A Financial Advisors Guide to Cash Balance Retirement Plans
•
4 gefällt mir•1,942 views
The Cash Balance plan is a unique retirement tool that enables high income professionals maximize their own retirement savings while maintaining a benefit for their staffs. Actuary Chuck Munsell and pension designer Leah DeMartino will present a guide for Financial Advisors, brokers and RIAs on how cash balance plans work and provide examples of strategies to position the cash balance plan offer to win new clients and provide greater value to these high income individuals who need more aggressive options than a 401(k) or other standard retirement benefit plans. Updated January 2015
Empfohlen
Empfohlen
Weitere ähnliche Inhalte
Was ist angesagt?
Was ist angesagt? (20)
Ähnlich wie A Financial Advisors Guide to Cash Balance Retirement Plans
Ähnlich wie A Financial Advisors Guide to Cash Balance Retirement Plans (20)
Kürzlich hochgeladen
Kürzlich hochgeladen (20)
A Financial Advisors Guide to Cash Balance Retirement Plans
- 1. A Financial Advisor’s Guide to Cash Balance Plans www.nyhart.com Presented by Charles Munsell and Karl Willman
- 2. Charles Munsell charles.munsell@nyhart.com (317) 845-3570 Karl Willman karl.willman@nyhart.com (317) 845-3592
- 3. ACTUARY &EMPLOYEE BENEFITS Established in 1943, Nyhart is an ESOP with 115 employees and offices in Indianapolis, Chicago, Atlanta, St. Louis, Kansas City, Houston, Denver and San Diego. Areas of Expertise Include: • Cash Balance Plan • Defined Benefit & Pension • Defined Contribution & 401(k) • Employee Stock Ownership Plan • Flexible Spending, HRA & HSA • Healthcare Actuarial Consulting Learn more at www.nyhart.com
- 4. ACTUARY &EMPLOYEE BENEFITS 22 Actuaries Consulting In 48 States. Nyhart is one of the nation’s largest independent actuarial and employee benefit firms, consulting to and administering the plans for clients with more than $14 billion in assets. Our team of benefit advisers deliver personalized analysis and recommendations, translating complex calculations and issues into common language that enables corporations, associations, churches and governments to effectively manage their retirement and health care benefits.
- 5. www.nyhart.com Actuaries by location Indianapolis Thomas L. Totten, FSA, FCA, EA, MAAA Tayt V. Odom, FSA, FCA, EA, MAAA John L. Dowell, FSA, FCA, EA, MAAA Randy Gomez, FSA, FCA, MAAA Ryan Bedel, ASA, CPC Carter Angell, FSA, EA John Cierzniak, EA Matt Sherertz, ASA, EA Karl Willman, ASA, EA Charles Munsell, III, EA, MSPA Evi Laksana, ASA Malcolm Merrill, ASA, EA Atlanta Randall Stanley, FSA, FCA, EA, MAAA David Harris, ASA, EA, MAAA Kimberly Lovingood, FSA, EA Chicago Mike Zurek, EA Houston Dan Homan, EA, MAAA San Diego Teena Sarkissian, EA, CPC, MAAA, MSPA Marilyn Jones, ASA, FCA, EA, MAAA St. Louis Heath Merlak, FSA, FCA, EA, MAAA Nick Meggos, EA
- 6. Agenda What are cash balance plans? How do the plans work? What is the role of the advisor? Real-world example. How to start winning new business.
- 7. Why Defined Benefit? Limit is on the benefit, not the contribution Can fund towards target in excess of $2.5 million dollars for principal
- 8. What is a cash balance plan?
- 9. What is a Cash Balance Plan? A hybrid defined benefit plan Looks and acts like a 401(k) plan from a benefits perspective More robust from a funding perspective
- 10. Why a cash balance plan?
- 11. Why a Cash Balance Plan? A defined benefit plan Can be leveraged with 401(k) plan Combined plans tested as one Much larger deductions available Easy to understand
- 12. How do they work?
- 13. How do they work? Takes advantage of defined benefit nature of plan Takes advantage of nondiscrimination testing rules Typically designed with owner focus
- 14. How do we not discriminate? Plan must be non- discriminatory IRS provides framework for testing Take advantage of the “miracle” of compound interest
- 15. Pros & Cons Large contributions are allowed Investing for a pool Benefits are fixed and guaranteed Favorable Determination letter issued by IRS × Contributions are mandatory under law × Contributions could be volatile, based upon asset performance and interest rates × Government insurance depending upon size and structure
- 16. Who is an ideal candidate for a cash balance plan?
- 17. • Doctors, dentists, lawyers, business owners and other high income professionals • Entities with strong cash flow • Entities looking for tax deductions and willing to save for retirement • Owners who are older rather than younger WHOTO TARGET?
- 18. Why would a client want a cash balance plan?
- 19. REASONS why a client want a cash balance plan: 1.The contributions are tax deductible. 2.The contributions are tax deductible. 3.The contributions are tax deductible.
- 20. Any other reasons? This is a Qualified Plan as defined by the IRS Assets protected from creditors Rollover and deferral of taxes available upon distribution from plan Provides a significant retirement benefit
- 21. Cash Balance Plan 415 Dollar Limits for 2015 Age Limit Age Limit Age Limit 35 $68,369 36 $71,838 46 $117,962 56 $194,048 37 $75,484 47 $123,973 57 $203,968 38 $79,317 48 $130,292 58 $214,397 39 $83,346 49 $136,936 59 $225,362 40 $87,581 50 $143,921 60 $236,891 41 $92,034 51 $151,265 61 $249,013 42 $96,714 52 $158,987 62 $261,757 43 $101,634 53 $167,105 63 $256,128 44 $106,807 54 $175,640 64 $250,416 45 $112,245 55 $184,613 65 $244,579
- 22. What is the advisor’s role? Handle investments Plan sponsor education (but no participant education)
- 23. How are the investments different? No participant direction of investments Investments are in a pool and invested for the pool Goal is not necessarily maximum return Many plans are structured to reduce volatility Plans tend to be conservatively invested
- 24. LET’S LOOK AT A COUPLE OF SCENARIOS Case Study 24
- 25. • Dr. Martin makes $500,000/yr • Staff of 3 employees, total payroll = $129,927 • Maximum 401(k) limitation is $53k for 2015 • Typical design would be a 401k safe harbor and new comparability design ($53k max) CASESTUDY
- 26. CASESTUDY Name Salary 401k DC Cash Balance Total *Tax Savings Dr. Martin $500,000 $24,000 $7,950 $205,800 $237,750 $95,100 Employee1 $61,154 $0 $4,113 $1,500 $5,613 $2,245 Employee 2 $29,023 $0 $4,975 $726 $5,701 $2,280 Employee 3 $39,750 $0 $2,674 $994 $3,667 $1,467 Total Staff $129,927 $0 $11,762 $3,220 $14,981 $5,992 Grand Total $252,731 $101,092 Percent To Target 94% *Assuming a 40% tax rate; taxes are deferred only.
- 27. – Dr. Martin receives $237,750 contribution rather than a maximum $53,000 contribution to a 401k plan – 94% of total contribution went to owner – Tax savings of $101,092 more than paid for employee cost to get there – Design choices can skinny costs further depending upon circumstances CASESTUDY Interpretation
- 28. • Physician group with 13 partners • Staff of 10 employees • Maximum 401(k) limitation is $53k for 2015 • Typical design would be a 401k safe harbor and new comparability design ($53k max) CASESTUDY
- 29. CASESTUDY Name 401k DC Cash Balance Total *Tax Savings Each Partner $18,000 - $24,000 $35,000 $51,000 - $250,000 $104,000 - $309,000 Total Partners $237,000 $440,500 $1,460,700 $2,138,200 $855,280 Total Staff $0 $88,480 $6,300 $94,780 $37,912 Grand Total $237,000 $528,980 $1,467,000 $2,232,980 $893,192 Percent To Target 96% *Assuming a 40% tax rate; taxes are deferred only.
- 30. – 12 of 13 partners receive maximum contribution based upon their age with cash balance plan rather than a maximum $53,000 contribution to a 401k plan – 96% of total contribution went to the physician group – Tax savings of $893,192 more than paid for employee cost to get there CASESTUDY Interpretation
- 31. How to win business (or strengthen your existing relationships)
- 32. HOW TO WIN BUSINESS WITH CASH BALANCE PLANS – Most clients are in 403(b), 401(k), etc. – Cash balance plans are “new” to most clients – Most clients are very interested in the tax savings with the ability to save for retirement – As future tax rates may rise, it is a good time to discuss cash balance plans The advisors we work with use the cash balance plan as a differentiator
- 33. HOW TO WIN BUSINESS WITH CASH BALANCE PLANS The advisors we work with often use the cash balance plan as a way into to win the 401(k) business.
- 34. HOW TO WIN BUSINESS WITH CASH BALANCE PLANS Now is the time to set up the plan to get 2015 tax savings – so you can call with an urgency and specific benefit of value.
- 35. HOW TO WIN BUSINESS WITH CASH BALANCE PLANS Nyhart administers over 250 of these plans on an annual basis. Generally doctors, dentists and small owner firms that are profitable. Our largest plan in 2015 has 203 employees, and 43 highly compensated participants… Cash flow into plans can exceed $4,000,000 per year
- 36. How we work 1. You get employee census & data from client 2. Nyhart prepares cash balance plan study and analysis report 3. Nyhart prepares complete plan packet and guide – cobranded with your name and services. 4. You present the plan study to client to win business 5. If a “go” then Nyhart handles all admin, while you focus on client education and investment decisions.
- 37. How we work 1. You get employee census & data from client 2. Nyhart prepares cash balance plan study and analysis report 3. Nyhart prepares complete plan packet and guide – cobranded with your name and services. 4. You present the plan study to client to win business 5. If a “go” then Nyhart handles all admin, while you focus on client education and investment decisions.
- 38. In Conclusion • Cash balance plans provide large tax benefits to owners. • Cash balance plans provide large retirement accounts. • Qualified plan with the IRS • Cash balance plans offer the opportunity to sell 401k plans.
- 39. ANY QUESTIONS? This concludes our discussion
Hinweis der Redaktion
- Areas of Expertise Include: Cash Balance Plan Defined Benefit & Pension Defined Contribution & 401(k) Employee Stock Ownership Plan (ESOP) Flexible Spending, HRA & HSA Healthcare Actuarial Consulting Learn more at www.nyhart.com
- Areas of Expertise Include: Cash Balance Plan Defined Benefit & Pension Defined Contribution & 401(k) Employee Stock Ownership Plan (ESOP) Flexible Spending, HRA & HSA Healthcare Actuarial Consulting Learn more at www.nyhart.com
- Areas of Expertise Include: Cash Balance Plan Defined Benefit & Pension Defined Contribution & 401(k) Employee Stock Ownership Plan (ESOP) Flexible Spending, HRA & HSA Healthcare Actuarial Consulting Learn more at www.nyhart.com
- What is a cash balance plan? Why would a client want a cash balance plan? Who are the right targets? Role of the advisor Real example Winning business with a cash balance plan Conclusion
- Obviously, advisors handle the investments Advisors may also consult on the fiduciary aspects of the plan Typical ERISA fiduciary rules apply Plan must be prudently invested Investing for cash balance plans are different than 401k plans Differences No participant direction of investments Investments are in a pool and invested for the pool No education of participants for investments (plan sponsor, however, still must be educated) Goal is not necessarily maximum return Many plans are structured to reduce volatility Plans tend to be conservatively invested
- A cash balance plan is a qualified retirement plan Contributions are tax deductible Earnings are tax deferred Lump sums can be rolled into an IRA A cash balance plan is a defined benefit plan with all its warts Cash balance plan looks like a 401k plan Fictitious accounts are generated for each person The employer “makes” a contribution for the employee For example, 5% of employees pay The account grows with a stipulated interest rate For example, 1 year T-Bill interest rate Benefit design is governed by plan document Generally a companion to a 401k plan
- Obviously, advisors handle the investments Advisors may also consult on the fiduciary aspects of the plan Typical ERISA fiduciary rules apply Plan must be prudently invested Investing for cash balance plans are different than 401k plans Differences No participant direction of investments Investments are in a pool and invested for the pool No education of participants for investments (plan sponsor, however, still must be educated) Goal is not necessarily maximum return Many plans are structured to reduce volatility Plans tend to be conservatively invested
- A cash balance plan is a qualified retirement plan Contributions are tax deductible Earnings are tax deferred Lump sums can be rolled into an IRA A cash balance plan is a defined benefit plan with all its warts Cash balance plan looks like a 401k plan Fictitious accounts are generated for each person The employer “makes” a contribution for the employee For example, 5% of employees pay The account grows with a stipulated interest rate For example, 1 year T-Bill interest rate Benefit design is governed by plan document Generally a companion to a 401k plan
- Obviously, advisors handle the investments Advisors may also consult on the fiduciary aspects of the plan Typical ERISA fiduciary rules apply Plan must be prudently invested Investing for cash balance plans are different than 401k plans Differences No participant direction of investments Investments are in a pool and invested for the pool No education of participants for investments (plan sponsor, however, still must be educated) Goal is not necessarily maximum return Many plans are structured to reduce volatility Plans tend to be conservatively invested
- A cash balance plan is a qualified retirement plan Contributions are tax deductible Earnings are tax deferred Lump sums can be rolled into an IRA A cash balance plan is a defined benefit plan with all its warts Cash balance plan looks like a 401k plan Fictitious accounts are generated for each person The employer “makes” a contribution for the employee For example, 5% of employees pay The account grows with a stipulated interest rate For example, 1 year T-Bill interest rate Benefit design is governed by plan document Generally a companion to a 401k plan
- Obviously, advisors handle the investments Advisors may also consult on the fiduciary aspects of the plan Typical ERISA fiduciary rules apply Plan must be prudently invested Investing for cash balance plans are different than 401k plans Differences No participant direction of investments Investments are in a pool and invested for the pool No education of participants for investments (plan sponsor, however, still must be educated) Goal is not necessarily maximum return Many plans are structured to reduce volatility Plans tend to be conservatively invested
- Obviously, advisors handle the investments Advisors may also consult on the fiduciary aspects of the plan Typical ERISA fiduciary rules apply Plan must be prudently invested Investing for cash balance plans are different than 401k plans Differences No participant direction of investments Investments are in a pool and invested for the pool No education of participants for investments (plan sponsor, however, still must be educated) Goal is not necessarily maximum return Many plans are structured to reduce volatility Plans tend to be conservatively invested
- Entities with strong cash flow Pension contributions are required by law Actuary makes the annual contribution calculation Entities looking for tax deductions and willing to save for retirement Owners who are older rather than younger
- A cash balance plan is a qualified retirement plan Contributions are tax deductible Earnings are tax deferred Lump sums can be rolled into an IRA A cash balance plan is a defined benefit plan with all its warts Cash balance plan looks like a 401k plan Fictitious accounts are generated for each person The employer “makes” a contribution for the employee For example, 5% of employees pay The account grows with a stipulated interest rate For example, 1 year T-Bill interest rate Benefit design is governed by plan document Generally a companion to a 401k plan
- In addition, the benefits are tilted, in a dollar fashion, to the owner.
- Obviously, advisors handle the investments Advisors may also consult on the fiduciary aspects of the plan Typical ERISA fiduciary rules apply Plan must be prudently invested Investing for cash balance plans are different than 401k plans Differences No participant direction of investments Investments are in a pool and invested for the pool No education of participants for investments (plan sponsor, however, still must be educated) Goal is not necessarily maximum return Many plans are structured to reduce volatility Plans tend to be conservatively invested
- Obviously, advisors handle the investments Advisors may also consult on the fiduciary aspects of the plan Typical ERISA fiduciary rules apply Plan must be prudently invested Investing for cash balance plans are different than 401k plans Differences No participant direction of investments Investments are in a pool and invested for the pool No education of participants for investments (plan sponsor, however, still must be educated) Goal is not necessarily maximum return Many plans are structured to reduce volatility Plans tend to be conservatively invested
- Obviously, advisors handle the investments Advisors may also consult on the fiduciary aspects of the plan Typical ERISA fiduciary rules apply Plan must be prudently invested Investing for cash balance plans are different than 401k plans Differences No participant direction of investments Investments are in a pool and invested for the pool No education of participants for investments (plan sponsor, however, still must be educated) Goal is not necessarily maximum return Many plans are structured to reduce volatility Plans tend to be conservatively invested
- The advisors we work with use the cash balance plan as a differentiator
- In order for the cash balance plan to pass nondiscrimination rules, the plans must be aggregated for testing Plan sponsor does not want to work with multiple firms
- Nyhart is the back-end solution and administrator for the plan.
- Firms, such as Nyhart, provide free plan census studies to show illustrations on how cash balance plans can benefit the owners. These reports generate significant impact during the client discussion and because you can offer this analysis for free (Nyhart does not charge you or the client for this analysis), you have a significant door opener.
- What is a cash balance plan? Why would a client want a cash balance plan? Who are the right targets? Role of the advisor Real example Winning business with a cash balance plan Conclusion