Cash Balance Pension Plans Cash Balance Pension Plans Presented By Presented By Michael F. Kresl, CPA Michael F. Kresl, CPA National Sales Manager National Sales Manager The American National Insurance Company The American National Insurance Company American National American National Ins. Co. Ins. Co. 1 For Agent Use Only. Not for For Agent Use Only. Not for use with the General Public use with the General Public
Cash Balance Pension Plans Presented By Michael F. Kresl, CPA National Sales Manager The American National Insurance Company. The AMERICAN NATIONAL INSURANCE COMPANY (ANICO). A AM Best AA- S & P COMDEX of 95 104 Years Old GALVESTON TEXAS. Cash Balance Pension Plans. - PowerPoint PPT Presentation
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Michael F. Kresl, CPAMichael F. Kresl, CPANational Sales ManagerNational Sales Manager
The American National Insurance CompanyThe American National Insurance Company
American National Ins. Co.American National Ins. Co. 11For Agent Use Only. Not for use with For Agent Use Only. Not for use with
the General Publicthe General Public
The AMERICAN NATIONAL The AMERICAN NATIONAL INSURANCE COMPANY INSURANCE COMPANY (ANICO)(ANICO)
A AM Best AA- S & P COMDEX of 95
104 Years Old GALVESTON TEXAS
American National Ins. Co.American National Ins. Co. 22For Agent Use Only. Not for use with For Agent Use Only. Not for use with
the General Publicthe General Public
IM0 2076American National Ins. Co. For Agent use only. Not for use with the general public. IM0 2076American National Ins. Co. For Agent use only. Not for use with the general public.American National Ins. Co.American National Ins. Co. 33
For Agent Use Only. Not for use with For Agent Use Only. Not for use with the General Publicthe General Public
Cash Balance Pension PlansCash Balance Pension Plans• Cash Balance plan designs have been
around for many years, with some high profile “conversions” in the late 1990s (IBM, Citigroup);
• Prior to PPA 2006 significant lawsuits concerning plan design – Cooper v. IBM;
• In 1999 IRS placed a moratorium on Cash Balance Plan approvals;
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• The Pension Protection Act of 2006 removes doubt as to plan design legitimacy;
• IRS “lifts” approval moratorium 1/1/2007;
• “Hybrid” Plans become an important planning tool for successful businesses as economic changes occur 2008 - Present
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What is a Cash Balance Plan?What is a Cash Balance Plan?
• An ERISA “Qualified Plan;”
• A “Hybrid” Defined Benefit Plan with Defined Contribution Features;
• A uniquely positioned plan design with the ability to equalize contributions between owners or HCEs of disparate ages
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What is a Cash Balance Plan?What is a Cash Balance Plan?
Defined Benefit Plan Features
• Maximized and potentially equalized contributions for Owners or HCEs;
• A required annual contribution with minimal flexibility;
• No employee portion of contributions;
• Employer bears investment risk;
• IRC 415 limits apply – no $49,000 limit;
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What is a Cash Balance Plan?
Defined Contribution Features
• Flexibility to base contribution amounts on different classes of employees;
• Lower contribution for employees (New Comparability);
• Participants have an account balance with contributions and interest added annually;
• “Combo Plans” allow for concurrent DB and DC plans;
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What is a Cash Balance Plan?What is a Cash Balance Plan?Comparison with New Comparability Profit Sharing Plan
New Comp 401(k) P/S Cash Balance “Hybrid” Plan
Age Salary Contribution Contribution
55 $196,000 $ 49,000 $ 166,747
44 34,000 1,700 2,805
36 30,000 1,500 1,677
25 28,000 1,500 916
22 20,000 1,000 564
$ 308,000 $ 54,700 $ 172,709
89 % to Owner 89 % to Owner 97 % to Owner97 % to Owner
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What is a Cash Balance Plan?What is a Cash Balance Plan?Comparison with a Traditional Defined Benefit PlanComparison with a Traditional Defined Benefit Plan
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COMPARISON OF MAXIMUM COMPARISON OF MAXIMUM CONTRIBUTIONSCONTRIBUTIONS
(ASSUMING NRA OF 65)(ASSUMING NRA OF 65)
AGE $401(k) DASH Defined Benefit “Cash Balance Plans” 412(e)(3)
40 $ 49,000 $ 33,361 $ 38,000 $ 94,674
45 $ 49,000 $ 50,159 $ 55,000 $ 108,619
50 $ 49,000 $ 79,272 $ 88,000 $ 166,552
55 $ 49,000 $ 139,362 $ 153,000 $ 215,94155
60 $ 49,000 $ 163,659 $ 179,000 $ 287,867
The numbers shown above are for illustration purposes only and in some cases are” rounded.” Actual numbers could be more or less and will depend upon plan design, employee participation,
use of life insurance in the plan, and other factors.
.
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What is a Cash Balance Plan?What is a Cash Balance Plan?
Lets look at some examples . . .
See “Sample Employer, Inc.”
(Plan Design #1)
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Plan SummaryPlan SummarySample Employer, Inc.Sample Employer, Inc.
For the Plan Year 01/01/2009 through 12/31/2009For the Plan Year 01/01/2009 through 12/31/2009
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First Year Plan ContributionsFirst Year Plan Contributions
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Plan Allocation FormulasPlan Allocation FormulasSample Employer, Inc.Sample Employer, Inc.
For the Plan Year 01/01/2009 through 12/31/2009For the Plan Year 01/01/2009 through 12/31/2009
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Employee CensusEmployee CensusSample Employer, Inc.Sample Employer, Inc.
For the Plan Year 01/01/2009 through 12/31/2009For the Plan Year 01/01/2009 through 12/31/2009
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Valuation StatementValuation StatementSample Employer, Inc.Sample Employer, Inc.
For the Plan Year 01/01/2009 through 12/31/2009For the Plan Year 01/01/2009 through 12/31/2009
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Financial ResultsFinancial ResultsSample Employer, Inc.Sample Employer, Inc.
For the Plan Year 01/01/2009 through 12/31/2009For the Plan Year 01/01/2009 through 12/31/2009Tax SummaryTax Summary
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Cash Balance Pension PlansCash Balance Pension PlansPlan Design # 2: Two Owners, 4 EEs
Age Salary Contribution 61 $ 225,000 $ 150,000
54 225,000 150,000
48 34,000 3,411
35 30,000 1,596
32 28,000 1,288
26 20,000 686
$ 562,000 $ 306,981
98% to Owners
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