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Beyond the 401(k)

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Brad wexler

Brad Wexler presented on cash balance plans and their growth. Cash balance plans combine features of traditional 401(k) plans and defined benefit plans, allowing for high contribution limits like defined benefit plans. Research shows cash balance plans have been growing much faster than 401(k) plans in recent years due to factors like the Pension Protection Act, the retirement savings crisis, tax rates, and increasing public awareness. Cash balance plans are well-suited for business owners, professionals, and small businesses seeking to maximize retirement contributions and tax benefits. The election, new IRS regulations, and economic conditions could further impact cash balance plan adoption going forward.

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Presenter: Brad Wexler, QPA, QKA, QPFC 610.251.0670 www.tycorbenefit.com November 15, 2012 BEYOND THE 401(k) THE CASH BALANCE PLAN A guide to helping your clients -Accelerate Retirement Savings -Reduce Their Tax Obligations
AGENDA 2012 Cash Balance Research Report Highlights Whats Driving Growth? Taking Advantage of Growth Trends Whats Ahead? Impact of Election, IRS Regulations and Beyond
CASH BALANCE OVERVIEW Best of Both Worlds 401(k) FLEXIBILITY PORTABILITY SIMPLICITY Defined Benefit- High Contribution Limits Hybrid
CASH BALANCE ACCOUNTS Participants Have Accounts Accounts Grow By Employer Contribution & Interest Crediting Rate (ICR) Accounts Are Portable
CB GROWTH EXCEEDED PROJECTIONS!!! 2010- CASH BALANCE PLAN GROWTH RATE UP 21% (11% IN 2009) * 2010- 401(k) PLANS DOWN 1% * *data analysis using: IRS Form 5500 filings, 2001-2010, DOL data
DECLINE OF TRADITIONAL Defined Benefit CONTINUES Interest Rate Risk Issues Volatile Costs Difficult For Participants To Understand Uneven Contributions To Employees Portability Issues Funding Issues
GROWTH DRIVER FOR CBPP#1- PPA 2006 Official IRS Approved Added Clarity AND Simplified Administration
GROWTH DRIVER FOR CBPP#2- RETIREMENT SAVINGS CRISIS Longevity Challenges Traditional Models Decline of Traditional Income Sources (Social Security, Pensions) Market Losses and Volatility Rapidly Rising Retiree Healthcare Costs
IMPACT OF LONGEVITY 1950-Retirement Lasted About 3.5 Years Retirees Today Need To Fund 20-30 Years of Retirement Cash Balance Advantage- Age-Weighted Limits, Double or Triple Pre-Tax Retirement Savings
FASTEST WAY TO CATCH UP
2012 Combined Contributions Limits (salary > $250k) AGE 401(k) Profit Sharing Cash Balance Total * Tax Savings 60-65 $55,500 $242.451 $297,951 $119,180 55-59 $55,500 $175,672 $231,172 $92,469 50-54 $55,500 $127,386 $182,886 $73,154 45-49 $50,000 $92,447 $142,447 $56,979 40-44 $50,000 $64,922 $114,922 $45,969 35-39 $50,000 $46,838 $96,838 $38,735 30-34 $50,000 $33,834 $83,834 $33,534 *assuming 40% state/federal taxes
GROWTH DRIVER FOR CBPP#3- TAX ANXIETY HIGHER THE TAXES More Valuable The Contribution
GROWTH DRIVER FOR CBPP#4- AWARENESS No Longer a WELL Kept Secret Dominating the News
SUMMARY: A PERFECT STORM Retirements Savings Gap Legislative Changes Public Awareness, Media Coverage Tax Climate
CASH BALANCE AND SMALL BUSINESS 84% have less than 100 employees Cost efficiency and tax efficiency Ideal for owners who have sunk most assets into their business and are behind on retirement Asset protection (in the case of lawsuit or bankruptcy) Attracting and retaining key employees Succession planning for family businesses
Who is an Ideal Candidate? Business owners with income greater than $250,000 and consistent profits Boomers who need to squeeze 20 years of retirement into the next 10 yrs Businesses with a new comparability plan Professional services firms, including medical groups, CPAs, law firms and financial services Successful family businesses and closely held businesses
WHATS AHEAD? November Election Impact of Outcome Deficit Reduction Proposals New Cash Balance Regulations Health Care Reform Economy And Market Volatility
ELECTION ISSUES AND CONCERNS Tax-deferred Retirement Plans Under Scrutiny Deficit Reduction Proposals- Capping Combined 401(k) & Profit Sharing Contributions at $20K or 20% of Income Raising Age Of Social Security Eligibility Push For Lifetime Income Options and Guaranteed Retirement Income
GOOD NEWS FOR CASH BALANCE PLANS Lower 401(k) limit would increase demand for cash balance plans Congressional focus on weaknesses of the 401(k) system draws attention to the role of cash balance plans Annuity options and the safe money aspect of cash balance plans = Greater Political Interest
HEALTHCARE REFORM AND PHYSICIAN SAVINGS Uncertainty over impact on physician income Tax and income concerns= greater push for tax-deferred retirement savings Medical groups still adopting cash balance plans at much higher rates than all other business
NEW CASH BALANCE RULES Net positive for cash balance plan sponsors Greater flexibility and simplicity Clarification of Market Rate of Return IRS currently waiting for response to industry input, but all signs indicate strong IRS support of cash balance plans
IMPACT ON CASH BALANCE GROWTH IRS thumbs up for cash balance plans More ICR options Some funding issues minimized Higher awareness of cash balance plans Continued strong cash balance growth driven by political/economic currents, tax climate, IRS rules
HOW CAN TYCOR HELP? Learn more Call us at 610.251.0670 Can set up by 12/31/12 and make effective retro to 1/1/12 Free Cash Balance Design- See Flyer Ask for a 2nd Opinion
QUESTIONS Stay Informed and Follow Tycor Financial Group on LinkedIn www.tycorbenefit.com
Disclaimer To ensure compliance with requirements imposed by the IRS under Circular 230, we inform you that any U.S. Federal tax advice contained in this communication, unless otherwise specifically stated, was not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing, or recommending to another party any matters addressed herein. Securities offered through NFP Securities, Inc. (NFPSI) member FINRA/SIPC. NFPSI is not affiliated with Tycor Asset Management, Inc. Investment Advisory Services offered through NFPSI or Tycor Asset Management, Inc. NFP Securities does not offer tax or legal advice.

More Related Content

Beyond the 401(k)

  • 1. Presenter: Brad Wexler, QPA, QKA, QPFC 610.251.0670 www.tycorbenefit.com November 15, 2012 BEYOND THE 401(k) THE CASH BALANCE PLAN A guide to helping your clients -Accelerate Retirement Savings -Reduce Their Tax Obligations
  • 2. AGENDA 2012 Cash Balance Research Report Highlights Whats Driving Growth? Taking Advantage of Growth Trends Whats Ahead? Impact of Election, IRS Regulations and Beyond
  • 3. CASH BALANCE OVERVIEW Best of Both Worlds 401(k) FLEXIBILITY PORTABILITY SIMPLICITY Defined Benefit- High Contribution Limits Hybrid
  • 4. CASH BALANCE ACCOUNTS Participants Have Accounts Accounts Grow By Employer Contribution & Interest Crediting Rate (ICR) Accounts Are Portable
  • 5. CB GROWTH EXCEEDED PROJECTIONS!!! 2010- CASH BALANCE PLAN GROWTH RATE UP 21% (11% IN 2009) * 2010- 401(k) PLANS DOWN 1% * *data analysis using: IRS Form 5500 filings, 2001-2010, DOL data
  • 6. DECLINE OF TRADITIONAL Defined Benefit CONTINUES Interest Rate Risk Issues Volatile Costs Difficult For Participants To Understand Uneven Contributions To Employees Portability Issues Funding Issues
  • 7. GROWTH DRIVER FOR CBPP#1- PPA 2006 Official IRS Approved Added Clarity AND Simplified Administration
  • 8. GROWTH DRIVER FOR CBPP#2- RETIREMENT SAVINGS CRISIS Longevity Challenges Traditional Models Decline of Traditional Income Sources (Social Security, Pensions) Market Losses and Volatility Rapidly Rising Retiree Healthcare Costs
  • 9. IMPACT OF LONGEVITY 1950-Retirement Lasted About 3.5 Years Retirees Today Need To Fund 20-30 Years of Retirement Cash Balance Advantage- Age-Weighted Limits, Double or Triple Pre-Tax Retirement Savings
  • 10. FASTEST WAY TO CATCH UP
  • 11. 2012 Combined Contributions Limits (salary > $250k) AGE 401(k) Profit Sharing Cash Balance Total * Tax Savings 60-65 $55,500 $242.451 $297,951 $119,180 55-59 $55,500 $175,672 $231,172 $92,469 50-54 $55,500 $127,386 $182,886 $73,154 45-49 $50,000 $92,447 $142,447 $56,979 40-44 $50,000 $64,922 $114,922 $45,969 35-39 $50,000 $46,838 $96,838 $38,735 30-34 $50,000 $33,834 $83,834 $33,534 *assuming 40% state/federal taxes
  • 12. GROWTH DRIVER FOR CBPP#3- TAX ANXIETY HIGHER THE TAXES More Valuable The Contribution
  • 13. GROWTH DRIVER FOR CBPP#4- AWARENESS No Longer a WELL Kept Secret Dominating the News
  • 14. SUMMARY: A PERFECT STORM Retirements Savings Gap Legislative Changes Public Awareness, Media Coverage Tax Climate
  • 15. CASH BALANCE AND SMALL BUSINESS 84% have less than 100 employees Cost efficiency and tax efficiency Ideal for owners who have sunk most assets into their business and are behind on retirement Asset protection (in the case of lawsuit or bankruptcy) Attracting and retaining key employees Succession planning for family businesses
  • 16. Who is an Ideal Candidate? Business owners with income greater than $250,000 and consistent profits Boomers who need to squeeze 20 years of retirement into the next 10 yrs Businesses with a new comparability plan Professional services firms, including medical groups, CPAs, law firms and financial services Successful family businesses and closely held businesses
  • 17. WHATS AHEAD? November Election Impact of Outcome Deficit Reduction Proposals New Cash Balance Regulations Health Care Reform Economy And Market Volatility
  • 18. ELECTION ISSUES AND CONCERNS Tax-deferred Retirement Plans Under Scrutiny Deficit Reduction Proposals- Capping Combined 401(k) & Profit Sharing Contributions at $20K or 20% of Income Raising Age Of Social Security Eligibility Push For Lifetime Income Options and Guaranteed Retirement Income
  • 19. GOOD NEWS FOR CASH BALANCE PLANS Lower 401(k) limit would increase demand for cash balance plans Congressional focus on weaknesses of the 401(k) system draws attention to the role of cash balance plans Annuity options and the safe money aspect of cash balance plans = Greater Political Interest
  • 20. HEALTHCARE REFORM AND PHYSICIAN SAVINGS Uncertainty over impact on physician income Tax and income concerns= greater push for tax-deferred retirement savings Medical groups still adopting cash balance plans at much higher rates than all other business
  • 21. NEW CASH BALANCE RULES Net positive for cash balance plan sponsors Greater flexibility and simplicity Clarification of Market Rate of Return IRS currently waiting for response to industry input, but all signs indicate strong IRS support of cash balance plans
  • 22. IMPACT ON CASH BALANCE GROWTH IRS thumbs up for cash balance plans More ICR options Some funding issues minimized Higher awareness of cash balance plans Continued strong cash balance growth driven by political/economic currents, tax climate, IRS rules
  • 23. HOW CAN TYCOR HELP? Learn more Call us at 610.251.0670 Can set up by 12/31/12 and make effective retro to 1/1/12 Free Cash Balance Design- See Flyer Ask for a 2nd Opinion
  • 24. QUESTIONS Stay Informed and Follow Tycor Financial Group on LinkedIn www.tycorbenefit.com
  • 25. Disclaimer To ensure compliance with requirements imposed by the IRS under Circular 230, we inform you that any U.S. Federal tax advice contained in this communication, unless otherwise specifically stated, was not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing, or recommending to another party any matters addressed herein. Securities offered through NFP Securities, Inc. (NFPSI) member FINRA/SIPC. NFPSI is not affiliated with Tycor Asset Management, Inc. Investment Advisory Services offered through NFPSI or Tycor Asset Management, Inc. NFP Securities does not offer tax or legal advice.