CASH BALANCE PLAN WORKSHOP

“THE RETIREMENT PLAN OF THE FUTURE”

Presented by: Brad Wexler, MBA,QKA,QPA, QPFCThe Tycor CompaniesNovemeber 28, 2012(610) 251-0670bwexler@tycorbenefit.com

Qualified Retirement Plans

• Defined Contribution Plans– 401(k) Plans– Profit Sharing Plans

• Defined Benefit Plans– Traditional Defined Benefit Plans– Cash Balance Plans

401(k) Plans

• Most popular• Has limitations for the highly compensated

employee/owner• Maximum deferral for 2012=$17,000

($22,500 if age 50 or older)• Maximum all contributions for

2012=$50,000/$55,500 (if 50 or older)

Solution

• Add a “Cash Balance Plan”• Can be used as an additional retirement plan

option• For companies with high income earners • For companies with consistent profits.

Cash Balance Plan

• A Defined Benefit Plan • Has features that resemble a 401(k) Plan• Participants have hypothetical account

balances• Account increases by employer contribution

and guaranteed interest rate (2.98% in 2012)• Not dependent on plan’s investment

performance

Key Features• Combines maximum benefit under a Defined

Benefit Plan with some flexibility/portability of 401(k)/profit sharing plan

• Individual Hypothetical Account Balance for participant

• Funded entirely by employer contributions• Interest rate guaranteed• Trustee-directed pooled investment account• Benefits are portable

Advantages

• Larger contributions/tax deductions• Acceleration of retirement savings for older

employees• Easy for participant to understand since benefits are

account balances• More predictable cost than traditional Defined Benefit

Plan• Competitive Advantage in Recruiting/Retaining key

executives• Asset Protection

2012 Combined Contributions Limits(salary > $250k)

AGE 401(k) Profit Sharing Cash Balance Total * Tax Savings

60-65 $55,500 $242.451 $297,951 $119,180

55-59 $55,500 $175,672 $231,172 $92,469

50-54 $55,500 $127,386 $182,886 $73,154

45-49 $50,000 $92,447 $142,447 $56,979

40-44 $50,000 $64,922 $114,922 $45,969

35-39 $50,000 $46,838 $96,838 $38,735

30-34 $50,000 $33,834 $83,834 $33,534

*assuming 40% state/federal taxes

Case Study

• Joe Smith, age 53, is a business owner of a distribution company and is having a good year.

• He has 4 employees.• He wants to contribute as much as possible

to a retirement plan on behalf of himself and wants to reduce taxes.

Case Study, continued

Salary 401(k) / PS % of Pay

Joe $250,000 $55,500 22%

Employee 1 $30,000 $1,500 5%

Employee 2 $30,000 $1,500 5%

Employee 3 $30,000 $1,500 5%

Employee 4 $30,000 $1,500 5%

Start with a 401(k) comparability profit sharing plan

It costs Joe $6,000 to save $55,500

More????

• How can we make the plan more valuable for Joe?– Increase Joe’s contribution

• Joe can have both a – 401(k) Profit Sharing Plan

And a– Cash Balance Plan

It Now Looks Like This!!!

Age Salary 401(k) /PS Cash Balance Total

Joe 53 $250,000 $55,500 $127,386 $182,886

Employee 1 25 $30,000 $1,500 $2,400 $3,900

Employee 2 30 $30,000 $1,500 $2,400 $3,900

Employee 3 33 $30,000 $1,500 $2,400 $3,900

Employee 4 40 $30,000 $1,500 $2,400 $3,900

Totals $60,500 $133,801 $198,486

Over 92% of the contribution goes to Joe

Investments • Assets are pooled and invested by trustee• If investment earnings exceed guaranteed

rate-reduces future employer contribution• If investment earnings are less than

guaranteed rate- must make up difference over seven years

FAQ

• Can Contributions change?• Is Funding Status an issue?• Must everyone participate equally?• Is it subject to IRS nondiscrimination

testing?• How do design/administration costs compare

with 401(k) Plans

Most Common Cash Balance Candidates

• Medical groups, Law firms, other professional firms

• Highly profitable companies• Principals / senior executives earning >

$250,000 (alternative to non-qualified plans)• Company willing to make employer

contributions (5% - 10% + of pay)

Where to Go From Here

• 2012 maybe a great opportunity to get a jump start on saving for your retirement and reducing your taxes.

• Any plan established by 12/31/2012 can retroactively be effective 1/1/2012.

• Retirement will not happen without proper planning.

• Tycor can plan and do analysis for you.

• Any Questions?