412(e)(3) Defined Benefit Plans
A 412(e)(3) defined benefit pension plan is an ideal solution to lower taxes and provide for retirement for high-income professionals, such as physicians or small business owners. More than any other retirement plan, a 412(e)(3) allows the largest tax deduction according to IRS regulations. The plan is funded with annuities that have guaranteed returns plus guaranteed insurance contracts.
Advantages to 412(e)(3)
A properly structured 412(e)(3) plan can offer your clients many advantages, such as:
• Reduced annual fees for maintenance and administration. A 412(e)(3) plan does not require actuarial certification and the annual filing of the 5500 series Schedule B.
• Larger tax deductable contributions compared to traditional defined benefit plans.
• No full funding limitations. The 412(e)(3) plans utilize the conservative guaranteed purchase rates of the insurance contract and are not subject to the full funding limitations.
• The Pension Benefit Guarantee Corporation insures all defined benefit pension plans covering non-owner employees.
• Defined benefit pension plans can be converted to a 412(e)(3) plan and can resume making contributions and deductions.
• A 412(e)(3) plan can be converted to a defined benefit plan.
Additional 412(e)(3) Features:
• Employer contributions are deductible and not taxable to the participant until received as income at payment of the benefit, which usually is the normal retirement date.
• An insured death benefit may be included in the plan design to make the plan self-completing in the event of a participant's death prior to reaching the retirement goals.
• A disability benefit may also be included in the plan based upon the assets in the plan at the time of disability.
• The plan provides guarantees based on the annuity and life contracts.
• The assets of the trust are neither subject to the claims of creditors nor available to settle claims arising from civil litigation. The assets are subject to claims in divorce settlement including child support orders when properly issued by a court of law.
• Dividends, interest and forfeited benefits (from terminated non-vested participants) reduce future employer contributions as they occur.
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