The “Fully Insured” Retirement Plan
Your client’s business has been good, but their tax bill is looming. They want tax relief, and they know that they need to plan for retirement. They already take plenty of risk by owning their own business, and want to diversify their portfolio to include strong guarantees. A 412(e)(3) plan enjoys certain advantages over the traditional defined benefit plan and is worth exploring if your client is the owner of a small business. It is often referred to as an, “insurance contract plan”.
These advantages create a plan that, compared to a traditional defined benefit plan, will produce:
• Larger initial deductions;
• Greater stability in the contribution level;
• Simpler plan administration, and
• A secure promise of future benefits.
What Are The Advantages Of A 412(e)(3) Insurance Contract Plan Over A Traditional Defined Benefit Plan?
• Does not require an enrolled actuary;
• Is not subject to the full funding limitation tests of a defined plan;
• Is required to use the insurance contract guarantees as funding assumptions, thus helping shield them from IRS attack as unreasonable funding assumptions;
• Can be designed to eliminate the potential of excess plan assets that, in a traditional plan, could be subject to taxes and penalties of 80% or more upon termination of the plan;
• Produces an understandable accrued benefit since it is simply the cash value of the contracts funding the participant’s account;
• Creates larger initial deductions than a traditional plan since the funding assumptions are required to be much more conservative; and
• Provides retirement benefits that are guaranteed by the insurance company and not just the financial strength of the particular employer providing the plan.
In short, a Fully Insured Defined Benefit 412(e)(3) allows for greater tax deductible contributions and a greater degree of guarantees than other qualified plan types. The contributions to the plan are tax deductible. The earnings of the plan assets are tax deferred. The guaranteed benefits are provided through insurance company products that have guarantees. The contribution you make on behalf of your employees can be paid with dollars that may have otherwise been paid in taxes. The plan assets are generally protected from creditors.
Take a look at the flyer below, it can also be downloaded here. Let the experts at Lafayette Life show you how they can design a 412(e)(3) for your clients. Give them a call at (800) 555-6048.