Outline of today’s discussion Who is Peachtree? What is LBP? Case Studies Action Steps.
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Transcript of Outline of today’s discussion Who is Peachtree? What is LBP? Case Studies Action Steps.
Outline of today’s discussion
• Who is Peachtree?• What is LBP?• Case Studies• Action Steps
Who is Peachtree?
• Peachtree LBP• Administrator for LBP Program• Finance company providing premium loan
origination and loan servicing• Independent SSO
Who is Peachtree?
• The Peachtree Family of Companies• Established in 1996• 350+ Employees• Over $4 Billion in Committed Financing• Administer Over $2 Billion in Originated
Assets• IPO March 2006 - LSE: PSF• Private November 2006 – DLJ/Credit
Suisse
What is LBP?
• “Leveraged Bonus Program”• Individually Owned Retirement Plan
• 3 Key Ingredients• After-Tax Dollars from EE• Tax Replacement Loan• Interest Paid by ER
• Emulation of Retirement Arrangements• Focus on 401(k) Plans
Why a 401(k) Plan?
• Large, Untapped Market• 90% of Companies Have a 401(k)• 401(k) Challenges
• 70% Have Testing Issues • Top-Heavy Compliance (HCEs)• Limited Solutions for Employers
Traditional Options
• Remain Top-Heavy• Continuous Testing Concerns• Refund Contributions to HCEs• Spend in other ways for HCEs
• Create a “Safe Harbor” Plan• Permanently Ends Testing Concerns• Non-elective contribution (3%)
Traditional Options
• Is there a better choice?
LBP401(k) Plus
$9000
$6000 (IRS)
Age 59½
Taxable
Age 70½
RMDs
Taxable
$9000 ANY AGE
Tax-Free(if done properly)
Grow
s Tax
Deferred
%
401(k) $15,000
Grow
s Tax
Deferred
%
$6000 LBP®$6000 (IRS)
$15,000LBP401(k) PlusSM
401(k) $15,000
$9000
$6000 (IRS)
Grow
s Tax
Deferred
Age 59½
Taxable
Age 70½
RMDs
Taxable
LBP® $15,000
$9000
$6000 LBP®
Grow
s Tax
Deferred
ANY AGE - Tax-Free
(done properly)
%
%
Permanently Eliminate 401(k) Top Heavy Testing Issues
Payroll: $5.0M
$150K
10 HCEs
$60,000
$144K
401(k) $15,000
$9000
$6000 (IRS)
Grow
s Tax
Deferred
Age 59½
Taxable
Age 70½
RMDs
Taxable
LBP® $15,000
$9000
$6000 LBP®
Grow
s Tax
Deferred
ANY AGE - Tax-Free
(done properly)
%
%
x 10%
$6,000
3% Non-elective
• For the Company:• Existing 401(k) Plan stays in place• Selective Participation• Permits maximum contributions for key executives• Deductible• Permanently eliminates testing issues at a
fraction of the cost
LBP 401(k) PlusSM
• For the Participant:• Unlimited contributions • Tax deferred growth for retirement • Tax-favored income at retirement• Pre- and post-retirement death benefits
LBP 401(k) PlusSM
Case Studies
Case Study: LBP® vs. Safe Harbor
• Business received 2006 Testing from the TPA
• Plan failed HCE/NHCE Testing• $5.4 Million Payroll• 17 HCE’s• Company had used Safe Harbor to resolve testing
issues (3% non-elective match)
Case Study: LBP® vs. Safe Harbor
8.79%
2.18%
2006 Highly Comp Group Avg.
2006 Nonhighly Comp Group Avg.
“corrective action is needed”
Case Study: LBP® vs. Safe Harbor
• Current Safe Harbor Plan: • $164,490 (3% non-elective)
• Instead … utilize LBP 401(k) PlusSM:• $24,475 (year one)
LBP 401(k) PlusSM vs. “Safe Harbor”
Hurdle Rate: This figure is a corporation’s incremental cost of capital or required rate of return. LBP Indirect Savings: This reflects the incremental earnings for the particular year on the cumulative LBP Direct Savings (including prior incremental earnings), based on the company’s Hurdle Rate. LBP 401(k) Plus Cost: Bonus to executives for annual loan interest. In years 1and 6, this figure also includes the bonus to cover the LBP loan commitment fee. Loan interest rate: 12 Month LIBOR plus a fixed 1.95%. LBP Loan Commitment Fee: 2% charged in year 1 and 6 of the total loan amount expected over 5 years.
LBP 401(k) PlusSM vs. “Safe Harbor”
Case Study: 401(k) Enhancement
• Peachtree LBPSM was approached by a company with a voluntary 401(k) plan.• Payroll of $62,000,000• 120 Employees not able to participate at the
maximum deferral amounts• Deferrals have been refunded the last 3 years
because the plan failed the ADP test • “Safe Harbor” was not an option because of cost
Case Study: 401(k) Enhancement
• Original recommendation: • create a “safe harbor” plan• minimum cost: $1,860,000 (3% of payroll) per year
• Instead … provide LBP® : • Cost: $212,640 year one
LBP 401(k) PlusSM vs. “Safe Harbor”
Hurdle Rate: This figure is a corporation’s incremental cost of capital or required rate of return. LBP Indirect Savings: This reflects the incremental earnings for the particular year on the cumulative LBP Direct Savings (including prior incremental earnings), based on the company’s Hurdle Rate. LBP 401(k) Plus Cost: Bonus to executives for annual loan interest. In years 1and 6, this figure also includes the bonus to cover the LBP loan commitment fee. Loan interest rate: 12 Month LIBOR plus a fixed 1.95%. LBP Loan Commitment Fee: 2% charged in year 1 and 6 of the total loan amount expected over 5 years.
LBP 401(k) PlusSM vs. “Safe Harbor”
The LBPSM “30-Day Plan”
• Day 1: Introduction to LBP
• Day 15: LBP Mechanics• Sales Process• Enrollment & Implementation• Administration
• Day 30: Onsite Meetings• Client Presentations• Enrollment
Day 15: LBP Mechanics
Day 15: LBP Mechanics
• Sales Process• Prospecting with LBP• Company Decision Cycle• Company Cost Analysis• Presumptive Closing Steps
Day 15: LBP Mechanics
Day 15: LBP Mechanics
• Sales Process• Prospecting with LBP• Company Decision Cycle• Company Cost Analysis• Presumptive Closing Steps
• Enrollment & Implementation• Steps in Process• Timeline• Peachtree’s Roll
Day 15: LBP Mechanics
• Sales Process• Prospecting with LBP• Company Decision Cycle• Company Cost Analysis• Presumptive Closing Steps
• Enrollment & Implementation• Steps in Process• Timeline• Peachtree’s Roll
• Administration• Technical Structure of LBP• How to work with Peachtree
Action Steps• Identify 5 prospective businesses
• Company has a 401k plan• Utilize Prospecting Call Script
• Have you had Top-Heavy issues in the past or currently?
• Have you refunded 401k contributions back to HCEs?
• Utilizing or considering a “safe harbor” plan• Would you be interested in permanently
eliminating Top-Heavy testing issues?
• Utilize Napkin Pitch and Script• Call LBP for Support