A defined benefit plan under the IRC§ 412, is a retirement strategy funded exclusively with life insurance contracts.   Compared to other types of tax-qualified plans, IRC§  412 pension plans are:

• Easy to understand
• A secure promise of future benefits - guaranteed by a life insurance company.

The Pension Professionals Hybrid 412 Plan is a unique retirement plan for business owners and professionals offering large deductible contributions, steady, tax-deferred earnings, optional tax-free distributions prior to age 59 1/2, while minimizing contributions employers must allocate to their employees.

Financial and retirement planning objectives that many business owners and professionals have volunteered to us include:

1. Maximize employer and key employee contributions on a pre-tax basis
2. Minimize contributions for funding employee benefits
3. Significantly reduce or eliminate taxes
4. Access retirement benefits on a tax favored basis (i.e. not merely defer the tax)
5. Protect retirement assets from creditors
6. Achieve substantial wealth transfer if estate taxes are a consideration
7. Avoid stock market volatility with guaranteed returns
8. Integrate the strategy with other life and estate issues
9. Integrate the retirement strategy with other life and estate issues

Highest Allocation to You

We can re-design an existing plan.  The following table shows the previous client using alternative strategies for a dental practice of 55 year old dentist who employs the spouse, five other employees and uses a PPI Hybrid 412 Plan and a profit sharing plan:

As with most financial strategies, there are substantial tradeoffs.  However, there is one strategy that allows business owners and professionals to achieve all the major objectives listed above - Pension Professionals (PPI) Hybrid 412 Plan.

In addition to supporting the above-listed objectives, the PPI Hybrid Plan design is supported by an IRS Determination Letter.

When the advantages available under IRC§ 412 are combined with an optional strategy (for a buyout and exchange of the life insurance policy under section 1035 for a better performing policy or another investment alternative), taxpayers gain the ability to access large amounts of tax-free distributions during retirement while simultaneously removing pension assets from his/her estate.

Example 1 – Comparison of Qualified Plans

Doctor and Spouse:

• Both age 55 years
• Owners salary - $ 225,000 for doctor,  $   55, 000 for wife
• Employees combined salary (5 employees) - $162,000 combined salary
• Corporate entity is an S Corporation with $500,000 in net income

If you already have an existing retirement or pension plan, IRA, IRA rollover, beneficiary IRA a qualified money conversion strategy should be considered.  Qualified funds are subject to both income and estate taxes.  Consequently, they are worth only 25 cents on the dollar (assuming estate taxes of 28% to 45%).   Pension Professionals, Inc. offers strategies for converting these qualified funds to give you 90 cents to ten times the dollar, access to substantial tax-free withdrawals, while excluding these amounts from your estate.

Client’s tax cost utilizing Rev. Rul 2005-25 Safe Harbor PERC Values:

Approximately $250,000 to $60,000 could even be less

Introduced in 1990, these plans are designed to be “safe harbor” plans and have reasonable fees. ($ 1,500 set up and $ 1,500 annual administration for small plans).  Some of the advantages include:

·         Employers may contribute for themselves and their spouse (if employed) and/or key employees up to 100% of wages.

·         Business owners’ maximum contribution is 100% of wages up to $45,000 annually per participant, while contributions for employees can be as low as 5% of compensation.

• Employers do not have to contribute the same percentage for all plan participants.   According to “Cross Testing of Projected Benefits” under 1.401(a)4 regulations, the average projected benefit of the other employees (non-highly compensated employees or NHCEs) must be 70% for the average benefit of the owner (highly compensated employees or HCEs).

·         Employers may cover employees with more than one year of service, who are over the age 21

·         Vesting can be on a graduated schedule of 20% per year, which results in an employee being 100% vested after six years of employment.  

·         Overall contribution is limited to 25% of eligible compensation.

·         PPI obtains an IRS Determination Letter on each of these plans.

PPI’s Unique Design

Pension Professionals, Inc.’s unique plan design funds Comparability Retirement Plans with 49% of the contribution in life insurance.   Participants may elect to opt out of life insurance coverage and elect an annuity or side-fund investment instead.  Employers may enjoy benefits of:

• An optional exit strategy providing substantial tax-free withdrawals outside the business owner’s estate.  Other Comparability Plan designs will not have this key advantage.
• Forfeitures reduce employer contributions.
• May be efficient in companies employing anywhere from 5 to 5,000 employees.

• Funding with pre-tax dollars.   Life insurance premiums may be paid with pre-tax dollars.

Pension Professionals, Inc. (PPI) is an independent designer and distributor of asset protection and wealth transfer retirement planning solutions to high net worth individuals and business owners.   It was founded in 1988 in Oregon by Dennis Cunning. Pension Professionals, Inc. and Pension Professionals LLC is now headquartered in St. Thomas, US Virgin Islands with an affiliate offices in Phoenix, Arizona. 

Our mission is to provide the perfect retirement plan design that achieves:

• Benefits heavily weighted to the owner
• Total asset protection and wealth transfer strategies
• Comprehensive estate planning including exit strategies from IRAs or Qualified Retirement Plans at a substantially reduced tax rate

Pension Professionals, Inc.

6501 Red Hook Plaza, #201

St. Thomas, VI 00802

340-714-0510  Local

800.536-0510   Toll Free

340-775-2822  Fax

For a free feasibility study, email: freefeasibility@pensionprofessionals.com

For further information, email: marketing@pensionprofessionals.com