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CASH BALANCE PLANS “The Fastest Growing Retirement Plan You Never Heard Of” Presented by: Brad Wexler, MBA, QKA, QPA, QPFC The Tycor Companies November/December,

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Presentation on theme: "CASH BALANCE PLANS “The Fastest Growing Retirement Plan You Never Heard Of” Presented by: Brad Wexler, MBA, QKA, QPA, QPFC The Tycor Companies November/December,"— Presentation transcript:

1 CASH BALANCE PLANS “The Fastest Growing Retirement Plan You Never Heard Of” Presented by: Brad Wexler, MBA, QKA, QPA, QPFC The Tycor Companies November/December, 2014 (610) Securites and Investment Advisory Services offered through NFP Advisor Services, LLC, member FINRA/SIPC. Investment Advisory Services may also be offered through Tycor Asset Management, Inc. ® a Registered Investment Advisor. NFP Advisor Services, LLC is not affiliated with Tycor Asset Management, Inc. ® 9/14

2 QUESTION Are you, or do you know a small business owner who: Failed to save enough for Retirement ? Averse to market fluctuations ? If “YES”- the Cash Balance Plan could be your solution

3 STATISTICS Cash Balance plans have over 25% of the assets of 401(k) Plans* Cash Balance plans grew by 22% last year* 401(k) plans grew by 1% last year* Appeal to small-business owners like doctors, dentist, and attorneys. Majority of these plans have fewer than 10 employees *2013 National Cash Balance Research Report

4 KEY ATTRACTIONS Uses age-weighted contribution rules to squeeze 20 years of savings into 10 Can be set up as late as 12/31/14 to be effective for 2014 full calendar year Employees need not reduce their take-home pay as all contributions made by employer Can deduct full contribution of company tax return and substantially catch up on retirements savings.

5 401(k) vs Cash Balance Average contribution for owner in 401(k) plan is approximately 20% of their average pay* Average contribution for owner in Cash Balance Plan is over 60% of their average pay* Average contribution of “key” employee in 401(k) plan is 2.6% of their average pay* Average contribution of “key” employee in Cash Balance plan is 6.3%* *2013 National Cash Balance Research Report

6 INVESTMENTS Use conservative, fixed return investments Invested according to a rate written into the plan trust document- ie. 30 year Treasury bond, other fixed rate, bond rate with a floor, or actual earned return. All of the above are very conservative options. Less volatility Assets are pooled and invested by trustee If investment earnings exceed guaranteed rate-reduces future employer contribution If investment earnings are less than guaranteed rate- must make up difference over seven years

7 Cash Balance Plans by Business Type Doctors-26% Dentists-12% Attorneys-8% Accountants-8% Manufacturing-8% Engineers-6% Health Care-6%

8 Most Common Cash Balance Candidates Want to contribute more than $52,000 to their retirement plan Highly profitable company A family and/or other closely-held business Professional groups-Medical, law firms, etc. Older owner who wants to catch up on retirement Principals/senior executive earning > $260,000 (alternative to non-qualified plans) Companies willing to employer contributions (9%-15% of pay)

9 Qualified Retirement Plans Defined Contribution Plans –401(k) Plans –Profit Sharing Plans Defined Benefit Plans –Traditional Defined Benefit Plans –Cash Balance Plans

10 401(k) Plans Most popular Maximum deferral for 2014 = $17,500 ($23,000 if age 50 or older) Maximum contributions for 2014 = $52,000 ($57,500 if age 50 or older) Drawback- Has limitations for the highly compensated employee/owner

11 Solution Add a “Cash Balance Plan” Can be used as an additional retirement plan option For companies with high income earners For companies with consistent profits

12 Cash Balance Plan A Defined Benefit Plan Has features that resemble a 401(k) Plan Participants have hypothetical account balances Account increases by employer contribution and guaranteed interest rate (3.89% in 2014) Not dependent on plan’s investment performance

13 Key Features Combines maximum benefit under a Defined Benefit Plan with some flexibility/portability of 401(k)/profit sharing plan Individual Hypothetical Account Balance for participant Funded entirely by employer contributions Interest rate guaranteed Trustee-directed pooled investment account Benefits are portable

14 Advantages Larger contributions/tax deductions Acceleration of retirement savings for older employees Easy for participant to understand since benefits are account balances More predictable cost than traditional Defined Benefit Plan Competitive Advantage in Recruiting/Retaining key executives Asset Protection

15 When considering a cash balance plan, you should take into account your retirement expectations, when you intend to begin receiving your benefits, and the chance that your needs might change. In analyzing any choice presented under your plan, you will want to compare all the terms and options available to you under the cash balance package with those currently available to you. It is important for you to consider each option under each plan formula. You will also want to consider the specifics of your retirement benefit, such as how your accrued benefit (including the value of any early retirement subsidy) is defined under each formula, the current value of your accrued benefit under each formula, and its value as an annuity at normal retirement age, or as a lump sum distribution. You may also want to take into account how your choice will affect survivor benefits. You should also compare the value of other related benefits that may be offered under either choice. For instance, some traditional pension plans provide for an offset or subsidy if you retire prior to the age at which your Social Security benefits commence, or offer credit for service also covered by a disability benefit plan. In making your decision, you should pay attention to any time limits that may apply and any waivers you may be requested to sign. Finally, you need to consider how long you have been with your employer and whether or not you expect to stay employed with your current employer or change jobs in the future. Tycor does not provide legal or tax advice. Any decisions whether to implement these ideas should be made by the client in consultation with professional financial, tax and legal counsel. Asset protection plans should be developed and implemented well before problems arise. Due to the fraudulent transfer laws, asset transfers that occur close in proximity to the filing of a lawsuit or bankruptcy can be interpreted by the court as a fraudulent transfer. Proper structuring of these assets is imperative please seek proper legal and tax advice prior to engaging in re-titling/structuring of any assets. Please note that laws are subject to change and can have an impact on your asset protection strategy. Considerations

16 2014 Combined Contributions Limits (salary > $260k) Age401(k) Profit SharingCash BalanceTotal* Tax Savings 60-65$57,500$254,574$312,074$124, $57,500$184,456$241,956$97, $57,500$133,755$191,255$76, $52,000$97,069$149,069$59, $52,000$68,168$120,168$48, $52,000$49,180$101,180$40, $52,000$35,526$87,526$35,010 *Assuming 40% state/federal taxes.

17 Case Study Joe Smith, age 53, is a business owner of a distribution company and is having a good year. He has 4 employees. He wants to contribute as much as possible to a retirement plan on behalf of himself and wants to reduce taxes. Hypothetical case study results are for illustrative purposes only and should not be deemed a representation of past or future results.

18 Case Study, continued Salary401(k) / PS% of Pay Joe$260,000$57,50022% Employee 1$30,000$1,5005% Employee 2$30,000$1,5005% Employee 3$30,000$1,5005% Employee 4$30,000$1,5005% Start with a 401(k) comparability profit sharing plan It costs Joe $6,000 to save $57,500 Hypothetical case study results are for illustrative purposes only and should not be deemed a representation of past or future results.

19 More???? How can we make the plan more valuable for Joe? –Increase Joe’s contribution Joe can have both –401(k) Profit Sharing Plan –Cash Balance Plan Hypothetical case study results are for illustrative purposes only and should not be deemed a representation of past or future results.

20 It Now Looks Like This!!! AgeSalary401(k) /PSCash BalanceTotal Joe53$260,000$57,500$133,755$191,255 Employee 125$30,000$1,500$2,400$3,900 Employee 230$30,000$1,500$2,400$3,900 Employee 333$30,000$1,500$2,400$3,900 Employee 440$30,000$1,500$2,400$3,900 Totals$63,500$143,355$206,855 Over 92% of the contribution goes to Joe Hypothetical case study results are for illustrative purposes only and should not be deemed a representation of past or future results.

21 FAQ Can Contributions change? Is Funding Status an issue? Must everyone participate equally? Is it subject to IRS nondiscrimination testing? How do design/administration costs compare with 401(k) Plans

22 Where to Go From Here 2014 may be a great opportunity to get a jump start on saving for your retirement and reducing your taxes. Any plan established by 12/31/2014 can retroactively be effective 1/1/2014. Retirement will not happen without proper planning. Tycor can plan and do analysis for you.

23 Questions

24 850 Cassatt Road, Suite 310 Berwyn, PA For More Information Call [Brad Wexler] Tycor Benefit Administrators, Inc. ® Confidence in your plan ™ Securities and Investment Advisory Services offered through NFP Advisor Services, LLC (NFPAS), member FINRA/SIPC. Investment Advisory Services may also be offered through Tycor Asset Management, Inc. ® an Investment Advisor Representative. NFP Advisor Services, LLC is not affiliated with Tycor Asset Management, Inc. ® TAM006 8/14


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