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RayJJohnsonJr

LOOKING FOR 412(i) PLAN TPA FOR 1 PERSON PLAN

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Well, to some of us, volunteering for this would be like volunteering to get some bad virus.

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Not much upside for a TPA to take these on.  A quick google search on 412(e)(3) turns up marketing pieces that include statements like:

"Simpler plan administration"
"does not require an enrolled actuary"
"Low Cost - Since the plan is guaranteed by the insurance company, an actuary is not needed"
"administrative fees are smaller"
"
Administrative Simplicity"

So basically telling the client they won't have to pay a TPA very much.  But IME they are much more time intensive than doing a small plan actuarial valuation.   

There are a couple of TPAs around who do them and take a hefty commission split.  I'm not a producing TPA but I understand the need for a profitable business model.  A split is probably the only way to make it pencil out for a TPA that is not a subsidiary of the insurance company or agent selling the policies. 

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Security Administrators, Inc. $1,250 plus $50 per participant.  Great plans if done properly.

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One more point, no commission splits if the decision is made to include partially funded with life insurance.

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Meaning they will be a TPA only?  I'm a producer, so I do not want to work with a producer who is also a TPA and is in the TPA business for annuity and life commissions.  Otherwise, that is a good price.  

Thank you for your reply.

P.S. To all who are knee-jerk 412(i) detractors:  You need to hear the reason's why one-participant small business owners do these.  But you have to be open minded and I will be happy to explain.  It may be helpful to you since everyone who knows, shake their heads when the pervasive, "412(i)'s are bad" assertions begin to flow.  

Here are some other things that are all bad: 

Mutual Funds are always bad.

Annuities are always bad.

Any life insurance that's not term insurance is bad.

The list of "bad" financial arrangements and products goes on and on.

It's always good to hear the other points of view.

Thanks again,

Ray J. Jr.

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Well, at least I doesn't haft to call you Johnson 😊

I agree that it would be good dialogue to hear the reason's why one-participant small business owners do these.  We are all ears...

 

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18 hours ago, RayJJohnsonJr said:

You need to hear the reason's why one-participant small business owners do these.  But you have to be open minded and I will be happy to explain.

If you're going to do that, please do it with examples and comparisons using math, not words.  

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46 minutes ago, Bird said:

If you're going to do that, please do it with examples and comparisons using math, not words.  

This.  I’ve heard the “buy life insurance with pre-tax dollars” mantra repeated over and over for nearly 40 years. What I’ve not seen are numerical case studies of how this comes out better for the client than simply buying insurance outside the plan. I’m not anti-life insurance, I own it myself, and had a lot of it when I had four small kids and a big mortgage.   It has its place but I’m not convinced that place is a qualified plan.  By all means start with owner-only plans, as this would make the best possible case for it.  

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I have had virtually no exposure to 412(i) plans, so I'll ask knowing full well that I may look stupid:  What "administration" is needed for a one-person, non-ERISA 412(i) plan (presumably with 5500-EZ filings) that would require a TPA? 

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Well, for one thing, someone has to do a calculation every year to determine the contribution.

Also, someone has to cash the giant commission checks on the whole life policy, and some guys at the insurance company need to come up with marketing brochures that make 3% returns on a fixed annuity sound like a good deal. They usually go over that in the Bahamas with their 100 top agents once a year.

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Lippy:  Thanks.  I thought the insurance company just sends a letter saying "this is the minimum, and this is the maximum," but based on your reply I guess not.   

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To meet the requirements of 412(e)(3) the plan benefits must be fully provided by guaranteed insurance/annuity contracts.  The policy benefits have to be adjusted as the plan's retirement benefit changes,  due to changes in compensation for example.   In the half-dozen or so I've taken over and converted out of fully-insured, there was never one where the guaranteed policy benefits equaled the projected benefit per the terms of the plan.  It was nearly impossible to get necessary information out of insurance companies on the policies.  The agents who sold the policies were long gone and another agent who did not get the big commission is now involved but not necessarily the agent of record on the policies.  Someone has to deal with all of this as well as the 5500-EZ.  It sounds simple, and theoretically it should be.  But they seem to go off the rails after a couple years.  There could be thousands of these plans working perfectly well that I would never see, so I can't say that my experience is representative of the whole universe of fully insured plans. 

But even if the plan works fine, and fully insured or not, I still question the economics of life insurance in the plan.  I can understand a fully insured plan funded by a guaranteed annuity, essentially that's what a DB plan is, and for someone who wants the guarantee and eventually income they cannot outlive, fine.   But I don't see the economic benefit to the participant of the ancillary insured death benefit in a plan.  Yes the premiums are paid with pre-tax dollars, so what?  If they are just going into the cash value of the policy (with higher expense charges), that's no different than the plan just investing in too-expensive mutual funds.  Yes there is a non-taxable death benefit, but only if the current cost of insurance is reported as taxable income by the participant each year.  So the cost of the insurance is not "pre-tax".  Where's the value for the participant in this?  I'd like to see real world case studies, where participants died pre-retirement, where they lived beyond retirement, what they did with the policies.  Show me numbers!

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