1. Q uarterl y B E A C O N H I L L I N V E S T M E N T A D V I S O RY
Summer 2011
A Review of the Markets This Just In —
After strong first-quarter gains in line, though it was negative for the Ohio Estate Tax Update
the stock markets, it was mostly quarter. The Russell 2000 suffered
downhill from there. Following the most as investors preferred the Governor Kasich signed into law
April’s year-to-date highs, when reassurance of defensive sectors the State budget which repealed the
the Russell 2000 hit its highest and large caps, while the NASDAQ Ohio estate tax beginning January
level on record, week after week escaped with barely a scratch. 1, 2013. Though you will no longer
of declines battered all four U.S. Meanwhile, saddled with Greece’s be required to pay Ohio estate
indices. However, a rally in June’s woes, the Global Dow continued taxes after 2012, it is necessary to
final week left the Dow industrials to stagger. continue reviewing and monitoring
the only one of the four major your estate plan. Taxes are only
indices with a gain for the quarter, Greece’s debt problems caused one aspect of comprehensive estate
taking the lead from the small caps investors to decide that despite planning to ensure your goals and
for 2011’s first half. the United States’ budgetary woes, objectives are satisfied.
Treasuries didn’t look so bad after
After breaking below 1,300, the all. As demand pushed prices up,
S&P 500 barely managed to claw yields on the 10-year fell below 3%
its way back to that level just before rebounding a bit.
before crossing the quarter’s finish
Market/Index 2010 Close As of 3/31 End of Quarter Quarterly Change YTD Change
DJIA 11577.51 12319.73 12414.34 .77% 7.23%
NASDAQ 2652.87 2781.07 2773.52 -.27% 4.55%
S&P 500 1257.64 1325.83 1320.64 -.39% 5.01%
Russell 2000 783.65 843.55 827.43 -1.91% 5.59%
Global Dow 2087.44 2186.41 2134.29 -2.38% 2.24%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 3.30% 3.47% 3.18% -29 bps -12 bps
84 South Fourth Street, Columbus, OH 43215 • (614) 469-4685 • info@BHadvisory.com • www.beaconhilladvisory.com

2. Quarterly Economic Perspective
• The financial markets heaved of Labor Statistics said volatile • The Federal Reserve’s bond-
a sigh of relief as the Greek food and energy costs were buying program, nicknamed
parliament agreed to implement responsible for more than half of QE2, came to an end on schedule.
a €28 billion, five-year program that. However, oil prices fell back Fed Chairman Ben Bernanke said
of spending cuts, tax increases, to roughly $90 a barrel, helped by the Fed will continue to reinvest
and asset sales. European the release of some of the world’s the proceeds of existing holdings,
leaders said the measures were a strategic reserves in the wake of and that those efforts will end
condition for receipt of the next ongoing conflict in oil-rich Libya. before the Fed raises interest rates.
slice of existing aid before key It also forecast slower economic
bond payments in July. Despite • The nation maxed out its credit growth (2.7%-2.9%) for the rest
differences over whether and how card as it went over the current of the year, but said some of the
to let bondholders such as banks $14.3 trillion debt ceiling in causes of the sluggishness should
suffer losses on Greek debt, the May. Treasury officials warned be temporary.
country’s European colleagues that accounting measures could
said Greece would likely receive a postpone the day of reckoning • Unemployment rose slightly to
new aid package. until August 2, but that after just over 9% during the quarter,
that date the Treasury will face consumers were slower to spend,
• U.S. economic growth continued, the question of which bills go housing continued to struggle,
but at a much slower pace. The unpaid. As the clock kept ticking, and retail sales were hurt by
Bureau of Economic Analysis congressional leaders argued supply-chain problems in the auto
said gross domestic product over whether spending cuts, tax industry caused by the spring’s
(GDP) rose by 1.9% compared to increases, or some combination of Japanese disasters.
the previous quarter’s 3.1%. the two would be required before
raising the limit on how much
• Consumer inflation over the last the Treasury can borrow to pay
year hit 3.6%, though the Bureau existing obligations.
Source: Forefield Inc.
401(k) Corner - Contribute $260,000 every year!
Ok, so it’s not technically a 401(k) Enter the Cash Balance Plan taxes on just his portion alone, he
that you can defer income into, Upon further review of his would have had a tax expenditure
but many are surprised by just company’s employees, an often of approximately $60k!
how much can be deferred into overlooked plan made perfect sense
retirement plans by using advanced for him. The design allowed him to What is a Cash Balance Plan?
planning. defer an additional $150k per year A cash balance plan is technically
“I know I need to create retirement and also grant an additional $35K a defined benefit plan; however,
savings, but I’m starting late and to a highly valued employee, which it looks and feels like a defined
contributing only $22,000 per year he used instead of a raise. In total, contribution plan.
into my 401(k)... that isn’t going he had to give an additional $20K
to cut it.” Mr. Johnson complained to other employees. All in all, Mr.
to us. Even the Profit Sharing Johnson and his valued employee
component, which increased savings received 90% of the benefits of
to $54,000, wasn’t adequate. the plan. If Mr. Johnson had paid
Summer 2011

3. “I know I need to create my retirement savings, Can I exclude
certain employees?
but I’m starting late and contributing only $22,000 per Yes. There is a lot of flexibility in the
initial plan design.
year into my 401(k)... that isn’t going to cut it.”
Why haven’t I
heard of this before?
Who is a candidate How are the While all advisors do “retirement
for Cash Balance? investments handled? planning” many do not focus on
Generally, cash balance plans will While details are beyond the scope the intricacies involved with ERISA
be good for companies with stable of this article, the investments should and non-ERISA based plans. In
profits. It works best if the people be designated as the client’s “safe addition, an actuary experienced
you are trying benefit are highly money” and invested conservatively. in cash balance plans is required
compensated and older than the in the initial analysis and ongoing
general employee population. It How long do maintenance.
can work very well for closely held I need to keep the plan?
businesses, law firms, medical While most corporate retirement How do I see
practices, etc. The benefits of a cash plans are technically intended to be if this is right for me?
balance plan are the ability to defer permanent, most experts recommend We conduct an initial interview to
significant sums and the ability to that you should maintain the plan for determine if this type of plan is right
recruit and retain highly qualified at least three years. for you or if a different plan benefits
candidates with specialized skills. you more. We then collect an
employee census (includes employee
How much could I potentially payroll information and birth
defer into a Cash Balance Plan? dates) and work up an analysis for a
While it depends on the demographics potential plan, including how much
of your company, the maximum you could save in taxes and how
contributions are in the chart below. much would be given to employees.
Age 401(k) Profit Sharing Cash Balance Total Tax Savings
60-65 $22,000 $54,500 $209,000 $263,500 $105,400
55-59 $22,000 $54,500 $164,000 $218,500 $87,400
50-54 $22,000 $54,500 $125,000 $179,500 $71,800
40-44 $16,500 $49,000 $96,000 $145,000 $58,000
(Daniel Kravits, 2010, p. 8)
Assuming a 40% combined federal, state, and local tax. Savings shown are deferred taxes. Taxes are required to be paid upon withdrawal from the plan.
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4. Business Wealth Management Process TM
This Quarter: Protection
Protection This quarter’s topic, Protection, uncovers gaps within our clients’
insurance needs. Going beyond a simple life insurance snapshot,
Life Insurance we analyze scenarios in which disability could occur or potential
longterm care needs arise. As you can imagine, it’s burdensome for
Disability the family, not to mention potentially devastating to the business if
these issues are not addressed. If additional needs are required, we
Umbrella/Liability take it to competitive bid from multiple providers.
Long-term Care Next Quarter: Tax Efficiency
84 South Fourth Street
Columbus, OH 43215
Mark Fissel, RFC Clint Edgington, CFA
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