Retirement Plans

Update on Fiduciary Rule

On August 9, 2017, the Department of Labor filed a Notice of Administrative Action in the lawsuit, Thrivent Financial for Lutherans v. DOL, in the United States District Court for the District of Minnesota, that it has requested permission from the Office of Management and Budget to extend the transition period and applicability date for the Best Interest Contract Exemption and PTE 84-24 from January 1, 2018, to July 1, 2019.

CLICK HERE for a copy of the Notice of Administrative Action.

Retirement Plans

When a Profit Sharing Plan is Not Enough

Your client has a Profit Sharing/401k Plan that has been in place for several years. He is generally satisfied with the performance of the plan but desires greater retirement benefits than those provided by a Profit Sharing/401k Plan.  In addition, he is interested in putting more money away for retirement.  This is a common problem, as a business grows and becomes more successful, and is easily addressed by the adoption of a defined benefit plan.

The maximum deductible contribution to a Profit Sharing/401k Plan is currently $55,000 per participant.  If we assume that your client is age 55 and plans on retiring at age 65, and we further assume that he will make a $55,000 contribution for 10 years and earn 3% interest, he will have $720,275 at retirement.

If your 55-year old client adopted a defined benefit plan, he could make a contribution of approximately $211,060 per year for ten years and have $2,572,120 at retirement.  In addition, your client could maintain his Profit Sharing/401k Plan. However, in most cases, the contribution to the Profit Sharing/401k Plan would be limited to 6% of compensation, plus the 401k elective contribution and catch up contribution if the participant is age 50 or older.

As part of the annual review of his retirement plan, your client is depending on his advisors to assess his needs and provide options that will meet his objectives. Too often, the client’s CPA is not familiar with the rules regarding qualified pension plans, and, as a result, the opportunity to increase retirement income is not presented to him.  We urge you to discuss the merits of a defined benefit plan with your clients and CPA contacts. Your clients will thank you for it. For more information, contact RMC!

Retirement Plans

412(e)(3) Frequently Asked Questions

A 412(e)(3) Plan is a defined benefit pension plan guaranteed with insurance company annuity and life insurance contracts. A 412(e)(3) Plan is also known as a “fully insured defined benefit plan”.

CLICK HERE to see a list of frequently asked questions regarding a 412(e)(3) Plan.

Retirement Plans

2017 Pension Dates to Remember

Pensions have key dates for filing and disclosures that a plan trustee should be aware of. We have produced a printer friendly PDF version of the important 2017 Pension Dates to Remember.

CLICK HERE for a copy of the 2017 pension dates.

Retirement Plans

2017 Pension Limits

Each year, the IRS sets limits for pension plans. These limits are reviewed annually and adjusted for inflation. Here are some of the 2017 pension limits:

  • Maximum compensation for plan purposes is $270,000
  • Maximum monthly benefit for defined benefit plans ages 62 to 65 is the lesser of 100% of compensation or $17,916 with an annual benefit $215,000
  • Highly Compensated Employee compensation $120,000+
  • Maximum Defined Contribution / Profit Sharing contribution $54,000
  • Maximum SEP contribution $54,000
  • Maximum 401(k) contribution $18,000.  Catch-up contribution for age 50 and over $6,000
  • Maximum SIMPLE contribution $12,500
Life Insurance Retirement Plans

Use of Life Insurance Inside Retirement Plan

Qualified retirement plans offer many different investment options.  One option, which is often overlooked, is life insurance.  Under the right circumstances, life insurance can be an attractive investment option for a qualified retirement plan.

There are two basic types of qualified retirement plans.  The first is a defined contribution plan.  In this type of plan, the annual contribution is defined, but the ultimate benefit is not.  Annual contributions are based on a formula set forth in the plan document, generally a percentage of compensation.  Contributions are held in accounts established for plan participants and invested.  The amount of retirement income available to a participant depends upon the investment performance of his account.  401(k) and profit sharing plans are examples of a defined contribution plan.

The second type of qualified retirement plan is a defined benefit plan.  In this type of plan, the ultimate benefit is defined, but the annual contribution is not.  The annual contribution is the amount required to ensure that the plan has sufficient assets to fund the participant’s defined benefit at normal retirement age.  The annual contribution is actuarially determined and may fluctuate depending upon investment performance.  However, there is a type of defined benefit plan, known as a 412(e)(3) plan, where contributions do not fluctuate.  A 412(e)(3) plan is funded with guaranteed insurance company products.  Contributions to a 412(e)(3) plan do not fluctuate, because the investment return is guaranteed by the insurance company.  Investment options in a 412(e)(3) plan are more limited than in other defined benefit plans.

Both defined contribution plans and defined benefit plans may provide death benefits, as long as the death benefits are incidental to the primary purpose of the plan, which is to provide retirement income.  A plan’s death benefits can be funded with life insurance contracts.  The IRS has established two tests to determine whether a plan’s death benefits are incidental.  The first test limits the amount of plan assets spent on life insurance premiums.  This test is usually used in defined contribution plans.  The second test limits death benefits to an amount equal to 100 times the plan’s monthly retirement benefit.  Either test may be used in defined benefit plans.

The following are some of the benefits of using life insurance in a qualified retirement plan:

  • Additional benefit for employees
  • Income replacement
  • Protection from creditors
  • Death benefit may be received income tax fee (less tax on the fair market value of the policy’s cash surrender value)
  • Portable benefit
  • Employer provided death benefit may replace insurance paid for by employee
  • Higher benefit at death

Generally, a retirement plan may not provide a death benefit once a participant has attained normal retirement age and retired.  If the participant desires to maintain the life insurance protection, there are a number of options.  The plan can distribute the policy to the participant, who is then required to include the fair market value of the policy in taxable income.  Or, the participant can purchase the policy from the plan for its fair market value.  As long as the participant pays the fair market value for the policy, there should be no tax.

The rules regarding the use of life insurance in qualified retirement plans are complex.  RMC Group is here to assist you in helping your clients determine whether to include life insurance in their qualified plans.

Life Insurance Retirement Plans

Retirement Benefits

At some point in our lives, we all think about retirement. However, a business owner, who has spent most of his life growing his business, may not have had the time or the money to implement a retirement plan. As a business prospers and matures, the owner may be able to invest in his business, enjoy life and save for retirement. By funding a retirement plan, a business owner can ensure a comfortable and well-earned retirement. Whether a business adopts a Profit Sharing Plan or a Defined Benefit Plan depends on several key factors.

The first consideration is income and cash flow. Since contributions to a Profit Sharing Plan are generally lower than contributions to a Defined Benefit Plan, a Profit Sharing Plan may be ideal for a new business with limited resources or unpredictable revenue.  Contributions to a Profit Sharing Plan are based on a uniform percentage of compensation and can be skipped in years when there is insufficient revenue. The maximum contribution for 2019 is $56,000 per employee.

A Profit Sharing Plan can include a 401(k) Plan.  A 401(k) Plan allows an employee to defer a percentage of his salary to the Plan.  The maximum deferral for 2019 is $19,000. In addition, an employer older than age 50 can make a “catch up contribution” of $6,000. The amount deferred by the employee is excluded from taxable income.

Unlike a Profit Sharing Plan, in which the monthly retirement benefit depends upon the investment performance of the contributions to the Plan, a Defined Benefit Plan sets the monthly benefit to be paid at retirement and requires annual contributions sufficient to fund the ultimate benefit. The maximum monthly benefit for 2019 is $18,750.  Contributions are based on the amount needed at retirement to fully fund the benefit.  A Defined Benefit Plan works best for a business with predictable annual revenues to support larger contributions to a retirement plan.  There are two types of Defined Benefit Plans – Traditional and Fully Insured. A Traditional Defined Benefit Plan can invest in any prudent investment. In addition, annual contributions are determined by an actuary, who calculates the minimum and maximum contribution. This provides a degree of flexibility not present in a Fully Insured Defined Benefit Plan.

A Fully Insured Defined Benefit Plan can invest only in insurance and annuity products that guarantee the benefit. Because a Fully Insured Defined Benefit Plan is required to invest in guaranteed insurance and annuity products, the retirement benefit is guaranteed by the insurance company as long as contributions are made.  A Fully Insured Defined Benefit Plan requires the largest contributions.  In addition, a Fully Insured Defined Benefit Plan eliminates possible losses due to market fluctuations. This guarantee is often a major consideration when planning for retirement.

Now is the time to determine if a retirement plan is right for you. The plan has to be set up by the end of the company’s tax year in order to make a deductible contribution for 2019. For more information or to get started on your retirement benefits today, contact RMC Group at 239.298.8210 or [email protected].

Life Insurance Retirement Plans

Life Insurance with Living Benefits

For years, life insurance was seen as an unpleasant topic, because the person paying the premiums generally derived no financial benefit from the policy. He had to die before a benefit would be paid. Today, however, insurance companies are offering policies that pay living benefits. While the primary purpose of life insurance remains safeguarding your family’s financial security in the event of your death, there are now policies that you can use while you are living.

RMC believes that you need to protect your family not only against your premature death, but also against the risk of suffering a debilitating illness or sustaining a critical injury. RMC works with a number of “A-rated” insurance companies that offer policies with “Living Benefits” at no additional cost that can help protect against the financial risk of a terminal, chronic or critical illness, as well as a critical injury. These “Living Benefits” are provided through “Accelerated Benefit Riders” that enable you to receive a portion of the policy’s death benefit while you are still living.

A policy with an “Accelerated Benefit Rider” protects you and your family in the event of a terminal illness. The Rider enables you to accelerate the death benefit if you have been diagnosed with a terminal illness that is expected to result in death within 24 months. In order to access this “Living Benefit”, the terminal illness must be certified by a physician.

A policy with an “Accelerated Benefit Rider” may also accelerate the death benefit in the event of a chronic illness. In order to take advantage of this “Living Benefit”, a licensed healthcare practitioner must certify that the insured is unable to perform at least 2 of the 6 activities of daily living (ADLs) without substantial assistance due to a loss of functional capacity, or that the insured requires substantial supervision to protect himself from threats to health and safety due to severe cognitive impairment.

Another “Living Benefit” provided by an “Accelerated Benefit Rider”, offered at no cost by RMC’s preferred carriers, protects against critical illness. Critical Illness includes: cancer, heart attack, ALS, blindness, Cystic Fibrosis, Aplastic Anemia, renal failure, heart valve replacement, organ transplant, amongst other qualifying illnesses.

The newest “Living Benefit” provided by “Accelerated Benefit Riders” protects against critical injury. This “Living Benefit” accelerates the policy’s death benefit in the event of an injury that results in coma, paralysis, severe burns, or a traumatic brain injury.

An “Accelerated Benefit Rider” is a great supplement to a disability or long-term care policy, which is often very expensive to purchase in the individual market.

For more information about Living Benefits in a life insurance policy, contact RMC Group at 888.599.5553.