prospecting for qualified plan business presented by: mary read, cpc, qpa national director of...

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

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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

CLOSELY HELD BUSINESSES

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■ 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 Statisticswww.bls.gov/ncs/ebs/benefits/2010/ownership/private/table01a.pdfwww.census.gov/epcd/susb/latest/us/US--.HTMcenstats.census.gov/cgi-bin/nonemployer/nonsect.pl

U.S. Census Bureau 2007 and 2008U.S. Department of Labor, U.S. Bureau of Labor Statistics 2010


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BABY BOOMERS

■Over 80 million baby boomers will need retirement security *

Average 401(k) Balances (2007) **

• Participants in their 50s $127,766 - 50% below $70,000

• 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


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

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Source: Wharton Center for Applied Research, Richard Hamm Risk Management Ass. 2004


WHAT IS YOUR PLAN FOR RETIREMENT?

6For Financial Professional Use Only- Not For Use With Public

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WHERE WILL THE MONEY COME FROM?

Personal Savings

Sale of Business

Private Retirement

Plans

SocialSecurity


SIGNIFICANT CURRENT TAX DEDUCTIONS

Defined Contribution Plan

Deductions of up to 25% of participating payrollMaximum allocation $50,000 per year ($55,500 if age 50 or more)

Defined Benefit Plan

No maximum deduction No maximum contribution, only limited to what is required to fund for retirement benefitContributions for the business owner may be in excess of $250,000

For Financial Professional Use Only- Not For Use With Public 8

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”

BUSINESS OWNERS LIKE QUALIFIED PLANS


ARE YOU HAVING A GOOD YEAR? THEN SO IS UNCLE SAM

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


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


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


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


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 Public14

TELEPHONE APPROACH TOPICS, PICK ONE

If no plan – Adopting a plan holds the potential for:

Tax favored savings Protecting savings from

creditors Reducing current taxation A cost effective employee

benefit plan

If there is a plan –Reviewing a plan holds the potential for:

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


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.

ECONOMIC VALUE OF A CONTRIBUTION

Business owner earning $175,000 annually

28% Tax Bracket *

Pays $40,319 each year in taxesPays $1,007,975 in taxes over 25 years

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* 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 .


$17,000 TAX SAVINGS

■Client creates a qualified defined

contribution plan and contributes

$50,000

$17,000 deferred in taxes

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Assuming 6% flat state income tax and married filing jointly tax status using standard deduction.

Over 25 years, $425,000 is put to work for the business owner ($17,000 x 25)

Over 25 years, $425,000 is put to work for the business owner ($17,000 x 25)


TAX DEFERRAL GENERATES MONEY

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* 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.

Lost opportunity cost Income Taxes $425,000

Funding Strategy for Retirement$811,360*

The $425,000 the individual may pay in income taxes over the next 25 years can translate into $811,360 *!

The $425,000 the individual may pay in income taxes over the next 25 years can translate into $811,360 *!


TAX EFFICIENCY

Additionally the other $33,000 is also working

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* $50,000 per year assuming 5%. Assuming 6% flat state income tax and married filing jointly tax status using standard deduction.

Lost opportunity cost Income Taxes*

$2,386,355*Funding Strategy

for Retirement

$425,000


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?


WHAT IF THERE ARE EMPLOYEES?

■The employees may not cost anything


In fact, not having a plan may cost more than having one

GETTING THE LION’S SHARE


Age SalaryNew

Comparability Profit Sharing

Owner A 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

Total $590,000 $104,500

Key Total $100,000

Key % 96%

NC

$50,000

$50,000

$3,000

$1,500

NOT HAVING A PLAN MAY COST MORE THAN HAVING ONE

After Tax Analysis

Sample Case Profit Sharing:

Plan Sponsor’s Tax Rate 40%

Plan Sponsor’s Total Contribution $104,500

Plan Sponsor’s Tax Savings $41,800

Net After Tax Cost of Plan $62,700

Deposit For Owners $100,000

Net Gain $37,300+

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This information is hypothetical and is provided for informational purposes only.


CONTRIBUTE A LITTLE FOR ELIGIBLE EMPLOYEES INSTEAD OF GIVING AWAY A LOT TO UNCLE SAM

$0$5,000

$10,000$15,000$20,000$25,000$30,000$35,000$40,000$45,000

Tax savings

Contribution foremployees


The information is hypothetical and is provided for informational purposes only. Your results likely will differ .


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



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 Public27

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”


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ALLIANCE BENEFIT GROUP-PENTEGRA

Outstanding Personal Service

Industry Experts

No Commission Splits

No Hidden Fees

Lori J. CarpenterAdvisor Relationship Manager(800) 255-8678Direct: [email protected]

Mary Read CPC, QPANational Director of Qualified Plans [email protected]

For Financial Professional Use Only – Not For Use With PublicFor Financial Professional Use Only – Not For Use With Public

Training, custom plan proposals, prospecting and marketing materials are free.

We are only a phone call away!

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.


prospecting for qualified plan business presented by: mary read, cpc, qpa national director of...

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