Vol. 8 No. 3 RCG Magazine

2 • Vol. 8 No. 3 www.retirementcapital.com

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the ‘Act’) was signed into law on July 21, 2010. While there are

numerous financial reform provisions included in the Act, executive compensation is its centerpiece.

Although the provisions of the Act apply to U.S. public companies with a market cap of $75 million or more, small to mid-size corporations, private companies, and not-for-profits should understand the underlining intent of the legislation as well as its key provisions. Why?

The IRS and The Department of Labor will, undoubtedly, rely on Dodd-Frank as regulatory 1. precedent for future “reasonable compensation cases and

Shareholders, owners and benefactors of these organizations have already begun to use the Act, 2. even though not required by law, as the new standard for governance and accountability.

So, heads up everyone. It’s time to move from the sidelines and become an active player in understanding Dodd-Frank!

Vol. 8 No. 3 • 3www.retirementcapital.com

Even though the more cynical executives and directors shake their head in disbelief over some of the Dodd-Frank provisions, there is some good in Act. Some of it codifies needed best practices for compensation committees. However, as is the case with so many laws passed under both Democratic and Republican administrations (for example, Sarbanes-Oxley), the Dodd-Frank Act will provide lots of work for lawyers while placing additional burdens on business.

What’s Important? The act contains numerous provisions for which the SEC will develop regulations. Below are highlighted those requiring your knowledge for 2011 executive compensation and benefits planning:

Say-on-Pay �Compensation Comparisons & Internal Pay Equity (Pay-for-Performance) �Clawback Policies �Compensation Committee Independence & Consultants �

Say-on-Pay: Companies are required to give shareholders either the opportunity to cast a non-binding, advisory vote annually, or every 2 or 3 years on executive pay and change-in-control arrangements for the top five executives. Say-on-Pay proxy resolutions do not create a forum for shareholders to say what they like or don’t like about executive compensation, rather it requires a yes or no vote. The impact of this provision will most likely ensure that compensation committees will focus on not only the appropriateness of current and future pay actions but, just as importantly, on the public perception of their company’s executive pay practices. Adopting Say-on-Pay will, undoubtedly, create more power and influence for a few of the proxy advisory firms such as RiskMetrics (the old ‘ISS’) and Glass Lewis. Many shareholders have come to rely on these firms for advice and voting direction and companies are very mindful of their voting recommendations … as you should be as well.

Compensation Comparisons & Internal Pay Equity: The SEC is required to adopt rules requiring each public company to disclose in its proxy statement the relationship of the compensation that it actually paid

its executives to the company’s actual performance. In addition, rules will be put in place requiring the comparison between the CEO’s total annual compensation and the median annual total compensation of all its employees except the CEO (the “internal pay equity ratio”). Historically, the SEC has struggled with both these issues. Defining reporting requirements to connect pay and performance will be a major challenge for SEC staffers particularly as it relates to short-term incentives. While the intent of this provision of the Act seeks to strengthen the transparency between results and pay, performance can be measured in a variety of ways. However, you should begin proactively reviewing how best to disclose pay-for-performance for your company.


Clawback Policies: In response to shareholder concerns over the level of executive compensation, the Act strengthens provisions of the Sarbanes-Oxley Act (SOX). The Act requires the clawback of incentive-based executive compensation, including stock option gain, in the event of an accounting restatement due to material noncompliance with financial reporting requirements even if no one, including the executive whose pay is at issue, engaged in misconduct. Clawback amounts will be based on overstated results for the three years preceding the restatement date. While clawbacks have been in place for the CEO and CFO since SOX was enacted in 2005, the Dodd-Frank Act broadens the scope of potential clawbacks including who would be subject to repay monies, the time period to return compensation previously paid, the amount to pay back and what triggers a clawback (poor performance, etc.). To date, clawbacks have been largely uncontested in the U.S. court system outside of the standard SOX definition and even though future enforcement will be an issue, you need to be mindful of the implications of clawbacks in this new legislation.

Compensation Committee Independence & Consultants: The SEC has been directed to ensure that the securities exchanges add a listing requirement that executive compensation be set by ‘independent’ directors. In defining independence, the exchanges will need to identify factors impacting independence, which could result in definitions that exceed those currently in place at the NYSE and NASDAQ. These would include whether the director received any income from the company through consulting, advisory, or

compensatory fees and if the director is affiliated with the company or one of its subsidiaries or affiliates. Depending how these new standards shake out, they may result in an ‘independent’ director more closely resembling an ‘outside’ director as defined in Section 162(m) of the IRS code.

Listing standards must also prescribe that the compensation committee has the sole discretion to hire its own consultants, legal counsel, and other advisors, has the appropriate funding to do so, and considers the independence of such advisors. More specifically, companies will also be required to disclose whether the compensation committee actually retained compensation consultants and how any potential conflicts of interest were addressed and resolved.

You will need to pay close attention to the new definition of director independence in the director selection and committee assignment process as well as being comfortable with the relationships with your outside advisors under these new guidelines.


Company Actions: While the Dodd-Frank Act sets up new guidelines for executive compensation and corporate governance, the effective date and details of its provisions will not be forthcoming from the SEC and the NYSE/NASDAQ in time for definitive 2011 executive compensation and benefits planning. Irrespective of when details emerge, RCG|Executive Compensation Group recommends that boards and management consider the following actions items in preparation for the final rules and regulations:

Review the Board or Compensation Committee’s �charter for sound governance practicesEvaluate your processes for determining executive pay �Review the role and independence of your outside �advisorsAnalyze the total compensation paid to the company’s �“Names Executive Officers” to ensure that there is a strong link between executive pay and company performanceDevelop a prototype graphic representation of �relationship between executive pay and company performanceDetermine your company’s “Internal Pay Equity Ratio” �Conduct a compensation risk assessment �Conduct a wealth accumulation analysis to determine �the retention value of your executive compensation and benefits programs

Larry Robinson is not associated with the broker dealer, Retirement Capital Group Securities, a wholly-owned subsidiary of Retirement Capital Group, Inc. Investors should consider the investment objectives, risks and charges and expenses of the contract and underlying investment options, risks carefully before investing, The prospectus contains this and other information about the

investment company and must precede or accompany this material. Please be sure to read it carefully.

The opinions, estimates, charts, and/or projections contained hereafter are as of the date of this presentation/material(s) and may be subject to change without notice. RCG endeavors to ensure that the contents have been compiled or derived from sources

RCG believes to be reliable and contain information and opinions that RCG believes to be accurate and complete. However, RCG makes no representation or warranty, expressed or implied, in respect thereof, takes no responsibility for any errors and omissions

contained therein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this presentation/material(s) or it contents. Information may be available to RCG or its affiliates that are not reflected in its presentation/material(s).

Nothing contained in this presentation constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any investment product. Investing entails the risk of loss of principal and the investor alone assumes the sole responsibility of

evaluating the merits and risks associated with investing or making any investment decisions.

This report contains proprietary and confidential information belonging to RCG (www.retirementcapital.com). Acceptance of this report constitutes acknowledgement of the confidential nature of the information contained within.


B a c k g r o u n d a n d M e t h o d o l o g y

The forward progress of successful law firms is driven, in large part, by the productivity of highly compensated partners. Competition for this talent is fierce. For this reason, expert retirement planning is a prominent strategy to 1) attract desired partners; 2) retain partners’ capital contributions; and 3) reward exceptional performance.

A dearth of information exists on retirement planning within law firms. In an effort to elevate the practice within the legal community, RCG|Benefits Group undertook a nationwide study to learn more and, in the process, become more responsive to the needs of partners.

Study Objective

RCG|Benefits Group’s Retirement Planning for Law Partners – A Study on Trends and Tactics was designed to draw a representative sampling of leading law firms and determine which retirement programs are currently in place and if these plans meet partner goals to accumulate sufficient retirement assets.


Regional Breakdown

Questions focused on the type of retirement plans used for partners and formulas applied to calculate benefits. Of the 500 firms, 9 percent responded with completed questionnaires; the data was analyzed by RCG staff and is reported on the following pages.

Number of Lawyers Employed by Size of Firm:

12%

4%

42%42%

1 - 492%

50 - 20026%

201 - 30014%

301 - 50016%

Over 50042%

Participating Firm Size

With this first effort, we sought to identify issues facing individual partners in retirement planning, and what assistance, if any, firms provide their partners in the course of retirement planning. We also suggest alternative solutions to assist partners in filling the retirement gap such as cash balance pension plans or the Professional Security PlanSM.

Study Methodology

An eleven-question survey was distributed online to 500 leading law firms, of varying firm sizes, and from different regions of the country. The following map provides a pictorial breakdown of the geographic locations of the respondents.

8 • Vol. 8 No. 3 www.retirementcapital.com Vol. 8 No. 3 • 9www.retirementcapital.com

S u m m a r y o f D a t a

401(k) Plans100% of fi rms offer 401(k) plans.40% of those match contributions.

25% on the Dollar with

Limit12%50% on the

Dollar with Limit29%

Dollar for Dollar with Limit

6%

Lump Sum6%

Other, Partners Only6%

Other, Percentage

Based23%

Safe Harbor18%

401(k) Match Details401(k) Match Details

Nonqualifi ed Plans31.0% of fi rms offer Nonqualifi ed plans.39% of the plans are funded, 8% of which are only partially funded.15% of the plans are frozen.

Yes31%

No61%

Partially8%

Question 5: NQDC FundedNonqualifi ed Plan Funded

Cash Balance 26.2% of fi rms offer Cash Balance Pension plans for partners. Lump Sum

Contribution9%

Compensation Based: Points

27%Compensation

Based: Percentage

18%

Frozen9%

Not Provided37%

Question 4: Pension ForumlaCash Balance Pension Formula

Defi ned Benefi t35.7% of fi rms offer Defi ned Benefi t plans.27% of the Defi ned Benefi t plans are frozen.40% of fi rms only offer Defi ned Benefi t plans to partners.

Cash Balance Plan

27%

Defined Benefit Plan

67%

Defined Contribution

Plan6%

Defined Benefit Plans by TypeTypes of Defi ned Benefi t Plans

Yes40%

No53%

Partial7%

Question 8: Mandatory RetirementEnable Mandatory Retirement

Age for Partners

6543%

6628%

7029%

Question 8: Retirement AgeMandatory Retirement Age

Other Plans 19% of fi rms offer other plans for their partners.Other Plans include: Lifetime benefi ts, Payout upon retirement or death, Pension plans, Supplemental after-tax life insurance.93% of fi rms offer Life Insurance.100% of fi rms offer Long-Term Disability Insurance.36% of fi rms offer an Equity Buy-Out Program.

6|rCG www.retirementcapital.com|7


401(k) Plans100% of fi rms offer 401(k) plans.40% of those match contributions.

25% on the Dollar with

Limit12%50% on the

Dollar with Limit29%

Dollar for Dollar with Limit

6%

Lump Sum6%

Other, Partners Only6%

Other, Percentage

Based23%

Safe Harbor18%

401(k) Match Details401(k) Match Details

Nonqualifi ed Plans31.0% of fi rms offer Nonqualifi ed plans.39% of the plans are funded, 8% of which are only partially funded.15% of the plans are frozen.

Yes31%

No61%

Partially8%

Question 5: NQDC FundedNonqualifi ed Plan Funded

Cash Balance 26.2% of fi rms offer Cash Balance Pension plans for partners. Lump Sum

Contribution9%

Compensation Based: Points

27%Compensation

Based: Percentage

18%

Frozen9%

Not Provided37%

Question 4: Pension ForumlaCash Balance Pension Formula

Defi ned Benefi t35.7% of fi rms offer Defi ned Benefi t plans.27% of the Defi ned Benefi t plans are frozen.40% of fi rms only offer Defi ned Benefi t plans to partners.

Cash Balance Plan

27%

Defined Benefit Plan

67%

Defined Contribution

Plan6%

Defined Benefit Plans by TypeTypes of Defi ned Benefi t Plans

Yes40%

No53%

Partial7%

Question 8: Mandatory RetirementEnable Mandatory Retirement

Age for Partners

6543%

6628%

7029%

Question 8: Retirement AgeMandatory Retirement Age

Other Plans 19% of fi rms offer other plans for their partners.Other Plans include: Lifetime benefi ts, Payout upon retirement or death, Pension plans, Supplemental after-tax life insurance.93% of fi rms offer Life Insurance.100% of fi rms offer Long-Term Disability Insurance.36% of fi rms offer an Equity Buy-Out Program.

6|rCG www.retirementcapital.com|7



S u M M a r y o f c o n c l u S i o n S

100 percent of all firms surveyed offer a 401(k) Plan. �

Largest percentage (29%) offer a 50 percent �matching formula.

90 percent of firms offer a qualified defined �contribution plan or profit sharing.

64 percent of firms do not offer a defined benefit �plan; of those that do, 80 percent represent firms with 500 or more attorneys.

40 percent of firms offer defined benefit plan �availability to partners only.

Only 26 percent offer a cash balance pension plan for �partners; of those, 27 percent use a compensation-based formula.

69 percent of firms do not offer a nonqualified �deferred compensation plan. Of the remaining 31 percent that do, 39 percent of the plans are funded or partially funded.

Only 19 percent of firms offer partners participation �in alternative wealth accumulation or retirement plans.

93 percent of firms offer some type of life insurance. �

Interestingly, more than half of all firms do not have �a mandatory retirement age policy; of those that do, 43 percent state age 65; 28 percent state 66; and 29 percent state age 70.

100 percent of firms offer long-term disability �insurance to partners.

Slightly more than one-third of firms offer an equity (partner’s interest) buy-out program. �


t h e W i d e n i n g r e t i r e M e n t g a p Due to Internal Revenue Service restrictions on qualified plans, firm partners do not have the freedom or flexibility to accumulate wealth as do executive clients at publicly traded companies. This disparity creates a sizeable retirement gap as illustrated in the bar chart below. If firm partners expect to reach a level of retirement security which supports current lifestyles, this gap must be filled.

The IRS limits contribution amounts to qualified plans such as 401(k) plans, and subjects them to coverage and discrimination testing, which may further limit both employee and employer plan contributions. Let’s review specific limitations to qualified plans for 2010:

401(k) Retirement Plans$110,000 of wages earned in preceding year classifies �employee as “highly compensated”

Discrimination testing may limit deferrals; that is, �deferrals made by the highly compensated are limited by the amounts deferred by general employees

$16,500 maximum deferral ($22,000 if age 50 or older) �

Company contributions limited to $49,000 �

$245,000 maximum eligible compensation limit �

AssumptionsAge 45; retirement age 65•401(k) starting balance $50,000; contributions to max under laws•Salary increases 4%; social security includes 3% annual cost of living adjustment•7% investment return•

0%

10%

20%

30%

40%

50%

60%

70%

80%

$125,000 $200,000 $300,000 $500,000

$67,462 $67,462

$67,462 $67,462

$46,103

$46,103

$46,103

$46,103

$97,119

$223,530 $392,078

$729,174

401(k) Benefit Social Security Additional Income


Limitations also apply to other types of retirement plans:

Defined Benefit Plans

$195,000 maximum benefit payout �

$245,000 maximum eligible compensation limit �

Individual Retirement Accounts

$5,000 maximum contribution ($6,000 if age 50 or older) �

Employees with adjusted gross income greater than $105,000 (married) or $63,000 �(single) cannot deduct contributions to an IRA account if participating in a qualified retirement plan (IRC Section 408)

With these limitations in mind, how do firm partners fill the retirement gap?Personal investment: Take your after-tax income and invest in your own strategy1.

Participate in an employer-sponsored, pre-tax nonqualified deferred compensation plan 2.

Participate in the Professional Security Plan3. SM, an after-tax accumulation strategy

Do4. nothing

k e y S t o r e t i r e M e n t S u c c e S S

The cornerstone of a partner’s retirement planning is the firm-sponsored benefits plan. One aspect of these plans is the deferred compensation arrangement, which enables partners to defer segments of their compensation program for retirement at a later date. The tax structures at most law firms – limited liability corporation or limited liability partnership – may render deferred compensation plans (DCPs) financially unattractive. Thus, one must look for alternatives.

Tax-Efficient Path

Sound retirement preparation calls for a partner to first establish his or her after-tax retirement income goal, adjusted for inflation. Then, he needs to determine if his retirement assets are sufficient to meet this goal. If not on track, the partner’s next step is to find the tax-efficient path to retirement security. While a firm-sponsored program may be a smart initial solution, it is important not to overlook other strategies such as:

Traditional deferred compensation plans �

Qualified cash balance pension plans �

After-tax strategies like the Professional Security Plan �

Life Insurance accumulation plans �


e x p l a n a t i o n o f p l a n t y p e S

We offer the following section to help you to better understand the various types of retirement plans used by law firms. It is by no means exhaustive; however, this section will lay the groundwork for your decision making process.

Cash Balance Pension Plans

Cash Balance Plans are defined benefits plans that resemble defined contribution (DC) plans in how they deliver benefits by way of a running account balance, called the Hypothetical Account Balance (HAB). The HAB is comprised of two components: Cash Credits and Interest Credits.

Cash Credits are annual amounts credited to your HAB (similar to profit-sharing contributions). Cash Credits can be defined as a percentage of pay, a flat-dollar amount, or a percentage of the maximum allowed by law. These amounts are added to the HAB as of the last day of the plan year.

Interest Credits apply to the HAB annually, based on the plan’s provisions. Interest crediting must not exceed a “market rate of return.” Typically, plans are credited with interest based on a 30-year treasury rate from the preceding year, or at a conservative, flat rate of no more than 5 percent.

Both Cash Credits and Interest Credits are defined in the plan document. Thus, the participant’s benefit is defined, and is not allowed to fluctuate when a participant investment direction changes. This feature distinguishes the Cash Balance Plan from a DC plan.

For example:

A participant is in a Cash Balance Plan that provides an annual Cash Credit of $100,000, and annual Interest Credits of 5 percent.

HAB at Jan 1 Interest Credit Cash Credit HAB at Dec 31Year 1 0 0 100,000 100,000Year 2 100,000 5,000 100,000 205,000

Year 3 205,000 10,250 100,000 315,250

To the extent actual investment return falls short of the Interest Credits, the plan sponsor must make up the difference over a period of time. Similarly, if asset performance exceeds the Interest Credits, the resulting surplus can be applied to future years, reducing the required contribution.

Cash Balance Plans work particularly well for law firms. Because they are defined benefit plans, they provide deferral opportunities much higher than in any other qualified arrangement. In addition,


Cash Credits can vary within the partnership group based on variables such as age, service, and ownership percentage, among others. Maximum allowable deferrals increase by age as one moves closer toward retirement. The following chart compares the estimated maximum deferrals:

Age 401(k) Only 401(k) + Profit Sharing (Full DC)

Cash Balance Maximum Deferral

Full DC + Cash Balance Max

35 16,500 49,000 60,000 109,00040 16,500 49,000 78,000 127,00045 16,500 49,000 100,000 149,00050 22,000 54,500 128,000 182,50055 22,000 54,500 165,000 219,50060 22,000 54,500 212,000 266,50065 22,000 54,500 220,000 274,500

Annual Testing Required

If a Cash Balance Plan provides non-uniform benefits, it must be tested to ensure those benefits are not discriminatory in favor of highly compensated employees. For this purpose, non-uniform benefits are almost always combined with the firm’s existing DC plan. Non-discriminatory tests involve complex calculations under Section 410(b) and 401(a)(4) of the Internal Revenue Code. In addition, there are several other tests which must be performed annually. The following two tests are noteworthy:

Minimum Participation under IRC Section 401(a)(26) Under this test, the plan must benefit a certain number of participants at a meaningful level. Smaller law firms must exercise caution to ensure the plan benefits are at least the lesser of 50 participants or 40 percent of eligible employees. This particular test only applies to the Cash Balance Plan; it is not combined with the DC Plan, and the DC Plan is not subject to this test.

Gateway Test To test the Cash Balance Plan (CBP) and DC plan in combination, both plans must provide a minimum level of benefits to non-highly compensated employees. This level usually amounts to 5.0-7.5 percent. In plan designs which provide large Cash Credits to participants close to retirement age, it is typically 7.5 percent.


Situation: ABC law firm employs 410 partners, 430 associates, and 900 support staff; it decides to adopt a Cash Balance Plan to reduce the tax burden on the partnership.The Cash Credits vary depending on individual age and service with the firm, and a small percentage of the owners opt out of the plan. Plan participants continue to receive the maximum profit-sharing allocation in the firm’s DC plan. Associates are not eligible for any benefits other than their own 401(k) deferrals. Support staff received 5 percent as a profit-sharing allocation before the CBP. Now they receive 7.5 percent allocations, but are not eligible for any CBP benefits.

Before Cash Balance Plan After Cash Balance Plan

Count Total Pay Profit Sharing

Profit Sharing CBP Total

Partners 410 $330M $13.3M $13.3M $28.0M $41.3MAssociates 430 80M 0.0M 0.0M 0.0M 0.0M

Staff 900 45M 2.3M 3.4M 0.0M 3.4MTotal 1,740 $455M $15.6M $16.7M $28.0M $44.7M

Impact: The partnership of ABC law firm was able to reduce its taxable income by $28M, while only increasing its staff benefits by $1.1M to satisfy the Gateway Test.

Situation: XYZ law firm has 60 partners, 90 associates and 120 support staff, and is considering adopting a Cash Balance Plan to accelerate retirement savings for key individuals. Cash Credits are offered at two basic levels, based on ownership percentage. All partners continue to receive the maximum profit-sharing allocation in the firm’s DC plan. Associates are not eligible for any benefits other than their own 401(k) deferrals. Support staff were receiving 5 percent as a profit-sharing allocation before the CBP. Now they receive 7.5 percent allocations, but are not eligible for any CBP benefits.

Before Cash Balance Plan After Cash Balance Plan

Count Total Pay Profit Sharing

Profit Sharing CBP Total

Partners 60 $40M $2.0 $2.0M $3.0M $5.0MAssociates 90 15M 0.0M 0.0M 0.0M 0.0M

Staff 120 6M 0.3M 0.5M 0.0M 0.5MTotal 270 $61M $2.3M $2.5M $3.0M $5.5M

Impact: Under this arrangement, XYZ firm would have to pay an extra $200,000 in staff benefits in order to receive an extra $3M deduction – an easy sell. However, since there are only 60 partners, XYZ firm could face a problem with opt outs since the minimum participation test requires at least 50 participants to be covered at all times. Alternatively, XYZ firm could provide Cash Credits to a select group of associates or staff to ensure compliance with this test.

Note: Information on cash balance plans supplied by Clarity in Numbers, LLC.


Nonqualified Deferred Compensation Plans

A nonqualified deferred compensation (NQDC) plan is an agreement entered into by a partner with his or her firm to tax defer compensation to a future date. The amounts are held by the firm (deferred) while the partner is actively employed, and paid out to the partner upon separation from service, disability or death. The partner does not pay income tax on those deferred amounts until the amounts are actually paid to him or her.

Compared to qualified retirement plans, NQDC plans offer added flexibility, despite governance by IRC Section 409A. For the firm, these arrangements are “unfunded” obligations and the amounts deferred plus earnings are subject to the claims of the firm’s creditors. With unfunded deferred compensation plans, the firm may purchase assets like life insurance or mutual funds to help satisfy its obligations under the plan, but the nonqualified plan is not funded for ERISA purposes.

If the plan is designed properly, compensation will not be included in the partner’s income until paid under the terms of the plan. The firm does not earn a compensation tax deduction until the benefits are paid, a fact that makes these arrangements unattractive for law firms, which are typically structured as Limited Liability Corporations or Limited Liability Partnerships.

Professional Security PlanSM (PSP) Alternative

The PSP is a firm-sponsored plan, controlled by the participant. What sets the PSP apart from nonqualified pension or retirement plans is the way investment gains are taxed. Contributions are made with after-tax dollars, but all earnings accumulate, tax-deferred, on the pre-tax amount (if loan feature is elected, discussed on the following page)1. Structured properly, distributions from the PSP are not subject to current taxation. What’s more, it also includes a non-taxable life insurance benefit.

The PSP achieves its tax-advantaged status because it is powered by a variable universal life (VUL) insurance policy designed to provide high early-cash value relative to the premiums paid, carries no surrender charges and offers an innovative loan feature. The flexibility in product structure combined with access to a carefully selected group of fund managers offers the potential for strong long-term growth and performance2.


Please note, the PSP is not a qualified retirement plan like a Roth IRA or a 401(k) Roth and is not a non-qualified pension or deferred compensation plan. It is a strategy for putting after-tax dollars, and optional

pre-tax dollars, into a variable universal life policy where earnings are tax deferred. And, if properly structured, distributions can be non-taxable.

The policy offers life insurance protection with access to more than 60 investment alternatives called “subaccounts” from fund managers such as Fidelity, Franklin Templeton, American Funds, and others.

1. Optional feature. Contributions refer to premiums paid into a variable life insurance product.2. Depending upon the performance of the underlying investment options, the cash value available for loans and surrenders in a variable universal life

insurance contract may be worth more or less than the original amount invested in the contract. VUL products are long-term life insurance products subject to investment risk. If the policy is classified as a Modified Endowment Contract under IRS rules, distributions are generally subject to income taxes and a 10% federal tax penalty

Tax Restoration Concept

Assume you have $50,000 pre-tax to contribute to the Professional Security Plan. After paying all the applicable taxes there is approximately $30,000 to invest after-tax, assuming a 40% tax rate. However, due to the unique structure of the Professional Security Plan, the amount that is invested can become $50,000 again. When the after-tax $30,000 premium is paid into the policy, the insurance carrier or other lenders can “loan” your account the amount paid in taxes, $20,000 in this example, so you have the entire $50,000 at work for you. The impact of taxes has been deferred.

If using the ALR, this $20,000 is a non-recourse “policy loan.” The loaned amounts will not show up on your credit report or affect your debt/equity ratio. There is also no required repayment on the policy loan except through policy proceeds at surrender or death, and there is no pre-payment penalty. The policy loan’s interest rate or carrying charge (2.01% for September 2010) is the 90-day LIBOR rate plus 1.5% capped by the Moody’s Corporate Bond Rate.

Why Life Insurance?

The Professional Security Plan uses a variable universal life insurance policy (VUL) to provide participants with tax advantages. There is a big difference between the VUL policy used with the PSP compared to what your financial planner may recommend; we’ll call that “Retail.”


As an institutionally priced contract, the Professional Security Plan is generally not available to individuals and the charges are designed for employer-sponsored programs. In addition to enabling you accumulate retirement assets efficiently:

Assets accumulate on a tax-deferred basis �

If properly structured, distributions are non-taxable �

Survivor benefits are income tax free �

a B o u t r c g

RCG|Benefits Group collaborates with Fortune 1000 corporations, leading non-profits and the highly compensated on best practices for executive compensation and benefits, and specializes in process-driven retirement consulting and the development of executive compensation and benefits programs.

William L. MacDonald founded RCG in 2003 with one goal in mind: Develop an equitable, systematic process for organizations to attract and retain key talent and enable those executives to reach critical retirement goals.

A pioneer in and major contributor to the executive compensation and nonqualified benefits field, Mr. MacDonald’s industry roots stretch back to 1978 with the launch of Compensation Resources Group, which grew to market leadership in nonqualified executive benefits, and was acquired by a NYSE consulting firm in 2000. Through his collaborative process on client accounts, his team developed many firsts in the business:

First to establish the fiduciary services concept, used by leading trust companies �

First “haircut” provision for any time distributions (later altered by IRS §409A) �

First to develop Secured Trust for bankruptcy protection in public companies; �prevailed in court

First web-enabled platform for NQDC plan administration and custom client �reporting

RCG is one of a handful of national firms offering the caliber of senior-level experience and resources to heavy lift companies through today’s labyrinth of legislation, regulation and market confusion.

“ To discover new and better ways to do things, you must think differently. Be willing to risk and explore. Break open

every possible box where answers and solutions lie in wait,” explains Bill MacDonald, Chairman, President and Chief Executive Office, RCG

www.retirementcapital.com Vol. 8 No. 3 • 18

RCG|BE N E F I T S GRO U P

12340 El Camino Real, Suite 400San Diego, CA 92130

Tel: (858) 677.5900 | Fax: (858) 677.5915

http://www.retirementcapital.com

RCGB E N E F I T S G R O U P

Not an offer to sell. Variable Universal Life Insurance is available by prospectus only

Securities are offered by Retirement Capital Group Securities, Member FINRA / SiPC. Retirement Capital Group Securities, Inc. is a wholly owned subsidiary of Retirement Capital Group, Inc.

Investors should consider the investment objectives, risks and charges and expenses of the contract and underlying investment options, risks carefully before investing, The prospectus contains this and other information about the investment company and must precede or accompany this material.

Please be sure to read it carefully.

The opinions, estimates, charts and/or projections contained hereafter are as of the date of this presentation/material(s) and may be subject to change without notice. RCG endeavors to ensure that the contents have been compiled or derived from sources RCG believes to be reliable and contain

information and opinions that RCG believes to be accurate and complete. However, RCG makes no representation or warranty, expressed or implied, in respect thereof, takes no responsibility for any errors and omissions contained therein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this presentation/material(s) or it contents. Information may be available to RCG or its affi liates that are not refl ected in its presentation/material(s). Nothing contained in this presentation constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any

investment product. Investing entails the risk of loss of principal and the investor alone assumes the sole responsibility of evaluating the merits and risks associated with investing or making any investment decisions.

This report contains proprietary and confi dential information belonging to RCG (www.retirementcapital.com). Acceptance of this report constitutes acknowledgement of the confi dential nature of the information contained within.

William L. MacDonald, Registered Representative - California Insurance License #0556980

Date post:	22-Mar-2016
Category:	Documents
Upload:	rcgexecutive-compensation-benefits-group
View:	233 times
Download:	1 times

Vol. 8 No. 3 RCG Magazine

Documents