1. A 412(i) Plan Champion Agency, Inc. We provide consulting services in the business and estate planning marketplace. As part of our case design initiatives we form strategic alliances with high quality third party administrators. One of these alliances is with Economic Consultants, this is their presentation on 412(i) Plans

2. A 412(i) Plan Developed, marketing and administered through Economic Concepts, Inc, and

3. Today’s Agenda 4Qualified Plans 4412i Plans 4The (i)nnovator Benefits 4Termination Options 4Case Design 4Working with ECI/Champion

4. Retirement Planning Objectives §Maximize Current Tax Savings §Provide Future Security §Protect Assets from Creditors §Attract and Retain Key Employees §Build Financial Freedom

5. QUALIFED PLAN TYPES Defined Contribution Defined Benefit The “Traditional” Solutions

6. Defined Contribution Plans §100% of Compensation up to $40,000 §Retirement Benefit based on value of participant’s account at retirement

7. Defined Contribution Plans Based on a plan allowing for contributions of up to 25% of compensation Employee Annual Salary: $40,000 Plan Contribution: $10,000 % of Salary to Plan: 25% Business Owner Annual Salary: $400,000 Plan Contribution: $40,000 % of Salary to Plan: 10% Who Really Benefits from a Defined Contribution Plan?

8. Defined Contribution Plans work well for the rank & file employees…. But….what about the owners???

9. Defined Benefit Plans §Fund for a retirement benefit of up to $160,000/year Contributions based on age and income

10. Defined Benefit Plans Maximum contribution for Defined Contribution Plans : $40,000

11. And, what about the successful business owner who has $250,000 $300,000 $500,000 in Pre-Tax Profits and doesn’t want to pay 45% to Uncle Sam?

12. 412(i) - a fully insured defined benefit plan §Must be funded with life insurance and/or annuity products §Contributions based on products’ guarantees Lower actuarial assumptions than in traditionally funded DB plans Lower assumptions mean higher contributions

13. Yesterday’s 412(i) Plans In the old days Contributions comparable to traditionally funded defined benefit plans “Plain vanilla” whole life products Favored older clients only

14. Today’s 412(i) Plans §New product design creates significantly higher contributions §Post plan product flexibility §Applies to younger clients as well §Market conditions favor more conservative investment vehicles

16. The (I)nnovator Funding Income tax free pre- retirement death benefits (PS 58 costs) Moderate early cash value growth May be exchanged for market-driven policy Early cash value accumulation Long-term portfolio rates (less susceptible to market fluctuations)

17. Contribution Comparison Maximum contribution for Defined Contribution Plans : $40,000

18. (I)nnovator Advantages §Maximizes contributions and tax- deductions §Annuities provide excellent early cash accumulation §Tax deductible life insurance (PS58 costs) §Life Insurance provides income tax-free death benefits

19. §Predictable contribution commitment §Avoids subjecting retirement assets to stock market volatility §If market performs favorably, plan benefits may be funded prior to retirement l Frees up dollars for other opportunities §Flexibility for achieving long-objectives (I)nnovator Advantages (continued)

20. Target Market §Successful business owner or professional §Minimal number of ancillary employees §Stable and consistent revenue §Desire to maximize contributions for retirement plan ($100,000 minimum) §Desire to decrease income taxes §No existing plan or minimally funded plan. §Looking for stable, conservative investment

21. Business Objectives 4Reduce taxes on excess profits 4Establish a secure retirement program 4Provide an employee benefit 4Provide life insurance for family and/or estate planning needs

26. The (I)nnovator Plan Insurance Policy & Annuity Participant TAXES PAID ON NET CASH VALUES Distribute Assets Cash values continue to grow on a tax-deferred basis. Insurance policy can provide future tax- free income through policy loans.

27. OR Traditionally Funded Defined Benefit Plan Participant PARTICIPANT PURCHASES LIFE INSURANCE POLICY FOR NET CASH VALUE The (I)nnovator Plan THEN, THE CASH IN THE PLAN AND THE ANNUITY ARES ROLLED OVER TO A IRA OR Profit Sharing Plan Life Policy Purchased Monies paid for insurance policy are simply “repositioned” in client’s portfolio. Recharacterized as “qualified monies” - tax deferred accumulation. Insurance policy can provide future tax-free income through policy loans.

28. Case Design §The picture perfect case……. Few, if any, ancillary employees

29. Case Design (continued) A more typical case…...

30. The problem with too many employees §Cost to cover ancillary employees dilutes or negates owner’s tax benefits §All principals may not want to participate §Contributions based on formula…may not fit principals’ objectives l 50/50 owners @ different ages = different contributions

31. Specializes in case design including §Setting appropriate eligibility requirements §Redefining compensation §Capping retirement benefits §Multiple entity planning §410(b) Carve outs

32. NON-CASES CASES For example…...

33. Controlled Groups §A controlled group exists when the same 5 or few people own 80% or more of both organizations and 50% of the ownership is identical. §Break one rule, break the controlled group

34. Race Car Driver Annual Contribution: $215,347 Separate entity created for endorsements vs. earnings from races

35. Clothes Designer & Manufacturer Annual Contribution: $502,308 Union employees excluded. Of the 25 employees left, isolate the client and his key people into a separate entity for design selection and licensing.

36. Electrical Contractor Annual Contribution: $201,678 Client established a sales and marketing company

37. Recharacterization of Income Creative Entity Planning and

38. Affiliated Service Groups §Professional Service Organizations l Health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, and insurance §Management Companies (414(m)(5)) §Difficult to design around, but may be possible if revenue is generated by activity outside of first entity Sec. 414(m)

40. Outside Rental Property Expert Testimony Income Racehorses

41. Section 410(b) Carve Outs §40% of all eligible employees must be covered §70% of all non-highly compensated employees must be covered x the percentage of highly compensated employees covered §If there are only 2 employees, both must be covered

42. Section 410(b) Carve out 4 Partners & 12 Non-Highly Compensated Employees (NHCE)

43. Section 410(b) Carve out 4 Partners & 12 Non-Highly Compensated Employees (NHCE) Number of participants reduced to 7. % of owner/participants increased to 40% from 25%

44. Doing Business with ECI/Champion Agency

45. Why ECI/Champion? §30+ years in the qualified plan arena (ECI) §Tax advantaged plan specialists §Experienced in marketing and administration §30+ years in the business owner and professional market §Personal case preparation and support §Creative and technical expertise

46. More information? Kenneth Sapon R.Ph., LUTCF President Champion Agency, Inc. 8801 Horizon Blvd NE Suite 320 Albuquerque NM 87113 (505) 265-8511 (800) 274-0433 ken@champion-agency.com