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1 Retirement Plans Workshop Opportunities The Awareness Test SMAR #

2 Count the Squares - It s NOT about thinking outside the box. 2

3 Keith Baumgarn, CLU, ChFC, QPA Signature Resources is a servicemark of Signature Resources Insurance and Financial Services, Inc. Signature Resources Insurance and Financial Services, Inc. is independent of John Hancock. Offering John Hancock Insurance Products Main Street, Suite 700, Irvine, CA Phone: (949) CA Insurance License # 0G

4 O1 Welcome! Agenda Open forum to discuss benefit packages/tax law changes Review common 401k compliance red flags and remedies Our Business Model / Players 4

5 Niche Market Businesses with one to???employees Available to a variety of tax entities Focus on employer benefit designs a d employee benefit We help you with your benefit package DA.D. / Attract, Reward and Retain We specialize in providing the package that allows you to work the small business pension market 5

6 SIMPLEs and 401ks Aren t Simple SIMPLEs IRS SIMPLE/401k Compliance Checklist SIMPLE EGTRRA/401K cycle Document Compliance 6

7 The Pension Package: Plan design Plan administration services Plan funding options Plan compliance Players / Team 7

8 Players In The Pension Market IRS / DOL Small Business Owner/HR/CFO CPA/Accountant Third Party Administrator Agent/Broker Feasibility Study - Objective: Qualified or Non-Qualified 8

9 Retirement Headlines Social Security in Jeopardy Pensions Frozen Pension Benefit Guaranty Corp on Verge of Bankruptcy U.S. Hits Historically Low Savings Rate Medicare Going Broke Spiraling Health Care Costs Skyrocketing Drug Costs 9

10 Business Owner Concerns I am getting killed with taxes I need more tax deductions d in my business I would like to save more money today Will I have enough money to retire? Am I protected from creditors, judgments and sudden death or disability? What benefits do I need to provide to A, R and RE and can I legally discriminate? 10

11 401k Terms Types Types-Trad Trad. Vs Roth-combo and non-qualifed Automatic enrollment/communication Protection from creditors and judgments Fiduiciary/administrator/resources Integrated g with other benefit package and players/benchmarking tools 11

12 Compliance Red Flags??? Corrective Distributions-ADP Tests/Safe Harbor rules? Compensation/eligibility/liability/bonding? p g y y g Audits-IRS/DOL Reporting/Integration/Benchmarking/turnk ey packages? 12

13 Available plan design options New comparability/cross-tested tested vs. SEP s New comparability plans with 401(k) feature - the simpler plan 401(k) safe harbor profit sharing plans - D.A.S.H. plans Traditional, Cash Balance and Floor Offset defined benefit plans DB/401(k) or Roth 401(k) DB/DC carve outs Are you confused?? 13

14 Plan Contribution Comparison Larger Contributions & Deductions - Example: Male, Age 50, Annual Compensation of At Least $265,000 Retiring At Age 62 TYPE OF PLAN CONTRIBUTION % OF SALARY 401(k) w/catch-up $24, % Profit Sharing /401k $59, % Money Purchase $53, % Traditional Defined Benefit $199, % Defined Benefit/401(k)/PS $ 259, % 14

15 Case I(a) - Increased Individual Dollar Limit New Census Age Comp. Comp. Contrib. PS Plan % of Pay % of Total Owner 50 $150,000 $51,000 34% 90% EE ,000 1, % 2.3% EE ,000 1, % 2.3% EE ,000 1, % 2.3% EE ,000 1, % 3.1% Total $240,000 $56,625 ($60,000) 15

16 IRS Code Sec 401(a)(4) Nondiscrimination in a Defined Contribution or Defined Benefit Plan can be demonstrated by: Comparing Contributions (Traditional) or Comparing Benefits (Age Weighted) 16

17 Plan Design This example highlights reasons business owners adopt pension plans. Employer tax deductible $56,225 contribution Less estimated tax savings (40%) -22,490 Net cost after estimated tax savings 33,735 Contribution for business owner 51,000 Net cost after taxes for owner (After tax savings and principal s contribution) -17,265 Not having a Qualified Plan is costing you $17,265 per year! 17

18 Owner age 55 Case II(a) - New Comparability Profit Sharing Plan Compensation (Corporation) Profit Sharing Contribution $ 250,000 $50,000 Spouse of $ 52,000 $24,750 owner age 54 Total $302,000 $74,750 18

19 Case II(b) - New Comparability Profit Sharing/401(k) Plan Contribution Owner- Age 55 Compensation (Corporation) Profit Sharing Contribution 401(k) Catch up Contribution Total Profit Sharing + 401(k) $250,000 $33,500 $17,500 $5,500 $56,500 Spouse of Owner Age 54 $52,000 $33,500 $17,500 $5,500 $56,500 Total $302,000 $67,000 $35,000 $11,000 $113,000 19

20 Case II(c) - Traditional DB Plan/401(k) Plan Combination Owner- Age 55 Compensation Defined 401(k) Catch up Total (Corporation) Benefit Contribution Contribution Defined Benefit + 401(k) $250,000 $230,000 $17,500 $5,500 $253,000 Spouse $52,000 $ 75,000 $17,500 $5,500 $ 98,555 of Owner Age 54 Total $302,000 $305,000 $35,000 $11,000 $351,555 plus 6% PS 20

21 Tax Entity Types Corps C S Proprietorship Partnerships LLPs or LLCs Tax Exempt 501(c)(3) 403b s P/S or DB Plans 21

22 Eligibility Issues Rules Employees Part Time End Of Year Union Independent Contractors Leased Vesting Deadlines (Timetables) Classification 22

23 Working Past Retirement? 23

24 Defined Benefit Plans Past, Present, Future What When Why Who 24

25 Funding For A Monthly Amount Maximum 415 Limit it Amount $17,500 a month beginning age 65. No reductions for NRAs With $255,000 salary cap 25

26 Defined Benefit vs. Defined Contribution Defined Contribution Plans Profit sharing plans, 401(k) plans, Simples, SEPs and IRAs Defines and limits annual contributions Retirement nest egg is dependant upon market fluctuation Defined Benefit Plans Traditional and Fully Insured Sets forth a defined, guaranteed income at retirement Allows for larger contribution as needed to fund the benefit 26

27 Why are Defined Benefit Plans back? Deductions and exemptions phased out with adjusted gross income over $250, Repeal of 415(e) after Jan. 1, 2000 Babyboomers Social Security statements Market Impact on 401(k) Plans EGTRRA / PPA 06 27

28 Business Profile Level 1 Safe Harbor Plans Very small business (1-6 participants) Stable cash flow projections for next 5-10 years Business owner s cash flow in excess of $250,000 Business owner will be working in business for at least 5 years Business owner is at least age 45 and oldest in the group Level 2 Carveout/Combo Plans (401a4) Testing 6-?? Participants 28

29 Other Entrepreneurs Moonlighting g g Income No controlled group (I.e. Professors, Authors, Consultants, Board Of Directors, Coaches) 29

30 Samples of Practicing Professionals At Actual lcase Design Results Number of Owners/ Professionals Total Employees Owner s Contributions Contribution s to Employees % to Owners 1 24 $ 304,503 $ 83,520 78% 2 1 $ 309,997 $ 9,000 97% 2 8 $ 278,242 $ 20,013 93% 2 15 $ 214,796 $ 107,972 67% 2 33 $ 357,099 $ 105,682 77% 3 2 $ 453,226 $ 28,000 94% 4 25 $ 234,121 $ 68,711 77% $ 785,361 $ 393,710 67% $ 2,062,319 $ 223,448 90% $ 1,128, $ 322, % $ 3,898,558 $ 252,468 94% 30

31 S Corp. Example Age W-2* SEP PS-401(k) Trad Def Benefit** 50 $50,000 $12,500 $35,500 $95,000 * Consider adding spouse as a participant p bona fide employee and reasonable compensation issues ** Additional $26,000 profit sharing 401(k) plan could be added. This is for 2013 tax year and based on 2013 IRS plan limits. 31

32 Resources Websites Freeerisa.com Benefitlinks.com IRSGov.org Publications / Courses Dearborn / Corbel IRS Publications / Newsletters Free Feasibility Studies/Pension Season 32

33 Pursuant to IRS Circular 230, we are providing you with the following notification: The information contained in this presentation is not intended to (and cannot) be used by anyone to avoid IRS penalties. This presentation supports the promotion and marketing of insurance. You should seek advice based on your particular circumstances from an independent tax advisor. John Hancock Financial Network, its agents, and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this document is for general information purposes only and does not purport to be complete or cover every situation. Tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances. You should consult with and rely on your own independent legal and tax advisers regarding your particular set of facts and circumstances. Although care is taken in preparing this material and presenting it accurately, John Hancock Financial Network disclaims any express of implied warranty as to the accuracy of any material contained herein and any liability with respect to it. This information is current as of September,

34 Q & A? Thanks! 34