1. 1 Copyright 2013 Dedicated Defined Benefit Services LLC Advantages of Micro Defined Benefit Plans A 2013 Tax Strategy for High Income Professionals, Small Business Owners and Self-Employed Clients For Broker/Dealer Use Only

2. 2 Copyright 2013 Dedicated Defined Benefit Services LLC 2  Introductions  Defined Benefit Plans as an effective tax strategy  How the new micro Defined Benefit plans are simplified and flexible  The type of clients that qualify for these plans  Questions? Agenda

3. 3 Copyright 2013 Dedicated Defined Benefit Services LLC 3 Introductions  Principal of The Wagner Law Group  Specialist in ERISA, employee benefits and executive compensation including qualified and non-qualified retirement plans  401k Wire: 100 Most Influential Persons in the 401(k) industry  Hundreds of articles and 13 books about retirement and benefit plans  The Wall Street Journal, Financial Times, Pension & Investments, and more Marcia S. Wagner, Esquire Managing Director The Wagner Law Group

4. 4 Copyright 2013 Dedicated Defined Benefit Services LLC 4 Introductions Karen Shapiro, CEO Dedicated Defined Benefit Services, LLC  Entrepreneur and business innovator in online marketing for financial services  Co-founder of Dedicated DB and a co- founder of Leaffer Shapiro  Opened more than 2,300 Micro Defined Benefit Plans  Bank of America - 18 years, SVP & Director of Online Channel Management

5. 5 Copyright 2013 Dedicated Defined Benefit Services LLC 5 Tax Increases in 2013

6. 6 Copyright 2013 Dedicated Defined Benefit Services LLC 6 How Much Can Someone Save? Hypothetical Example: Maximum annual contribution limits in 2013 for a business owner age 52, earning $300,000 W-2 income annually, retiring in 10 years Assumes 5-7% funding rate for Defined Benefit Plans Defined Benefit (DB) Plans May Allow Clients to Contribute Significantly more Earned Income than other Retirement Plans

7. 7 Copyright 2013 Dedicated Defined Benefit Services LLC 7 Tax Qualified Defined Benefit Plans  Definition – “Pension plan” which also meets the qualification requirements under IRC Section 401(a). – Private employers may adopt tax-qualified plan.  Advantages of tax-qualified retirement plans. – Immediate deduction for employer contributions. – Employees are not taxed currently. – Earnings on plan trust assets are tax-exempt. – Tax on distributions can be deferred with rollovers. – Plan assets protected from creditors. – PBGC insurance for benefits. – High amount of deferrals.

8. 8 Copyright 2013 Dedicated Defined Benefit Services LLC 8 Defined Benefit Plans (DB Plans)  DB plan provides stated pension benefit beginning at retirement. – Normally stated in form of life annuity. – Employer contributions are determined actuarially.  Types of DB plans – Unit Benefit Plan: benefit formula is based on years of service (e.g., 1% of pay for each year). – Fixed Benefit Plan: fixed $ amount payable annually. – Flat Benefit Plan: % of pay payable annually. – Cash Balance Plan: benefit stated in the form of a hypothetical account.

9. 9 Copyright 2013 Dedicated Defined Benefit Services LLC 9 Defined Benefit Plans (cont’d)  Methods for calculating pay – Final Average Pay – pension is based on average compensation during defined period. – Career Average Pay – pension is based on pay earned during employee’s entire service period.  IRS limits on pay – Plan may not consider more than $255,000 (2013), $260,000 (2014) of pay per year.

10. 10 Copyright 2013 Dedicated Defined Benefit Services LLC 10 Copyright 2013 Dedicated Defined Benefit Services LLC Summary of Characteristics of DB Plans  Employer considerations – Commitment to contribute to plan – Fully financed by employer – Investment risk is borne by employer  Benefit considerations – DB plan can recognize past service. – Easier to provide cost of living adjustments (COLA). – May pay disability and death benefits. – Generally may not pay layoff or medical benefits. – No in-service distributions generally. – PBGC guarantee financed by employer premiums. – High HCE.

11. 11 Copyright 2013 Dedicated Defined Benefit Services LLC 11 Copyright 2013 Dedicated Defined Benefit Services LLC Basic Rules for Tax-Qualified Plans  ERISA and IRC impose comprehensive set of rules for tax-qualified retirement plans.  Philosophy of tax-qualification plan rules – To receive tax benefits, plan sponsor must help advance government’s social policies. – For example, plan must help secure retirement of “rank and file” employees as well as management.

12. 12 Copyright 2013 Dedicated Defined Benefit Services LLC 12 Copyright 2013 Dedicated Defined Benefit Services LLC Eligibility and Participation Rules  Minimum age and service conditions. – Must not exclude on account of age beyond age 21. – May require service minimum of up to 1 year (limited exception for 2-year minimum).  No maximum age condition permitted.  “1,000 hour” rule applies to minimum service.  Plan entry may be delayed up to 6 months.  DB plan must benefit lesser of 50 employees or 40% of workforce.  Examples of employee exclusions: – Non-resident aliens – Union employees –Certain employee classifications

13. 13 Copyright 2013 Dedicated Defined Benefit Services LLC 13 Copyright 2013 Dedicated Defined Benefit Services LLC Coverage and Nondiscrimination Rules  Minimum coverage rules – Opportunity for Non-Highly Compensated Employees (NHCs) to participate in plan must be similar to HCEs. – Must satisfy one of following: (1) Percentage Test: Plan covers at least 70% of NHCs (2) Ratio Test: Ratio of percentage of NHCs covered to percentage of HCEs covered is at least 70% (3) Average Benefit Percentage Test: 2-prong test.  Nondiscrimination rules – General Test compares actual benefit accruals of NHCs against actual benefit accruals of HCEs.

14. 14 Copyright 2013 Dedicated Defined Benefit Services LLC 14 Copyright 2013 Dedicated Defined Benefit Services LLC Minimum Vesting Standards  DB benefits must fully vest in 5 years or: Years of Service Vesting Percentage Less than 3 0% At least 3, 4, 5 or 620%, 40%, 60% or 80% 7 or more100%  Special 3 year cliff vesting for cash balance plans.  Must vest upon Normal Retirement Age.  Year of service based on “1,000 hour” rule.

15. 15 Copyright 2013 Dedicated Defined Benefit Services LLC 15 Copyright 2013 Dedicated Defined Benefit Services LLC Top-Heavy Rules  Purpose – Participants who are NHCs must receive minimum benefit or contribution if plan becomes Top Heavy.  Definition of “Top-Heavy” plan. – Disproportionate amount of plan’s accrued benefits are for the benefit of key employees. – Key employees generally include officers earning more than $165,000 for 2013 ($170,000 for 2014) and 1% owners.  If plan is top-heavy for any year, NHCs must receive minimum benefit/contribution. – Separate minimum vesting schedule also applies.

16. 16 Copyright 2013 Dedicated Defined Benefit Services LLC 16 Copyright 2013 Dedicated Defined Benefit Services LLC Special Accrual and Funding Rules for DB Plans  Benefit accrual rule for DB plans – Plan must not provide “back loaded” benefit accruals. – Benefit must accrue ratably over employee’s career. – After PPA, benefit can be “front loaded”  Minimum funding standard for DB plans – Designed to ensure plans are able to pay benefits when they become due. – Requirements backed by 10% excise tax (and 100% excise tax if deficiency is not corrected).

17. 17 Copyright 2013 Dedicated Defined Benefit Services LLC 17 Copyright 2013 Dedicated Defined Benefit Services LLC Limitations on Benefits  Maximum annual benefit under DB plan −Lesser of 100% of average pay, or $205,000 (2013), $210,000 (2014)  Maximum deduction for plan contributions −linked to funding standards — minimum required contributions always deductible

18. 18 Copyright 2013 Dedicated Defined Benefit Services LLC 18 Copyright 2013 Dedicated Defined Benefit Services LLC Advantages and Disadvantages of Tax Qualified Defined Benefit Plans  Advantages – Tax benefits, including immediate deductions. – Upon termination, assets rolled to IRA  Disadvantages – Higher income or older employees earn high benefits – Annual contributions  Examples of plans meeting business needs – To maximally benefit owners or management – To encourage long-term employment

19. 19 Copyright 2013 Dedicated Defined Benefit Services LLC 19 Copyright 2013 Dedicated Defined Benefit Services LLC How Does the “Micro” DB Work for Your Client?  Actuary calculates goal (benefit in retirement), the accumulation & contributions required to reach goal  Calculation based on – Compensation, age, years to retirement, benefit formula, interest rates, etc. – Generally, the older you are, the higher the limit – Investment performance in subsequent years  Employer contributes annually  Employer should be able to maintain the plan for a minimum of three to five years  When plan is terminated, assets rolled into an IRA

20. 20 Copyright 2013 Dedicated Defined Benefit Services LLC 20 Copyright 2013 Dedicated Defined Benefit Services LLC Owner–only, Sole Proprietor  Annual earnings: $450,000  Maximum DB+ 401(k) contribution for: $212,100 –Contribution to DB plan: $173,800 –Contribution to 401(k): $38,300  Annual tax savings: $80,500 –Combined marginal tax rate of 38%  Estimated DB accumulation at age 62: $2.48 MM -10 years, 5% – 7% rate of return  Annual DB benefit: $205,000 Charles, Age 52 Objective: Maximum Tax Deduction

21. 21 Copyright 2013 Dedicated Defined Benefit Services LLC 21 Copyright 2013 Dedicated Defined Benefit Services LLC * Business can be incorporated or unincorporated. Who Qualifies?  OnePersonPlus ® Defined Benefit Plan –Owners and immediate family –Owners with up to 4 common-law employees*  Defined Benefit Plan + Individual 401(k) –Owners and immediate family –Individual 401(k) + Defined Benefit Plan can be combined to MAXIMIZE deductible contributions for owner and spouse.

22. 22 Copyright 2013 Dedicated Defined Benefit Services LLC 22 Copyright 2013 Dedicated Defined Benefit Services LLC Prime Candidates  Earned Income, 1-5 employees ‒ Individuals with self employment income ‒ Small business owners (1-5 person) ‒ Independent Professionals ‒ Side Income (consulting, board fees, royalties, etc.) ‒ Spouse income of highly-paid executive  Wants to contribute more than $50,000 or a higher percentage of compensation  Expect to contribute at least 3-5 years AttorneyDesignerSales Rep Board MemberEngineerPhysician ConsultantFarmerProgrammer ContractorFinancial AdvisorReal Estate Agent DentistInsurance Agent

23. 23 Copyright 2013 Dedicated Defined Benefit Services LLC 23 Copyright 2013 Dedicated Defined Benefit Services LLC Compensation Considered for Plan Type of Business Entity Determines What Can Be Counted as Compensation in Calculating the Contribution Amounts for a Defined Benefit Plan Compensation Quick Reference Chart Entity TypeSource of IncomeCompensation for Plan CorporationW-2 income S-CorporationW-2 + Schedule K-1W-2 income only Sole ProprietorshipSchedule C (net profit)Earned Income (calculate)* PartnershipSchedule K-1 (net profit)Earned Income (calculate)* Limited Liability Company (LLC) – compensation for plan depends on how LLC is taxed. See above for partnership or corporation rules. Employees, other than owners, are paid W-2 income for all entity types. * Earned Income = net profit minus ½ self-employment tax minus plan contribution. Deductions for sole proprietors and partners are limited to net profit minus ½ self-employment tax.

24. 24 Copyright 2013 Dedicated Defined Benefit Services LLC 24 Copyright 2013 Dedicated Defined Benefit Services LLC Married Couple in Business Together, C-Corp Paul, Age 60, Mary, Age 58 Objective: Maximize Retirement Savings  5 Years from Retirement  W-2 Income: $510,000 ($255,000 each)  Total annual DB contribution: $412,100 $201,200 towards Paul’s Retirement $210,900 towards Mary’s Retirement  Annual income tax savings: $156,500  Accumulation at retirement: Paul: $1.15 Million Mary: $1.21 Million 1. Assumes 38% combined federal/state marginal rate. 2. 5-7% rate of return.

25. 25 Copyright 2013 Dedicated Defined Benefit Services LLC 25 Copyright 2013 Dedicated Defined Benefit Services LLC 1. Assumes 38% combined federal/state marginal rate. 2. 5-7% rate of return. Small Business Owner, C-Corp, +2 Employees,  Owner’s W-2 income: $400,000 –Employee 1 age 28 earning: $35,000 –Employee 2 age 35 earning: $45,000  Maximum DB contribution for owner: $197,800 –DB contribution for Employee 1: $6,100 –DB contribution for Employee 2: $11,400 –92% of contribution for Mollie  Annual income tax savings for Mollie: $75,100 1  Estimated accumulation for Mollie at 62: $1.73 Million 2 Mollie, Endodontist, Age 55

26. 26 Copyright 2013 Dedicated Defined Benefit Services LLC 26 Copyright 2013 Dedicated Defined Benefit Services LLC Sole Proprietor, Spouse with Self- Employment Income  Annual earnings: $100,000 —After paying SE Tax  Maximum DB contribution for 2013: $80,000  2013 max tax savings: $30,400 —combined marginal tax rate of 38%  DB Accumulation at age 65: $461,000 —5 years, 5 - 7% rate of return  Annual DB Benefit: $40,700 Ella, interior designer, Age 60

27. 27 Copyright 2013 Dedicated Defined Benefit Services LLC 27 Copyright 2013 Dedicated Defined Benefit Services LLC Owner-only Sole Proprietor, Age 40  Annual earnings: $100,000 —After paying SE Tax  401(k) contribution for: $42,500  Annual tax savings: $16,150  Combined marginal tax rate of 38%  Compared to SEP contribution of $25,000 Cathy is a freelance journalist, married to a high-earning corporate employee

28. 28 Copyright 2013 Dedicated Defined Benefit Services LLC 28 Copyright 2013 Dedicated Defined Benefit Services LLC Owner-only Sole Proprietor, Age 40  Annual earnings: $100,000 —After paying SE Tax  DB contribution: $37,100  401(k) contribution: $23,500  DB + 401(k) contribution: $60,600  Annual tax savings: $23,000  Combined marginal tax rate of 38%  Compared to 401(k) contribution of $42,500 If Cathy wants to maximize her tax-deferred contribution, she could open a DB+401(k):

29. 29 Copyright 2013 Dedicated Defined Benefit Services LLC 29 Copyright 2013 Dedicated Defined Benefit Services LLC New Flexibility Strategies  Adding an individual 401(k) to a DB  Consultant age 50, $200,000 in W-2 income from his S- Corporation  Maximum DB Contribution ~$124,000 in 2013  More comfortable committing to $75,000 a year; more only in high income years. 2013 Annual Estimated DB Contribution:$75,000 2013 401(k) Contribution:$35,000 Total 2013 Contribution$110,000 2014 DB Contribution:$75,000 2014 401(k) Contribution:$0 Total 2014 Contribution$75,000

30. 30 Copyright 2013 Dedicated Defined Benefit Services LLC 30 Copyright 2013 Dedicated Defined Benefit Services LLC New Flexibility Strategies  Contributions ranges YearsCompensationContribution RangeSusan Chooses to Contribute 2010$95,000--- 2011$150,000--- 2012$115,000--- 2013$120,000$40,000 to $120,000$110,000 2014$70,000$30,000 to $120,000$50,000 2015$95,000$44,000 to $120,000$120,000 2016$120,000$25,000 to $120,000$60,000 2017$135,000$25,000 to $135,000$130,000

31. 31 Copyright 2013 Dedicated Defined Benefit Services LLC 31 Copyright 2013 Dedicated Defined Benefit Services LLC New Flexibility Strategies  Funding over time  Amend Plan  Freeze the Plan  Terminate and roll to IRA

32. 32 Copyright 2013 Dedicated Defined Benefit Services LLC 32 Copyright 2013 Dedicated Defined Benefit Services LLC SUMMARY: Advantages of Micro DB Plans  LARGE contributions for the next 5-10 years $1MM to $2MM in new client savings  LARGE tax-deduction, saves client $40,000-$60,000* or more in 2013 * Assumes a 38% tax rate  Seek stable, low risk investments, not chasing high returns  Access to wide variety of investments  Loans available  Streamlined, easy set up, IRS-approved prototype document  Clients ready to save who previously shied away from commitment, now have more control over their contributions

33. 33 Copyright 2013 Dedicated Defined Benefit Services LLC 33 Copyright 2013 Dedicated Defined Benefit Services LLC SUMMARY: Plan Considerations  Defined Benefit Plans are not right for everyone – Annual contributions are required – More expensive to establish and maintain – Primarily funded by the employer – Benefits generally must be paid regardless of how plan performs

34. 34 Copyright 2013 Dedicated Defined Benefit Services LLC 34 Copyright 2013 Dedicated Defined Benefit Services LLC Plan Set-up / Funding Deadlines  Plan Set-up: Must be established by end of plan year, usually December 31 st  Dedicated DB - Quick Adoption Process  Individual 401(k) Salary Deferral Contributions Due as soon as administratively possible  Individual 401(k) Employer Profit-Sharing Contributions due by tax-filing deadline, including extensions  OnePersonPlus DB Contributions –8 ½ Months after end of plan year

35. 35 Copyright 2013 Dedicated Defined Benefit Services LLC 35 Copyright 2013 Dedicated Defined Benefit Services LLC Supporting You & Your Clients 1. Online Calculator: Run an illustration comparing small business plans online at: www.OnePersonPlus.com www.OnePersonPlus.com or Call for a custom proposal: 1(866)269-2706 2.Present to Client: Dedicated DB available for call 3. Client Completes Set-up Questionnaire & sends to Dedicated DB - Set-up Fee ($1,250 for 1-person plan) 4. Client receives Adoption Agreement for signature 5. Then opens investment account

36. 36 Copyright 2013 Dedicated Defined Benefit Services LLC 36 Copyright 2013 Dedicated Defined Benefit Services LLC Questions?

37. 37 Copyright 2013 Dedicated Defined Benefit Services LLC 37 Copyright 2013 Dedicated Defined Benefit Services LLC Thank You! Dedicated Defined Benefit Services Call: 1(866)269-2706 Visit: www.OnePersonPlus.com