15 NET COST OF $1,000,000 LIFE INSURANCE FACE AMOUNT No Life Insurance ¹ With Life Insurance ² Current Age55 Retirement Age65 Average Compensation$250,000 Plan Sponsor Contribution$137,358$138,000 Value at Retirement 5 $2,261,465 Monthly Retirement$16,66716,667 Face Amount of Life Insurance$0$1,000, Benefit formula: 203% of compensation for each year of participation less than 25 years. NL Life Bulder whole life insurance [form series 8311/8311ID(0306)] standard, non-smoker, unisex rates; max 2/3rd rule, Issued by National Life Insurance Company, Montpelier, VT and a side fund. Product may not be available in all states. All insurance values shown are guaranteed. Guarantees are dependent upon the claims-paying ability of the issuing company. The above example is purely hypothetical and for illustrative purposes only. The example shown above does not represent the setup of any particular plan and your results likely will differ. Products may not be available in all states. Contributions are actuarially determined and may change based on actual experience. For Financial Professional Use Only- Not For Use With Public

16 NET COST OF $1,000,000 LIFE INSURANCE FACE AMOUNT 16 Insurance Premiums $28,600 Total Contribution $138,000 ² Fund Only $137,358¹ Benefit formula: 203% of compensation for each year of participation less than 25 years. NL Life Bulder whole life insurance [form series 8311/8311ID(0306)] standard, non-smoker, unisex rates; max 2/3rd rule, Issued by National Life Insurance Company, Montpelier, VT and a side fund. Product may not be available in all states. All insurance values shown are guaranteed. Guarantees are dependent upon the claims-paying ability of the issuing company. The above example is purely hypothetical and for illustrative purposes only. The example shown above does not represent the setup of any particular plan and your results likely will differ. Products may not be available in all states. Contributions are actuarially determined and may change based on actual experience. Contribution Increase Over Fund Only $642 Per Year For Financial Professional Use Only- Not For Use With Public

17 Incidental Limits  100 X Projected Monthly Retirement Benefit  Revenue Ruling /3 Theoretical Contribution for Univerasl Life 2/3 Theoretical Contribution for Whole Life  Provides Death Benefits from Day 1  Policy surrender values partially fund defined benefit at retirement INCIDENTAL LIMITS

18 CASE STUDY – INDUSTRIAL DESIGN, INC. 18 AgeCompensation Owner A61$250,000 Owner B48$250,000 Employee 132$60,000 Employee 262$30,000 $590,000 This example is purely hypothetical and for illustrative purposes only. The example shown does not represent any particular plan and your results will differ. For Financial Professional Use Only- Not For Use With Public

19 TRADITIONAL DEFINED BENEFIT PLAN 19 Benefit formula:219% of compensation for each year of participation less than 25 years. NL Life Builder life insurance, form series 8310/8311/8310ID(0306)/8311ID(0306), standard non-smoker, unisex rates; max 2/3rd rule and Flexible Premium Annuity, form series 9614/9614ID(0307), issued by National Life Insurance Company, Montpelier, VT. The above example is purely hypothetical and for illustrative purposes only. The example shown above does not represent the setup of any particular plan and your results likely will differ. Products may not be available in all states. All insurance values shown are guaranteed. Guarantees are dependent upon the claims-paying ability of the issuing company. Contributions are calculated based on the guarantees in the products. AgeSalary Max Monthly Benefit ³ Trad DB Contribution without Life Insurance ¹ Trad DB Contribution with Life Insurance ² Insurance Death Benefit ⁴ 61$250,000$8,981$188,111$197,373$2,887, ,00016,66756,61863,6972,591, ,0005,0002,8233,686512, ,0001,09522,70423,542322,292 Total$270,255$288,299 Key %90%91% For Financial Professional Use Only- Not For Use With Public

20 WHICH CLIENTS? ■ Identify Clients With Need – Profitable – Cash Flow ■ Approach – Save Taxes – Protection from Creditors – Improve Design to Give More to the Business Owner – Add a Second Plan for Flexibility and Greater Contributions – Buy Insurance with Tax Deductible Contributions 20 Government Census Statistics U.S. Department of Labor, U.S. Bureau of Labor Statistics, August 2007 National Compensation Survey: Employee Benefits in Private Industry in the United States, March 2009 Update How About New Clients? 30 million businesses comprised of 9.5 million incorporated businesses with less than 10 employees and 20.7 million unincorporated businesses For Financial Professional Use Only- Not For Use With Public

21 IN A PERFECT WORLD… Ask the employer:  How much do you want to contribute?  Which employees do you want to include?  Which employees do you want to favor? …within the law we can help design a plan that comes close to the client’s idea of “perfect” 21 For Financial Professional Use Only- Not For Use With Public

22 ESTABLISHING A PLAN  Custom Plan Design Proposal  Execute Plan Document  Ongoing Administration  Must be established by last day of fiscal year, usually December 31 For Financial Professional Use Only – Not For Use With Public 22

23 23 I CAN’T DO THIS ALONE  Outstanding Personal Service  Industry Experts  No Commission Splits  No Hidden Fees Lori J. Carpenter Advisor Relationship Manager (800) Direct: Mary Read CPC, QPA National Director of Qualified Plans Marketing For Financial Professional Use Only – Not For Use With Public

24 CIRCULAR 230 DISCLOSURES The above information is not intended or written to be used, and it cannot be used, by any person for the purposes of avoiding any penalty that may be imposed by the Internal Revenue Service. In the event the advice is also considered to be a “marketed opinion” within the meaning of the IRS guidance, then as required by the IRS, please be further advised of the following: The above advice was written to support the promotion or marketing of the transactions or matters addressed by the written advice and, based on the particular circumstances, you should seek advice from an independent tax advisor. 24 For Financial Professional Use Only- Not For Use With Public

25 DISCLOSURES ■ Footnote 1: Traditional DB & DB Select Without Life Insurance - Annual contribution assuming annually computed 5.5% yearly total return and 4% salary increase. ■ Footnote 2: Traditional DB & DB Select With Life Insurance - Reflects value of the fund and cash value in the life insurance contracts to fund the defined monthly benefit at retirement. ■ Footnote 3: Max Monthly Benefit - Defined in accordance with IRC Section 415. ■ Footnote 4: Insurance Death Benefit - This is the guaranteed death benefit provided by the life insurance contracts purchased in the plan. ■ Footnote 5: Lump Sum Value at Retirement - The lump sum payments under a defined benefit plan are limited by the provisions of IRC417(e) and IRC415(GATT). The lump sum total is actuarially determined and assumes the defined monthly benefit is paid as a single life annuity. The lump sum is comprised of the cash value of plan investments (including the cash surrender value of the life insurance, if applicable) as of the defined retirement age. If the participant chooses to take distribution of the life insurance contract, the cash surrender value of the contract will comprise a portion of the distribution. These numbers are shown before taxes, which may reduce the funds available to you. 25 For Financial Professional Use Only- Not For Use With Public

26 DISCLOSURES ■ Footnote 6: 412(e)(3) without Life Insurance – Reflects value of the annuity contract to fund the defined monthly benefit at retirement. This is calculated in accordance with IRC Section 412(e)(3). ■ Footnote 7: 412(e)(3) with Life Insurance – Reflects value of the annuity contract and cash value of the life insurance contract to fund the defined monthly benefit at retirement. This is calculated in accordance with IRC Section 412(e)(3). ■ Footnote 8: DB Advantage – Contribution Credits and Interest Credits are credited each year to each plan participant’s hypothetical individual account in a cash balance plan. ■ Footnote 9: DB Advantage with Life Insurance – Insured contribution the employer is required to make for each plan participant. ■ Footnote 10: DB Advantage without Life insurance – Non-Insured contribution the employer is required to make for each plan participant. ■ Footnote 11: DB Advantage life premium – With life insurance in the plan, this is the premium paid for the life insurance for each participant ■ Footnote 12: DB Advantage fund contribution – With life insurance in the plan, the portion of the contribution that is unallocated funds in the participant’s account 26 For Financial Professional Use Only- Not For Use With Public


Download ppt "DEFINED BENEFIT PLANS Presented by: Mary Read, CPC, QPA National Director of Qualified Plan Marketing For Financial Professional Use Only. Not For Use."

Similar presentations


Ads by Google