Qualified Retirement Plan Concepts JHWizard by alicejenny

VIEWS: 6 PAGES: 77

									                412(i) Fully Insured Defined Benefit

            Catch Up To Your Retirement Future

                                                Jack Trapp, CLU, ChFC, CISP
                                                General Director
                                                Qualified Retirement Plans Group



                                                                                            John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company, Boston,
                               For internal use only. Not for use with public.             MA and securities offered through Signator Investors, Inc., through other broker/dealers appointed
                                                                                                                                                                            Boston, MA 02116
                                                                                                                         by Signator Investors, Inc., 197 Clarendon Street,1 of 77
Qualified pension and profit sharing plans are administered by Berkshire Retirement Services, Pittsfield, MA 01201-8285                                     QRP-1154 PRODUCER 03/2006
       What Is A Qualified Plan?
   Approved by IRS
   Established and Maintained by Employer
   Permanent and Continuing Arrangement
   Cannot Discriminate in Favor of Highly
    Compensated Employees




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         Why A Qualified Plan?
   Contributions Are Deductible
     Tax-driven
     Subsidized by Government




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          Why A Qualified Plan?
   Assets accumulate on a tax-deferred basis
   No current tax to plan participants
   P.S.58 if funded by life insurance




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         Why A Qualified Plan?
   Possible Favorable Tax Treatment at
    Distribution
     10-year Averaging
     Pre-1974; 20% Capital Gain Tax

     IRA Rollover




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           Why A Qualified Plan?
   Assets not subject to claims of creditors
   ERISA and IRC – “anti-alienation” provision
   U.S. Supreme Court (Patterson vs. Shumate,
    1992)
   U.S. Supreme Court (Yates vs. Herndon, 2004)
       Common-law employees?




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         Why A Qualified Plan?
   Helps to Attract Capable Employees
   May Help Reduce Employee Turnover




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        Types of Qualified Plans
   Defined Contribution
   Defined Benefit
   Creative plan design to favor business owner




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       Defined Contribution Plans
   Contributions usually based on percentage of compensation
   Benefits result of:
      Annual contributions
      Years in plan
      Account earnings
   Types:
      Money Purchase
      Profit Sharing
         401(k)
         Age-Weighted
         New Comparability


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    Features of Defined Contribution Plans

   Contribution Limits
      100% of compensation
      $44,000

      Compensation cap - $220,000

   Deduction Limit
        25% of compensation




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    Defined Contribution Prospects
   Small business or professional firm
   Younger business owner (age 40 or younger?)
   Satisfied with $44,000 or less annual
    contribution
   Desires flexible contributions each year




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          Defined Benefit Plans
   Retirement benefit established in advance
   Benefit expressed as monthly income
   Contribution/benefit based on actuarial
    assumptions
   Contribution is amount needed to provide
    benefit



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Features of Defined Benefit Plans
   Contributions are based on present value of
    future benefit
   Annual benefit cannot exceed lesser of $175,000
    (2006), or,
   100% of participants average compensation for
    high three years
   Deduction – amount needed to fund plan


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John Hancock Life Insurance Company




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                          Plan Design


                         Data Gathering
                              Form

                       Qualified Retirement
                           Plan Group

Defined Contribution
Profit Sharing                                 Defined Benefit
Integrated                                     Traditional
Age-Weighted                                   412(i)
New Comparability




                            Plan Illustration
                                                           15 of 77
         Designing Plans That Favor
              Business Owners
Step 1                        Consult

  Step 2                      Design

          Step 3             Illustrate

               Step 4          Install

                    Step 5   Administer
                                          16 of 77
    412(i) Defined Benefit Plan
What it is
 Defined Benefit plan funded under rules of IRC
  Section 412(i)
 Known as “Fully Insured” plan

 Funded exclusively with life insurance and/or
  annuity contracts



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        412(i) Defined Benefit Plan
Requirements
 Benefits are guaranteed by life insurance company

 Contributions based on contract guarantees
     Whole Life – CSV
     Universal Life – 3%

     GPA Plus Fixed Annuity – 3%

   Dividends/excess interest must reduce subsequent
    contributions

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    412(i) Defined Benefit Plans
Advantages
 Higher deductible contributions in early years

 Contributions decrease over time

 Benefits are guaranteed

 Less expensive to maintain

 No annual actuarial certification




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      412(i) Defined Benefit Plans
Advantages (cont.)
 No Schedule B required each year

 Plan is always fully funded
   No overfunding
   No underfunding




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                Why 412(i)?
Something for everyone
 Older business owner – able to save enough for
  comfortable retirement
 CPA – helps provide client with very large tax
  deductions
 Producers – able to sell significant amounts of
  life premium in a non-threatening environment
  – a “concept” sale

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              Why 412(i)?
 Government      Concerns
  Department     of Labor
  IRS

  Congress
    Favorable   QRP Legislation



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               QRP Legislation
   SBA 96
     SIMPLE Plan
     Eliminated family aggregation rules

   TRA 97
     Repealed 15% excess accumulation and distribution
      taxes
     Roth IRA




                                                    23 of 77
                     EGTRRA
   Extensive favorable changes
       Enormous marketing opportunities
   Effective January 1, 2002
   Technical Release




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                    EGTRRA
   Defined Benefit Limits
     $160,000 ($175,000 in 2006)
     Compensation limit increased to $200,000

      ($220,000 in 2006)




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                    EGTRRA
   Small Business Incentives
     100 employees or less
     Tax credit of 50% ($500 maximum)

     Start-up and administration expenses

     First three years of plan




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                   Why 412(i)?
   76 Million Baby Boomers
     Age 60 – 1/1/06
     Main Priority – Saving for retirement

     Savings timeframe -- Abbreviated




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                   Why 412(i)?
   Defined Contribution Plan Limitations
     Maximum annual contribution - $44,000
     Insufficient amount for older business owners

     412(i) contribution exceeds defined contribution
      limit at older ages
     Only plan that allows older business owners to save
      for comfortable retirement



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                   Why 412(i)?
Tax Advantages
 Largest tax deduction allowed by law

 Older the age of participant, larger the deduction

 Assets grow on tax-deferred basis




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                Why 412(i)?
Volatile Stock markets and 401(k) plans
 Stock prices advance and decline

 Declining market returns

 Shriveling retirement assets




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                Why 412(i)?
Retirement Benefits are Guaranteed
 Based on John Hancock contract guarantees
 Zero market risk
 Conservative element of investment portfolio




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          Life Insurance in a 412(i)
   Three solutions for price of one
     Saving for retirement
     Need for life insurance

     QRP self-completion

   Premiums tax-deductible
       Discounted dollars




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        Life Insurance in a 412(i)
   Advantages
     Allows premiums to be paid on tax-deductible basis
     Provides immediate financial protection for
      participant’s family in event of pre-retirement death
     Death proceeds in excess of cash value are received
      income tax-free to named beneficiary




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               Death Proceeds
   Example
       $1,000,000   face amount
         $100,000   CSV
         $900,000   Income tax free
         $100,000   Taxable

      - Spousal IRA Rollover



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      Life Insurance in a 412(i) Plan
   Adds large pre-retirement income tax-free death
    benefit
   Does not increase or decrease benefit at
    retirement
   Increases the deductible plan contribution
   Is limited by IRS Incidental Tests



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           IRS Incidental Tests
   Primary purpose of QRP: provide retirement
    benefit
   Only portion of QRP contribution can be
    funded by life insurance
   Remainder funded by annuities




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                                                                    Incidental Test
                   Defined Benefit General Rule
                        Life insurance face amount
                        100 x projected monthly benefit




                                 Monthly benefit                                                      $10,000
                                 Life insurance                                                    $1,000,000


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These figures are for illustrative purposes only and are based on a hypothetical rate of return.
                  Incidental Test
   Defined Benefit Alternative Rule
     Revenue Ruling 74-307
     Similar to Defined Contribution 25%/50% tests

     Based on life insurance premium
         66 2/3% of contribution (WL)
         33 1/3% of contribution (UL)




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                                            Revenue Ruling 74-307
           Example

                   Annual Contribution                                                            $100,000
                   Whole Life Premium                                                             $66,600
                   Universal Life Premium                                                         $33,300




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These figures are for illustrative purposes only and are based on a hypothetical rate of return.
  412(i) Case Study
Insurance Funding Options
        AllAnnuity
        100 x life insurance
        30% life insurance
        60% life insurance



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        412(i) Case Study – Insurance Funding Options*
                                                     Birth                                         Employment                       Actual
                  Sex                                Date                                             Date                       Compensation
                  M                               02/04/1951                                       01/01/1990                      220,000

                                    All Annuity                                                                  100 x
                                                  Insurance                                                  Monthly Benefit
             Monthly Benefit Lump Sum Needed                                                                       Insurance
                                                                                                            Death            Premium
             at Retirement     at Retirement (1)
                                                                                                           Benefit           Allocation
                14,583            3,156,494
                                                                                                          1,458,300           50,356


         Death                      Insurance Investment Fund
                                                                                                           Fund                               Total
         Benefit                    Premium       Allocation
                                                                                                         Allocation                        Contribution
             0                         0.00        301,656
                                                                                                          277,726                            328,082

                                                                                                                                                       41 of 77
These figures are for illustrative purposes only and are based on a hypothetical rate of return.          * Underwriting Assumptions: Standard Non-Tobacco
        412(i) Case Study – Insurance Funding Options*
                                                     Birth                                         Employment                         Actual
                  Sex                                Date                                             Date                         Compensation
                  M                               02/04/1951                                       01/01/1990                        220,000

                                30%                                                                                 60%
                             UL Premium                                                                         WL Premium
                          Insurance                                                                         Death Insurance Premium
                   Death           Premium
                                                                                                           Benefit          Allocation
                  Benefit         Allocation
                                                                                                          5,914,804          180,993
                 2,620,021          90,496


                                                                                                            Fund                                Total
                  Fund                                         Total
                                                                                                          Allocation                         Contribution
                Allocation                                  Contribution
                                                                                                           197,219                             378,212
                 258,501                                      348,997

                                                                                                                                                           42 of 77
These figures are for illustrative purposes only and are based on a hypothetical rate of return.        * Underwriting Assumptions: Standard Non-Tobacco
                  PS-58 Cost
   Pension Series Letter #58
   Current economic benefit of life insurance
    coverage
   Includable as income
   Face amount – CSV x table/rates
   IRS Table or insurer’s 1-yr term rates
   IRS Form 1099-R

                                                 43 of 77
             IRS Notice 2002-8
   Valuing Economic Benefit
   After December 31, 2001:
     IRS Table 2001
     Insurer’s OYT Rates

   “Pending further guidance”




                                 44 of 77
             PS-58 Cost


   Policy Face Value      $100,000
   Cash surrender value   $30,000
   Amount at risk         $70,000
   Hancock OYT (age 45)   $.59 per $1000
   Reportable income      $41



                                       45 of 77
                    PS-58 Cost
   Cost recovery at distribution
     Table PS-58 recovered tax-free if policy is
      distributed to employee
     Policy surrendered to buy annuity – no recovery

     Contract annuitized – cost recovery

     Policy surrendered to pay benefit – no recovery




                                                        46 of 77
    Life Insurance “Exit Strategies”
   Surrender contract, pay taxes
   Roll assets to IRA
   Annuitize – guaranteed lifetime income
   Distribute contract in-kind to participant
     Absolute assignment
     1099-R

     Make plan whole

     Establish ILIT, purchase from plan


                                                 47 of 77
     412(i) Defined Benefit Plans
Prospect
 Small business or professional firm

 Older business owner (over age 40?)

 Looking for large contributions/deductions in early
  years
 Looking for smaller contributions as approach
  retirement
 Desires guaranteed retirement income

 Has stable cash flow

                                                        48 of 77
    Sample Case
(Single Life/Business Owner Case)




                                    49 of 77
             412(i) Case Study
   Business Owner
     S Corp
     No employees

     Age 58

     $220,000 compensation

     Maximum contribution/deduction




                                       50 of 77
             412(i) Case Study
412(i) Contribution/Deduction
 Life Insurance amount            $1,166,700
 Life Insurance premium              $46,873
 Annuity premium                    $298,849
 Total contribution                 $345,722
 Total deduction                    $345,722
 Contribution reduces each year
 Annual administration fee             $700



                                          51 of 77
          412(i) Case Study
Retirement at Age 65
 Guaranteed Monthly Income      $11,667
 Lump Sum                    $2,525,325




                                           52 of 77
             Defined Benefit vs. 412(i)
                          Defined Benefit    412(i)
Deductible contribution                      Higher
Benefit guarantees              No            Yes
Admin. Expense                               Lower
Contribution Level            Increases     Decreases
Design Options                  Yes            No
Investment Options              Yes            No
Enrolled Actuary                Yes            No
Over/Underfunded                Yes            No




                                                        53 of 77
  Business Owner Tendencies



 DB                      412(i)


Age 40                   Age 65




                              54 of 77
        Hancock/CPA Alliances
   Key to success
   Enjoy a high degree of client trust
   Very knowledgeable about each client’s financial
    situation




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        Hancock/CPA Alliances
   Relationship partners
   Training and support
   Professional financial solutions
   Complete technical resource on all QRP issues




                                               56 of 77
    CPA Qualified Plan Considerations
   Plan establishment
   Plan funding
   Pertinent client data




                                   57 of 77
             Plan Establishment
   Last Day of Tax Year
   December 31st
     Sole proprietor
     Partnership

     S-Corporation

     LLC

   Plan Installation Form/$650 Fee


                                      58 of 77
                  Plan Funding
   Filing of tax return, plus extensions
     August 15?
     October 15?

     September 15? (Minimum Funding Standard)




                                                 59 of 77
             Pertinent Client Data
   John Hancock Data-Gathering Form
       Do they own or control other businesses?
          Controlled Groups of Businesses
          Affiliated Service Groups

     Do they lease employees?
     Are there union employees?

     Do they have an existing QRP?
          If so, what type of plan?
          Contributions made for current year?


                                                   60 of 77
         Current Qualified Plan?
   IRC 415(e) repealed – can contribute to both
    defined benefit and defined contribution plans
   IRC 404(a)(7) – cannot deduct both defined
    benefit and defined contribution plans
   IRC 404(a)(7) deduction limits – greater of:
     25% of total plan compensation, or
     Defined benefit contribution




                                                61 of 77
            Current Qualified Plan?
   Profit Sharing
      Contribution in 2006?          2007 412(i)
      No contribution in 2006?       2006 412(i)

   401(k) Profit Sharing
      Wage deferral only             2006 412(i)
      Company match                  2007 412(i)

   SEP
      Contribution in 2006?          2007 412(i)
      No contribution in 2006?       2006 412(i)

   Money Purchase
      Contribution in 2006?          2007 412(i)
      No contribution in 2006?       2007 412(i)

   SIMPLE IRA
      Maintain SIMPLE IRA in 2006?   2007 412(i)   62 of 77
         Eligibility Requirements
   Age                  -   21
   Years of Service     -   2 Years
   Seasonal/Part-time   -   1,000 Hours
   Union                -   Good Faith Bargaining
                             About Pension Benefits




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                  Top-Heavy Plans
   Key Employees
       5% Owner
       More than $150,000, 1% Owner
       More than $140,000 Officer
   More Than 60%
   Requirements
       Accelerated Vesting Schedules
       Minimum Contributions
       Minimum Benefits

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                      Plan Vesting
    Top Heavy Schedules
    Schedule 1              Schedule 2                    Schedule 3
 (100% Immediate)            (3 Year)                  (6 Year Graded)

                      Years of                   Years of
                      Service       Nonforf. %   Service        Nonforf. %
100% Nonforfeitable     1                 0%       1                     0%
                        2                 0%       2                  20%
                        3 or More        100%      3                  40%
                                                   4                  60%
                                                   5                  80%
                                                   6 or More        100%



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                           John Hancock Advantages
               Brand name
                        More than 140 years of financial strength and stability
                        One of the “Top 100 Brands of the Century” – NY Times*
               John Hancock Life Insurance Company is rated among the top life insurance
                companies for financial strength and stability as judged by the major rating
                agencies**
               High-quality insurance/annuity funding vehicles

     Fitch Rating                                      Standard & Poor’s                                  A.M. Best                                  Moody’s
     Very strong capacity to meet                      Very strong financial security                     Superior ability to meet                   Excellent in financial
     policyholder and contract                         characteristics.                                   ongoing obligations to                     strength.
     obligations.                                                                                         policyholders.
     AA+                                               AA+                                                A++                                        Aa2
     (2nd of 22 categories)                            (2nd of 21 categories)                             (1st of 16 categories)                     (3rd of 21
     (as of 03/09/06)                                  (as of 03/09/06)                                   (as of 03/09/06)                           categories)
                                                                                                                                                     (as of 03/09/06)


*Source: (November, 2004)
**Insurance ratings, which are current as of March, 2006, and subject to change, apply to John Hancock Life Insurance Company (U.S.A.) as a measure of
the company’s ability to honor the death benefit and life annuitization guarantees, but not specifically to its products, the performance of these products, the
value of any investment in these products upon withdrawals, or to individual securities held in any portfolio. Insurance ratings do not apply to the safety and    66 of 77
performance of separate accounts.
        John Hancock Advantages
   Dedicated Professional 412(i)/QRP Team
    provides at no cost:
     Custom plan design services
     Customized plan illustrations

     CPA/Advisor conference calls

     Complete technical resources on all QRPs




                                                 67 of 77
       John Hancock Advantages
   Full producer commissions
   Turnkey Plan Installation and Servicing
   Very competitive fee structure




                                              68 of 77
    Berkshire Retirement Services
   QRP administration since 1950’s
   Life insurance/QRP specialists
   Focus on small business/professional market




                                                  69 of 77
    Berkshire Retirement Services
   Simplified plan installation process
   Turnkey plan services
   Competitive fee structure
   Annual plan review




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         412(i) Support Materials
   412(i)/QRP Web site – www.jhsalesnet.com
   Training Presentations
   CPA Seminars
   Small Business Public Seminar
   Marketing Materials and brochures
   412(i) Sales Process
   Data Gathering Forms
   Custom Plan Design Services
   Cutting-edge Plan Illustrations
   Complete Installation and Servicing

                                               71 of 77
    Qualified Retirement Plans Group
              New for 2005
   Large-Case Defined Benefit Program
   Defined Benefit Carve-Out Program




                                         72 of 77
Large-Case Defined Benefit Program
   Ultraflex Group Annuity Contract
     Over 100 investment options
     Brand name asset managers
     Broad range of asset classes




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Large-Case Defined Benefit Program (cont.)

   Powerhouse portfolio of Hancock life
    insurance products
     Universal Life
     Variable Universal Life
     Corporate Owned Life
     Whole Life


   Blaze SSI Multiplier illustration system

   Berkshire Retirement Services
                                               74 of 77
Defined Benefit Carve-Out Program
   Multiple plan design feature
     412(i)/Defined Benefit plan, and
     Profit Sharing/401(k) Profit Sharing plan



   Advantages to business owner
     Minimizes benefit cost
     Maximizes owner benefit

     Maximizes tax deduction


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Defined Benefit Carve-Out Program (cont.)
    Business Prospect
      More than 10 employees
      More than one Highly Compensated Employee
      Large tax deduction
      Favor business owner


    National Pension Associates
      Hancock life and annuity products
      Plan design and nondiscrimination testing
      Blaze SSI illustrations
      Plan installation and administration
                                                   76 of 77
                                                    Thank You!
Guaranteed product features are dependent upon minimum premium requirements and the claims-paying ability of The John Hancock Insurance Company (U.S.A.).

Comments on taxation are based on John Hancock’s understanding of current tax law, which is subject to change. Please consult your tax advisor for guidelines specific to your
situation.

This material is for informational purposes only. Although many of the topics presented may also involve tax, legal accounting or other issues, neither John Hancock nor any of
its agents, employees, or registered representatives are in the business of offering such advice. The above material was not intended or written to be used, and it cannot be used,
for the purpose of avoiding any penalty that may be imposed by the Internal Revenue Service. The above material may have been written to support the promotion or marketing
of the transactions or topics addressed by the written material. Individuals interested in these topics should consult with their own professional advisors to examine legal, tax,
accounting or financial planning aspects of these topics.


John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company,
Boston, MA and securities offered through Signator Investors, Inc., through other broker/dealers
appointed by Signator Investors, Inc., 197 Clarendon Street, Boston, MA 02116

Qualified pension and profit sharing plans are administered by Berkshire Retirement Services, Pittsfield, MA 01201-8285


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MLI0309065913

								
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