Transcript Slide 1

PROSPECTING FOR QUALIFIED PLAN BUSINESS
Presented by:
Mary Read, CPC, QPA
National Director of
Qualified Plan Marketing
For Financial Professional Use Only. Not For
Use With the Public.
DISCLOSURE
This material is intended as a general discussion of
qualified plan concepts and strategies. It is not
intended as specific advice concerning any individual
legal, tax or accounting matter. Alliance Benefit
Group-Pentegra does not provide legal, tax or
accounting advice. Any questions regarding your
individual situation should be directed to your personal
advisor on such matters.
For Financial Professional Use Only- Not For Use With Public
2
CLOSELY HELD BUSINESSES
■ 30 million businesses with less than 10 employees
─
Less than 44% of businesses with fewer than 50
employees have any retirement plan in place
─
Only 9% have a Defined Benefit Plan in place
Government Census Statistics
www.bls.gov/ncs/ebs/benefits/2010/ownership/private/table01a.pdf
www.census.gov/epcd/susb/latest/us/US--.HTM
censtats.census.gov/cgi-bin/nonemployer/nonsect.pl
U.S. Census Bureau 2007 and 2008
U.S. Department of Labor, U.S. Bureau of Labor Statistics 2010
For Financial Professional Use Only- Not For Use With Public
3
BABY BOOMERS
■ Over 80 million baby boomers will need retirement
security *
Average 401(k) Balances (2007) **
• Participants in their 50s
- 50% below $70,000
$127,766
• Participants in their 40s
$91,848
* Source: Employee Benefits Research Institute, Small Employer Retirement Survey 2003
** Source: Deloitte Development LLC, Future of 401(k)s
For Financial Professional Use Only- Not For Use With Public
4
SUCCESSION
■Business represents 75% of owner’s net worth
■Owner’s retirement plan is interrelated with
other critical issues:
–
Training new management to take over
business
–
Estate and gift tax planning
–
Cash flow in retirement
Source: Wharton Center for Applied Research, Richard Hamm Risk Management Ass. 2004
For Financial Professional Use Only- Not For Use With Public
5
WHAT IS YOUR PLAN FOR RETIREMENT?
?
For Financial Professional Use Only- Not For Use With Public
6
WHERE WILL THE MONEY COME FROM?
Social
Security
Personal
Savings
Sale of
Business
Private
Retirement
Plans
For Financial Professional Use Only- Not For Use With Public
7
SIGNIFICANT CURRENT TAX DEDUCTIONS
Defined Contribution Plan
Defined Benefit Plan
 Deductions of up to 25% of
participating payroll
 Maximum allocation $50,000
per year ($55,500 if age 50
or more)
 No maximum deduction
 No maximum contribution,
only limited to what is
required to fund for
retirement benefit
 Contributions for the
business owner may be in
excess of $250,000
For Financial Professional Use Only- Not For Use With Public
8
BUSINESS OWNERS LIKE QUALIFIED PLANS
How important are current tax deductions to the
Business Owner and his/her CPA?
For many Business Owners and CPAs, when it comes
to saving on taxes, “there is no time like the present”
ARE YOU HAVING A GOOD YEAR? THEN SO IS UNCLE SAM
For Financial Professional Use Only- Not For Use With Public
9
ARE YOU HAVING A GOOD YEAR? THEN
SO IS UNCLE SAM…
 Psychological perk in reducing current taxes
 May be the key to a SBO’s retirement strategy
 The CPA may be a fan of minimizing or
reducing the amount of taxes you have to pay
For Financial Professional Use Only- Not For Use With Public
10
WHO IS A PROSPECT FOR A QUALIFIED PLAN?
Any successful business is a prospect.
Any business entity can establish a qualified plan:
–
Sole Proprietor
–
Partnership
–
LLC
–
Professional Corporation
–
S-Corporation
For Financial Professional Use Only- Not For Use With Public
11
BUSINESS OWNERS LIKE QUALIFIED PLANS
A qualified plan prospect typically has fewer than 10
employees, and wants:
–
Significant current tax deductions

Annual tax savings that can substantially
outweigh contribution to employees

Life insurance paid with pre tax premiums
–
To save for retirement
–
To accumulate up to $2.2M in 10 years
–
Protection from Creditors
For Financial Professional Use Only- Not For Use With Public
12
PROSPECTING ON MAIN STREET
What businesses do you come into contact with
everyday?
–
Coffee shop / Deli / Restaurant
–
Dry Cleaners
–
Repair shop
–
Lawn service
–
Apparel Shop
For Financial Professional Use Only- Not For Use With Public
13
PROSPECTING ON MAIN STREET
Think beyond the “traditional” business
 May not have a ‘store front’
–
May have little or no community presence
– Market through internet or catalog
For Financial Professional Use Only- Not For Use With Public
14
TELEPHONE APPROACH TOPICS, PICK ONE
If no plan –
Adopting a plan holds the
potential for:
If there is a plan –
Reviewing a plan holds the
potential for:
 Tax favored savings
 Protecting savings from
creditors
 Reducing current taxation
 A cost effective employee
benefit plan
 Increasing tax deductions
 A more efficient plan
design
 Better / less expensive plan
administration (TPA)
 Enhancing the plan with
life insurance
 Plan improvements due to
Changes in the tax law
For Financial Professional Use Only- Not For Use With Public
15
THE NATURE OF AN INITIAL APPOINTMENT,
WHEN THERE IS NO PLAN
The key is to remove a Business Owner’s fear of
employee contributions, and show how the tax
savings of a qualified plan may far exceed any
potential employee costs.
You will explain that:
–
The plan is designed around YOU, the
employer
–
Employee costs can be surpassed by the
money YOU save in taxes
This information is not intended as tax or legal advice. Please advise your client to consult with their Attorney or Accountant prior to
acting upon any of the information concerning their situation.
For Financial Professional Use Only- Not For Use With Public
16
ECONOMIC VALUE OF A CONTRIBUTION
Business owner earning $175,000 annually
28% Tax Bracket *
Pays $40,319 each year in taxes
Pays $1,007,975 in taxes over 25 years
* Assuming 6% flat state income tax and married filing jointly tax status using standard deduction.
This is a hypothetical illustration only and is not indicative of any particular investment or performance.
For Financial Professional Use Only- Not For Use With Public
17
$17,000 TAX SAVINGS
■ Client creates a qualified defined
contribution plan and contributes $50,000
$17,000 deferred in taxes
Over 25 years, $425,000 is put to work for the
business owner ($17,000 x 25)
Assuming 6% flat state income tax and married filing jointly tax status using standard deduction.
For Financial Professional Use Only- Not For Use With Public
18
TAX DEFERRAL GENERATES MONEY
The $425,000 the individual may pay in income
taxes over the next 25 years can translate into
$811,360 *!
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
Lost opportunity
-$200,000Taxes
cost Income
-$400,000
$811,360*
Funding Strategy
for Retirement
$425,000
* 5% hypothetical return assumed.
This example is purely hypothetical and for illustrative purposes only. The numbers assume yearly compounding. The returns above do
not consider inflation, taxes or management expenses which will reduce your return. The illustrated results are not indicative of any
particular situation and your results likely will differ from those shown above.
For Financial Professional Use Only- Not For Use With Public
19
TAX EFFICIENCY
Additionally the other $33,000 is also working
$3,000,000
$2,800,000
$2,600,000
$2,400,000
$2,200,000
$2,000,000
$1,800,000
$1,600,000
$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000
Lost opportunity
$400,000
$200,000
cost Income
$0 Taxes*
-$200,000
-$400,000
$2,386,355*
Funding Strategy for
Retirement
$425,000
* $50,000 per year assuming 5%. Assuming 6% flat state income tax and married filing jointly tax status using standard deduction.
For Financial Professional Use Only- Not For Use With Public
20
COMMON QUESTIONS / OBJECTIONS
 “But don’t I have to make contributions to my
employees, and won’t that ruin my ability to save
efficiently?”
 “I don’t want to contribute for my employees, I
already pay them enough”
 “How much will it cost to cover my employees?
For Financial Professional Use Only- Not For Use With Public
21
WHAT IF THERE ARE EMPLOYEES?
■The employees may not cost anything
In fact, not having a plan may cost
more than having one
For Financial Professional Use Only- Not For Use With Public
22
GETTING THE LION’S SHARE
Owner A
Age
Salary
New
Comparability
Profit Sharing
61
$250,000
$50,000
Owner B
48
250,000
50,000
EE 1
32
60,000
3,000
EE 2
62
30,000
1,500
$590,000
$104,500
Total
Key Total
Key %
$50,000
$1,500
$3,000
NC
$100,000
96%
$50,000
For Financial Professional Use Only- Not For Use With Public
23
NOT HAVING A PLAN MAY COST MORE
THAN HAVING ONE
After Tax Analysis
Sample Case Profit Sharing:
Plan Sponsor’s Tax Rate
Plan Sponsor’s Total Contribution
Plan Sponsor’s Tax Savings
Net After Tax Cost of Plan
Deposit For Owners
Net Gain
40%
$104,500
$41,800
$62,700
$100,000
$37,300+
This information is hypothetical and is provided for informational purposes only.
For Financial Professional Use Only- Not For Use With Public
24
CONTRIBUTE A LITTLE FOR ELIGIBLE EMPLOYEES
INSTEAD OF GIVING AWAY A LOT TO UNCLE SAM
$45,000
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
Tax savings
Contribution for
employees
The information is hypothetical and is provided for informational purposes only. Your results likely will differ .
For Financial Professional Use Only- Not For Use With Public
25
COMMON QUESTIONS / OBJECTIONS
Can the plan only cover certain employees?
It depends:
– Eligibility
– Coverage
– Vesting
 Tell the employer: within the rules we can work to
exclude or favor the employees you choose
For Financial Professional Use Only- Not For Use With Public
26
COMMON QUESTIONS / OBJECTIONS
I want employees to take some responsibility for their
own saving
We can design a plan or plans that include 401(k)
salary deferrals
Can I just cover my employees in company A but not in
my company B?
Tell the employer: Perhaps, there are certain rules that
may allow this depending on your specific
circumstances, completing the census will enable us
to see if you can.
For Financial Professional Use Only- Not For Use With Public
27
IN A PERFECT WORLD…
Ask the employer:
 How much do you want to contribute?
 Which employees do you want to include?
 Which employees do you want to favor?
…within the law we can design a plan that comes
closest to your idea of “perfect”
For Financial Professional Use Only- Not For Use With Public
28
ALLIANCE BENEFIT GROUP-PENTEGRA
Training, custom plan proposals,
prospecting and marketing
materials are free.
 Outstanding Personal Service
 Industry Experts
We are only a phone call away!
 No Commission Splits
 No Hidden Fees
Lori J. Carpenter
Advisor Relationship Manager
(800) 255-8678
Direct: 704.716.8596
[email protected]
Mary Read CPC, QPA
National Director of Qualified
Plans Marketing
802-477-2018
[email protected]
For Financial Professional Use Only – Not For Use With Public
29
CIRCULAR 230 DISCLOSURES
The above information is not intended or written to be used, and it cannot be
used, by any person for the purposes of avoiding any penalty that may be
imposed by the Internal Revenue Service.
In the event the advice is also considered to be a “marketed opinion” within
the meaning of the IRS guidance, then as required by the IRS, please be
further advised of the following:
The above advice was written to support the promotion or marketing of the
transactions or matters addressed by the written advice and, based on the
particular circumstances, you should seek advice from an independent tax
advisor.
For Financial Professional Use Only- Not For Use With Public
30