1. © 2010, Kravitz Inc. All rights reserved. Ken Guidroz, MBA © 2010, Kravitz Inc. All rights reserved. Greater Tax Deferral using Cash Balance Plans

2. © 2010, Kravitz Inc. All rights reserved. Why Cash Balance and Why Now? 1) The new tax targets  >$250,000 2) Catch-up  Make up for 401(k) losses 3) Unique marketing opportunity

3. © 2010, Kravitz Inc. All rights reserved. In the News

4. © 2010, Kravitz Inc. All rights reserved. In the News

5. © 2010, Kravitz Inc. All rights reserved. In the News

6. © 2010, Kravitz Inc. All rights reserved. In the News

7. © 2010, Kravitz Inc. All rights reserved. Cash Balance 101

8. © 2010, Kravitz Inc. All rights reserved. 101 Outline 1.What exactly is a Cash Balance Plan? 2.Case Studies 3.Six basic features you need to know

9. © 2010, Kravitz Inc. All rights reserved. 401(k) Profit Sharing DefinedContribution Qualified Plans DefinedBenefit Traditional Hybrid Cash Balance

10. © 2010, Kravitz Inc. All rights reserved. How Does Cash Balance Differ from a DB Plan? Complex formula Defined Benefit Plans Cash Balance Plans Account balance, $100,000 Unfamiliar/archaicFamiliar: 401(k) Age-sensitive Less age-sensitive

11. © 2010, Kravitz Inc. All rights reserved. Legality of the Plan Pension Protection Act 2006 Safe harbors Clarification 1985

12. © 2010, Kravitz Inc. All rights reserved. 2010 Contribution Limits Cash Balance lifetime limit $2,500,000

13. © 2010, Kravitz Inc. All rights reserved. How Do Cash Balance Plans Work? 401(k) Cash Balance Interest Crediting Rate (~5%) Contribution Earnings

14. © 2010, Kravitz Inc. All rights reserved. Plan Investments Earnings …next year’s contribution Earnings …next year’s contribution 7-year make-up

15. © 2010, Kravitz Inc. All rights reserved. Investment Dynamics TARGET RETURN Too low: Greater expense / larger contribution required Underfunding limitations Too high: Lower contribution Smaller tax deduction Potential excise tax

16. © 2010, Kravitz Inc. All rights reserved. CASE STUDIES

17. © 2010, Kravitz Inc. All rights reserved. CASE STUDY: Small Business Plan options?

18. © 2010, Kravitz Inc. All rights reserved. All IRS-governed Plans: 2 basic rules Employees

19. © 2010, Kravitz Inc. All rights reserved. The Give to Get Above the line Below the line

20. © 2010, Kravitz Inc. All rights reserved. CASE STUDY: Basic Plan Comparability

21. © 2010, Kravitz Inc. All rights reserved. CASE STUDY: New Comparability

22. © 2010, Kravitz Inc. All rights reserved. CASE STUDY: Cash Balance Options

23. © 2010, Kravitz Inc. All rights reserved. CASE STUDY: Cash Balance Actual

24. © 2010, Kravitz Inc. All rights reserved. Basic Plan New Comparability Cash Balance Plan The Share of the Pie

25. © 2010, Kravitz Inc. All rights reserved. 89% to Owners($353,500)+$116,305 No Plan Plan 60% to Owners ($237,195) 40% tax bracket $395,325 40% tax ($158,130) 11% to employees versus Uncle Sam Is the Cash Balance Plan tax-efficient?

26. © 2010, Kravitz Inc. All rights reserved. CASE STUDY: Midsize Firm/Practice

27. © 2010, Kravitz Inc. All rights reserved. CASE STUDY: Current Plan

28. © 2010, Kravitz Inc. All rights reserved. CASE STUDY: Add Cash Balance

29. © 2010, Kravitz Inc. All rights reserved. CASE STUDY: Partner-Only Plan

30. © 2010, Kravitz Inc. All rights reserved. Other Cases

31. © 2010, Kravitz Inc. All rights reserved. Other Cases Similar ages: owners and employees

32. © 2010, Kravitz Inc. All rights reserved. Other Cases Family business  A couple, mid 50s  College-age children (2)  120 employees: office and warehouse

33. © 2010, Kravitz Inc. All rights reserved. Other Cases Younger Owners  4 owners, early 40s  6 associate consultants  10 employees

34. © 2010, Kravitz Inc. All rights reserved. Other Cases Large Medical Group  700 Doctors

35. © 2010, Kravitz Inc. All rights reserved. Who is Ideal? 1.Income, income, income ($250,000 plus) a.Plumbers to pathologists 2.“Ologists”: 11,000 with a Profit Sharing contribution a.Anesthesiology, radiology 3.Law firms 4.Venture capital/financial services 5.Businesses with New Comparability plan in place 6.1-500 partners

36. © 2010, Kravitz Inc. All rights reserved. Why Cash Balance Plans Appeal to Partnerships 1.There is direct tracking of contribution (what goes in, plus interest, comes out) 2.Portable: if partner retires or leaves firm, rolled to IRA or the new plan 3.There can be contribution flexibility among partners 4.Liability among partners can be minimized 5.There are options if cash flows decrease

37. © 2010, Kravitz Inc. All rights reserved. Six Basic Features You Need to Know

38. © 2010, Kravitz Inc. All rights reserved. $ Cash Balance Plan IRA Other Qualified Plan rollover Assets are portable Feature #1

39. © 2010, Kravitz Inc. All rights reserved. Feature #2 Owners/partners can have different amounts contributed for them Cash Balance Contribution Partner 1, age 50: $100,000 Partner 2, age 50: $0 Contribution flexibility among partners

40. © 2010, Kravitz Inc. All rights reserved. Feature #3 Contribution amounts can change, but use caution. What are business owners most concerned about these days?

41. © 2010, Kravitz Inc. All rights reserved. Feature #3 What if the cash flows decrease? 1.Reduce 401(k) and/or Profit Sharing 2.Amend plan to change contribution amounts (3 years) 3.Freeze plan 1/1 12/31 Plan amendment deadline (1,000 hours/~June 15)

42. © 2010, Kravitz Inc. All rights reserved. Feature #4 Funding of the Plan 1/1/10 12/31/10 Funding deadline 3/15/11 Plan year 9/15/11 Funding extension Filing of the company tax return

43. © 2010, Kravitz Inc. All rights reserved. 1/1/10 12/31/10 3/15/11 4/15/11 Plan year Professional firms Family businesses Feature #4 Funding Trends

44. © 2010, Kravitz Inc. All rights reserved.  40% of eligible participants  Example: 8/20 = 40% OR  50 total Feature #5 Participation requirement (how many people need to be in the CB Plan?)

45. © 2010, Kravitz Inc. All rights reserved. Feature #6 Non-discrimination testing primarily satisfied in the Profit Sharing Plan (gateway contributions 5%-7.5%)

46. © 2010, Kravitz Inc. All rights reserved. Contact Information Ken Guidroz, MBA (818) 379-6165 KGuidroz@KravitzInc.com Steven S. Sansone, J.D., AIF © (818) 325-3010 SSansone@KravitzInvest.com

47. © 2010, Kravitz Inc. All rights reserved. www.CashBalanceDesign.com