© 2009, Kravitz Inc. All rights reserved. Greater Tax Deferral using Cash Balance Plans

© 2009, Kravitz Inc. All rights reserved. Qualified Retirement Plans-2 Types Defined Contribution Plans  401(k) Plans  Profit Sharing Plans Defined Benefit Plans  Traditional Defined Benefit Plans  Cash Balance Plans (“hybrid plans”)

© 2009, Kravitz Inc. All rights reserved. The Hybrid for the 21 st Century Defined Benefit Defined Contribution Cash Balance An ERISA-governed, tax-qualified plan  Tax deduction, tax deferral  Creditor protection

© 2009, Kravitz Inc. All rights reserved. Current Trend 3Traditional defined benefit plans  1985: 112,208  2005: 29,000 3Cash Balance Plans  2000: 4%  2005: 10% Source: Employee Benefit Research Institute, 2005

© 2009, Kravitz Inc. All rights reserved Contribution Limits

© 2009, Kravitz Inc. All rights reserved. DB Versus CB Comparison Formula Defined Benefit Plans Cash Balance Plans Account balance (direct tracking) ArchaicLooks like 401(k) Profit Sharing Age-sensitive Age-neutral (relatively)

© 2009, Kravitz Inc. All rights reserved. Background: three key dates Introduced by BankAmerica 2006 Pension Protection Act Safe Harbors Clarification Conversions: Defined Benefit to Cash Balance

© 2009, Kravitz Inc. All rights reserved. How Do Cash Balance Plans Work? 401(k) Cash Balance Guaranteed interest credit (≈5%) Contribution Earnings

© 2009, Kravitz Inc. All rights reserved. Plan Investments Earnings …next year’s contribution Earnings …next year’s contribution 7-year make-up

© 2009, Kravitz Inc. All rights reserved. Investment Dynamics Pooled investments, no self-direction Guaranteed interest credit ~5% Investment risk with the employer

© 2009, Kravitz Inc. All rights reserved. Investment Options Not dictated by regs Cash Balance Mutual Fund Portfolios with fixed-income slant

© 2009, Kravitz Inc. All rights reserved. Interest Credit Flexibility 3Three Month Treasury Note: ~3.5% 330 Year Treasury Bond: ~5% 3Corporate Bond: ~6.4%

© 2009, Kravitz Inc. All rights reserved. CASE STUDY: Dentist

© 2009, Kravitz Inc. All rights reserved. CASE STUDY: Dentist

© 2009, Kravitz Inc. All rights reserved. CASE STUDY: Family Business

© 2009, Kravitz Inc. All rights reserved. CASE STUDY: Family Business

© 2009, Kravitz Inc. All rights reserved. Succession: acquire stock or gifting Exit strategy: accumulating funds ($2,522,000) CASE STUDY: Family Business Plan is complementary with estate planning:

© 2009, Kravitz Inc. All rights reserved. CASE STUDY: Midsize Professional Firm

© 2009, Kravitz Inc. All rights reserved. CASE STUDY: Midsize Professional Firm

© 2009, Kravitz Inc. All rights reserved. CASE STUDY: Construction Company

© 2009, Kravitz Inc. All rights reserved. CASE STUDY: Construction Company

© 2009, Kravitz Inc. All rights reserved. CASE STUDY: Large Professional Firm

© 2009, Kravitz Inc. All rights reserved. CASE STUDY: Large Professional Firm

© 2009, Kravitz Inc. All rights reserved. Five Key Features Key feature #1 $ Cash Balance Plan IRA Other Qualified Plan rollover Assets are portable

© 2009, Kravitz Inc. All rights reserved. Key feature #2 Owners/partners can have different amounts contributed for them Example:Cash Balance Contribution Partner 1, age 48: $90,000 Partner 2, age 48: $0 Contribution flexibility among partners

© 2009, Kravitz Inc. All rights reserved. Key feature #3 1.Reduce 401(k) and/or Profit Sharing 2.Amend plan, but not frequently (2-3 years) 3.Freeze plan Key amendment deadline: June 15 th (1,000 hours) Options if cash flows change

© 2009, Kravitz Inc. All rights reserved. 1/1/08 12/31/08 Funding preference 3/15/09 Plan year Key feature #4 Funding of the Plan 9/15/09 Funding deadline (extension)

© 2009, Kravitz Inc. All rights reserved. Funding Trends 1/1/09 12/31/09 3/15/10 Plan year Professional firms Family businesses

© 2009, Kravitz Inc. All rights reserved. Funding Concern 1/1 12/31 Contribution becomes obligation (1,000 hours/June 15) Leave firm Partners concerned that they will be liable for another partners contribution.

© 2009, Kravitz Inc. All rights reserved. Funding Solution 1/1 12/31 1. Fund monthly 1,000 hours Leave firm 2. Amend partnership agreement to accommodate

© 2009, Kravitz Inc. All rights reserved. 3 40% of eligible participants  Example: 8/20 = 40% OR 3 50 total Key feature #5 Participation requirement

© 2009, Kravitz Inc. All rights reserved. Summarize: Why Cash Balance Plans Appeal to Partnerships Direct tracking of contributions (what goes in, plus interest, comes out) Portability: if partner retires or leaves firm Rolled to IRA or the new plan (lateral partners) Contribution flexibility among partners Liability for other partner’s contributions Options if cash flows decrease

© 2009, Kravitz Inc. All rights reserved. Summarize: Good Candidates High wage-earners, >$250,000 3 Professional firms: law, medical… 3 Successful family businesses, closely-held 3 Size? No. Ratio? Yes. 1:10 ideal

© 2009, Kravitz Inc. All rights reserved. Common Concerns 3 Less flexible than 401(k) 3 Enough partners to participate? (%) 3 Added cost: employer contribution & actuarial 3 Less investment flexibility (pooled and only 5%)

© 2009, Kravitz Inc. All rights reserved. Why Clients Adopt These Plans Asset protection Accelerate Savings Taxes

© 2009, Kravitz Inc. All rights reserved. How TPAs Partner on Cash Balance Local TPA KRAVITZ DC Plan DC Plan Document (including amendments) Data Collection ADP/ACP Testing Coverage (410(b)) Test 415(c) Test Send Kravitz testing results and data including corrections if testing failures Coordination of profit sharing allocation Form 5500 Cash Balance Plan CB Plan Document (including amendments) Review Data Coverage (410(b)) Testing 415(b), 401(a)(4) and 401(a)(26) Tests Top Heavy Actuarial Valuation Coordination of profit sharing allocation Form 5500

© 2009, Kravitz Inc. All rights reserved. For advisors STAND OUT If you don’t bring it, someone else will Use as leverage to win the 401(k) Plan

© 2009, Kravitz Inc. All rights reserved. Principal-focused plans Employees Principals Partners Owners HCEs HR Office Boardroom 401(k) Cash Balance Advisor

© 2009, Kravitz Inc. All rights reserved. How do I explore feasibility for my business? Picture worth 1,000 words

© 2009, Kravitz Inc. All rights reserved. Information needed for Illustration Dates of birth Dates of hire Compensation In an excel file

© 2009, Kravitz Inc. All rights reserved. Wealth of Information

© 2009, Kravitz Inc. All rights reserved. Are you a good candidate?

© 2009, Kravitz Inc. All rights reserved. Plan Investments

© 2009, Kravitz Inc. All rights reserved. Case Studies

© 2009, Kravitz Inc. All rights reserved. Advisor program

© 2009, Kravitz Inc. All rights reserved. Case Studies

© 2009, Kravitz Inc. All rights reserved. Contact Information Ken Guidroz, Director of New Plan Design Ventura Boulevard Encino, CA (818)