A Time to be Thankful

Time to decompress, time to reflect, time to enjoy our families and the larger things of which we are a part. This is the time of year when we see more of our families in addition to realizing how much we mean to each other and how much we care for one another. I am certainly thankful for my family and what they have given to me and allowed me to give to them. It is a cliché to hear others tell you to take a look around and see what we have and to appreciate even the small things - we know this even if such thoughts don't reach the forefront of our consciousness. At this time of year it is hard not to be mindful of these things and to not be thankful. We can wait until January to make our resolutions - some premised by what we see and think during our family gatherings. Thanksgiving is the time to absorb your good thoughts and actions on those thoughts will come soon enough.

Table Talk

We all go to dinner parties and meet groups of people we have not met before. While I usually like to ask people "what do you do for fun," invariably, I am asked “what do you do for a living?” Sitting at a dinner table with twelve people is not the time I enjoy bringing up tax-advantaged wealth transfer concepts, but I was stuck and so I did. To my surprise, the conversation captivated the group, which ranged in age from 30 to 60. Also to my surprise, all at the table were going to get or already had long term care insurance - clearly not an ordinary group and not the “usual suspect's” I often see at dinner parties. As the conversation continued I found that ALL the people at the table had an experience with long term care needs and did not want to put others in the position they found themselves - caring for a family member, watching family assets shrink, and witnessing income become diverted. Yes, the conversation moved on, but I was struck how those who have been affected "get it" from a consequences perspective - both financial and emotional. My goal is to help people "get it" before the consequences occur - but not during dinner.

What is it all about?

Insurance, retirement, security, health care costs……….at the end of the day it’s all about making the choices that affect whether we do or do not outlive our retirement income and our family outlive the assets we can transfer to them. That is it, but that is huge! We all see the comforting commercials during the weekend sports events about retirement protection, asset allocation, insurance programs, and investment professionals. Looking through these messages it is easy to see what the real message is: we know your fear and it is about maintaining your lifestyle throughout your life and the lives of your family.

Our business is providing long term care insurance services to brokers, marketing companies and insurance companies. We passionately believe in the need for long term care insurance and have created systems to better communicate the need as well as the consequences of being, versus not being, insured. Since we will all receive the care we need, the issue is larger than getting care. It is about having assets and income protected so that you and your family do not outlive them. This is such an important issue and the effect that having this problem resolved is so enormous on our well being, physically and emotionally, that I now better realize why this business is so important to me.

Realizing Parallels on Top of Mount Kilimanjaro

Climbing Mountains, Climate Change and Asset Protection

Obviously you are thinking these issues have nothing in common, but I recently discovered the thread linking all three issues.

Last week I climbed Mount Kilimanjaro in Tanzania. At over 19,000 feet, the effort to get to the top was considerable. The base camp is at 15,000 feet and you start the last leg of the climb at midnight. Depending on your resolve and physical shape, this part of the climb will take you anywhere from 5 to 12 hours. Once on top you certainly feel the euphoria of your efforts and the views, for me, are unsurpassed. One of the amazing things to see on top are glaciers - The Snows of Kilimanjaro. They are impressive, but little remain today and after a continuous struggle with climate change, the remainder will be gone in 15 to 20 years.

The link with asset protection? I have spent considerable time and effort saving money for my retirement and family security and have recently lost more money than I care to think about in my real estate and stock investments. Now at age 55, I have to be diligent to ensure that what remains is not slowly or quickly dissipated. Working in the long term care insurance field, I often see how what has been built up for decades (or thousands of years in terms of glaciers) can dissipate quickly if steps aren't taken to protect what we have.

My resolve to climb to the top and protect my family are significant. The forces of nature and man-made problems are melting the snows and are causing a need for extended care. My commitment now to climb more mountains, contribute my efforts to limit the effects of climate change and to help others protect themselves and their families from the impacts of the extended care costs.

How to use long term care insurance to attract and retain top talent

Every successful firm understands that capital is not the ingredient that makes them a winner – it is the people. Therefore, to remain successful, they must continue to attract and retain the top talent they need to compete in today’s global marketplace.

To do that requires a competitive total compensation package – and often it is just one component in that package that will make the difference in your recruiting efforts.

So let’s talk about how long term care insurance can make that difference.

To do so it is important to know that 70% of your employees –after they become age 65- will spend some, or all, of their retirement income on the cost of extended health care (1). For some, the costs will be inconsequential, for others they can run into the hundreds of thousands, even millions, of dollars because of conditions such as strokes, Parkinson’s and Alzheimer’s, or the results of a serious accident.

For example, the annual cost of 24/7 home health care is $175,000 – and it has been increasing along with the costs of medical care(2).

This means, that in all too many cases, the co-beneficiaries of your employees’ retirement and wealth accumulation plans will be an array of caregivers, nurses, therapists, and physician’s.

To eliminate this possibility you can provide your key employees – or prospective employees- with a tax advantaged Plan that will preserve their retirement assets and protect their retirement income using one or more of the following concepts:

Provide a $1,000,000 long term care benefit that includes a
Return of Premium feature

Let’s say your company buys the employee a $1,000,000 long term care insurance policy – and an identical policy for his spouse. The premium is $12,000 a year for each policy and they will be fully paid up in 10 years:

• Your company can deduct the premiums.
  
• There is no tax or imputed income either to the employee or the spouse.
  
• Your employees’ insurance benefits are generally income tax-free.
  
• Your employees’ insurance benefits can be made estate tax-exempt.
  
• At death, 100% of the premiums the company has paid will be refunded to the insured’s personal beneficiaries. For example, if the employee dies any time after the 10th year $120,000 will be paid to his beneficiaries – and his spouse has the same benefit in her policy.

Offer a $500,000 long term care insurance “sign-on” bonus

You are trying to recruit a star broker – but so is everyone else. You need to be different so you couple your cash bonus with a long term care “bonus”:

• Your company will buy the star broker a 5 payment long term care insurance policy that can pay up to $2,000,000 in long term care benefits.
  
• Your company will buy the broker’s spouse an identical policy.
  
• The premium for each policy is $50,000 a year – a total of $500,000 for both the broker and the spouse over a 5 year period.
  
• The premium is 100% tax deductible to your company but not taxable to the broker.
  
• Insurance benefits payable to the broker and the spouse are generally income tax free and they can be estate tax exempt.
  
• When the broker –and the spouse- dies 100% of the premiums your company have paid for their policies will be refunded to their personal beneficiaries. For example, if the broker died in the fifth year $250,000 would be paid to the beneficiaries.

Build long term care insurance into your nonqualified deferred compensation plan

You want to make your nonqualified deferred compensation plan more effective so you add long term care insurance as a feature. For example, your company has a SERP that promises employees a benefit of $50,000 a year for 10 years when they retire. To make sure that income is for the benefit of the employees – and not paid to cover the costs of long term health care - you add a $1,000,000 long term care insurance benefit to the program.

In addition to providing your employees with this essential protection these tax advantages are available:

• Your company’s premium is tax-deductible on a current basis.
  
• The premium is not taxable to the employee.
  
• The insurance benefits payable to the employee are generally income tax-free and can be made estate tax-exempt (the SERP benefits will be income-taxable and may be estate taxable as Income in Respect to a Decedent).
  
• The premiums your company has paid will be refunded to your employees’ personal beneficiaries when they die – in addition to any insurance benefits they may have received.

And if you want to make the insurance cost neutral to your company, it simply reduces the SERP benefits in an amount equal to the cost of the long term care protection.

Use long term care insurance as a “super” 457 benefit

Not-for-profit organizations are constantly competing for talent on an uneven playing field with the “for-profit” players because they cannot use stock option or other equity based programs. In addition, the non-qualified deferred compensation plans of the not-for-profits must meet IRC Section 457 standards as well as the new 409A regulations.

However, a new long term care insurance plan can be effectively used in the recruitment and retention process without these issues. Here is how it could work:

• Your organization provides a key employee with a long term care insurance policy that can pay up to $2,000,000 in benefits – and the same policy to the spouse. The purpose of the insurance is to preserve their assets and protect their retirement income if they need long term health care.
  
• You promise to pay the $25,000 annual premium (for each policy) for 10 years until the policies are paid-up.
  
• Each policy has a survivorship benefit equal to the premiums that have been paid. That means if the employee dies in the 10th plan year, or thereafter, $250,000 will be paid to the beneficiaries.

In other words, essential protection coupled with a golden handcuff.

(1) US Department of Health & Human Services –70% of all Americans over age 65 will need long term health care at some time during their lifetime –October 2008
(2) See 2008 MetLife Mature Market studies on the cost of long term health care.

If you would like to discuss these compensation opportunities in more detail click here.


Corporate Compensation Plans does not provide tax or legal advice. Concepts discussed in the article are for reference purposes only. The tax code regarding long term care insurance is very complex and it is imperative that you discuss the applicability of the concepts –if any- to your own specific situation with your professional tax advisors.

Is it Time to do Away with 401k Plans?

Let’s answer that question by first asking what employees really get in exchange for their 401k deferrals, other than the promise of tax deferral:

• The employees may be deferring themselves into a higher tax bracket when their accounts are distributed (does anyone honestly think there is a chance that tax rates will go down in the future?).
  
• The employees may pay penalty taxes if withdrawals are taken prior to age 59 1/2
  
• The employees are converting dividend income earned on their investments into an ordinary income tax rate when their accounts are distributed.
  
• The employees are converting capital gains income earned on their investments into an ordinary income tax rate when their accounts are distributed.
  
• In many cases 401k record keeping, fees and commissions are exorbitant – and rarely are they transparent.

In addition, when the 401k plan is the retirement plan there are three significant structural weaknesses to it:

• All of the investment risk has been transferred to the employees (as millions of 401k participants have learned to their recent sorrow).
  
• All of the longevity risk –the risk of outliving the retirement income- has been transferred to the employees.
  
• All of the disability risk has been transferred to the employees – the fact that when they become disabled their 401k contributions stop, with potentially catastrophic results to their planned accumulations.

An astute person might ask, “Why are employers sponsoring an employee benefit plan that has so many employee disadvantages?”

A very good question – particularly when it would be possible to provide a cost and tax-effective retirement program for employees that eliminates many of these flaws. For example, instead of the 401k-employee deferral plan the employer could offer:

• A menu of after-tax investment options for the employees such as:
  -A Roth 401k
  -Institutionally priced variable and fixed annuities
  -Institutionally priced fixed and variable life insurance policies
  
  
• Group or individual disability insurance that will continue contributions into employees’ investment accounts when they became disabled so their retirement assets would grow just as if they were working.
  
• A guaranteed investment account for employer pre-tax 401k contributions.
  

Further, such a program will relieve employers of many of the costs of record keeping, discrimination testing and other compliance and administrative chores.

Hmm, maybe it is time to scrap the 401k plan!

CCP Announces a New Retirement Security Plan for Physicians

Danbury, Ct., June 29. Corporate Compensation Plans Inc. (CCP) announced a new Retirement Security plan for physicians to continue contributions to their retirement plans when a career-ending disability occurs.

“When physicians become disabled,” said Philip Davis, president of CCP, “contributions to their retirement plans stop. As a result, they can suffer catastrophic losses in their retirement benefits at age 65 – the very time when payments to them from their disability insurance plans usually terminate.”

Tracy Shaw, Senior Vice President of CCP gave this example, “A 45-year-old physician who is contributing $49,000 a year to his 401k and profit sharing plans could expect to have $2,086,000 at age 65, assuming a 6.75% return. But if he has a stroke and can no longer practice, there would be nothing in his account because his retirement contributions would have stopped.”

“One solution,” she continued, “would be to buy additional disability insurance to cover this risk. However, most physicians are unable to buy more coverage because of the strict limits insurance companies place on the amount of disability insurance they will issue to physicians.”

CCP’s new disability plan solves this problem by enabling physicians to purchase up to an additional $1,000,000 in tax free benefits – regardless of the amount of disability insurance they already have. When they become disabled, these benefits will be paid to them to be invested so their retirement assets will grow just as if they were working.

Two additional advantages are that the plan will pay benefits if the disability prevents the physicians from practicing in their own specialty, and the insurance can be issued without medical examinations on a guaranteed issue basis.

The insurance is issued on a group basis and requires that at least 10 physicians participate, and they are either employees of a medical unit or members of a medical practice group.
A highly rated, multi-national insurance carrier underwrites the Plan.

About Corporate Compensation Plans

For more than 25 years Corporate Compensation plans has been providing innovative and tax-advantaged benefit plans to many of the nation’s largest employers. Equally important is its ability to support these programs with dynamic communication strategies and effective administrative systems.

Contact

Tracy Shaw – Senior Vice President
Phone 203 792 7300 –
tshaw@corpcompinc.com

Corporate Compensation Plans Inc.
457 Main Street – Danbury, CT 06811

www.corpcompinc.com

CCP Announces a New Program to Protect Employees’ Non-qualified Deferred Compensation Plans

Corporate Compensation Plans Inc. (CCP) announced today a new program to protect employees’ nonqualified deferred compensation plan benefits. Benefits from nonqualified plans can far exceed those in “qualified” retirement plans - such as 401k programs - because there are no limits on employee and employer contributions.

“As a result,” said Philip Davis, president of CCP, “It is not uncommon to see higher paid employees – and their companies - deferring hundreds of thousands of dollars of income into the these plans, making it critically important that they eliminate risks that can cause the loss of their investment accounts.”

CCP has identified the most serious of these risks to be a pre-retirement disability; the significant cost of extended health care, and the income and estate taxes that can drastically reduce nonqualified retirement plan survivorship benefits.

“The first risk to employees’ nonqualified plans,” said Tracy Shaw, Senior Vice President at CCP, “is a pre-retirement disability. When that occurs, contributions to the disabled employees’ nonqualified retirement plans stop with the potential for severe losses in their retirement savings and investments.” For example, a 50 year old employee, who is deferring $150,000 a year into his nonqualified retirement plan, can expect to have $3,800,000 at age 65, assuming a 6.5% investment return. Yet, if he is totally disabled, he will have nothing in his account at age 65 because his deferrals will have stopped.

The second risk to employees’ nonqualified plan assets is the cost of long term health care which can exceed a million dollars from conditions such as strokes, Alzheimer’s, or the results of a serious accident. Costs of this magnitude can decimate an employees’ retirement income and force the family to liquidate nonqualified plan assets to maintain their standard of living.
The third risk to nonqualified plan assets is they are subject to both income and estate taxes when the executives die. This means that over 65% of nonqualified plan survivorship benefits can be eaten up by taxes.

To insure against these risks CCP has designed an integrated insurance plan with three components.

The first is a special disability insurance plan that will continue contributions of up to $200,000 a year into employees’ nonqualified deferred compensation accounts when they become disabled. This means their retirement assets will grow just as if they had continued to work.
The second component is a long term care insurance plan that protects employees’ nonqualified plan assets and income against the high costs of long term health care. Premiums can be paid from corporate nonqualified plan contributions and the plan has a money back feature that refunds premiums if care is never needed.

The third component will convert income and estate taxable deferred compensation survivorship benefits into income tax free and estate tax exempt life insurance.
“Our new plan is particularly relevant today because many employees have suffered severe reductions in their nonqualified retirement accounts from the bear market and further losses could destroy their retirement security”, remarked Philip Davis, “and the really good news is that it can be implemented on a cost neutral basis to the company.”

About Corporate Compensation Plans

For more than 25 years Corporate Compensation Plans has provided innovative, tax-advantaged benefit plans –and the systems to administer them- to many of the nation’s largest companies and law firms. These plans are specifically designed to help employers in their ongoing efforts to attract and retain the top talent they need to effectively compete in today’s global economy.

Contacts

Corporate Compensation Plans
Tracy Shaw, +1-203-792-7300
Senior Vice President
tshaw@corpcompinc.com

www.corpcompinc.com

Who is the beneficiary of your 401k, profit sharing and pension plans?

Your answer would probably be, “Myself and my family”.

But, would it surprise you to learn that there is more than a 50% chance that you have named your physician, your hospital, and a cast of nurses, therapists and caregivers as co-beneficiaries of your retirement plans?

Here is why; almost all statistics say that over 50% of all Americans will need long term health care at some time during their lives(1). For some the costs will be inconsequential; for others they can run into the hundreds of thousands – even millions – of dollars because of conditions such as strokes, debilitating accidents or even Alzheimer’s.

Where will the money come from to for our care ?

To answer that question, imagine this: Jim Smith has accumulated $2,000,000 in his retirement plans and retires with an after tax income of $100,000 a year. Suddenly he has a stroke and needs a caregiver at home 10 hours a day, 365 days a year. The result:

• Jim’s retirement income $ 100,000


• Jim’s health care costs(2) $ 73,000


• Net income for Jim’s family $ 27,000

Jim’s family is now between the proverbial rock and a hard place:

• They change their lifestyles and reduce their standard of living


• They start liquidating Jim’s retirement plan account – money he had earmarked for their future financial security

Of course this will never happen to us – but what if we are wrong?

The moral of the story: Without an effective Wealth Preservation Plan in place there is a good chance that you will give away some of your retirement assets to pay for the costs of extended health care.

(1) 70% of all Americans will need some type of long term health care during their lifetimes 10/2008 (www.longtermcare.gov/ltc).
(2) See 2008 MetLife Mature Market Surveys on the cost of long term health care.

WHY YOU DON’T NEED LONG TERM CARE INSURANCE

If you are considering buying long term care insurance to protect yourself against the cost of extended health care – don’t bother.

Someone will always take care of you if you need long term health care. Maybe it will be your spouse, or your daughter, or some relative who feels obligated to help out. Or, it could be professional caregivers if you feel inclined to liquidate your assets to pay for them.

And even if your family cannot, or will not, take care you and you run out of money - not to worry! The government will put you in a nursing home and pay for your care under a welfare plan for the indigent called Medicaid.

So you see, buying long term care insurance for your own benefit is a waste of money.

Buying it to protect your family from having to reduce their standard of living to pay your long term health care bills –or spending down the assets you planned to give to them - is a different story!

Including a COLA benefit to your Long Term Care Insurance Policy is a Waste of Money

Consider this: a 55-year old individual has $1,800 a year to spend on long term care insurance. Here are his 2 options:



In this example, why would anyone in his or her right mind buy option 1?

Equally important, why would any financial advisor or insurance professional recommend option 1?

Interested in learning more? Click here