Anonymous Sample Retirement Plan

Transcription

1 Anonymous Sample Retirement Plan Analysis Type: Optimized Cash /Profit Sharing with 401(k) Plan Effective Date: January 1, 2012 Plan Valuation Date:January 1, 2012 Consulting Actuarial Group Consulting Actuaries [7q06elil3] November 11, 2012 Powered by PlanScape

2 Page 1 of 13 Principal/ HCE/Owner Class Code Illustration of Contributions Anonymous Sample Retirement Plan Advanced Design - Optimized Cash /Profit Sharing with 401(k) Employee ID Age Plan Pay Employee Deferral Employer Match Profit- Sharing Contribution Cash Contribution Total Employer Plus Employee Contribution Total Employer Contribution Percent of Total PHO A EE $250,000 $0 $0 $33,000 $199,295 $232,295 $232, % A Class A Totals 250, , , , , % N B EE , ,300 1,875 5,175 5, % N B EE , ,200 1,250 3,450 3, % N B EE , ,760 1,000 2,760 2, % N B EE , , ,725 1, % B Class B Totals 190, ,360 4,750 13,110 13, % All Grand Totals 440, , , , , % Principals/Owners $250,000 $0 $0 $33,000 $199,295 $232,295 $232, % HCE's - NonOwners $0 $0 $0 $0 $0 $0 $0 0.00% All Others $190,000 $0 $0 $8,360 $4,750 $13,110 $13, % Total $440,000 $0 $0 $41,360 $204,045 $245,405 $245, % Cash Total Deduction Profit-Sharing Total Deduction Total Deduction (Not including Deferrals) $204,045 $41,360 $245,405 HCE [Highly Compensated Employee] is an employee making $110, or more during 2011, or an Owner of more than 5%.

3 Page 2 of 13 Executive Summary Our consulting group has developed this analysis to assist you and your advisors in determining the Optimal Retirement Plan contribution design given a specfic budget. Summary of Our Analysis - Optimized Cash /Profit Sharing with 401(k) Analysis Cash % Employer Match % Profit Sharing % Total Employer Cost % of Total Cost % of Plan Payroll Principals Others Grand Totals $199, % $0 0.0% $33, % $232, % 92.9% $4, % $0 0.0% $8, % $13, % 6.9% $204, % $0 0.0% $41, % $245, % 55.8% Actual Payroll % of Total Plan Payroll % Employee Deferrals Principals $350, % $250, % $0 0.0% Others $190, % $190, % $0 0.0% Grand Totals $540, % $440, % $0 0.0% %

4 Page 3 of 13 Tax Analysis Local, State and Federal Taxes Considered Assumed Tax Rate 25% 35% 50% A. Tax Deductible Employer Contributions to Plan B. Estimated Tax Savings C. Net Cost After Estimated Tax Savings D. Contributions for Principals E. Principal Contributions As a Percentage of Net Cost F. Net Cost of Plan (After Principal Contribution and Tax Savings - Line C minus Line D. G. Total Contributions for Principals including Deferrals $245,405 $245,405 $245,405 $245,405 $61,351 $85,892 $122,703 $184,054 $159,513 $122,703 $232,295 $232,295 $232,295 $232, % % % ($48,241) ($72,782) ($109,593) $232,295 $232,295 $232,295 $232,295 H. Net Cost after ALL Principal Contributions [includes 401(k) Deferrals] - Line C minus Line G. ($48,241) ($72,782) ($109,593) NOTE: Negative numbers indicate contribution for Principals is GREATER THAN After-Tax cost.

5 Page 4 of 13 Individual Cash Benefit Projection - EE 1001,Principals Demographics Current age Retirement age Birth Service Begins Vesting Begins Retirement Social Security Retirement 1/1/2016 Service - Past Service - Future 3.00 Gender M Pay and Deferral Projections IRS Actual Deferral Capped 2012 $350,000 $250,000 $ , , , , , ,000 0 Retire Contribution Projection of Benefits 5.000% Lifetime Annual Income Life Expectancy in years 1/1/ $199,295 $0 $199,295 $15, /1/ ,277 9, ,536 32, /1/ ,383 20, ,595 51, /1/ ,617 32, ,391 73, Retirement Triggered Cumulative Tax Deductions $827,572

6 Page 5 of 13 Plan Provisions and Assumptions - Cash Plan Dates Eligibility to Join Plan Effective Date Funding Due Dates Existing Employees: New Hires: January 1, 2012 Quarterly, but no later than 8 1/2 months after close of Plan or the date for filing the Federal Income Tax return, if sooner. Minimum age and 12 months service Minimum age and 12 months service Entry Dates Participants enter Plan - On dual Entry dates [1st day of Plan year/6 Mos later] Interest Crediting Rate Method Actual Rate Used for Study Flat Rate of Interest 5.00% Normal Retirement Age age 65, with 0 required years of participation Vesting Cash is 100% at 3 years.profit Sharing is 2 s-20%, graded to 6 years-100% Contribution and Benefit Formulas Cash - See Class Definitions and Contributions No Traditional Defined Benefit Pensions are provided. Testing and Funding Assumptions - Interest and Mortality Mortality - Active life funding None Mortality - Retired life funding 2012 Table for Distributions Subject to 417(e)(3) UNISEX Mortality - Plan benefits 1994 Group Annuity Reserving Proj to Unisex Mortality - Testing 1983 Individual Annuity Mortality - Female Interest rate - Funding 1.99% for years 1-5, 5.12% for years 6-20, 6.24% for years over 20 Interest rate - Plan benefits 5.00% Interest rate - Testing 8.50, 7.50% Age calculation Age last Birthday Valuation Date Beginning of

7 Page 6 of 13 Plan Provisions and Assumptions - Profit Sharing Plan Dates Eligibility to Join Plan Effective Date Contribution Due Dates Existing Employees: New Hires: January 1, 2012 No later than 8 1/2 months after close of Plan or the date for filing the Federal Income Tax return, if sooner. Minimum age and 3 months service Minimum age and 3 months service Entry Dates Normal Retirement Age Vesting Schedule Participants enter Plan: Immediately after requirements are met age 65, with 0 required years of participation Cash is 100% at 3 years.profit Sharing is 2 s-20%, graded to 6 years-100% Safe Harbor Status of 401(k) Deferrals The Plan does not use Safe Harbor provisions. Contribution and Allocation Formulas Traditional Profit Sharing Integrated Profit Sharing Age-weighted Profit Sharing None None None New Comparability Profit Shg IRC 401(a)(4) Testing Actuarial Assumptions Interest rate - testing Mortality - testing Age calculation 9.40 percent of pay, allocated on Classes of employees. See Class Definitions. 8.50% 1983 Individual Annuity Mortality - Female Age last Birthday

8 Page 7 of 13 Contribution Classes and Definitions Classes are used to determine the Coverage and Amount of Contribution for Employees within that Class Class Cash Class Description Contribution Method Profit Sharing Code A Principals Maximum 415 available % Maxed Out B Non-highly Compensated Employees Fixed contribution 4.400% 2.500% C Non-owner Highly Compensated Employees Fixed contribution 4.400% 4.400%

9 Page 8 of 13 Census Report Anonymous Sample Retirement Plan O P HC Name Age Retire Age M/ F Birth Date Hire Date Plan Entry Date W-2 Pay or Taxable Income Hours in a Normal Owner % Class for Benefit Purposes s of Service Family Code for Testing Status O P HC EE 1001,Principals M 1/1/1950 1/1/1968 1/1/2012 $250,000 1, % A EE 1002,Staff M 1/1/1967 1/1/1985 1/1/2012 $75,000 1,000 B EE 1003,Staff M 1/1/1972 1/1/1990 1/1/2012 $50,000 1,000 B EE 1004,Staff M 1/1/1980 1/1/1998 1/1/2012 $40,000 1,000 B EE 1005,Staff M 1/1/1989 1/1/2007 1/1/2012 $25,000 1,000 B 5.00 Census Totals Category Count Total Pay % of All Pay Total Owners 1 $250, % Total Principals 1 $250, % Total Highly Compensated 1 $250, % Total Non-highly Compensated 4 $190, % Total Employees 5 $440, % Total Eligible Employees 5 $440, %

10 Page 9 of 13 Plan Funding and Deductions Illustration under IRC 430 This is an illustration of funding requirements and deduction amounts Maximum Contribution Initial Plan Second Plan Third Plan Fourth Plan Fifth Plan Sixth Plan Seventh Plan Eighth Plan $204,045 $204,045 $481,839 $583,861 $685,884 $787,906 $889,929 $991,951 Minimum Contribution 175, ,497 90, Actual Contribution Maximum Accrued Benefits 204, , , , , , , , , , , ,180 1,020,225 1,224,270 1,428,315 1,632,360 Fee Analysis Fees are quoted upon completion of final design phase Approximate Fees are $4,000 to set up including filing for approval with the IRS, and $4,000 plus $100 per participant per year for turn-key administration. Investment Advisory fees are scaled to asset size and start at about 7/10ths of 1 percent. Fund expenses are institutional.

11 Page 10 of 13 Trust Level Cash Flow Projection-Using Current Employee Census Plan End Trust Beginning Contribution Credit Interest Credit Payouts at end Trust Ending Plan End Trust Beginning Contribution Credit Interest Credit Payouts at end Trust Ending 12/31/2012 $0 $204,045 $0 $0 $204,045 12/31/2037 $137,215 $2,875 $6,861 -$63,892 $83,059 12/31/2013 $204,045 $204,045 $10,202 $0 $418,292 12/31/2038 $83,059 $1,625 $4,153 $0 $88,837 12/31/2014 $418,292 $204,045 $20,915 $0 $643,252 12/31/2039 $88,837 $1,625 $4,442 $0 $94,904 12/31/2015 $643,252 $204,045 $32,163 -$858,986 $20,473 12/31/2040 $94,904 $1,625 $4,745 $0 $101,274 12/31/2016 $20,473 $4,750 $1,024 $0 $26,247 12/31/2041 $101,274 $1,625 $5,064 $0 $107,963 12/31/2017 $26,247 $4,750 $1,312 $0 $32,309 12/31/2042 $107,963 $1,625 $5,398 $0 $114,986 12/31/2018 $32,309 $4,750 $1,615 $0 $38,675 12/31/2043 $114,986 $1,625 $5,749 $0 $122,361 12/31/2019 $38,675 $4,750 $1,934 $0 $45,358 12/31/2044 $122,361 $1,625 $6,118 $0 $130,104 12/31/2020 $45,358 $4,750 $2,268 $0 $52,376 12/31/2045 $130,104 $1,625 $6,505 -$85,067 $53,167 12/31/2021 $52,376 $4,750 $2,619 $0 $59,745 12/31/2046 $53,167 $625 $2,658 $0 $56,450 12/31/2022 $59,745 $4,750 $2,987 $0 $67,482 12/31/2047 $56,450 $625 $2,823 $0 $59,898 12/31/2023 $67,482 $4,750 $3,374 $0 $75,606 12/31/2048 $59,898 $625 $2,995 $0 $63,518 12/31/2024 $75,606 $4,750 $3,780 $0 $84,137 12/31/2049 $63,518 $625 $3,176 $0 $67,318 12/31/2025 $84,137 $4,750 $4,207 $0 $93,094 12/31/2050 $67,318 $625 $3,366 $0 $71,309 12/31/2026 $93,094 $4,750 $4,655 $0 $102,498 12/31/2051 $71,309 $625 $3,565 $0 $75,500 12/31/2027 $102,498 $4,750 $5,125 $0 $112,373 12/31/2052 $75,500 $625 $3,775 $0 $79,900 12/31/2028 $112,373 $4,750 $5,619 $0 $122,742 12/31/2053 $79,900 $625 $3,995 $0 $84,520 12/31/2029 $122,742 $4,750 $6,137 $0 $133,629 12/31/2054 $84,520 $625 $4,226 -$89,371 $0 12/31/2030 $133,629 $4,750 $6,681 $0 $145,060 12/31/2055 $0 $0 $0 $0 $0 12/31/2031 $145,060 $4,750 $7,253 $0 $157,063 12/31/2056 $0 $0 $0 $0 $0 12/31/2032 $157,063 $4,750 $7,853 -$66,974 $102,693 12/31/2057 $0 $0 $0 $0 $0 12/31/2033 $102,693 $2,875 $5,135 $0 $110,702 12/31/2058 $0 $0 $0 $0 $0 12/31/2034 $110,702 $2,875 $5,535 $0 $119,113 12/31/2059 $0 $0 $0 $0 $0 12/31/2035 $119,113 $2,875 $5,956 $0 $127,943 12/31/2060 $0 $0 $0 $0 $0 12/31/2036 $127,943 $2,875 $6,397 $0 $137,215 12/31/2061 $0 $0 $0 $0 $0 Notes

12 Page 11 of 13 Frequently Asked Questions about our Analysis Cash Basics How Does A Cash Plan Work? A Cash Plan is an account balance plan that has a recurring annual contribution by the Plan Sponsor and a guaranteed interest credit. The account balance, which is generally updated annually, is theoretical or notational. It is backed by a Trust Fund primariy invested in conservative instruments such as bonds and other non-equity securities. Each year, the Plan's actuary measures the Trust fund's investments against the actuarial value of the theoretical account balances of all participants. The actuary coordinates the Plan's actuarial assumptions with the Plan's investment manager or advisor. This is a very disciplined environment where much importance is placed on predictability and structure. IRS rules require that the Plan maintain a Trust fund balance of 110% of it's liabilities, hence the reason for the conservatism. At it's core, a Cash Plan is a type of Defined Benefit Plan, but without many of the problems Defined Benefit Plans have experienced. The IRS views a Cash Plan as a 'Hybrid Plan', meaning it takes features from both the Profit Sharing and the Pension world. Is a Cash Plan a Qualified Plan within the meaning of the Internal Revenue Code? Yes, in fact an IRS letter of Determination, much like a letter of approval is obtained from the IRS after the Plan is adopted. How is the Participant's Account paid out, and when does it have to be Paid? This Plan works very much like a profit-sharing plan. When a Participant terminates employment, the Plan, either immediately or at the end of the Plan [depending on the Plan Design], pays the Vested to the Participant or to an IRA. Most Plans are subject to a Vesting schedule. The Vested must be paid as though it were any other Profit Sharing or 401(k) Plan, usually at the time of termination. Can a Plan Sponsor also have a 401(k) Plan or Profit Sharing Plan? Absolutely, in fact most Cash Plans are operated in tandem with 401(k) and Profit Sharing Plans in order to give the Plan Sponsor flexibility and to be competitive in the hiring community. There are deduction limitations when multiple Plans are present. This study has taken these limitations into account.

13 Page 12 of 13 Exactly How does the Account, Contribution Credit and Interest Credit work? The Plan has a Contribution Credit provision that governs the amount. It's usually expressed as a percentage of Pay or sometimes a flat dollar amount. This amount is calculated at the end of the year, and the Participant's account is credited accordingly. The Interest Credit is also governed by a Plan provision and is usually tied to an index like the 30 year US Treasury rate. The IRS has given Plan Sponsors some leeway in the Interest Credit, so it's not uncommon to see a flat percentage such as 5% being used. Participant'e gets a quarterly or annual Statement of Account that looks something like this: Statement of Account as of December 31, 2011 Beginning Account $12, Contribution by Xyz Corp 1, Interest Earned for Account at end of year $13, Are all Cash Plans covered by the Pension Benefit Guaranty Corporation(PBGC) Generally, most Plans will be covered and required to pay the base PBGC premium of $35 per participant per year. But there are exceptions such as the following types of Plans: Plans for professional service employers (such as doctors and lawyers) with 25 or fewer active participants Plans in which all participants are substantial owners Supplemental executive compensation plans Plans principally for foreign workers Church plans, unless they opt in Is there any flexibility in making contributions to a Cash Plan Yes, but the first year that a Cash Plan is adopted, the contribution stated by the actuary must be made no later than 8 1/2 months after the close of the taxable year [September 15th for calendar year plans], or before the filing of the business tax return, if sooner. This deadline is the same as that for making profit sharing contributions, and is true for each year thereafter. You should generally anticipate making quarterly contributions during a Plan year, if feasible. Beginning in the third year of a Plan, you will have the ability to make prefunding contributions that will give you more flexibility as the number of years the Plan is in effect increases. We strongly recommend that you take advantage of this fully deductible pre-funding ability. Pre-funding will give you the right to 'coast' in later years should business conditions warrant it.

14 Page 13 of 13 Can we vary our contribution from year to year? The Cash contribution for each employee is set by the Plan document and may be amended from time to time, but this is NOT a profit sharing plan. The Plan's funding may vary from year to year if properly planned, but contributions scheduled for each Participant are set by Plan provision and unless amended or frozen, represent an obligation. How is the Plan invested and may I have my own brokerage account? The Plan investments are held in a single Trust Fund, which is managed as a pool. This highly efficient investment method allows the Investment Manager and the Plan Trustees to make investment decisions which are closely coordinated with the cash balances that must be paid in a lump sum in future years. Neither employees nor owners have any right to direct investments, unless they are Trustees or a member of the Plan's Investment Committee. This also substantially reduces the investing expenses and risks associated with trust fund investments. How is the Plan different from a 401(k) or other Participant Directed Plan There is far less 'noise' in a Cash Plan than a 401(k) or Profit Sharing Plan for a number of reasons: Participants do not make contributions, so there is no payroll processing Employees join the Plan automatically and the only paperwork necessary is a Beneficiary Designation There are no loans, hardship withdrawals, in-service withdrawals[unless the Plan permits them] or employee investment elections Plans are not required to have a Qualified Default Investment Alternative or any other features that involve ERISA section 404(c) Contributions by the Plan Sponsor are made quarterly or annually Can we freeze or terminate the Plan, and what happens at that time Yes, if business conditions warrant a freeze or termination, the Board or Directors or owners may take such action. The assets are then distributed to employee Participants and owners. Unlike true old-style Defined Benefit Pension Plans, Cash Plans fully fund their benefit obligations every year. This full funding approach along with modest pre-funding ensures that account balances are covered by available assets. Assets may also be distributed 'in-kind', so if the Market Value of the assets are temporarily down, the owner participants can still be distributed and the Plan terminated. Distributions can be rolled to an IRA. If assets exceed Plan liabilites, the Plan's benefits may be amended to absorb the over-funding. What are Gateway contributions and who must get them Gateway contributions are minimum Employer contributions prescribed by the IRS Regulations that permit the Plan to meet nondiscrimination testing. The amount of this contribution, which is made for rank and file employees, depends on percentage of pay received by Highly Compensated Employees. A Gateway contribution must be allocated to any Non Highly Compensated Employee who receives an Employer Profit Sharing or Safe Harbor contribution for the year, regardless of employment status or hours earned. Gateway Contributions include Safe Harbor Profit Sharing monies or regular Employer Profit Sharing and are subject to the Plan's Vesting schedules.