One of the industry s Fastest Growing RIAs

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1 One of the industry s Fastest Growing RIAs It s The growth of POM Planning is truly amazing. Its unique low drawdown risk platform has made it one of the fasted growing RIAs in the entire financial services industry. Why is this story so amazing? -Of the advisors who have checked out over 500+ advisors have gone to training. -Of the 500+ who went to training, over 250 got contracted to start working with POM Planning. -Of the over 250+, over 150 have picked up Assets Under Management (AUM) (keep in mind, many are true newbies to the assets-under-management game; and they are having immediate success). -The 150+ advisors have collectively picked up over $580 million in AUM in just over three years. That s truly crazy. Crazy good. Why are advisors working with POM Planning doing so well and having so much success in picking up AUM? 1) POM Planning offers a very unique low risk/high yield money-management platform. For example, the top three "conservative" strategies have an average Beta of.24* (the S&P has a Beta of 1.00). The average annual return for their top three "low-risk" managers going back seven years is 9.19%* net of fees (truly incredible for "low-risk" strategies). The top three "moderate-risk" strategies have a Beta of.296.* The average annual return for their top three "moderate-risk" managers going back seven years is 15.29%* net of fees (again truly incredible for "moderate-risk" strategies). *2014 year-end numbers. *Click on the following to learn about this unique AUM platform: 2) POM Planning offers a no-load VA where its unique platform can grow without annual capital gains taxes for only $20-a-month fee. Click on the following to learn about their no load VA: 3) POM Planning has the best training in the industry when it comes to teaching advisors how to pick up new clients and, in turn, millions of dollars under management. Click on the following to learn about their training: So what are you waiting for? If you want to take money away from your local Edward Jones, Merrill Lynch, Wells Fargo, etc., brokers and build for yourself a substantial reoccurring revenue stream with a low risk/high return platform (one that dovetails well with fixed products like FIAs and EIULs), you should act now to sign up for more information. To sign up for a due-diligence packet on POM Planning, click on the following link:

2 Presented by Fox Lalonde & Kenne, Enrolled Pension Actuaries 2015 All Rights Reserved 1

3 Who is Fox Lalonde & Kenne (FL&K)? Enrolled Pension Actuaries & TPAs Independent, Fee Only, National, Actuarial & Administrative Practice: 36 states with service offices in OH, IN, IL and CA; Professional & Experienced. FL&K wrote it s own Proposal & Valuation System; FL&K has acquired it s own customized recordkeeping and Plan document systems. See The IRS and DOL consider FL&K to be experts. Advanced Pension Plan Designs: the IRS requires an ANNUAL actuarial certification The ONLY requirement for tax deductibility other than the above is a timely contribution and full disclosure (census and operations). The IRS relies on our actuarial certification. FL&K partners with the CPA, financial advisors and their clients using Qualified Plans to address: Tax Reduction Deferral & Exempt Income Retirement Planning Income & Medical Expense Business Succession Buy Sell and Stock Redemption 2

4 Introduction FL&K will provide: legal briefs; fiduciary summaries; IRS on point audit manuals and third party support from CCH, TRI Pension Services, Tax Certification from NASBA member etc. all available upon request. The Super 401K Plan Design trademarks an actuarial methodology NOT a Product i.e. this is NOT an IRC 412(e)(3) plan. FL&K does not sell any form of investment or insurance product nor do we give investment advice. These are self-trusteed plans by choice; assets can be invested solely at the trustees discretion; 99.9% of the trustees are the business owners. Frequently, the 1 st question we get: What can we invest in? It s a good question. That decision should be made by the client, the plan trustee. RIAs have every investment tool available to them. Time permitting, we will look at the Investment Powers and Duties of the Trustee at the end of this session. Our plan documents are specific in all regards. 3

5 Why learn this material? 1. You want to Help Your Clients Succeed; 2. You want to Retain and Grow Your Practice, and 3. Give Your Practice a Huge Competitive Advantage. KNOWING QUALIFIED PLAN RULES DOES ALL THREE WHO PAYS OUR FEES? OUR CLIENTS DESERVE A PLAN DESIGN FOR THEM! 93.8% of all Qualified Plans = Regulatory, Fiduciary, Contributory Bias to EEs TODAY YOU WILL LEARN THE DIFFERENCE BETWEEN A PLAN AND A PLAN DESIGN!!! A Design that Combines the BEST Attributes of Both DC + DB Plans + Incidentals & Balances Contributions and Benefits on a Non-Discriminatory Basis, the Super 401K Plan Design The Golden Rules of Plan Design 1. Easy to Understand (Vested Accrued Benefit; Units, Offsets vs Cash) 2. Keep it Simple but NOT Stupid (Custom vs Boilerplate) Communicate the results i.e. Owner, Trustee Friendly, CONTRIBUTIONS MAKE SENSE!!! 3. Design to the CLIENT s Priority? It s the Client s Plan!!! Sneak Preview 4

6 Compare 401K PS Plans and the Super 401K Plan Design IRC 415 (b)(1)(a) and IRC 415 (c)(1)(a) Individual & Combined Limits MAXIMUM OWNER CONTRIBUTIONS Employee Plan Owner Combined Where Most Plans Are Where They Can Be!!! Age 401k only 401k P/S Super 401k Plan Designs $24,000 $59,000 6X- 10X $375,000 - $500,000+* $24,000 $59,000 $305,000 - $375, $24,000 $59,000 $260,000 - $305, $18,000 $53,000 $225,000 - $260, $18,000 $53,000 3X - 5X $165,000 - $225,000+ Average Percent to Owners <40% Average Percent to Owners >90%+ $4.4 Trillion 650K Plans and 100 MM+ Participants $3.2 Trillion 43K Plans 40 MM Participants (42%) 93.8% of All QPs 100 MM Decision Makers 43K Decision Makers * Allowable spousal benefits/contributions, where applicable, may double the otherwise maximum plan contributions e.g. 2 age 60 = $800K+; 401h /dependent + Super 401k contributions can double 1 st yr w/o spousal benefits (double up); 150% thereafter e.g. 1 st yr. max age = $1MM; subsequent year $600k+ (plan year overlap). 5

7 THE IMPACT OF KNOWING THE RULES Post PPA 2006 WHAT THE HECK HAPPENED? WHAT CHANGED? HOW DO YOU TAKE ADVANTAGE OF THE CHANGE? OPPORTUNITY The PENSION PROTECTION ACT of 2006 Removed IRC 404(a)(7) Prior to the passage of PPA 2006 IRC 404(a)(7) limited COMBINED Qualified Plan Contributions to 25% of Eligible/Covered Compensation - IRC 404(a)(7) is GONE!!! How does PPA 2006 IMPACT Your Client s Business? The Client s Family? Unless the changes are used, it does NOTHING!!! If used, it can Reduce Current & Future Tax Liability (Income & Estate) Materially Impact Retirement Allowable Owner Contributions = 4X to 20X Increased Income/Assets for Retirement Purposes Tax Free Medical Expense Reimbursement Funds Reduces Financial Liability (LaRue; Fiduciary; Warranties; Plan Bond) Succession Planning/Sale of the Business (Step-up in Basis) THE ADD ON VALUE OF AN ENROLLED PENSION ACTUARY: Advanced Designs: the IRS requires and relies on the annual actuarial certification for tax deduction purposes. Plan designs with emphasis on the owner from every perspective: Contributory, Fiduciary and Regulatory Remember: A 401k Plan = Employee Plan; The Super 401K Plan = Owner s Design Let s Look at the Super 401K Plan Design Components 6

8 ALL THE PLAN COMPONENTS/OPTIONS WORK TOGETHER What are the 4 Major Super 401K Plan Design Components? 1. The 401(k) Profit Sharing Plan Primarily An Employee s Plan 2. The Pension Plan Basis for Owner s Plan Design Any Pension? IRC 412(e)(3), Traditional or Cash Balance 3. The Aggregated Benefit IRC 401(h) Incidental Add-ons How is it calculated? Limits? What is IRC 401(h)? Remember the History? Optional/Allowable Pre-COLA Accounts 4. A 2 nd Profit Sharing Plan (Add-on Owner s Carve Out) How does this work with the pension? Testing? A 5 th component: 5. The Tax Reserve a Contra-Account (Owner s Option) OK, WE VE EXAMINED SPECIFIC 401K ISSUES (SH, Hardship, Loans); LOOKED AT A BASIC SUPER 401K DESIGN AND THE 4 OR 5 COMPONENTS OF THE SUPER 401K NOTE: THE 401H ACCOUNT MUST BE PART OF A PENSION; A 401K PS IS NOT A PENSION Let s Break Down the Components PPA 2006 removed the 25%limitation of IRC 404(a)(7) All with one exception: Non-PBGC Profit Sharing Plans 7

9 Basic plan components THERE ARE TWO BASIC PLAN TYPES THE REST BUILD ON THEM 1. DEFINED CONTRIBUTION (DC Plans): Profit Sharing (PS), 401K Plans, SEPs, etc. All have one thing in common: the annual contribution is DEFINED as a PERCENTAGE of comp e.g. 3%, 6%, 25%, etc. PS contributions are made by the Employer (ER); 401K by the Employee (EE) 401(k) EE Elective Salary Deferrals can be up to 100% of compensation (k) Contribution Limit = $18,000 < 50 years old; $24,000 > $50 years old 2015 PS + 401K Contribution Limit = $53,000 < 50 years old; $59,000 > $50 years old IRC 415(c)(1)(A) Limits: COLA ($30K in 2000 to $53K in 2015; 12 increases in 16 years) The FINAL Retirement Value = Plan Contributions + Earnings; there is NO CEILING! 2. DEFINED BENEFIT (DB Plans): Pension Plans, all traditional types, CB and 412(e)(3) All have one thing in common: the annual contribution is expressed by DEFINING the BENEFIT to be received at the Normal Retirement Date (NRD) i.e. Age (5 years) Defined Benefit Limit = 100% of Comp up to $17,500 Per Month Retirement Benefit IRC 415(b)(1)(A) Limits: COLA ($17,500/mo.; $10K in 1996; 14 increases in 19 years) The FINAL Retirement Value = the cost of a monthly Life Annuity of $X; the CEILING? PLUS 401h PRIMER Benefits can be added to any DB Plan; cannot add to DC Plans (Ann Add Limits) Post Retirement Individual Medical Expense Reimbursement Begin In-Service Age 62 Now Let s Look at Aggregated Benefits in more Detail 8

10 401(h) IRC 401(h) = PRIMER BENEFIT Post Retirement Individual Medical Expense Reimbursement Benefits A 401(h) account is an account in a pension plan that is to be used exclusively for post-retirement retiree health benefits for the participant and ANY tax dependent. 401(h) Tax Trifecta: 401(h) benefits are tax deductible; fully tax deferred and payouts are tax free under IRC 105 or (h) tax deductible contributions are subject to the annual addition limit of $53,000 in 2015; unused 401h contributions carry forward indefinitely. 401(h) benefits vest at the NRD for employees who go on pay status; Golden Handcuffs : employee/participants leaving prior to NRD forfeit 100% of their benefit OK, LET S LOOK AT SPECIFIC 401K ISSUES AND FACTS 1) YOUR COMPETITORS DON T KNOW THE RULES. 2) COMPETITOR S MISTAKES = YOUR OPPORTUNITY!!! LET S STEP BACK A MOMENT AND LOOK AT THE TYPICAL 401K 9

11 The Basic 401K 2015 Max 401K PS Contributions MF & Banks Fully Invested Age 401k only 401k P/S Routine Plan Provisions $24,000 $59,000 Safe Harbor (Unconditional) $24,000 $59,000 Loans (% Not Deductible) $24,000 $59,000 Hardship (Gov t Benefits) $18,000 $53,000 Recordkeeping (Extra Cost) $18,000 $53,000 Provisions = Fees, Fees, Fees Max Percent of Covered Comp 25% Actual 20% Annual Comp Limit IRC 415(c)(1)(A) $265,000 $53K-$59K Highly Compensated Employee (HCEs) $120,000 Social Security Wage Base $118, % + 2.9% = 15.3% 15.3% of $18K/$24K = $2,754/$3,672 Key Employee (includes spouse/children; not siblings): Remove the Keys. 1% Owner $150,000 Officer $170,000 Over 5% Owner (No Comp Requirement) The Heart Surgeon > 600K Plans where owners need HELP NOW!!! 600, K PLANS w 90 to 100 MM 401K Participants $4.4 Trillion+ Assets nuts Thank You to the Mutual Fund Industry and Banks 10

12 CASE STUDY #1: ProServe Business -MAX OWNERS $$$ AND %; MIN REQUIRED TO OTHERS -OWNER S TARGET HIS PLAN = $400K EARNED CASH 401K AGGREGATED BENEFIT QP INCOME BALANCE PS 401h Pre-COLA TOTAL (W-2/SE) $0 to $7,950 to $0 to $0 to $7,950 to Owner $265,000 $275,000 $38,900 $20,100 $66,000 $400,000 HCE 120, , ,500 EE1 30, , ,750 EE2 25, , ,375 EE3 25, , ,375 EE4 50, , ,250 S/T 0 15,750 2, ,250 Totals: $515,000 $275,000 $54,650 $22,100 $66,500 $418,250 % To Owner 100% 71.2% 91% 99.25% 95.6% to 78.9% A PBGC Plan; NOT MAXED OUT; MAX TO OWNER 1 ST YR = $1 MM; thereafter $550K+ per Year Historical Notes: 16 th Amendment gave us the Income tax in 1913; 1926 QP Tax Sheltered %; 676K QPs; $7.6 Trillion; 633K DCs = $59K limit; 43K DBs (6%) = 42% Assets OK, THESE DESIGN RESULTS GAVE THE CLIENT EXACTLY WHAT HE ASKED FOR. NOW, KNOW 11 AND UNDERSTAND THE OPTIONS ( HOW THINGS WORK) that add to MAX CONTRIBUTIONS

13 CASE STUDY #1: ProServe Business Spousal Add-on: COMP CB P/S 401(k) AGGREGATED BENEFIT TOTAL $0 to $7,950 to 401h Pre-COLA Owner $265,000 $275,000 $38,900 $20,100 $66,000 $400,000 HCE 120, , ,500 EE1 30, , ,750 EE2 25, , ,375 EE3 25, , ,375 EE4 50, , ,250 S/T 0 15,750 2, ,250 Totals: $515,000 $275,000 $54,650 $22,100 $69,567 $418,250 % To Owner 100% 71.2% 91% 99.3% 95.7% *Spousal $150,000 $0 to $4,500 to $40,250 $29,750 $298,750 Add-on $210,000 $18, % Totals $717,000 Owners $698,750 12

14 The DOUBLE-UP IRC 404(a)(6);IRC 446(e) A PBGC Plan- (NOT MAXED OUT; MAX TO OWNER 1ST YR = $937K+; thereafter $550K per Year*) Aggregated Benefits Carryfwd COMP CB P/S 401(k) 401h Pre-COLA TOTAL 401h $0 to $7,950 Owner PYE $265,000 $275,000 $38,900 $20,100 $ 66,000 $ 400,000 $ 57,100 Owner PYB $265,000 $375,100 $35,000 $24,000 $100,900 $ 535,000 $ 53,200 Owner Tax $265,000 $650,100 $73,900 $44,100 $166,900 $ 935,000 $110,300 Employees $250,000 $ -0- $15,750 $ 2,000 $ 500 $ 18,250 $ -0-2bl-Up Totals: $515,000 $650,100 $89,650 $46,100 $167,400 $ 953,250 % To Owner 100% 82.4% 95.7% 99.7% 98.09% Spousal $150,000 $0 to $9,000 to Add-on $500,000 $28,800 $77,200 $ 89,000 $ 695,000 Owner + Spouse Yr.1 $1,175,000 $111,400 $121,300 $242,767 $1,630,000 % To Owner 98.89% Max Income Tax Savings to Owners: 50% = $824,125 Employee After-tax Cost (50% Combined State & Fed) = $9,125 (Before Forfeitures) 401h Contributions do not vest until a full time EE reaches the NRD, 100% of forfeitures (P&I) to Plan. Here the after tax cost of EE s = $9,125 less forfeitures upto $2,500 plus %. $2,500 X 26.5 yrs at 5% = $9,

15 SIMPLE PLANS THE ADOPTION OF A NON-SIMPLE PLAN INVALIDATES THE SIMPLE CONTRIBUTIONS MADE THAT YEAR WHAT DO YOU DO? 1.NOTIFY THE SIMPLE CUSTODIAN OF THE DISQUALIFICATION EVENT AND ASK THEM TO REFUND THE YEAR S CONTRIBUTION 2.BE AWARE OF THE TWO-YEAR RULE If the two year period is violated, the amount that is transferred or rolled over to another retirement plan that is not a SIMPLE IRA is treated as distribution from the SIMPLE IRA and a contribution to the receiving retirement account. The contribution to the receiving account is subject to the contribution limits that apply to the account and can result in an excess contribution to the account. TO BE SAFE ONLY REQUEST AND ONLY ACCEPT A TRANSFER OF CONTRIBUTIONS MADE IN THE CURRENT PLAN YEAR The 2-year period begins on the day the 1st contribution is deposited to a participant s SIMPLE IRA and ends two years after that date. The SIMPLE custodian is not required to rely on the information that is provided by the SIMPLE participant. Instead, they can choose to use the contributions that were made to the SIMPLE IRA while they served as custodian. Rollovers: Distributions from SIMPLE IRAs can be rolled over to another SIMPLE IRA or another eligible retirement plan. However, a rollover to another retirement plan that is not a SIMPLE IRA can occur only after the two-year period has expired. 14

16 Who should consider a Super 401(k) Plan Design? Ideal Candidates for a Super 401k Plan Immediate 2015 Tax Benefits Reduce Quarterly Estimates 1. Owners/professionals seeking a higher contribution/tax deduction than the traditional 401k profit sharing maximum of $53,000 to $59, CPA and law firms, medical groups, all professional services firms. 3. Highly profitable companies of all types and sizes. 4. Successful family businesses and closely-held businesses. 5. Older owners needing to squeeze 20 yrs. of retirement saving into 5 to 10 yrs. 6. Owners/partners looking for a way to fund stock redemption or buy-sell agreements on a tax deductible basis. Case Study. 7. Wealthy owners and professionals with charitable giving intentions stymied by the limitations on tax deductibility. No AGI Limitations. 15

17 Two Questions Two Questions: Q. WHERE ARE MOST PLAN SPONSORS AT WITH REGARD TO QPs? Q. WHERE DO OWNERS WANT TO BE? SHOULD OWNERS BE? A1. The 401K = A GREAT BENEFIT PLAN FOR EMPLOYEES (1980) Regulatory, Contributory and Fiduciary Complexities Definitive bias toward non-owners (80-90 MM EEs) A2. The SUPER 401K = A GREAT PLAN DESIGN FOR ALL EMPLOYEES Brings Regulatory, Contributory and Fiduciary Balance to the Plans PPA 2006 = Material Increases to Owners (Keys/HCEs) Maximizes Tax Deductible Owner Contributions and Retirement Benefits Minimizes Plan Costs, Including Employee Required Contributions Designs emphasizes a Reward Based Employee Plan vs. an Entitlement The KEY Word here is DESIGN; the SUPER 401K PLAN Design: IS NOT A SINGLE PLAN OR PRODUCT; IS A QUALIFIED PLAN DESIGN THAT COMBINES: Multiple Qualified Plans (QPs); Specific Actuarial Methods; Comprehensive Benefit & Contribution Testing Requirements, and Multiple Sets of Customized Qualified Plan Documents Every SUPER 401K PLAN Design is a custom plan design with custom plan documents. The client owns the plan documents. There is no Adoption Agreement. 16

18 CASH BALANCE PLAN FUNDAMENTALS YES, it is a DB Plan but expressed in DC language! It looks like an old fashioned savings account Accounts receive: Annual Contribution Credit e.g. $1,000 Annual Interest Credit e.g. 5% = $50 The Retirement Value is a Lump Sum, the Cash Balance! For Example, $1,000/ 5% over 40 years = $126, k is Incidental to a Profit Sharing Plan 401h is Incidental to an Underlying Pension (Examine Next) 17

19 Summary 401h Tax Trifecta Tax Deductible Contributions, Tax Exempt Earnings, Tax Free Payouts Roccy Weighs In: Very few advisors know what a 401(h) plan even is. Fewer yet have a TPA that can administer one. To pick up qualified plan clients, all you have to do is ask them one simple question: Are you able to remove money from your qualified plan tax-free? You already know other than non-deductible Roth, the answer is no. You already know that every business owner will want a tax-free component to their qualified plan. Which gives advisors who know about 401(h) plans at a huge competitive advantage. QPs = Math Formulas to Provide Benefits = Tax Deducts Our/Your design > Benefits AND > Tax Deductible Contributions = CLIENT WINS = YOU WIN. 18

20 401h Continued Roccy says: As you ve seen, in addition to the use of 401(h) plans, using a TPA that can put forth the most non- discriminatory but owner weighted plan contributions also gives advisors a competitive advantage. The Super 401(k) plan design is one that will blow clients away. You can just about guarantee business owners that with the Super 401(k) you significantly increase their deductions or significantly decrease the contribution for employees. Simply put, if you are going to go after qualified plans business, no other platform even comes close. 19

21 Questions? If you would like further information on the Super 401(k) or 401(h) plans, contact John Lalonde at This is a busy time of years so it would be best to make inquires about specific clients only if they are serious candidates to make a move this year. What if questions about a client you really can t go after until 2016, should wait until after the 1 st of the year. 20