QuarterlyAfter strong first-quarter gains in the stock markets, it was mostly downhill from there. Following April’s year-to-date highs, when the Russell 2000 hit its highest level on record, week after week of declines battered all four U.S. indices. However, a rally in June’s final week left the Dow industrials the only one of the four major indices with a gain for the quarter, taking the lead from the small caps for 2011’s first half.

After breaking below 1,300, the S&P 500 barely managed to claw its way back to that level just before crossing the quarter’s finish

line, though it was negative for the quarter. The Russell 2000 suffered the most as investors preferred the reassurance of defensive sectors and large caps, while the NASDAQ escaped with barely a scratch. Meanwhile, saddled with Greece’s woes, the Global Dow continued to stagger.

Greece’s debt problems caused investors to decide that despite the United States’ budgetary woes, Treasuries didn’t look so bad after all. As demand pushed prices up, yields on the 10-year fell below 3% before rebounding a bit.

B E A C O N H I L L I N V E S T M E N T A D V I S O RY

Summer 2011

84 South Fourth Street, Columbus, OH 43215 • (614) 469-4685 • info@BHadvisory.com • www.beaconhilladvisory.com

This Just In — Ohio Estate Tax Update

Governor Kasich signed into law the State budget which repealed the Ohio estate tax beginning January 1, 2013. Though you will no longer be required to pay Ohio estate taxes after 2012, it is necessary to continue reviewing and monitoring your estate plan. Taxes are only one aspect of comprehensive estate planning to ensure your goals and objectives are satisfied.

A Review of the Markets

Market/Index 2010 Close As of 3/31 End of Quarter Quarterly Change YTD Change

DJIA 11577.51 12319.73 12414.34 .77% 7.23%

NASDAQ 2652.87 2781.07 2773.52 -.27% 4.55%

S&P 500 1257.64 1325.83 1320.64 -.39% 5.01%

Russell 2000 783.65 843.55 827.43 -1.91% 5.59%

Global Dow 2087.44 2186.41 2134.29 -2.38% 2.24%

Fed. Funds .25% .25% .25% 0 bps 0 bps

10-year Treasuries 3.30% 3.47% 3.18% -29 bps -12 bps

Ok, so it’s not technically a 401(k) that you can defer income into, but many are surprised by just how much can be deferred into retirement plans by using advanced planning.

“I know I need to create retirement savings, but I’m starting late and contributing only $22,000 per year into my 401(k)... that isn’t going to cut it.” Mr. Johnson complained to us. Even the Profit Sharing component, which increased savings to $54,000, wasn’t adequate.

Enter the Cash Balance Plan

Upon further review of his company’s employees, an often overlooked plan made perfect sense for him. The design allowed him to defer an additional $150k per year and also grant an additional $35K to a highly valued employee, which he used instead of a raise. In total, he had to give an additional $20K to other employees. All in all, Mr. Johnson and his valued employee received 90% of the benefits of the plan. If Mr. Johnson had paid

taxes on just his portion alone, he would have had a tax expenditure of approximately $60k!

What is a Cash Balance Plan?

A cash balance plan is technically a defined benefit plan; however, it looks and feels like a defined contribution plan.

Summer 2011

• The financial markets heaved a sigh of relief as the Greek parliament agreed to implement a €28 billion, five-year program of spending cuts, tax increases, and asset sales. European leaders said the measures were a condition for receipt of the next slice of existing aid before key bond payments in July. Despite differences over whether and how to let bondholders such as banks suffer losses on Greek debt, the country’s European colleagues said Greece would likely receive a new aid package.

• U.S. economic growth continued, but at a much slower pace. The Bureau of Economic Analysis said gross domestic product (GDP) rose by 1.9% compared to the previous quarter’s 3.1%.

• Consumer inflation over the last year hit 3.6%, though the Bureau

of Labor Statistics said volatile food and energy costs were responsible for more than half of that. However, oil prices fell back to roughly $90 a barrel, helped by the release of some of the world’s strategic reserves in the wake of ongoing conflict in oil-rich Libya.

• The nation maxed out its credit card as it went over the current $14.3 trillion debt ceiling in May. Treasury officials warned that accounting measures could postpone the day of reckoning until August 2, but that after that date the Treasury will face the question of which bills go unpaid. As the clock kept ticking, congressional leaders argued over whether spending cuts, tax increases, or some combination of the two would be required before raising the limit on how much the Treasury can borrow to pay existing obligations.

• The Federal Reserve’s bond-buying program, nicknamed QE2, came to an end on schedule. Fed Chairman Ben Bernanke said the Fed will continue to reinvest the proceeds of existing holdings, and that those efforts will end before the Fed raises interest rates. It also forecast slower economic growth (2.7%-2.9%) for the rest of the year, but said some of the causes of the sluggishness should be temporary.

• Unemployment rose slightly to just over 9% during the quarter, consumers were slower to spend, housing continued to struggle, and retail sales were hurt by supply-chain problems in the auto industry caused by the spring’s Japanese disasters.

Quarterly Economic Perspective

Source: Forefield Inc.

401(k) Corner - Contribute $260,000 every year!

w w w. b e a c o n h i l l a d v i s o r y. c o m

(Daniel Kravits, 2010, p. 8)Assuming a 40% combined federal, state, and local tax. Savings shown are deferred taxes. Taxes are required to be paid upon withdrawal from the plan.

Age 401(k) Profit Sharing Cash Balance Total Tax Savings

60-65 $22,000 $54,500 $209,000 $263,500 $105,400

55-59 $22,000 $54,500 $164,000 $218,500 $87,400

50-54 $22,000 $54,500 $125,000 $179,500 $71,800

40-44 $16,500 $49,000 $96,000 $145,000 $58,000

Who is a candidate for Cash Balance?

Generally, cash balance plans will be good for companies with stable profits. It works best if the people you are trying benefit are highly compensated and older than the general employee population. It can work very well for closely held businesses, law firms, medical practices, etc. The benefits of a cash balance plan are the ability to defer significant sums and the ability to recruit and retain highly qualified candidates with specialized skills.

How much could I potentially defer into a Cash Balance Plan?

While it depends on the demographics of your company, the maximum contributions are in the chart below.

How are the investments handled?

While details are beyond the scope of this article, the investments should be designated as the client’s “safe money” and invested conservatively.

How long do I need to keep the plan?

While most corporate retirement plans are technically intended to be permanent, most experts recommend that you should maintain the plan for at least three years.

Can I exclude certain employees?

Yes. There is a lot of flexibility in the initial plan design.

Why haven’t I heard of this before?

While all advisors do “retirement planning” many do not focus on the intricacies involved with ERISA and non-ERISA based plans. In addition, an actuary experienced in cash balance plans is required in the initial analysis and ongoing maintenance.

How do I see if this is right for me?

We conduct an initial interview to determine if this type of plan is right for you or if a different plan benefits you more. We then collect an employee census (includes employee payroll information and birth dates) and work up an analysis for a potential plan, including how much you could save in taxes and how much would be given to employees.

“I know I need to create my retirement savings,

but I’m starting late and contributing only $22,000 per

year into my 401(k)... that isn’t going to cut it.”

w w w. b e a c o n h i l l a d v i s o r y. c o m

84 South Fourth StreetColumbus, OH 43215

Mark Fissel, RFC Clint Edgington, CFA

Business Wealth Management Process TM

This Quarter: ProtectionThis quarter’s topic, Protection, uncovers gaps within our clients’ insurance needs. Going beyond a simple life insurance snapshot, we analyze scenarios in which disability could occur or potential longterm care needs arise. As you can imagine, it’s burdensome for the family, not to mention potentially devastating to the business if these issues are not addressed. If additional needs are required, we take it to competitive bid from multiple providers.

Next Quarter: Tax Efficiency

Protection

Life Insurance

Disability

Umbrella/Liability

Long-term Care