|
412(i) DEFINED BENEFIT PENSION PLAN
"The Hottest, Domestic Protection Available"
O. J. Simpson didn't lose his multi million-dollar football pension because it was protected under the Employee Retirement Income Security Act (ERISA). Your 412(i) plan has the same ERISA protection. The 412(i) plan is protected from creditors, lawsuits, and other threats. The U.S. government has an interest in seeing that employees don't lost their retirement plan that is established for the employee by their employer, so the laws protect such plans. An IRA is not afforded the same protection. 412(i) Plans offer tremendous tax-subsidized creditor protection. Essentially, the business owner is able to move several hundred thousands of dollars out of the business and into an asset-protective structure (the Plan). Essentially, the Plan should be exempt from creditors under the Economic Recovery and Income Security Act of 1974 (ERISA). Because the plan is exempt from creditors, the Uniform Fraudulent Transfer Act should not apply to transfers made from the business to the plan (UFTA specifically excludes "exempt" assets). Thus, transfers from the business to the Plan are not susceptible to being set aside by creditors. A recent case in the 9th Circuit confirmed this when a judge ruled that funding a pension plan (albeit after a judgment) was not considered a fraudulent conveyance.
Why would you, as an employer or business owner, want to choose a 412(i) Plan over most any other? For many, and especially following the debacle of ENRON and others, this is exactly what the Doctor ordered...safety, security, and guarantees for employees, in conjunction with reduced corporate taxation, increased tax deductions, and a guaranteed income at retirement.
First and foremost, any business entity - including the self-employed - can establish a 412(i) Plan, and, in case you want to cram in that tax deduction for your prior tax year, you can establish the Plan prior to year-end, with the actual funding being delayed until as late as the end of your last extension and the actual filing of your prior year's tax return.
Tax accountants and lawyers love these Plans for their clientele for the following reasons:
- Larger Tax Deductions Than With Any Other Type of Pension Plan - Tax Savings
- IRS Letter of Determination, With Annual Refilling - Plan Confidence
- Fully Guaranteed Plan Benefits - Fiduciary Relief
- Extension of Contributions to Latest Tax Filing Deadline - More Time/Less Funding Pressures
- All Business Entities Qualify - Easy to Help Most Any Business Owner
- High Salary Cap of $200,000 (2002) - Largest Available Tax Deduction of Any Pension Plan
- Tax Deductible Contributions Favor Highest Paid With Most Years of Service - An Owner/Key Employee Bias
- Greater Flexibility than Traditional Plans
- No Employee Benefit Formulas or Individual Accounts - Allows for Future Plan Contribution Changes & Ease of Administration
- Same Asset Protection as Other Pension Plans - Assets 100% federally protected
- Permits Conversions of Over-Funded Defined Benefit Plans into 412(i) Plan Along With Continued tax deductions and Funding
- Allows for Executive Carve-Outs Under "Comparability Rules"
- Benefits Can Increase Over Time - Inflation Protection
- Perfect Vehicle for Absorbing Retained Earnings
- Typical Vesting - 6 Yr (graded over the first 6 years of an employee's service: 0% yr 1; 20% yr 2; 40% yr 3; 60% yr 4; 80% yr 5; and 100% yr 6+). Employees are vested in their accrued benefit, which is the present value of their future retirement benefit, often much less than the cash in the annuity and life policy. Non-vested amounts are used to reduce future plan costs or to enhance future benefits; therefore, employee turnover benefits the Plan and the remaining owner/key employees.
- Flexible Distribution Options - Lump Sum; Life Income; Continued Tax Deferral
- Typical PS 58 Costs - Returned Tax Free At Point of Distribution (First Dollars Out)
- Typical Administration/Actuary Fees - Cost Effective
Due to improvements to Pension Law beginning in the year 2000, all of the benefits of the old Defined Benefit Pension Plan, and substantially none of its' drawbacks are resurrected in the 412(i) Pension Plan, making it perhaps the hottest vehicle for meeting asset protection and retirement needs, while doing so on a highly cost effective & tax preferential basis.
|
