2.0 DEDUCTIBLE BENEFITS- WHY A §412(e)(3) PLAN?

Tax deductible contributions may materially enhance a client's financial position. During the last twenty years, however, most new tax laws (OBRA and GATT as examples) reduced corporate deduction limits, limited ultimate retirement benefits or imposed erroneous rules.

With the passage of SBJPA and EGTRRA (and now the 2006 PPA) Congress reinstated and liberalized rules allowing many clients to make larger tax-deductible contributions to qualified benefit plans which favor the human resources contributing materially to the company’s bottom line – key, highly compensated and owner employees. The corresponding improvement in benefits provides a good prognosis for the longevity of these plans compared to numerous plans that have been terminated, curtailed, or revised.

An IRC§412(e)(3) plan, as herein described, presumes the use of a standardized or non-standardized document. When submitted, each Employer will receive an IRS Letter of Determination. The rules governing these letters are the same applied to other pension, profit sharing and 401(k) plans.

Utilizing special rules pertaining to IRC§412(e)(3), a plan may accelerate tax deductible contributions in comparison with traditional defined benefit plans. Accelerated contributions provide an effective hedge against future plan liabilities including cost of living adjustments (COLAs) not otherwise available in any other qualified plan format. Special insurance company endorsements of IRC§412(e)(3) insurance products may also create guarantees that insure compliance with future deductibility for the life of the plan.

Substantial tax deductions are only a part of corporate and personal benefits. IRC§412(e)(3) plans provide guaranteed retirement benefits and if appropriately funded have minimal risk of asset de-valuation thru the built in stop loss provided in an annuity contract (of particular importance to older owners nearing retirement). Additionally, annuities indexed to a certain benchmark e.g. the S&P 500 provide unbiased diversification and material participation in a growing economy