the american national insurance company (anico)

Cash Balance Pension PlansCash Balance Pension Plans

Presented ByPresented By

Michael F. Kresl, CPAMichael F. Kresl, CPANational Sales ManagerNational Sales Manager

The American National Insurance CompanyThe American National Insurance Company

American National Ins. Co.American National Ins. Co. 11For Agent Use Only. Not for use with For Agent Use Only. Not for use with

the General Publicthe General Public

The AMERICAN NATIONAL The AMERICAN NATIONAL INSURANCE COMPANY INSURANCE COMPANY (ANICO)(ANICO)

A AM Best AA- S & P COMDEX of 95

104 Years Old GALVESTON TEXAS



IM0 2076American National Ins. Co. For Agent use only. Not for use with the general public. IM0 2076American National Ins. Co. For Agent use only. Not for use with the general public.American National Ins. Co.American National Ins. Co. 33

For Agent Use Only. Not for use with For Agent Use Only. Not for use with the General Publicthe General Public

Cash Balance Pension PlansCash Balance Pension Plans• Cash Balance plan designs have been

around for many years, with some high profile “conversions” in the late 1990s (IBM, Citigroup);

• Prior to PPA 2006 significant lawsuits concerning plan design – Cooper v. IBM;

• In 1999 IRS placed a moratorium on Cash Balance Plan approvals;




• The Pension Protection Act of 2006 removes doubt as to plan design legitimacy;

• IRS “lifts” approval moratorium 1/1/2007;

• “Hybrid” Plans become an important planning tool for successful businesses as economic changes occur 2008 - Present



What is a Cash Balance Plan?What is a Cash Balance Plan?

• An ERISA “Qualified Plan;”

• A “Hybrid” Defined Benefit Plan with Defined Contribution Features;

• A uniquely positioned plan design with the ability to equalize contributions between owners or HCEs of disparate ages




Defined Benefit Plan Features

• Maximized and potentially equalized contributions for Owners or HCEs;

• A required annual contribution with minimal flexibility;

• No employee portion of contributions;

• Employer bears investment risk;

• IRC 415 limits apply – no $49,000 limit;



What is a Cash Balance Plan?

Defined Contribution Features

• Flexibility to base contribution amounts on different classes of employees;

• Lower contribution for employees (New Comparability);

• Participants have an account balance with contributions and interest added annually;

• “Combo Plans” allow for concurrent DB and DC plans;



What is a Cash Balance Plan?What is a Cash Balance Plan?Comparison with New Comparability Profit Sharing Plan

New Comp 401(k) P/S Cash Balance “Hybrid” Plan

Age Salary Contribution Contribution

55 $196,000 $ 49,000 $ 166,747

44 34,000 1,700 2,805

36 30,000 1,500 1,677

25 28,000 1,500 916

22 20,000 1,000 564

$ 308,000 $ 54,700 $ 172,709

89 % to Owner 89 % to Owner 97 % to Owner97 % to Owner



What is a Cash Balance Plan?What is a Cash Balance Plan?Comparison with a Traditional Defined Benefit PlanComparison with a Traditional Defined Benefit Plan

Traditional DB Plan Cash Balance “Hybrid” Plan

Age Salary Contribution Contribution

62 $ 225,000 $ 190,000 $ 100,000 43 225,000 48,000 100,000 36 36,000 3,100 2,700 29 30,000 2,500 1,900 24 26,000 1,900 1,200 $ 245,500 $ 205,800

For illustration purposes only, numbers rounded.



COMPARISON OF MAXIMUM COMPARISON OF MAXIMUM CONTRIBUTIONSCONTRIBUTIONS

(ASSUMING NRA OF 65)(ASSUMING NRA OF 65)

AGE $401(k) DASH Defined Benefit “Cash Balance Plans” 412(e)(3)

40 $ 49,000 $ 33,361 $ 38,000 $ 94,674

45 $ 49,000 $ 50,159 $ 55,000 $ 108,619

50 $ 49,000 $ 79,272 $ 88,000 $ 166,552

55 $ 49,000 $ 139,362 $ 153,000 $ 215,94155

60 $ 49,000 $ 163,659 $ 179,000 $ 287,867

The numbers shown above are for illustration purposes only and in some cases are” rounded.” Actual numbers could be more or less and will depend upon plan design, employee participation,

use of life insurance in the plan, and other factors.

.

American National Ins. Co.American National Ins. Co. 1111

For Agent Use Only. Not for use with For Agent Use Only. Not for use with the General Publicthe General Public


Lets look at some examples . . .

See “Sample Employer, Inc.”

(Plan Design #1)



Plan SummaryPlan SummarySample Employer, Inc.Sample Employer, Inc.

For the Plan Year 01/01/2009 through 12/31/2009For the Plan Year 01/01/2009 through 12/31/2009

American National Ins. Co.American National Ins. Co.For Agent Use Only. Not for use with For Agent Use Only. Not for use with

the General Publicthe General Public 1313

First Year Plan ContributionsFirst Year Plan Contributions



Plan Allocation FormulasPlan Allocation FormulasSample Employer, Inc.Sample Employer, Inc.




Employee CensusEmployee CensusSample Employer, Inc.Sample Employer, Inc.




Valuation StatementValuation StatementSample Employer, Inc.Sample Employer, Inc.




Financial ResultsFinancial ResultsSample Employer, Inc.Sample Employer, Inc.

For the Plan Year 01/01/2009 through 12/31/2009For the Plan Year 01/01/2009 through 12/31/2009Tax SummaryTax Summary

American National Ins. Co.American National Ins. Co. For Agent Use Only. Not for use with For Agent Use Only. Not for use with the General Publicthe General Public

1818

Cash Balance Pension PlansCash Balance Pension PlansPlan Design # 2: Two Owners, 4 EEs

Age Salary Contribution 61 $ 225,000 $ 150,000

54 225,000 150,000

48 34,000 3,411

35 30,000 1,596

32 28,000 1,288

26 20,000 686

$ 562,000 $ 306,981

98% to Owners




Plan Design # 3: 5 Owners, 20 EEs

Objective: Defer $100,000 Per Owner

$ 560,573 Total Plan Contribution

$ 60,573 To Employees

90 % To Owners!




Plan Design # 4: 10 Owners/HCEs, 34 EEs

Objective: Defer $100,000 per Owner/HCE

$1,070,563 Contribution

$70,563 to EEs

93 % to Owners!




Summary:

• A Defined Benefit Plan with the ability to equalize contributions between different aged Owners/HCEs;

• Stated Annual Contributions with Little Flexibility;

• Annual “Contribution Credits” and “Interest Credits” credited to Participant “hypothetical” Accounts;

• Employer Bears Investment Risk;

• Can use a variety of Fixed or Variable Investments including Life Insurance



Cash Balance Pension PlansCash Balance Pension PlansTypical Costs associated with Plans *

$ 500 “Installation Fee” (Covers Documents)

$ 1,000 IRS Letter Of Determination **

$ 2,000 Annual Administration Fee (up to 25 Lives)

* Based upon American National Insurance Company posted fees 1/1/09;

** May vary depending upon plan design;

New plans may be eligible for tax credits up to $500 for first 3 years



Cash Balance Pension PlansCash Balance Pension Plans• An “underserved market” especially

Successful Owners looking for large tax deductions & “catch up” with possible guarantees;

• Change in Pension Rules (PPA ’06) allow for excellent plan design capabilities beyond what

most clients and advisors realize;

• Prospective clients are more approachable now than ever;



““An Underserved Marketplace”An Underserved Marketplace”

• Owners seeking higher tax deductions than Defined Contribution Plans can provide;

• Owners seeking to accumulate significant retirement funds in a relatively short time;

• Multiple Owners looking to equalize contributions between owners/HCEs;

• “Older” Owners with younger, lower paid employees;

• Owners seeking additional protection of assets from liability and creditors;



Why American National?Why American National?Turnkey Program – “One Throat to Choke”

Featuring . . .

Free, “no-obligation” professional plan design and/or review

Preparation and filing of plan documents

Various investment platforms – from fixed to variable

Complete Low Cost Administration/Record Keeping

No “Gray areas,” No “Off-Shore” Schemes, No “Audit Flags”



American National Insurance CompanyAmerican National Insurance Company

– 104 years old, closely held and publicly traded (ANAT)

– A AM Best AA- S &P COMDEX of 90

– Asset/Liability Ratio over 120%

– Has Paid Dividends in 99 Years

– No Corporate Debt Issued

– Buy & Hold Strategy in Bond Portfolio

– No CDOs, CMOs, CLOs, CBOs, NO TARP



Not to Mention . . .

• Deferred Annuities – Including “CD Type” MYGs

• Immediate Annuities (SPIA & SPLIT)

• Indexed Annuities – Annual Reset & End Term

• Life Insurance – WL, UL, Term and VUL

• Pension Design and Administration

• “Voluntary Benefits” with List Bill or Payroll Ded



Your ANICO TeamYour ANICO TeamOutside Group

Mike Kresl, CPA – North Region 866-892-1311

Scott Whitten, FLMI – South Region 949-910-8110

Don Noble, CLU – West Region 877-289-5265

Gil Dudrow, - East Region 800-727-5617

Inside Support

Brad Bennett - Home Office 877-446-6236 Ext 5976

Marci Dutton – Home Office 877-446-6236 Ext 4497

