Employee Profit Sharing Plans

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					   The Truths and Myths of
   Retirement Compensation Arrangements
   and Individual Pension Plans




Presentation to
ESTATE PLANNING COUNCIL OF ABBOTSFORD
October 19, 2005
Retirement Compensation
Arrangement


              (RCA)
  Gordon B. Lang & Associates Inc.
      Actuaries & Consultants
FOUNDED                 JUNE 1995

PRESIDENT & C.E.O.      GORDON B. LANG

                        FELLOW OF THE FACULTY OF
                        ACTUARIES IN SCOTLAND (1967)
                        FELLOW OF THE CANADIAN
                        INSTITUTE OF ACTUARIES (1967)
                        ASSOCIATE OF THE SOCIETY OF
                        ACTUARIES (1976)
                        FELLOW OF THE CONFERENCE OF
                        CONSULTING ACTUARIES (2005)

                 Gordon B. Lang & Associates Inc.
 Gordon B. Lang & Associates Inc.
     Actuaries & Consultants
OFFICES   VANCOUVER,PRINCE GEORGE,
          CALGARY, EDMONTON,
          LETHBRIDGE, TORONTO,
          OTTAWA, MONTREAL
          AND HALIFAX

EMPLOYEES 26



           Gordon B. Lang & Associates Inc.
      Gordon B. Lang & Associates Inc.
          Actuaries & Consultants

SPECIALIZATION PRODUCTS DEVELOPED FOR:

   PROFESSIONALS WITH PROFESSIONAL
    CORPORATIONS

   OWNERS OF PRIVATE COMPANIES

   SENIOR EXECUTIVES OF LARGER PRIVATE &
    PUBLIC COMPANIES

                 Gordon B. Lang & Associates Inc.
Gordon B. Lang & Associates Inc.
    Actuaries & Consultants
SPECIALITY PRODUCTS

-EMPLOYEE PROFIT SHARING PLAN (EPSP)
-HEALTH & WELFARE TRUST (HAWT)
-INDIVIDUAL PENSION PLAN (IPP)
-RETIREMENT COMPENSATION ARRANGEMENT (RCA)




             Gordon B. Lang & Associates Inc.
RCA Overview

   Tax deferment vehicle
   Defined in the Income Tax Act
   Provides asset protection
   For Owners and their Families, Key
    Employees, Executives and
    Professionals with PC’s
   Most suitable for high income earners
              Gordon B. Lang & Associates Inc.
RCA - Overview

   Defined in Section 248(1) of Income
    Tax Act (Canada)
   Employer & Employee contributions tax
    deductible
   Benefits taxable when received
   50% of contribution remitted to CRA
       Refundable Tax Account (RTA)

                Gordon B. Lang & Associates Inc.
RCA - Overview
   Each Year 50% of Net Amount of:
       Taxable investment income
       Less expenses
       Less benefit payments
    Remitted or Refunded
   Excludes Unrealized Capital Gains
   Excludes Investment Income from
    Qualified Life Insurance

                Gordon B. Lang & Associates Inc.
RCA - Details
   Contributions
   Employer
   Employee Contributions
    - Required by the Company
    - Not Greater then Employer contribution for
      calendar year
    - Source contributions not subject to withholdings
    - May be made by cheque to Employer
    - May be made from Bonus -
      carryback deductions to Employer.
    - Included in calculation of Eligible Earnings Base.

                 Gordon B. Lang & Associates Inc.
RCA - Details
   Advantage of Holding Insurance Policy Assets
    - Split dollar Life Insurance Policy Premiums &
      Benefits
    - Company owns Pure Life Insurance
    - Trust owns Savings Portion
    - On death of Insured No RTA transfer of
      proceeds
    - Unbalanced RCA available to Survivors
    - New Policy then purchased on Surviving
      Member(s)

                 Gordon B. Lang & Associates Inc.
RCA - Details
   Add Spouse and Adult Children
    - Increases Deductibility
    - Permits Income Splitting
    - No requirement for owner to take benefits
    - Spouse would take over benefit rights
      on death
    - Benefits may be passed down to Children
      (even Grandchildren)
    - No 21 year Trust Rule

                Gordon B. Lang & Associates Inc.
RCA Allowable Contributions

   Contributions producing Annual
    Retirement Income up to 2% of Best
    Three Years Average Earnings per year
    of Eligible Service
   Actuarial Certificate required for CRA
    reasonability test



              Gordon B. Lang & Associates Inc.
RCA Allowable Contributions
   Company Owner aged 60
   15 years since Company Established
   Best 3 years Average Earnings $500,000
   Retirement Age 65
   Maximum 2005 RCA Contribution $3,117,900
   Additional Deductibility
     2006           $205,700
     2007            213,400
     2008            221,400
     2009            229,700
    Total over 5 years $3,998,100


                 Gordon B. Lang & Associates Inc.
RCA – Closely Held Companies
   Objectives:
       Defer taxes into lower rates
       Protect Assets from Creditors through
        trusteed arrangements
       Future Company growth funded through
        leveraging




                Gordon B. Lang & Associates Inc.
RCA - Closely Held Companies
   For Owners, Professionals & Key Employees
   Employer sets Contributions
   Suitable Investments:
       Universal Life Insurance Policies
       ETF’s or Indexed Funds
       Equity Funds
            Canadian & Foreign Blue Chip Stocks
            Buy & Hold Management Style – Low or No distribution



                      Gordon B. Lang & Associates Inc.
RCA – Establishment

   Board Resolutions
   Trust Deed & Plan Text
   Trustees
       3 individuals (1 separate from Employer)
       Trust Company
   CRA Registration


                 Gordon B. Lang & Associates Inc.
RCA – Establishment

   RCA Account Number
   Annual Trustee Return
       Part XI.3 Return
       Prepared by Accountant or GBL Inc.
   T737 Return For Contributions




                Gordon B. Lang & Associates Inc.
RCA - Tax Deferment into Lower Rates
   Beneficiary Can:
       Move to lower-taxed province
       Defer income when tax rates are declining
       Leave Canada -benefits taxed pursuant to Tax
        Treaty
            USA – 15% Installment Payments, 25% Lump Sum
             Canadian Withholding credited against U.S. Federal Tax.
             U.S. Taxes at Marginal Tax Rates
            Ireland – 15% for installment payments
            Australia and New Zealand – 15% for both lump sums
             and installment payments
            Most others Treaties – 15% on installment payments and
             25% on lump sums

                      Gordon B. Lang & Associates Inc.
U.S./Canada Tax Treaty Implications

                 Tax Treatment

   Employer Contributions
       In U.S. -are included in income of
        Employee and are deductible to Company
       In Canada - there is no employee income
        inclusion


                Gordon B. Lang & Associates Inc.
U.S./Canada Tax Treaty Implications

   Employee Contributions
       In U.S. - are included in income of Employee
       In Canada - are deductible by Employee




                  Gordon B. Lang & Associates Inc.
U.S./Canada Tax Treaty Implications

   RCA Investment Income
       U.S. – Unless IRS forms completed, is included in
        income of Employee
       Canada - no Employee income inclusion




                  Gordon B. Lang & Associates Inc.
U.S./Canada Tax Treaty Implications

   Taxation of Benefits if Employee U.S.
    Resident no longer subject to
    Canadian Tax
       In U.S. - no tax on benefits. Canadian Withholding
        Tax reduces U.S. Federal Tax
       In Canada - 15% Withholding Tax on installment
        payments, 25% on lump sum payments



                  Gordon B. Lang & Associates Inc.
U.S./Canada Tax Treaty Implications
               Net Impact on RCA

   Canadian Income Tax reduced when Resident
    of Canada
   Reduced Tax Payable on RCA Proceeds if U.S.
    Resident




               Gordon B. Lang & Associates Inc.
The Leveraged RCA – Example
   XYZ Corporation establishes an RCA with a
    first contribution of $ 1.1 million.
   $550,000 invested by Trustees
   $550,000 in Refundable Tax account (RTA)
   Financial Institution lends $1,000,000 to
    Investco. XYZ Corporation takes out
    insurance on Mr. Smith for amount of the
    loan.

               Gordon B. Lang & Associates Inc.
    The Leveraged RCA Example
          XYZ Corporation

TAX SAVINGS ON RCA
CONTRIBUTION OF (35.6%)                        $391,600
less RCA CONTRIBUTION FROM
P.C.                                           (100,000)
less Expenses                                   (40,000)
NET ADDITIONAL AVAILABLE
FUNDS FOR INVESTMENT                           $251,600




            Gordon B. Lang & Associates Inc.
RCA Lenders
   Bank of Montreal
   Royal Bank
   TD Bank
   CIBC
   National Bank
   HSBC
   Manulife Bank
   AIG Finance
               Gordon B. Lang & Associates Inc.
Leveraged RCA

   GBL & Associates Inc. has established
    strategic relationships with certain law
    firms to provide comprehensive
    actuarial and legal documentation to
    establish this Leveraged RCA structure.




              Gordon B. Lang & Associates Inc.
RCA – Summary


   Tax Deferral Vehicle
   Greater security through Trusteed
    Arrangement
   For Owners, Key Employees, Executives
    and Professionals


             Gordon B. Lang & Associates Inc.
Retirement Compensation
Arrangement


              (RCA)
Individual Pension Plan



    Gordon B. Lang & Associates Inc.
Outline

   Individual Pension Plan (IPP)
   Retirement Compensation Arrangement
    (RCA)
   Questions




             Gordon B. Lang & Associates Inc.
IPP Features

   Registered Pension Plan
   Limited to Participant, Spouse and
    adult children
   Same contribution limits as Defined
    Benefit Registered Pension Plans
   Designed to maximize contributions
    permitted by CRA
              Gordon B. Lang & Associates Inc.
IPP Contributions

   Contributions by employer (and
    employee) tax deductible
   Benefits taxed when received
   Investment income tax exempt




              Gordon B. Lang & Associates Inc.
           IPP Maximum Allowable
                Contributions
             Post February 2005 Federal Budget


Amounts certified by actuary to fund defined benefits*
Samples of maximum year 2005 tax deductibility:
      Age in 2005            Past Service from          Current Service
                                 1.1.91**
          35                      $20,700                   $16,300
          40                      $42,300                   $17,900
          45                      $66,100                   $19,700
          50                      $92,200                   $21,600
          55                     $120,900                   $23,700
          60                     $152,400                   $26,100
          65                     $192,400                   $29,000
* Based on Maximum Earnings updated to 2006 of $100,000 per annum
** Subject to RRSP transfer of $199,200
                               March 2005
    IPP – Closely Held Companies

 Greater tax deductible contributions than
  RRSP’s
 More funding for retirement

 Creditor protection

 Multiple plans for individuals with T4 income

  from several unrelated sources
 Investments fairly similar to those for RRSP’s



              Gordon B. Lang & Associates Inc.
              IPP Advantages

   Greater tax deductible contributions
   Creditor protection
   Expenses tax deductible
   Plan surplus belongs to Participants
   Investment returns balanced by
    contributions


              Gordon B. Lang & Associates Inc.
IPP Advantages

   No need to wind up plan on retirement
   Spouse and adult children may be
    Participants
   Additional lump sum contributions available
    immediately before retirement
       CPP/OAS Bridging benefit to age 65
       Unreduced pension @ 60 with 3%/yr reduction to
        age 50
       Full CPI indexing


                  Gordon B. Lang & Associates Inc.
IPP – Requirements
   Trust Deed and Plan Text
   Trustees
       3 individuals (1 separate from Company
        which must be GBL and Associates)
   Actuarial Valuation Report
   Directors’ Resolutions
       Establishing Plan
       Appointing Investment Manager

                Gordon B. Lang & Associates Inc.
IPP Requirements
   Investment Agreement
   Investment Objectives Document
   Registration with Province & CRA
   Connected Persons Information Return
   Locking-in Agreement for RRSP
    Qualifying Transfer
   Past Service Pension Adjustment
    Certification
             Gordon B. Lang & Associates Inc.
Individual Pension Plan (IPP)




          Gordon B. Lang & Associates Inc.