PROSPECTING FOR QUALIFIED PLAN BUSINESS Presented by: Mary Read, CPC, QPA National Director of Qualified Plan Marketing For Financial Professional Use Only. Not For Use With the Public.

DISCLOSURE 2 This material is intended as a general discussion of qualified plan concepts and strategies. It is not intended as specific advice concerning any individual legal, tax or accounting matter. Alliance Benefit Group-Pentegra does not provide legal, tax or accounting advice. Any questions regarding your individual situation should be directed to your personal advisor on such matters. For Financial Professional Use Only- Not For Use With Public

CLOSELY HELD BUSINESSES 3 ■ 30 million businesses with less than 10 employees ─ Less than 44% of businesses with fewer than 50 employees have any retirement plan in place ─ Only 9% have a Defined Benefit Plan in place Government Census Statistics censtats.census.gov/cgi-bin/nonemployer/nonsect.pl U.S. Census Bureau 2007 and 2008 U.S. Department of Labor, U.S. Bureau of Labor Statistics 2010 For Financial Professional Use Only- Not For Use With Public

4 BABY BOOMERS ■ Over 80 million baby boomers will need retirement security * Average 401(k) Balances (2007) ** Participants in their 50s$127, % below $70,000 Participants in their 40s $91,848 * Source: Employee Benefits Research Institute, Small Employer Retirement Survey 2003 ** Source: Deloitte Development LLC, Future of 401(k)s For Financial Professional Use Only- Not For Use With Public

SUCCESSION ■ Business represents 75% of owner’s net worth ■ Owner’s retirement plan is interrelated with other critical issues: – Training new management to take over business – Estate and gift tax planning – Cash flow in retirement 5 Source: Wharton Center for Applied Research, Richard Hamm Risk Management Ass For Financial Professional Use Only- Not For Use With Public

WHAT IS YOUR PLAN FOR RETIREMENT? ? 6 For Financial Professional Use Only- Not For Use With Public

7 WHERE WILL THE MONEY COME FROM? Personal Savings Sale of Business Private Retirement Plans Social Security For Financial Professional Use Only- Not For Use With Public

SIGNIFICANT CURRENT TAX DEDUCTIONS Defined Contribution Plan  Deductions of up to 25% of participating payroll  Maximum allocation $50,000 per year ($55,500 if age 50 or more) Defined Benefit Plan  No maximum deduction  No maximum contribution, only limited to what is required to fund for retirement benefit  Contributions for the business owner may be in excess of $250,000 For Financial Professional Use Only- Not For Use With Public8

How important are current tax deductions to the Business Owner and his/her CPA? For many Business Owners and CPAs, when it comes to saving on taxes, “there is no time like the present” BUSINESS OWNERS LIKE QUALIFIED PLANS For Financial Professional Use Only- Not For Use With Public9 ARE YOU HAVING A GOOD YEAR? THEN SO IS UNCLE SAM

ARE YOU HAVING A GOOD YEAR? THEN SO IS UNCLE SAM…  Psychological perk in reducing current taxes  May be the key to a SBO’s retirement strategy  The CPA may be a fan of minimizing or reducing the amount of taxes you have to pay For Financial Professional Use Only- Not For Use With Public10

WHO IS A PROSPECT FOR A QUALIFIED PLAN? Any successful business is a prospect. Any business entity can establish a qualified plan: – Sole Proprietor – Partnership – LLC – Professional Corporation – S-Corporation For Financial Professional Use Only- Not For Use With Public11

BUSINESS OWNERS LIKE QUALIFIED PLANS A qualified plan prospect typically has fewer than 10 employees, and wants: – Significant current tax deductions  Annual tax savings that can substantially outweigh contribution to employees  Life insurance paid with pre tax premiums – To save for retirement – To accumulate up to $2.2M in 10 years – Protection from Creditors For Financial Professional Use Only- Not For Use With Public12

PROSPECTING ON MAIN STREET What businesses do you come into contact with everyday? – Coffee shop / Deli / Restaurant – Dry Cleaners – Repair shop – Lawn service – Apparel Shop For Financial Professional Use Only- Not For Use With Public13

PROSPECTING ON MAIN STREET Think beyond the “traditional” business  May not have a ‘store front’ – May have little or no community presence – Market through internet or catalog For Financial Professional Use Only- Not For Use With Public 14

TELEPHONE APPROACH TOPICS, PICK ONE If no plan – Adopting a plan holds the potential for:  Tax favored savings  Protecting savings from creditors  Reducing current taxation  A cost effective employee benefit plan If there is a plan – Reviewing a plan holds the potential for:  Increasing tax deductions  A more efficient plan design  Better / less expensive plan administration (TPA)  Enhancing the plan with life insurance  Plan improvements due to Changes in the tax law For Financial Professional Use Only- Not For Use With Public 15

THE NATURE OF AN INITIAL APPOINTMENT, WHEN THERE IS NO PLAN The key is to remove a Business Owner’s fear of employee contributions, and show how the tax savings of a qualified plan may far exceed any potential employee costs. You will explain that: – The plan is designed around YOU, the employer – Employee costs can be surpassed by the money YOU save in taxes For Financial Professional Use Only- Not For Use With Public 16 This information is not intended as tax or legal advice. Please advise your client to consult with their Attorney or Accountant prior to acting upon any of the information concerning their situation.

ECONOMIC VALUE OF A CONTRIBUTION Business owner earning $175,000 annually 28% Tax Bracket * Pays $40,319 each year in taxes Pays $1,007,975 in taxes over 25 years 17 * Assuming 6% flat state income tax and married filing jointly tax status using standard deduction. This is a hypothetical illustration only and is not indicative of any particular investment or performance. For Financial Professional Use Only- Not For Use With Public

$17,000 TAX SAVINGS ■ Client creates a qualified defined contribution plan and contributes $50,000  $17,000 deferred in taxes 18 Assuming 6% flat state income tax and married filing jointly tax status using standard deduction. Over 25 years, $425,000 is put to work for the business owner ($17,000 x 25) For Financial Professional Use Only- Not For Use With Public

TAX DEFERRAL GENERATES MONEY 19 * 5% hypothetical return assumed. This example is purely hypothetical and for illustrative purposes only. The numbers assume yearly compounding. The returns above do not consider inflation, taxes or management expenses which will reduce your return. The illustrated results are not indicative of any particular situation and your results likely will differ from those shown above. Lost opportunity cost Income Taxes $425,000 Funding Strategy for Retirement $811,360* The $425,000 the individual may pay in income taxes over the next 25 years can translate into $811,360 *! For Financial Professional Use Only- Not For Use With Public

TAX EFFICIENCY Additionally the other $33,000 is also working 20 * $50,000 per year assuming 5%. Assuming 6% flat state income tax and married filing jointly tax status using standard deduction. Lost opportunity cost Income Taxes* $2,386,355* Funding Strategy for Retirement $425,000 For Financial Professional Use Only- Not For Use With Public

COMMON QUESTIONS / OBJECTIONS  “But don’t I have to make contributions to my employees, and won’t that ruin my ability to save efficiently?”  “I don’t want to contribute for my employees, I already pay them enough”  “How much will it cost to cover my employees? For Financial Professional Use Only- Not For Use With Public21

WHAT IF THERE ARE EMPLOYEES? ■ The employees may not cost anything 22 For Financial Professional Use Only- Not For Use With Public In fact, not having a plan may cost more than having one

GETTING THE LION’S SHARE For Financial Professional Use Only- Not For Use With Public23 AgeSalary New Comparability Profit Sharing Owner A61$250,000$50,000 Owner B48250,00050,000 EE 13260,0003,000 EE 26230,0001,500 Total $590,000$104,500 Key Total $100,000 Key % 96% NC

NOT HAVING A PLAN MAY COST MORE THAN HAVING ONE After Tax Analysis Sample Case Profit Sharing: Plan Sponsor’s Tax Rate 40% Plan Sponsor’s Total Contribution$104,500 Plan Sponsor’s Tax Savings $41,800 Net After Tax Cost of Plan $62,700 Deposit For Owners $100,000 Net Gain $37, This information is hypothetical and is provided for informational purposes only. For Financial Professional Use Only- Not For Use With Public

CONTRIBUTE A LITTLE FOR ELIGIBLE EMPLOYEES INSTEAD OF GIVING AWAY A LOT TO UNCLE SAM For Financial Professional Use Only- Not For Use With Public25 The information is hypothetical and is provided for informational purposes only. Your results likely will differ.

COMMON QUESTIONS / OBJECTIONS Can the plan only cover certain employees? It depends: – Eligibility – Coverage – Vesting  Tell the employer: within the rules we can work to exclude or favor the employees you choose For Financial Professional Use Only- Not For Use With Public26

COMMON QUESTIONS / OBJECTIONS I want employees to take some responsibility for their own saving We can design a plan or plans that include 401(k) salary deferrals Can I just cover my employees in company A but not in my company B? Tell the employer: Perhaps, there are certain rules that may allow this depending on your specific circumstances, completing the census will enable us to see if you can. For Financial Professional Use Only- Not For Use With Public 27

IN A PERFECT WORLD… Ask the employer:  How much do you want to contribute?  Which employees do you want to include?  Which employees do you want to favor? …within the law we can design a plan that comes closest to your idea of “perfect” For Financial Professional Use Only- Not For Use With Public28

29 ALLIANCE BENEFIT GROUP-PENTEGRA  Outstanding Personal Service  Industry Experts  No Commission Splits  No Hidden Fees Lori J. Carpenter Advisor Relationship Manager (800) Direct: Mary Read CPC, QPA National Director of Qualified Plans Marketing For Financial Professional Use Only – Not For Use With Public Training, custom plan proposals, prospecting and marketing materials are free. We are only a phone call away!

CIRCULAR 230 DISCLOSURES The above information is not intended or written to be used, and it cannot be used, by any person for the purposes of avoiding any penalty that may be imposed by the Internal Revenue Service. In the event the advice is also considered to be a “marketed opinion” within the meaning of the IRS guidance, then as required by the IRS, please be further advised of the following: The above advice was written to support the promotion or marketing of the transactions or matters addressed by the written advice and, based on the particular circumstances, you should seek advice from an independent tax advisor. 30 For Financial Professional Use Only- Not For Use With Public