Cash Balance Pension PlansCash Balance Pension Plans
Presented ByPresented By
Michael F. Kresl, CPAMichael F. Kresl, CPANational Sales ManagerNational Sales Manager
The American National Insurance CompanyThe American National Insurance Company
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The AMERICAN NATIONAL The AMERICAN NATIONAL INSURANCE COMPANY INSURANCE COMPANY (ANICO)(ANICO)
A AM Best AA- S & P COMDEX of 95
104 Years Old GALVESTON TEXAS
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IM0 2076American National Ins. Co. For Agent use only. Not for use with the general public. IM0 2076American National Ins. Co. For Agent use only. Not for use with the general public.American National Ins. Co.American National Ins. Co. 33
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Cash Balance Pension PlansCash Balance Pension Plans• Cash Balance plan designs have been
around for many years, with some high profile “conversions” in the late 1990s (IBM, Citigroup);
• Prior to PPA 2006 significant lawsuits concerning plan design – Cooper v. IBM;
• In 1999 IRS placed a moratorium on Cash Balance Plan approvals;
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Cash Balance Pension PlansCash Balance Pension Plans
• The Pension Protection Act of 2006 removes doubt as to plan design legitimacy;
• IRS “lifts” approval moratorium 1/1/2007;
• “Hybrid” Plans become an important planning tool for successful businesses as economic changes occur 2008 - Present
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What is a Cash Balance Plan?What is a Cash Balance Plan?
• An ERISA “Qualified Plan;”
• A “Hybrid” Defined Benefit Plan with Defined Contribution Features;
• A uniquely positioned plan design with the ability to equalize contributions between owners or HCEs of disparate ages
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What is a Cash Balance Plan?What is a Cash Balance Plan?
Defined Benefit Plan Features
• Maximized and potentially equalized contributions for Owners or HCEs;
• A required annual contribution with minimal flexibility;
• No employee portion of contributions;
• Employer bears investment risk;
• IRC 415 limits apply – no $49,000 limit;
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What is a Cash Balance Plan?
Defined Contribution Features
• Flexibility to base contribution amounts on different classes of employees;
• Lower contribution for employees (New Comparability);
• Participants have an account balance with contributions and interest added annually;
• “Combo Plans” allow for concurrent DB and DC plans;
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What is a Cash Balance Plan?What is a Cash Balance Plan?Comparison with New Comparability Profit Sharing Plan
New Comp 401(k) P/S Cash Balance “Hybrid” Plan
Age Salary Contribution Contribution
55 $196,000 $ 49,000 $ 166,747
44 34,000 1,700 2,805
36 30,000 1,500 1,677
25 28,000 1,500 916
22 20,000 1,000 564
$ 308,000 $ 54,700 $ 172,709
89 % to Owner 89 % to Owner 97 % to Owner97 % to Owner
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What is a Cash Balance Plan?What is a Cash Balance Plan?Comparison with a Traditional Defined Benefit PlanComparison with a Traditional Defined Benefit Plan
Traditional DB Plan Cash Balance “Hybrid” Plan
Age Salary Contribution Contribution
62 $ 225,000 $ 190,000 $ 100,000 43 225,000 48,000 100,000 36 36,000 3,100 2,700 29 30,000 2,500 1,900 24 26,000 1,900 1,200 $ 245,500 $ 205,800
For illustration purposes only, numbers rounded.
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COMPARISON OF MAXIMUM COMPARISON OF MAXIMUM CONTRIBUTIONSCONTRIBUTIONS
(ASSUMING NRA OF 65)(ASSUMING NRA OF 65)
AGE $401(k) DASH Defined Benefit “Cash Balance Plans” 412(e)(3)
40 $ 49,000 $ 33,361 $ 38,000 $ 94,674
45 $ 49,000 $ 50,159 $ 55,000 $ 108,619
50 $ 49,000 $ 79,272 $ 88,000 $ 166,552
55 $ 49,000 $ 139,362 $ 153,000 $ 215,94155
60 $ 49,000 $ 163,659 $ 179,000 $ 287,867
The numbers shown above are for illustration purposes only and in some cases are” rounded.” Actual numbers could be more or less and will depend upon plan design, employee participation,
use of life insurance in the plan, and other factors.
.
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What is a Cash Balance Plan?What is a Cash Balance Plan?
Lets look at some examples . . .
See “Sample Employer, Inc.”
(Plan Design #1)
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Plan SummaryPlan SummarySample Employer, Inc.Sample Employer, Inc.
For the Plan Year 01/01/2009 through 12/31/2009For the Plan Year 01/01/2009 through 12/31/2009
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First Year Plan ContributionsFirst Year Plan Contributions
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Plan Allocation FormulasPlan Allocation FormulasSample Employer, Inc.Sample Employer, Inc.
For the Plan Year 01/01/2009 through 12/31/2009For the Plan Year 01/01/2009 through 12/31/2009
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Employee CensusEmployee CensusSample Employer, Inc.Sample Employer, Inc.
For the Plan Year 01/01/2009 through 12/31/2009For the Plan Year 01/01/2009 through 12/31/2009
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Valuation StatementValuation StatementSample Employer, Inc.Sample Employer, Inc.
For the Plan Year 01/01/2009 through 12/31/2009For the Plan Year 01/01/2009 through 12/31/2009
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Financial ResultsFinancial ResultsSample Employer, Inc.Sample Employer, Inc.
For the Plan Year 01/01/2009 through 12/31/2009For the Plan Year 01/01/2009 through 12/31/2009Tax SummaryTax Summary
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Cash Balance Pension PlansCash Balance Pension PlansPlan Design # 2: Two Owners, 4 EEs
Age Salary Contribution 61 $ 225,000 $ 150,000
54 225,000 150,000
48 34,000 3,411
35 30,000 1,596
32 28,000 1,288
26 20,000 686
$ 562,000 $ 306,981
98% to Owners
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Cash Balance Pension PlansCash Balance Pension Plans
Plan Design # 3: 5 Owners, 20 EEs
Objective: Defer $100,000 Per Owner
$ 560,573 Total Plan Contribution
$ 60,573 To Employees
90 % To Owners!
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Cash Balance Pension PlansCash Balance Pension Plans
Plan Design # 4: 10 Owners/HCEs, 34 EEs
Objective: Defer $100,000 per Owner/HCE
$1,070,563 Contribution
$70,563 to EEs
93 % to Owners!
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Cash Balance Pension PlansCash Balance Pension Plans
Summary:
• A Defined Benefit Plan with the ability to equalize contributions between different aged Owners/HCEs;
• Stated Annual Contributions with Little Flexibility;
• Annual “Contribution Credits” and “Interest Credits” credited to Participant “hypothetical” Accounts;
• Employer Bears Investment Risk;
• Can use a variety of Fixed or Variable Investments including Life Insurance
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Cash Balance Pension PlansCash Balance Pension PlansTypical Costs associated with Plans *
$ 500 “Installation Fee” (Covers Documents)
$ 1,000 IRS Letter Of Determination **
$ 2,000 Annual Administration Fee (up to 25 Lives)
* Based upon American National Insurance Company posted fees 1/1/09;
** May vary depending upon plan design;
New plans may be eligible for tax credits up to $500 for first 3 years
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Cash Balance Pension PlansCash Balance Pension Plans• An “underserved market” especially
Successful Owners looking for large tax deductions & “catch up” with possible guarantees;
• Change in Pension Rules (PPA ’06) allow for excellent plan design capabilities beyond what
most clients and advisors realize;
• Prospective clients are more approachable now than ever;
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““An Underserved Marketplace”An Underserved Marketplace”
• Owners seeking higher tax deductions than Defined Contribution Plans can provide;
• Owners seeking to accumulate significant retirement funds in a relatively short time;
• Multiple Owners looking to equalize contributions between owners/HCEs;
• “Older” Owners with younger, lower paid employees;
• Owners seeking additional protection of assets from liability and creditors;
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Why American National?Why American National?Turnkey Program – “One Throat to Choke”
Featuring . . .
Free, “no-obligation” professional plan design and/or review
Preparation and filing of plan documents
Various investment platforms – from fixed to variable
Complete Low Cost Administration/Record Keeping
No “Gray areas,” No “Off-Shore” Schemes, No “Audit Flags”
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American National Insurance CompanyAmerican National Insurance Company
– 104 years old, closely held and publicly traded (ANAT)
– A AM Best AA- S &P COMDEX of 90
– Asset/Liability Ratio over 120%
– Has Paid Dividends in 99 Years
– No Corporate Debt Issued
– Buy & Hold Strategy in Bond Portfolio
– No CDOs, CMOs, CLOs, CBOs, NO TARP
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Not to Mention . . .
• Deferred Annuities – Including “CD Type” MYGs
• Immediate Annuities (SPIA & SPLIT)
• Indexed Annuities – Annual Reset & End Term
• Life Insurance – WL, UL, Term and VUL
• Pension Design and Administration
• “Voluntary Benefits” with List Bill or Payroll Ded
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Your ANICO TeamYour ANICO TeamOutside Group
Mike Kresl, CPA – North Region 866-892-1311
Scott Whitten, FLMI – South Region 949-910-8110
Don Noble, CLU – West Region 877-289-5265
Gil Dudrow, - East Region 800-727-5617
Inside Support
Brad Bennett - Home Office 877-446-6236 Ext 5976
Marci Dutton – Home Office 877-446-6236 Ext 4497
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