Cb overview
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- BPAS provides actuarial and pension services including cash balance plans. It has over 3,800 engagements, over $1 trillion in fund administration, and 335 professional employees across the US and Puerto Rico. - Cash balance plans allow for much higher maximum contributions (up to $200,000/year for a 55-year-old) and tax deferrals compared to a traditional 401(k). They are best for business owners who have higher compensation and want to maximize retirement savings. - BPAS has expertise in designing and administering combined cash balance and 401(k) plans to maximize savings opportunities within legal limits. Candidates for cash balance plans are businesses where owners can contribute at least 7
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Cb overview
- 1. BPAS Actuarial and Pension Services - Cash Balance Plans -
- 2. One Company. One Call. BPAS Overview 3,800 engagements More than 400,000 plan participants $1 Trillion in fund administration $52 billion in trust assets Ten offices and 335 professional employees across US and Puerto Rico 2 Subsidiary of a NYSE-traded company (NYSE: CBU) 2,300 employees, more than $10 billion in assets, and 200 customer facilities Heavily regulated and compliant Examined by OCC, IRS, DOL, SEC, Texas Dept. of Banking, PR Office of Financial Institutions, Internal and External Auditors Specialty practices include Auto enrollment plans, multiple employer plans and trusts, plans with employer securities, Puerto Rico 1081 plans, VEBA/HRA plans, cash balance plans, collective investment funds and fund administration
- 3. One Company. One Call. 3 Want to Save More than $55,000 a Year? How can you save that much in a tax- deferred vehicle? A Cash Balance Plan
- 4. One Company. One Call. Cash Balance Plans Why? Cash Balance Plans are the most rapidly growing segment of retirement plans 2 Reasons: Wealth Accumulation for Retirement Taxes Many small business owners have focused on building their business and not their retirement nest egg The $55,000/$61,000 contribution maximums in a 401(k) plan are not enough for those who started saving late Hope of selling business to fund retirement realistic? Larger tax deferrals 4
- 5. One Company. One Call. The Power of Cash Balance Plans 5 Maximum Service Credits 2018 Age 62 NRA Maximum Maximum Maximum Age CB Credit Age CB Credit Age CB Credit 30 58,000$ 42 105,000$ 54 190,000$ 31 61,000$ 43 110,000$ 55 200,000$ 32 64,000$ 44 116,000$ 56 210,000$ 33 67,000$ 45 122,000$ 57 221,000$ 34 70,000$ 46 128,000$ 58 232,000$ 35 74,000$ 47 134,000$ 59 244,000$ 36 78,000$ 48 141,000$ 60 256,000$ 37 82,000$ 49 148,000$ 61 269,000$ 38 86,000$ 50 156,000$ 62 283,000$ 39 90,000$ 51 164,000$ 63 278,000$ 40 95,000$ 52 172,000$ 64 272,000$ 41 100,000$ 53 181,000$ 65 266,000$ Maximum Lump Sum 2,832,611$
- 6. One Company. One Call. Why are these so much higher? Cash Balance Plan contributions are higher because Its a defined benefit (DB) pension plan Statutory maximum is annual benefit at retirement ($220,000 payable no earlier than age 62) Present Value of maximum benefit the maximum permitted accumulation is approximately $2.83M Maximum allowable contributions are those necessary to fund this maximum age 62 accumulation over a period of not less than 10 years 6
- 7. One Company. One Call. Why Save Pre-Tax? Required/disciplined savings ensures that assets are set aside for retirement (i.e., not spent) Qualified retirement plans are protected from creditors 7
- 8. One Company. One Call. Higher Contributions = Higher Tax Deferrals For a high wage earner in NYS, for example, $200,000 in tax-deferred savings will lower taxes by: $79,200 in Federal taxes deferred (top rate of 39.6%) $13,700 in NYS taxes deferred (top rate of 6.85% - excludes millionaire tax) $1,800 in Obamacare Medicare taxes saved (0.9%) 8
- 9. One Company. One Call. Potential Medicare Tax Savings If contributions made to a plan instead of paid as W-2 taxable compensation (e.g., owners in C-corp bonused out at year-end) Medicare taxes at the combined EE/ER rate 2.9% are saved, not deferred. (Not applicable to pass-through entities.) Total tax reduction = $100,500 more than half! $92,900 in tax deferrals $7,600 in permanent tax savings Retiring to a state without income tax turns state tax deferrals into permanent tax savings 9
- 10. One Company. One Call. What about the existing plan? Cash Balance contributions often in addition to the existing maximum level of DC plan contributions complicated tax deduction rules apply to some small employers (<25) A 55-year-old could potentially get: CB contribution of $200,000 plus the $55,000 DC maximum plus $6,000 in 401(k) catch-up contribution Total = $261,000 annually 10
- 11. One Company. One Call. Example Plan Design Summary 11 Eligible 401(k) 3% SH Profit Cash Total Current Comp Deferral Non-Elec Sharing* Balance Retirement Design Difference Owner Age 55 275,000 24,500 - 36,500 200,000 261,000 61,000 200,000 NHCE Age 40 50,000 - 1,500 2,000 1,250 4,750 2,500 2,250 NHCE Age 30 35,000 - 1,050 1,400 875 3,325 1,750 1,575 NHCE Age 25 25,000 - 750 1,000 625 2,375 1,250 1,125 Grand Total 385,000 24,500 3,300 40,900 202,750 271,450 66,500 204,950 Owner Percentage of Owner Invested Cost = 96% 92% 98% - Assumed current design to be safe harbor 401(k) with cross-tested profit sharing and 5% contribution for employees - Owners will typically receive over 90% of total contribution dollars invested and often receive nearly all of the additional contribution dollars invested - If Owners will contribute 4.5%-5% for employees to save $55,000 to $61,000 for themselves, why would they not contribute another 4.5%-5% for employees to individually save an additional $100K, $150K, $200K for themselves? * If small professional services (doctor, lawyer, etc.) then combined plan deduction limit could prevent Owner from getting maximum profit sharing, which would be reduced to $15,400 in the above example such that total Employer contributions to DC plan are 6% of eligible payroll. Owner still gets approximately 96% of the total and 97% of the incremental difference.
- 12. One Company. One Call. Whats the catch? Qualified retirement plan = complex IRS rules coverage and nondiscrimination maximum benefits minimum eligibility, participation, and vesting DOL (ERISA) reporting/disclosure requirements PBGC coverage and premiums, unless exempt (professional services < 25 plan participants) 2018 flat rate = $74/participant (plus a variable rate premium if plan is under funded) Point: need expert/specialist to administer 12
- 13. One Company. One Call. Whos a candidate? A Cash Balance candidate is a business where: Owners have compensation at or near $275,000 Owners maxing out the DC plan at $55,000 Owners are relatively older than their employees Owners are willing and able to contribute at least 7.5% to 10% of pay for employees annually Business cash flow is sufficient and relatively stable for funding program for at least the next 3-5 years 13
- 14. One Company. One Call. BPAS Expertise Given the complexities of a combined CB/401(k) arrangement, it is advantageous to have the same provider service both plans if possible BPAS Actuarial and Pension Services (APS) has the expertise and experience to provide the Cash Balance services and coordinate the interaction between plans BPAS Plan Administration and Recordkeeping (PARK) has the expertise and experience to provide the defined contribution solution with the necessary flexibility 14
- 15. One Company. One Call. Who you gonna call? 15 Referring a Lead Jason Disco, Director of Defined Benefit Sales, BPAS Actuarial and Pension Services P 315-703-8916 E jdisco@bpas.com Provide census information in Excel Provide information on existing plan, if any, prospective client objectives and any other relevant information
- 16. One Company. One Call. 16 Plan Administration & Recordkeeping Services Actuarial& Pension Services TPA Services AutoRollovers & MyPlanLoan Service administration BPAS Trust Company of Puerto Rico Hand Benefits & Trust Healthcare Consulting Services VEBA & HRA/HSA Services Fiduciary Services Global Trust Company NRS Trust Product Administration BPAS Lines of Business One Company. One Call.