Download - Cash Balance Plans - Ken Prell - Jason Disco
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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
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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
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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
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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
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The Power of Cash Balance
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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
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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
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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
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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
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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.
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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)
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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
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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
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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)
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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
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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
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Questions and Plan Contacts
Ken Prell [email protected] (315) 703-8993
Jason Disco [email protected] (315) 703-8916
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