1. Defined Benefit Plans for Medical Professionals and Successful Business Owners
A Tax Strategy for Individuals with Self-Employment Income and Small Business Owners

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3. Defined Benefit Plans – in the News
How Entrepreneurs Can Get Big Tax Breaks
For Retirement Savings
“A 52-year-old entrepreneur netting $300,000 could use a one-person defined-benefit pension plan combined with a solo 401(k) to shelter a total of $169,800 from current income taxes…” Forbes, March 2013
Turn Self-Employment Income Into A Pension By Dec. 31 To Beat The Fiscal Cliff
“If you’re self-employed, have had a good year, and want to sock away a lot for retirement, take a lead from a tax pro who advises high net worth clients, and set up a defined benefit plan by year-end.” Forbes Online, December 2012
High-Income Clients Save More With These Underutilized Retirement Plans
“From a short-term standpoint, there’s absolutely nothing that can equal this for me or anyone older with excess income and big taxes...” Financial Advisor Magazine, December 2011
Defined benefit plans are making headlines – in the Forbes, Financial Advisor Magazine, Kiplinger’s Retirement Report, and SmartMoney among others.
Over the past several years, there have been important changes in the tax laws that make a defined benefit plan attractive for the right medical professional. Today, we’ll be talking about who opens DB plans and how DB plans can work for you.
A Pension Plan for the Self-Employed
“Solo pension plans are a great option for entrepreneurs, doctors, and real estate agents who want to slash their taxes and turbo charge retirement savings.” Kiplinger’s Retirement Report, August 2011

4. Agenda
The Defined benefit Plans & the Fully Insured Defined Benefit Pension Plan
Defined Benefit Plans At a Glance
Compared to Other Retirement Plans
The National Pension Partners FIDB Program
Ideal Financial Situations
Meeting Your Needs
Eligible Compensation
Key Dates
Fees
Opening a DB Plan
Follow through
Here’s our agenda for today.
We’ll talk about:
What a defined benefit plan is and how it compares to other types of retirement plans
We’ll look at typical clients and how a DB plan works for them based on their age, income and financial situation. Our main objective is to help you determine the suitability of a defined benefit plan for you and how big a tax savings you might expect.
I’ll also run through the process of opening a plan and how I can make it easy for you.

5. Defined Benefit Plans at a Glance
Qualified retirement plan approved by the IRS
Contributions are tax deductible
Highest available contributions and tax deductions of any qualified retirement plan
Contributions are based on:
Your age
Income
Years to retirement
A Defined Benefit plan – which you might think of as a Pension -- is a qualified retirement plan approved under the IRS tax code. Money contributed to the plan is deductible against earned income and is more tax efficient than other similar retirement plans like a SEP, 401(k) or IRA.
Most small business owners and self-employed people open defined benefit plans to get as large a deduction as possible. The defined benefit plan provides the highest available contributions and tax deductions. The highest contribution that you can make will be calculated for you based on your income, age, and years to retirement. Dedicated Defined Benefits Services works with you to design a plan that meets your objectives.
The maximum benefit can be payable as early as age 62 for someone with 10 years of participation in the plan.
Contributions made to a DB plan are tax deductible. Income taxes are tax deferred like contributions made to a SEP or a profit sharing plan.
One question we get often is whether this is really legal. Yes, absolutely. The contributions average over $100,000 annually for plans administered by Dedicated DB. In certain cases, plan contributions for a company with a few employees exceed $400,000 annually. .

6. Comparison of Retirement Plans
Defined Benefit (DB) Plans May Allow Clients to Contribute Significantly more Earned Income than other Retirement Plans
How do contributions for a DB compare to other retirement plans?
Because the IRS code does not specify the maximum contribution for a DB plan, this slide allows us to compare the maximum contribution for a specific age and income amount –a physician age 52 earning $300,000.
Read slide…
Hypothetical Example: Maximum annual contribution limits in 2015 for a business owner age 52, earning $265,000 W-2 income annually, retiring in 10 years
Assumes 5-7% funding rate for Defined Benefit Plans

8. Defined Benefit Plans are Benefit oriented
The “benefit” represents the amount of retirement income or the plan will provide annually at retirement age
Benefit is established when plans are opened
Based on age, income and years until retirement
Capped at $210,000 per year (for 2015)
Employer commits to achieving the goal through regular, annual contributions large enough to meet the benefit funding requirements
Retirement age is typically set at age 62 or 65
There is some flexibility in these plans. For example the plan can be amended to change the goal
DB plans are goal-oriented.
Defined benefit plans allow you to set a goal – the “benefit” -- or the percent of annual income you want to receive in retirement
And the plan design establishes how much you need to contribute each year to achieve that goal or benefit.
When plans are opened a goal for the retirement benefit is established.
There is a maximum benefit that a client can aim for based upon age, income and years to retirement. If the maximum allowed benefit is too high, the plan can be designed for a lower benefit amount.
There is also a cap imposed by the IRS of a maximum annual benefit of $210,000 in 2015
You commit to reaching the goal by making regular, annual contributions. Each year the contribution amount will be determined by the actuary. Gains and losses will affect the amount of the contribution.. Therefore, it’s important to avoid wild swings in the investment portfolio. If you earn a higher rate than targeted, you will contribute less the next year and get a lower tax deduction.
Retirement age is flexible. It can be set as low as age 62. A client age 70 may open a plan with a retirement age of 75. Since years to retirement and life expectancy are critical factors in calculating the future benefit, opening a defined benefit plan is a less attractive option for a business owner younger than 38 or older than 75.
To change the goal, the plan must be amended. It’s important to know if your situation changes. If necessary, you can amend the plan formula or terminate the plan before retirement if necessary.

9. A Great Tax Strategy for Clients Age 40+
Typical Plan Sponsors
Business Owners or Medical professionals, age 40+
Owner + a small number of fulltime employees
Expect to Contribute 5 successive years
New Plans
Annual contributions are typically between $50,000 to $340,000 +
Avg. term: 8+ years
Integrates with a Profit Sharing and/or a 401(k) plan
National Pension Partners
Prepares the prototype plan documents
Easy to open, efficient to implement. Complete an RFP and annual census
Set up fee and annual administration fee
Flat fee… No administration fees based on size of your account
Here are a few points about what you’re looking for – both in a DB plan and with the servicing of it.
Typical Profile
The first screening, to identify whether or not a DB plan is right for you, is to answer these questions:
Is the person 40 years or older?
Does business owner have no employees other than him or herself, or just a few employees?
Plans will be designed for a minimum of 5 years. A plan can be amended or terminated earlier if there is a good reason to do so.
If the answer to these questions is “yes,” “yes” and “yes,” then it’s worthwhile to continue the conversation.
The question that often comes up is: “Does this work for a corporation or for a sole proprietorship?”
The answer is that it works for any business entity: sole proprietorship, corporation, S-Corp or LLC. The program will do what it’s meant to do, which is reduce taxable income for the owner and provide a tax shelter.
Sometimes, people who don’t fit the typical profile, open plans. Dedicated DB can develop a custom proposal based on a client’s unique situation. We can look at your particular situation and see if it makes sense for you.
DB Plan
In terms of the plan, I mentioned that the average contribution was over $120,000, for an average term of over 8 years.
As for the plan documents, these are Dedicated DB’s own plan documents – designed and written by them. They’ve made sure that this does a few things for you:
The documents are pre-approved by the IRS, so the IRS doesn’t have to look at them again.
Secondly, their DB plan integrates nicely with a single person 401 (k) program.
Dedicated DB’s Service
Dedicated DB specializes in these small business DB plans.. They are experts who make the plan design and administration easy and efficient for us and the clients.
Investments in Fully-Insured DB plans are held in qualifying, guaranteed insurance contracts or if you do a section 430 split funded or traditional DB plan then you and your Financial Advisor select the investments

10. Owner-Only, Sole Proprietor
Dr. Charles, Age 52
Wants Maximum Tax Deduction
Annual earnings: $450,000
Maximum DB + 401(k) contribution for 2015: $270,050
Contribution to FIDB Plan: $216,500
Contribution to a Profit Sharing: $13,650
Contribution to 401(k): $39,900
Annual tax savings: $102,620
Combined Fed. and State marginal tax rate of 38%
Fully-Insured DB Accumulation at age 62: $2.48 Million
10 years, 3% rate of return for the DB plan and 5% for the profit sharing and 401(k)
Annual DB Benefit: $210,000
This example shows maximum contributions for Charles
Assumes compensation is after paying self-employment taxes
Charles can add a 401(k) to have part of his retirement savings in the market and to increase his total contribution. This provides flexibility – if in subsequent years Charles wants to reduce his total contribution, the 401(k) is optional
Read slide

11. The Impact of Age on Contribution: The Older, The Better
Doctor Tim
Age 35
27 Years to Retirement
Compensation: $450,000
FIDB Contribution: $70,600
Annual Benefit at Retirement: $210,000
Doctor Charles
Age 52
10 Years to Retirement
Compensation: $450,000
FIDB Contribution: $216,800
Annual Benefit at Retirement: $210,000
Age and years to retirement will have a big impact on the DB contribution as this example shows.
Here is Doctor Charles again, age 52. Doctor Tim has the same income but is only 35 years old. His annual DB contribution will be only $70,600 – over $100,000 less than Dr. Charles. He could do almost as well maximizing his contribution to a 401(k) ($53,000 in 2015).
Dr. Tim would be better off waiting to start a DB. He could open a DB and a 401(k) for a total contribution of about $104,500 –
We may be able to get larger DB contributions for Doctor Tim by accruing benefits over a shorter period, e.g. 10 years vs. 27 years.

12. Married Business Partners, No Employees
James, Age 60; Toni, Age 58
5 years from retirement
W-2 Income: $530,000 ($265,000 each)
Total annual FIDB contribution: $426,000
$208,000 towards Paul’s retirement
$218,000 towards Mary’s retirement
Annual combined income tax savings: $161,800
Accumulation at retirement:
James: $1.18 Million
Toni: $1.24 Million
Another ideal client for a FIDB -- couple in business together
Read Slide!

13. C-Corp + 5 Employees but only 2 are full time
Mollie, Age 55, Dentist
Owner’s W-2 income: $400,000
Mollie’s spouse age 55 earning $12,000
Employee 1 age 28 earning $35,000
Employee 2 age 35 earning $45,000
2015 Maximum FIDB contribution for owner & EE Spouse: $263,200
Profit Sharing Contribution for Employee 1: $2,625
Profit Sharing Contribution for Employee 2: $3,375
97% of contributions are for Mollie & her Spouse
Annual income tax savings for Mollie: $102,290*
Retirement accumulation for Mollie at 62: $1.78 Million
* Assumes a 38% combined state/federal marginal tax rate
Employer must pay into a plan for employees.
Particularly attractive for family businesses
If Employees are older or earning high income, you might be less likely to want to contribute large amounts for employees so a profit sharing plan is used with a cross tested benefit formula
Read Slide!

14. Employee with Side-Income, Sole Proprietor
Walter, Age 60, Professor
In addition to university salary, Walter has self-employment income from consulting and serving on 2 corporate boards
Annual self-employment earnings: $100,000*
FIDB contribution for 2015: $83,266
Annual tax savings: $31,610
Combined marginal tax rate of 38%
DB Accumulation at age 65: $442,980
5 years, 3% rate of return
* High 3-year average, after payment of self-employment taxes
A few situations that you might not think of right away
A surgeon employed by a hospital who also has significant side income from consulting, serving as independent director on a board, an expert witness, giving speeches, has patents, royalties, etc.
Another situation is a doctor’s spouse who has a small business and the family doesn’t need that income to maintain lifestyle. If the spouse is 55+ might be able to contribute as much as 80% of earnings after paying self-employment taxes.
Read Slide!

15. Owner-Only, W-2 Income Fluctuates
Kumar, Age 48, Radiologist
2015 W-2 earnings: $185,000
Maximum FIDB contribution for 2015: $161,188
+401(k) contribution for 2015: $29,100
Total deduction in 2015: $185,000
2015 tax savings: $70,300
Combined marginal tax rate of 38%
Annual DB Benefit at Retirement: $185,000
In this example the independent doctor has fluctuating income. He can get a significantly higher contribution in good income years by establishing both a DB and a 401(k). If his income is lower another year, he makes no contribution to the 401(k).

16. Eligible Compensation for a Defined Benefit Plan
How you have set up your business will determine what is considered income and how your plan is designed. Generally, you can contribute more if you are set up as a corporation.

17. Key Dates
DB Plans must be opened by the end of your companies fiscal year, for most businesses that will be December 31st.
The Investment will be made once the Adoption Agreement is signed. If you open the plan before year end, we recommend investing no more than 50% of the assets before you have your final year-end income statement.
The investment account must be funded when taxes are filed but no later than eight and a half months after the end of your fiscal year typically September 15th.
These plans need to be opened by the end of the business’ fiscal year – that means December 31st for most clients.
It would be best to get the plan designed and established before the year end rush if you know what your income for the year will be. If not, plans can be established (docs signed by client by ) and then adjusted between Jan. 1 and March 15th when the 2015 income is determined.
You can begin to make contributions as soon as the account is set up.
It’s important to work on your taxes early so that the contribution amount can be determined.
You have until you file, or 8 and a half months after the end of their fiscal year at the latest, to fund the account.

18. Fees OR Defined Benefit Plan Only
Plan Design and Documentation Preparation Fee: $1,500
$50 per additional participant in plans over 10 participants
DB Annual Administration Fee: $1500
(includes Form 5500, Schedule SB, and AFTAP filings) OR
Combination Defined Benefit & Profit Sharing & 401(k) Plans
Plan Design and Documentation Preparation Fee: $2,500
Annual Administration Fee: $2500 for one person plan
Because these are prototype plans the fees are lower than a custom developed plan document.
This slide shows the fees for a FI DB or a FIDB + Profit Sharing & 401(k).

19. Establishing a Plan
The NPP team can run a proposal for you from the Request For Proposal (RFP) found at
Bring your accountant into the discussion early
Once the plan meets your objectives, we’ll complete a engagement letter
Send signed engagement letter to National Pension Partners
Include the setup fee
NPP will send you an Adoption Agreement to sign
Shortly after the plan setup you can begin to fund your FIDB plan
I’m happy to work with you to run a quick feasibility proposal. This really is a terrific tax strategy for the right person and I’m ready to help you when you’re ready.
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20. Contact Us
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6995 Union Park Center Ste. 190
Cottonwood Heights, UT 84047
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ww.nationalpensions.com