Life Insurance Opportunities in Qualified Plans

Transcription

1 Life Insurance Opportunities in Qualified Plans For Internal Use Only. Not for Use With the Public. The Guardian Life Insurance Company of America New York, NY 10004

2 This Presentation is for Agent/Broker Use Only and is not to be used with the General Public. The information in this presentation is designed to be general in nature and for educational purposes only. The Guardian Life Insurance Company of America, its agents and employees do not give tax or legal advice. The complete text, with nothing taken out of context, is the only manner in which it should be used.

3 Advantages for Your Clients Qualified Plans -A Valuable Employee Benefit Help provide for a secure retirement Reduce employee turnover Attract and retain quality employees Improve morale - improve productivity - improve profits

4 Advantages for Your Clients Tax Savings Contributions are tax deductible by the corporation (IRC Section 404) Contributions are not taxable as current income to participants, except for Economic Benefit costs (IRC Section 402) Benefits, even when 100% vested, are not taxable until distribution occurs (IRS Section 402) The trust itself is tax exempt (IRC Section 501)

5 How Hard Is It to Make a Sale? What Do You Really Need? In Depth Pension Knowledge? Years of Pension Experience? Just a Fact Finder?

6 How Hard Is It to Make a Sale? What Do You Really Need? Just a Fact Finder!

7 How Hard Is It to Make a Sale? What Could Help You In Depth Pension Knowledge ABC s of Retirement Planning Cheaters - Pension Charts Years of Pension Experience Team up with a Mentor

8 What s in It for You? You Decide: Average Individual Life Sale - $2,100 Average Sale for Fully Insured Plan - $129,000

9 How High Can the Sale Be? First Year Contributions Contribution % Higher for Fully Insured Att Age/ Ret Age Profit Sharing* Trad. Def. Benefit* Fully Ins.* Profit Sharing Trad. Def. Benefit Ethan 45/62 46, , , % 68% Steve 50/62 51, , , % 89% Jeff 55/62 51, , , % 93% Jim 60/65 51, , , % 84% Contribution Up To 700% Higher in Fully Insured Plan *Assumes max. contribs. & max. life ins. for Trad. Def. Ben. uses PTL99 Pref, Fully Insured uses PTWL3 Gold Pref. & PTAPRA-3B for ages 45 & 50 &and PT APRA-3F for ages 55 &60

10 Cross Selling Automatic Renewal Sales Sale vs. Client

11 Older Business Owners Two Types of Qualified Plans Defined Contribution Defined Benefit

12 Defined Contribution Plans Most Favor Younger Employees Some Age-Weighted Lower Contribution than DB Plans Max. Employee Contrib. = $46,000 Lower Cost for Other Employees Profit Sharing Plans - Greater Contribution Flexibility

13 Defined Contribution Plans Traditional Profit Sharing Plan New Comparability PS Plan Combined with Safe Harbor 401(k) Plans

14 Profit Sharing/401(k)Plans What Are They? Profit Sharing Plan Contribution of 0 to 25% Plan Payroll No Profits Necessary Can Change Contribution Each Year

15 Profit Sharing/401(k)Plans What Are They? 401(k) Element Elective Deferral - $15,500* in 2008 Catch-Up Contribution - $5,000* in 2008 Allowed for Those Age 50 & Older Max. Allocation for Individual: Lesser of 100% Salary or $51,000** in 2008 if Age 50 or Older $46,000** in 2008 if Under Age 50 *Scheduled increases through 2008 & indexed for inflation after 2008 **Indexed for inflation

16 Traditional Profit Sharing/401(k) Plan In 2008 One-Person Plan $100,000 Salary--Age 52 25% Comp. PS Plan $25,000 Plus Deferral in 401(k) +15,500 Plus Catch-Up Contrib. + 5,000 Total Contribution $45,500 % of Compensation for Owner = 46% *$20,500 = 2008 maximum elective deferral & catch-up contribution, indexed for inflation

17 New Comparability Profit Sharing/401(k)Plans Clients Goals High Percentage of Plan Contribution Low Costs for Other Employees Client Doesn t Want Defined Benefit Plan Too Expensive or Inflexible Employees Ideally - Younger & Lower Paid

18 New Comparability Profit Sharing Plans Three Levels of Contribution Trad. Sharing New Comp. Age Salary Contrib. % Sal. Contrib. % Sal. Owner ,000 46,000* 20% 46,000* 20% Manager 47 85,000 17,000 20% 8,500 10% Manager 42 80,000 16,000 20% 8,000 10% A 37 35,000 7,000 20% 1,750 5% B 34 32,000 6,400 20% 1,600 5% C 32 30,000 6,000 20% 1,500 5% D 30 28,000 5,600 20% 1,400 5% E 27 25,000 5,000 20% 1,250 5% F 22 20,000 4,000 20% 1,000 5% Totals $113,000 $71,000 *2008 maximum allocation indexed for inflation, may increase in future

19 Defined Benefit Plans Traditional Defined Benefit Plans Fully Insured Plans

20 Traditional Defined Benefit Plans Client Goals Maximum Contributions/Deduction Benefits More Flexibility than Fully Insured Plans Lower Employee Cost Investment Fund Allowed

21 Lower Cost for Employees in Traditional Defined Benefit Plan Fully Insured* Trad. Def. Ben.* Age Salary Contrib. % Pay Contrib. %Pay Owner , , % 219, % A 36 35,000 19,565 56% 8,989 26% B 31 30,000 12,947 43% 5,484 18% C 26 25,000 8,592 34% 3,329 13% D 21 20,000 5,616 28% 1,973 10% Totals $239,284 $239,479 Cum. Cost for Other Employees 42% vs. 18% Pay *Based on max. contribution in 2008, death benefit, Policies for Fully Insured Plan PTWL-3 Gold Pref. & PTAPRA- 3B. Policies for trad. defined benefit PTL99, Pref.

22 Traditional Defined Benefit Plans Additional Information Contribution Not Totally Flexible Subject to Minimum Funding Standard Over Contributions or Deficiencies 10% to 100% Excise Tax

23 Fully Insured Plans Client Goals Maximize Contribution/Deduction Benefits Security for Assets Protection for Family

24 Why A Fully Insured Plan? Agent s Viewpoint Hot Market -- Right Now Great for Baby Boomers Excellent Product for Bear Market All Assets in Policies with Guaranteed Values Secure & Recession-Proof

25 What is the Guardian Fully Insured Plan? All Assets In: PT Whole Life & PT Retirement Annuities or Retirement Annuities Alone No Investment Fund * *Except for top heavy benefits, if necessary

26 Who Is the Ideal Prospect for a Fully Insured Plan? Highly-paid owner Generally, age 40 or older Other employees None or very few Low paid & younger than owner Client s goal Maximize benefit & deduction Little fluctuation in profits

27 Inside the Box Prospects Small Business Professionals Doctors, Lawyers, Dentists, etc. Concentrate on Those with Fewest Employees Ex. - Doctors Working as Independent Contractors Radiologists, Hematologists, ER Docs

28 Outside the Box Prospects Free Exclusions Plan Must Include Most Employees Can Exclude Independent Contractors Union Employees Part-Time

29 Advantages of Fully Insured Plans General Contributions are Tax Deductible Dividends Reduce Employer Cost Simple to Understand

30 Advantages for Older Clients The Maximizer Potential to Maximize Pension at Retirement Contributions/Deductions

31 Advantages for Older Clients Total Security Retirement Assets Guaranteed Policy Values Death Benefit Protection for Family Higher Amounts Possible

32 Comparison to Other Qualified Plans Life Insurance Death Benefit Death Benefits % Higher for Fully Insured Att. Age/ Ret. Age Profit Sharing* Trad. Def. Benefit* Fully Insured* Profit Sharing Trad. Def. Benefit Ethan 45/62 1,277,645 3,230,576 4,511, % 40% Steve 50/62 1,123,668 4,161,324 5,558, % 34% Jeff 55/62 878,716 4,454,486 5,703, % 28% Jim 60/65 677,740 3,361,383 4,266, % 27% Death Benefit 549% Higher in Fully Insured Plan *Assumes max. contribs. & max. life ins. for Trad. Def. Ben. uses PTL99 Pref, Fully Insured uses PTWL3 Gold Pref. & PTAPRA-3B for ages 45 & 50 &and PT APRA-3F for ages 55 & 60

33 Comparison to Other Qualified Plans First Year -- Life Insurance Premium Att Age/ Ret Age Profit Sharing* Trad. Def.Ben.* Fully Insured* % Higher for Fully Insured Profit Sharing Trad. Def. Ben. Ethan 45/62 22,995 57,992 97, % 68% Steve 50/62 25,495 94, , % 59% Jeff 55/62 25, , , % 51% Jim 60/65 25, , , % 48% 661% More Premium in a Fully Insured Plan! *Assumes max. contribs. & max. life ins. for Trad. Def. Ben. uses PTL99 Pref, Fully Insured uses PTWL3 Gold Pref. & PTAPRA-3B for ages 45 & 50 &and PT APRA-3F for ages 55 &60

34 A Qualified Plan with No Life Insurance Plan benefits at death* 100% of Death Benefit Subject to Income Tax 100% of Death Benefit Subject to Estate Tax Possible Loss to Taxes = 70% Ret. Assets *Non Spousal Beneficiary

35 Life Insurance in a Qualified Plan Plan Assets Purchase Life Insurance More Death Benefit to Cover Any Taxes Death Benefit over Cash Value Income Tax Free Cash Value Part of Death Benefit Can Be Rolled to IRA Use of Subtrust Technique May Permit Estate Tax Exclusion Caution: Not all practitioners agree the estate tax exclusion is available and IRS has questioned plan qualification when subtrust used. Consult your advisors.

36 Life Insurance in a Qualified Retirement Plan Premiums tax-deductible Reduces net cost Amount at risk subject to tax on economic benefit

37 Life Insurance in a Qualified Plan Cost of $10,000 Premium In Retirement Plan = $10,000* Using Pre Tax Dollars Outside Retirement Plan = $16,667 $10,000 Premium & $6,667 in Income Tax** * Also must pay tax on cost of insurance ** Assumes 40% Tax Bracket

38 Life Insurance in a Qualified Retirement Plan Increase Your Client s Security Whole Life = Guaranteed Value Higher Benefit at Death

39 Make Your Client s Life Insurance Needs Tax Deductible Profit Sharing Plans Can Purchase Life Insurance on: Spouses, Business Partners, Parents, Children

40 Limits on Life Insurance Defined Contribution Plans Whole Life Cumulative Premiums Less Than 50% of Cumulative Contribution Variable Universal & Term Cumulative Premiums No More Than 25% of Cumulative Contribution

41 Finding A Premium Source Profit Sharing Plans More Money Available for Premiums 100% of Money Purchase Rollover Assets 100% of Account if Participated for 5 Years 100% of Assets in Plan for 2 Years

42 Where Do I Find Business Prospects? CPAs Can Be Key Introduce Yourself to All Your Clients Accountants Start Convincing Them You Are a Technical Resource in Retirement Planning

43 Where Do I Find Business Prospects? Retirement Planning Accountants Referral Marketing Kit Newsletters Direct Mail Letters Charts & Flyers PowerPoints for CPE Courses

44 Direct Mail Letters Fully Insured Plans 4 Lives or Less Money Purchase Convert to Profit Sharing Plan Defined Benefit Plan Add Profit Sharing Plan

45 Money Purchase Plans are Dead! Money Purchase -Inflexible Contributions Required Contribution Each Year Exact Amount Specified in Plan Formula Penalty Tax for Deficiencies 10% to 100%

46 Money Purchase Plans are Dead! Profit Sharing Flexible Contributions Contribute 0 to 25% Plan Payroll Each Yr. Can Switch % From Year to Year No Penalty Tax for Deficiencies

47 Higher Deduction for Owner Profit Sharing vs Money Purchase Money Purchase Profit Sharing/401(k) Total Age Salary Contrib. Contrib. Deferrals* Contrib. Owner 51 $100,000 $25,000 $25,000 20,500 45,500 Wife 50 20,000 5,000 5,000 20,000 25,000 $30,000 $70,500 Contribution Increased by $40,500! *2008 maximums, scheduled to increase in the future

48 A Profit Sharing Plan Will Give You More! Life Insurance Flexibility Special Rules 100% of IRA & Qualified Plan Rollover Assets* 100% of Account if Participated for 5 Years 100% of Assets in Plan for 2 Years * Applies to all qualified plans. Certain restrictions apply.

49 A Profit Sharing Plan Will Give You More! More Life Insurance Flexibility Can Purchase Life Insurance on: Spouses, Business Partners, Parents, Children Survivorship Policies Allowed

50 How Can We Help You? Sales Support Pension Consultants Technical & Design Questions Marketing Materials Charts Four Marketing Kits Direct Mail Letters PowerPoints

51 ABC s of Retirement Planning Lesson #1 Advantages of Qualified Plans Lesson #2 Profit Sharing & Money Purchase Lesson #3 Maximum Advantage Plans Lesson #4 401(k) Plans Lesson #5 Defined Benefit Plans Lesson #6 Life Insurance in Qualified Plans

52 PowerPoint Presentations on Qualified Plans The Fully Insured Plan Traditional Defined Benefit Plan Fishing for Sales in Qualified Retirement Plans Defined Contribution Plans An Overview Retirement Plans for Older Business Owners Redesign Opportunities

53 Guardian H.O. Contacts Phone Numbers Susan Grant, QPA, QKA, Manager Ext Richie Morello, Consultant Ext Sheila Hickey, CPC Ext Eric Brandon, Pension Actuary Ext Frank Castrofilippo, Case Design Ext Lillian Tam, Illustration Specialist Ext Jennifer Snider-Tornetta, Project Director Ext. 8564

54 Local Contacts LANNY D. LEVIN AGENCY, Inc. Lanny Levin Case Consultation Jerry Fox Illustrations Bryna Lee Jacobson Illustrations NATIONAL BENEFIT SERVICES, Inc. Jerry Kalish Case Consultation x3