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It became obvious that way too many people were relying on the types of plans where the benefits were based upon how much you put into the plan. 
And, we all began to see for the first time in a long time how vulnerable the business itself can be when plan assets are subject to mismanagement and poor investment decisions
However, the problem with that was two fold – first, people with these contribution plans typically had no idea as to their specific retirement needs.  Secondly, their whole retirement future was uncertain because of another unpredictable variable, which is  investment uncertainty.  How wisely can they invest and can the economy cooperate.
And, as far as the defined benefit plans that were out there, employers and ultimately the employees were at risk of poor plan performance from an investment standpoint.
It became obvious that way too many people were relying on the types of plans where the benefits were based upon how much you put into the plan. 
And, we all began to see for the first time in a long time how vulnerable the business itself can be when plan assets are subject to mismanagement and poor investment decisions
However, the problem with that was two fold – first, people with these contribution plans typically had no idea as to their specific retirement needs.  Secondly, their whole retirement future was uncertain because of another unpredictable variable, which is  investment uncertainty.  How wisely can they invest and can the economy cooperate.
And, as far as the defined benefit plans that were out there, employers and ultimately the employees were at risk of poor plan performance from an investment standpoint.
It became obvious that way too many people were relying on the types of plans where the benefits were based upon how much you put into the plan. 
And, we all began to see for the first time in a long time how vulnerable the business itself can be when plan assets are subject to mismanagement and poor investment decisions
However, the problem with that was two fold – first, people with these contribution plans typically had no idea as to their specific retirement needs.  Secondly, their whole retirement future was uncertain because of another unpredictable variable, which is  investment uncertainty.  How wisely can they invest and can the economy cooperate.
And, as far as the defined benefit plans that were out there, employers and ultimately the employees were at risk of poor plan performance from an investment standpoint.
It became obvious that way too many people were relying on the types of plans where the benefits were based upon how much you put into the plan. 
And, we all began to see for the first time in a long time how vulnerable the business itself can be when plan assets are subject to mismanagement and poor investment decisions
However, the problem with that was two fold – first, people with these contribution plans typically had no idea as to their specific retirement needs.  Secondly, their whole retirement future was uncertain because of another unpredictable variable, which is  investment uncertainty.  How wisely can they invest and can the economy cooperate.
And, as far as the defined benefit plans that were out there, employers and ultimately the employees were at risk of poor plan performance from an investment standpoint.
It became obvious that way too many people were relying on the types of plans where the benefits were based upon how much you put into the plan. 
And, we all began to see for the first time in a long time how vulnerable the business itself can be when plan assets are subject to mismanagement and poor investment decisions
However, the problem with that was two fold – first, people with these contribution plans typically had no idea as to their specific retirement needs.  Secondly, their whole retirement future was uncertain because of another unpredictable variable, which is  investment uncertainty.  How wisely can they invest and can the economy cooperate.
And, as far as the defined benefit plans that were out there, employers and ultimately the employees were at risk of poor plan performance from an investment standpoint.
What Congress actually came up with was more of a refurbishing of an existing Code provision that has been around for decades - Section 412(i). 
A 412 i plan is really a defined benefit plan. [Anyone know what a defined benefit plan is?]; well it means a pension plan that provides a defined benefit for the plan participant at some future designated retirement date, typically 65 years of age. 
They wanted first, a safer way of investing retirement monies.  A 412 i plan provides a guaranteed retirement income for the plan participant, no matter how the underlying financial instruments perform. It accomplishes that goal by using guaranteed financial products –   to build funds toward retirement.
It provides a much more cost-efficient return on the plan participant’s investment toward retirement.   They wanted some flexibility so that a change in circumstances of the business owner could be accommodated.
And, they wanted to get away from the massive amount of actuarial machinations bureaucratic red tape and excessive paperwork of traditional pension plans.
The re-introduced 412i plan can allow for greatly increased tax deductible contributions and corresponding deductions and benefits at retirement.
Plus, the opportunity to draft into the plan some disability and death benefits.
And, above all, the whole thing is sanctioned under ERISA, a specific Code provision.  This is to be contrasted with interpreting Code provisions into a gray area and hoping the IRS does not catch up with you.
So, what are the benefits of a 412 i plan – whether it be a prototype or custom.  As with other qualified retirement plans, the 412(i) confers immediate benefits to the plan participants. 
Annual or quarterly contributions the business makes are fully tax deductible.  Given that these contributions can be as much as $300,000 per year, that can represent a considerable income tax savings. In this way, the government is helping the participant fund 30 to 40 percent of his or her retirement plan.
Here’s another significant advantage to the 412(i): not only does it allow you to make much larger contributions than you could with other qualified plans, but it also allows you to continue making plan contributions even after the traditional maximum allowable retirement age of 70 ½.
Again, just like other qualified plans, its assets grown income-tax-deferred.
The annual benefits can be as high as $165 K.  This can result in a sizeable deduction for each year of the plan.
And, wonderfully, the contributions do not generate an AMT situation.
And, last but not least, this year you get a $500 tax credit to boot.
So, what are the benefits of a 412 i plan – whether it be a prototype or custom.  As with other qualified retirement plans, the 412(i) confers immediate benefits to the plan participants. 
Annual or quarterly contributions the business makes are fully tax deductible.  Given that these contributions can be as much as $300,000 per year, that can represent a considerable income tax savings. In this way, the government is helping the participant fund 30 to 40 percent of his or her retirement plan.
Here’s another significant advantage to the 412(i): not only does it allow you to make much larger contributions than you could with other qualified plans, but it also allows you to continue making plan contributions even after the traditional maximum allowable retirement age of 70 ½.
Again, just like other qualified plans, its assets grown income-tax-deferred.
The annual benefits can be as high as $165 K.  This can result in a sizeable deduction for each year of the plan.
And, wonderfully, the contributions do not generate an AMT situation.
And, last but not least, this year you get a $500 tax credit to boot.
Just like other qualified retirement plans, the 412(i) is protected by ERISA from the participant’s creditors and predators. So, in the worst of possible circumstances, the participant might lose everything else he owns, with the exception of his 412(i) – which no one can touch, even if it holds millions of dollars in retirement funds on the participant’s behalf!
In fact, there has been some cases recently where the court held that contributions were still protected even if the owner had filed for bankruptcy.
Now, that is what 412 i is basically all about.
But, it even gets better. 
We saw earlier that traditional retirement vehicles dramatically limit the amount of annual contributions you’re able to make each year. It doesn’t take a math wizard to figure out that if a participant is getting a late start on his retirement savings, he’s just not going to be able to get the job done making maximum contributions of just $12,000 each year. Instead, the participant needs a vehicle that will allow him to put away as much money as possible each year. So, how much of a tax-deductible contribution can a participant make into a 412(i) each year?
Well, a prototype 412 i plan can provide a significant contribution and correlative deduction.  However, as we will see in a minute, the regular, vanilla, prototype plan is good, but limited in terms of benefits and flexibility.  A prototype plan is really a form document the is minimally customized to suit the client’s needs.  The nature of this plan – initially low out of pocket costs, is really deceptive.  The irony is that it frequently is much more expensive in the long run to create and maintain – as we will see soon. 
There are ways of designing a 412 i plan so that a taxpayers benefits are maximized to the fullest extent possible – much more than a prototype.  Indeed, by as much as $300,000 for each of the business owners alone!  Of course, the plan participant can put away much less, if that suits his needs better.  But if the plan participant is getting a late start and needs to build retirement wealth quickly, the 412(i) offers an unprecedented opportunity to do so.
With the substantially increased contributions the 412(i) allows participants to make during their working years, the 412(i) gives late bloomers a jump start on making up for lost time and building a substantial retirement fund.  It allows for a greater benefit later during the retirement years.
In addition to that considerable benefit, the 412(i) allows you to custom draft certain provisions that would lend itself to greater contributions and greater benefits as well.  Changing the retirement dates, vesting provisions and making other modifications  that impact contribution amounts can be accomplished.  Consider that your clients may already be paying substantial annual premiums for both disability and life insurance products. With these features folded into their retirement plan, clients can often reduce or eliminate entirely other plans, saving their premium payments and freeing up more money to contribute toward their 412(i) plan.
The opportunity to custom draft language lends itself to providing for more options, that is a more effective exit strategy at retirement. 
Now, I noted before that a custom plan has much more flexibility.  For example, what happens if the client’s business takes a serious downturn and there’s no extra cash to be had to fund the 412(i)?
Fortunately, the custom 412(i) is a very flexible plan as noted earlier. 
First, the retirement date can be changed to reflect a later retirement date.  This will, from an actuarial standpoint, cause the annual payments to be lower.  Conversely, if the owner wants a greater deduction, he can lower the retirement date subject to certain limitation, of course.  We usually like to have at least a 10 year pay in period for contributions to the plan.
Second, we can review plan performance.  If performance was better than projected, then there is more assets in the plan than expected, so the current year’s contribution can be changed to a lower amount.  But, remember, the anticipated benefits are based on the minimum guarantees, so a downturn in the investments will not work the opposite way – which is good.  Now, let’s say that you don’t want to reduce the annual contribution but performance is better than the minimum.  Well, in this case you can increase benefits on the back end. 
If the client needs to skip a year, the 412(i) can be amended, frozen, or even terminated. For the plan to be terminated, a specific event must occur, such as: there’s a change in business ownership as a result of an acquisition, transfer or merger; there’s a significant adverse event in the business; or the business has adopted a new plan. Upon termination, the plan proceeds may be rolled over into an IRA tax-free.  But, remember, the plan really should not be terminated if it has been in existence for less  than 5 years.
In the case of a frozen plan, when the business turns around, the plan can be reinstituted exactly where it left off.
As a last resort, we can even change the plan to a traditional defined benefit plan, which means that we will have greater income assumptions and thus lower contributions.
Also, the custom plan can incorporate a companion 401 (h) plan which at retirement can provide health, long term care, and medicare supplement insurance on a pre-tax basis.
Owners of businesses with existing plans can more readily integrate existing plans and a set of benefits and future payments with a newly designed 412 (i) plan. 
It provides participants with disability income as well as death benefit protection.
Also, it is possible to customize the drafting of how employees can enter the plan.   Do you want them to have immediate vesting, or do you want to delay the period where their benefits vest.  Do you want to their entry date in the plan to be delayed for a year, or not.  In some cases, we can do that.  In fact, in one case we had last year, the business owner was able to delay her employees plan participation to this year and she got the entire deduction for 2002.
And, of course, as we noted earlier, the custom plan provides the opportunity for larger plan contribution deductions for the owner and less for the employees, if the owner so desires.  With a prototype the contributions will not only be smaller, but a considerably larger portion will be allocated for the employees.  This could amount to tens of thousands of dollars, and some cases hundreds of thousands of dollars in savings.  And, when you compare this with the meager cost differential of a prototype, the custom is actually much more efficient and economical.
We’ve stressed several times throughout our presentation that it is critical for the client to have a qualified plan design team creating his or her 412(i) strategy. We hope that by now you’ve seen that we bring to the table the specialize expertise required to create a 412(i) plan that not only works but that is also fully compliant with IRC regulations.
We’re don’t accomplish this goal by working alone. We have partners in the process, and I’d like to introduce them to you now.
At the beginning of my presentation, I gave you a brief overview of my professional qualifications. To compliment the legal expertise of our law firm, we’ve partnered with DDI Financial, Inc. to help fund the 412(i) with competitive annuity and law insurance products.  Richard Dean, principal in the firm, is as expert in compliant products necessary for a 412i plan. 
To assist us with actuarial design and the administration of the 412(i) plans we design, we work with a company known as The 412 i Company.  They employ the enrolled actuary who uses sophisticated, proprietary software to create and test each 412(i) plan. With this expertise at our disposal, we can ensure that the plans we create are not only actuarially sound, but also deliver the greatest possible benefits to the client.
With our combined talents, we’ve been able to provide clients with high-quality, fully compliant 412(i) plans.
Let’s say you’ve got a client in mind that would be an ideal candidate for the 412(i). What’s the next step? We invite you to provide your client with a census, which we’ve included in your welcome packet tonight. Have the client fill it out and return it to our office. At that time, we’ll schedule a complimentary, no-obligation consultation to discuss the feasibility of the 412(i) for the client’s business. And of course, we’ll be sure to ask the client if we can invite you to participate in the initial consultation as well.