cash balance plans - ken prell - jason disco

B P A S P A R T N E R C O N F E R E N C E 2 0 1 6

CASH BALANCE PLANSJason Disco

CEBS, ERPA, VP, Chief Learning Officer, BPAS Actuarial & Pension

Services

B P A S P A R T N E R C O N F E R E N C E 2 0 1 6

Kenneth M. PrellSenior Sales Consultant, BPAS Actuarial & Pension Services

Discussion Topics To Be Covered

Popularity and importance to advisors

Review best practices for the sales process

How to identify qualified candidates

Design issues and regulatory environment

How to refer and get the successful sale

Cash Balance Stats

• Cash Balance plans grew by 32%, while 401(k) plans grew only 3% according to DOL data from 2013

• CB plans account for 28% of all DB plans, up from 2.9% in 2001

• 89% of all CB plans have fewer than 100 employees

• Assets under management is approaching $1 Trillion

Why are Cash Balance Plans Popular?

• Larger tax deferrals

• Unprepared for retirement– Condenses 20-30 years of savings into 10 for late starters

• Legislative validation

• Better understanding of these plans

The Power of Cash Balance

Why Should You Care?

Defend Your Business

• If you don’t bring this concept to your clients, someone else might and you risk losing the client.

Build Your Business

• Gain AUM by creating new plans

• Opportunity for 401(k) plan, with or without CB sale

Why Should You Care?

More Dollars – Less Work

• One pooled managed account (solutions available)

• Target return and asset allocation based on ICR & IPS

• No ongoing participant meetings/education

• Annual meeting with Owner(s) and actuary

Best Practices

Qualifying potential opportunities

Patience….this is not a short sales process

Developing relationships with accountants

Understanding that start ups are ok- assets accumulate quickly

Knowing when to refer

Qualifying the Best Candidates

Owners have compensation at or near the 401(a)(17) limit *currently $265,000

Owners are currently getting the maximum in their 401(k) profit sharing *currently $53,000 or $59,000

Owners willing and able to save significantly more on an annual basis

Qualifying the Best Candidates

Owners are willing and able to contribute at least 7.5% or more annually on behalf of employees.

Owners are relatively older than their employees.

Business has sufficient and steady cash flow to support funding the combined program at the initial level for the next 3-5 years.

Design Issues

Contribution/Service Credits

• Must be defined

• Flat dollar or percentage of pay

• Owners- same or different

• No annual discretion

• Reasonable level for employees (minimum participation)

Design Issues

Interest Crediting Rate

• Must be defined

• Fixed rate (6% max)

• Treasury or Bond based (e.g. 10-year T-Note)

• Equity or Actual ROR based (principal guarantee)

• ICR is part of the “accrued benefit” and protected

Regulatory Environment

Coverage & Nondiscrimination

Usually combined with DC plan for coverage and nondiscrimination testing

Nondiscrimination testing is demographically sensitive

New comparability “cross-testing on steroids”

IRS is not a fan but pressured to withdraw proposed regulations, fight may not be over pending election results

Regulatory Environment

Minimum Participation

Cannot combine with DC plan to satisfy

• Lesser of 40% of non-excludable employees or 50

• Both employees if only two

• Benefits must be meaningful (facts & circumstances)

Regulatory Environment

Plan Documents

Available as volume submitter in current 6-year cycle

• Ability to rely on IRS opinion letter as d-letter, or

• Ability to submit for d-letter with minor changes

• Equity or return based ICRs do NOT qualify for VS

– D-letter opportunity limited to inception and termination

Refer and Close

The Approach:

Find Clients among Existing Relationships looking to defer more

Ask Owner(s) for a Meeting to Discuss Capabilities

Partnering with BPAS Gather Data – Census, current plan document and contribution

history, corporate structure (C, S, Partnership, etc.)

BPAS prepares proposal for a joint presentation

Meeting with Owner(s) to discuss results

Questions and Plan Contacts

Ken Prell kprell@bpas.com (315) 703-8993

Jason Disco jdisco@bpas.com (315) 703-8916

B P A S P A R T N E R C O N F E R E N C E 2 0 1 6

BPAS PARTNER CONFERENCE 2016

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