The Life of a 412(i) Plan

Transcription

1 The Life of a 412(i) Plan For Producer Use Only. Not for Distribution to the Public. Transamerica Occidental Life Insurance Company

2 Step 1: Identifying the Prospect Those who prefer security and guarantees over a fluctuating stock market Highly paid business owners and professionals looking to maximize tax deductions Smaller, closely held businesses Companies with few employees S corporation owners with W-2 salary Sole proprietors Independent contractors Companies that have larger employee groups but wish to create defined benefit carve-out plans Business owners who have not saved enough for retirement and need to catch up with large initial contributions Step 2: Gathering Census Data Name of business Tax status: Sole Proprietor, Partnership, C or S Corporation, etc. Date business began/ incorporated Tax year-end date State of issue Approximate desired contribution Current pension or profit-sharing plan (PSP) in force? (yes or no) Ownership interests in other businesses (if so, what percentage?) Employee name, birth date, hire date, ownership percentage, W-2 compensation, annual hours worked, underwriting, and smoker status Step 7: Forms and Plan Documentation All applicable forms for TransSecure and TransFreedom II are submitted separately to appropriate life and annuity new business areas See Writing Qualified New Business in the 412(i) Defined Benefit Market (Item #TLA 402) for detailed description of forms you need and how to submit them. You can find Writing Qualified New Business in the 412(i) Defined Benefit Market under 412(i) Forms on the Web at Complete and sign documents provided by TPA Step 8: Completion of Sale Life insurance policy and annuity contract are delivered to producer Client funds the plan no later than tax return filing date including extensions

3 The Life of a 412(i) Plan Step 3: PlanGen: Requesting a Preliminary Proposal Producer requests preliminary proposal from Strategic Marketing Services, Regional Marketing Center, or Third-Party Administrator (TPA) Proposal provides client with snapshot of what a 412(i) plan might look like for their specific situation, including contributions, tax savings, and retirement benefits Minimal information required for PlanGen proposal: number of participants, date of birth, compensation, date of hire, and state of issue Saves producer s time on several fronts, which include the wait for a full-blown proposal from TPA, and separates a client with serious interest in a 412(i) plan from client with minimal interest Step 4: Choosing a TPA (Client Wants to See Official Proposal) TPA handles complex reporting requirements Calculates each 412(i) plan participant s funding projections Plays vital role in ongoing administration of the plan Client/producer can use Transamerica preferred or approved TPA TPA may or may not participate in compensation Preferred TPA s compensation ranges from 10% to 50% Step 9: Client Benefits from Plan Client makes large tax-deductible contributions Client is building guaranteed retirement benefits Client has valuable life insurance protection for his/her loved ones Client avoids effects of stock market fluctuations Assets in 412(i) plan are generally protected from creditors TPA provides annual administration including General Agreement on Tariffs and Trade (GATT) monitoring Step 10: GATT Monitoring (Client Has a Decision to Make) Client Elects Guaranteed Retirement Income Stream 412(i) plan will be annuitized Begins at normal retirement age Retirement benefits are based on contributions, compensation, and age Maximum annual retirement benefit for defined benefit plan in 2006 is $175,000 GATT limit does not apply in this situation Client Elects Lump-Sum Rollover At some point, client may be notified by TPA that plan is nearing GATT limit GATT limit is the maximum amount that participant is allowed to take as lump sum from qualified defined benefit plan Amount in plan over GATT limit may be lost due to taxes and penalties GATT limit is based on applicable interest rates announced by the Internal Revenue Service Client can choose to roll over lump sum and surrender TransSecure policy

4 Step 5: Requesting a TPA Proposal Submit full census data to TPA Each 412(i) case is customized to client s specific situation Five to six proposals may be required before determining final plan specifications TPA can deliver 412(i) carve-out plan proposals for clients wishing to combine profit-sharing plan (PSP) with 412(i) plan Step 6: Purchasing the Guaranteed Contracts (Client Accepts Proposal) TPA proposal will determine amount of annuity and life coverage (if included) for each participating employee Client completes application for TransSecure ISWL policy TransFreedom II annuity Complete product illustrations Step 11: Transamerica Options Single Life Option (offered by company practice) Roll cash surrender value into IRA or PSP New policy issued with death benefit equal to net amount at risk Owner can be a third party, such as an irrevocable trust New premium may be paid with no policy lapse Available beginning eighth policy year Available when policy is no longer part of 412(i) plan Insured s issue age and surrender charge period remain unchanged Step 12: Client Accomplishes Goal Client has built significant retirement savings Client s business was able to receive large income tax deductions Client maintained valuable life insurance protection for loved ones Plan flexibility and Transamerica options allow client to make adjustments as needed Survivorship Life Option (offered by company practice) Surrender ISWL policy and roll cash surrender value into IRA or PSP New second-to-die policy issued with death benefit equal to net amount at risk Owner can be a third party, such as an irrevocable trust No evidence of insurability required on former plan participant No evidence of insurability required on spouse with existing term policy of equal death benefit Cost of insurance based on insured s current age, subject to new surrender charge period

5 This material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. This material was written to support the promotion or marketing of the products, services, and/or concepts addressed in this material. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely solely on their own independent advisors regarding their particular situation and the concepts presented here. Transamerica Insurance & Investment Group ( Transamerica ) and its representatives do not give ERISA, tax, or legal advice. This material and the concepts presented here are provided for informational purposes only and should not be construed as ERISA, tax, or legal advice. Discussions of the various planning strategies and issues are based on our understanding of the applicable federal income, gift, and estate tax laws in effect at the time of publication. However, these laws are subject to interpretation and change, and there is no guarantee that the relevant tax authorities will accept Transamerica s interpretations. Additionally, the information presented here does not take into consideration the general tax and ERISA provisions applicable to qualified defined benefit retirement plans or the applicable state laws of clients and prospects. Although care is taken in preparing this material and presenting it accurately, Transamerica disclaims any liability with respect to it. This information is current as of July Life insurance policies issued by Transamerica Occidental Life Insurance Company, Cedar Rapids, IA Policies may not be available in all jurisdictions.

6 Transamerica Occidental Life Insurance Company OLA Life of a 412(i) Plan For Producer Use Only. Not for Distribution to the Public.