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Cross Tested Hybrid 412(i) Plan


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Andy, maybe you would like to email me and explain what exactly you mean by referencing my name in your childish posting? be sure to include your phone number. dfirmani@firmanibenefits.com

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Are you not the leading 412(i) proponent on these Boards? Or was that before the IRS' recent announcements?

But I guess you're right. I should have let you go away quietly with your last comment. And I quote:

"To WDIK: OK so I lied about 8/28 being my last posting. I have just one more thing to say and this really is my last post.

MISSION ACCOMPLISHED!!!!!!!!!!!! "

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Andy, I still don't have your phone number! (what are you afraid of?) had you not brought my name up in vain that would have been my last posting. Incidently the new proposed regs will have no effect on the way we do 412i plans. I am very glad to see the IRS taking action. In fact I'm one of the rascals who provided questionable design information for review. Your right at least about one thing. I am a proponent of 412i plans when done properly and used in the right situation. Your condensending reference to my prior postings is misguided. I don't care in the least if anyone likes or dislikes these plans, in fact fewer people doing them is better for our bottom line. My prior postings on this subject were somewhat self- serving to the extent I was exposing the self-righteous,pernicious and venomous attitude prevalent in ASPA and espoused by the more vocal demi-gods' towards life insurance in general and especially those who sell it. I have presented some of the comments from that dialog at several industry meetings to considerable laughter, (thank you). Lets talk....

Blinky, I can assure you it wouldn't be much of a fight, at recess or otherwise.

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WDIK, I haven't looked at it in detail, maybe time this weekend. At first blush it looks agressive and not in the style that I would use. Obviously it is a marketing piece that didn't go through any due diligence. I would also guess the author was not a pension technician.

Blinky, your point is well taken, but I'm surprised that you haven't found some of the 412i attacks or for that matter any insurance issue over the past six months "combative" especially the unethical inuendos towards insurance people. If not combative how would you define them?

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meant in humor, not in a combative way. There are far more jokes on these boards about actuaries and pension geeks than there are about 412(i) salesmen. And with representations from your colleagues like the one I linked to, how can we not be humored?

Go back and read the back and forth in your earlier posts. Nothing combative except from you. This is combative:

"....self-righteous,pernicious and venomous attitude prevalent in ASPA and espoused by the more vocal demi-gods'

Time to lighten up, Dom.

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I don't think the talks of unethical insurance salesmen are innuedos at all, but downright accusations. I wholely realize that a few bad apples are spoiling the bunch here, but I happen to feel there are a few more bad apples in the bunch of insurance salesman than there are in the actuarial field. Money corrupts and there was a lot of money to be made with 412(i) plans loaded with life insurance. I have seen too many of the marketing materials to think these are isolated incidents.

Does that mean I think you are a bad apple Dom? No. But I certainly don't think you can defend the actions of some of your colleagues to the point of being combative when their integrity is questioned. Their integrity should have been questioned. It's not just ASPA, but the IRS representatives and everyone in the pension field doing the questioning.

My mortgage broker fully admits there are "shady characters" in his business. My father-in-law, who is a used car salesman, admits the same. Again, that doesn't mean they are bad folks, but in a business that has some bad people. Your industry is no different Dom. The reputation has been earned.

So be a bright light in a dark place Dom. Like a beacon of light, go forth and make honest disciples.

"What's in the big salad?"

"Big lettuce, big carrots, tomatoes like volleyballs."

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Ok, I'll come clean. Besides humor there was just a bit of sarcasm. But definitely mostly humor.

But Blinky is being kind; honest disciples don't push 412(i) plans. Maybe as a side show to 1/1,000,000 of the population, ok. That'll make , what, 500 or 600 sorry soles who can't beat 3% long term? Better than the Lottery I suppose. And 3% plus still beats the casinos. So, set up a 412(i) sales shop in a casino and even I'll sell them. Now that's an idea.

But this is the 1960's insurance argument; forced savings. It is a little dated, isn't it? Retro from buy term and invest the rest. All things go in circles, some say.

Again, Blinky is being nice, but the reverse is true. There may be a couple of good apples in a real rotten bunch, not the reverse. And I'm not calling Dom a bad apple. Clearly Dom, you've tried to educate yourself, and hopefully you've tried to educate your customers. I can't judge your intentions, but no way can your industry's behavior in the last few years in particular be justified. It merits ridicule. And anyone who denies that wears the 412(i) mask of post-EGTRRA. I wish I had recorded some of the calls I took on the subject.

One question, though. What are the PS-58 costs using IRS tables for a jumbo 415 level 412(i) with maximim incidental insurance? And I don't mean illegitimate off the shelf; non-marketed premium tables. Real tables. Now that would be informative..

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Hey Andy:

Looks like things have been hopping during the EA meeting. Good point on the PS58 costs - can't imagine that those are brought up too much on the $5m policy.

BTW, had an interesting conversation w/ one JH this morning about a supposedly "clean" 412i/419 provider. His best analogy was that game you play with your kids at the arcade "Whack a Mole". Now the new spin the former 419Af6 then 412i then "what's the next scam" hustlers are pushing are pure 419 "single premium" plans. His point: if this works now, why were you trying to hide behind the 10-employer screen before?

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I don't know where I went wrong with youse guy's,(my Jersey accent surfaces now and then) but I can't find where I am defending anyone who is selling $5,000,000 incidental plans. I've seen $25,000,000, I could be one of the first on record warning several major insurers that they should not be endorsing firms selling plans with springing values and excess death benefits and I gave them all the appropreate cites. Lets not forget actuaries designed those short pay springing plans. and there are a lot more actuaries working for insurance co's than for pension firms, right! I have two that work for me but we all have our cross to bear. My remarks are directed at the attitude that all insurance people are bad, most of whom likely never sold a 412i plan and who are doing a lot more good for society and families than any of us designing tax sheltered 401K plans are doing. To suggest that this attitude is meant in humor and not intended to malign, ridicule and demean is bull. To suggest that a small business owner bases all his financial decisions on a stock market return over the long haul of more than 3% is uninformed to say the least. Sure there are Table 2001 (PS58) cost there are also some losses in the market even in good times, is there a lot of talk about those potential losses when plans are sold? Blinky, thanks for not thinking I'm a "bad apple" frankly I don't care, I know who I am as do >3000 clients. Come on guy's you have to know that you are condescending, don't you? thats OK with me but you have to be prepared to be called on it and not get pontifical when you are. Something else has just come to me, that being there are only 3 or 4 of us banging our gums about something that apparently none of the other readers give a D_ _ _ about, proving who the smart ones are. This is really getting boring. Goodby all...

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Hey Dom:

Perhaps there are circumstances where 412(i) plans can be a great fit. Perhaps also you have several of your "aggressive" brethren trying to run a square Mack Truck through a round pinhole in the name of tax savings. Do you really wonder why, given that this is a board frequented by pension actuaries who can visualize the pitfalls put out by the "fun with numbers" crowd, that the 412(i) pie in the sky schemes we are all shown over the years may lead to just a little skepticism here?

Andy's original link was a classic example (someone please explain to me how a cross-tested DB plan could produce such results - I thought cross-testing a DC plan was to skew contributions to look like a DB - can't imagine the reverse would work out so well - you still have the overhanging 415 lump sum limits), although I would say that it isn't out of the line with some of the farfetched numbers we all see. Of course, when the presentation is made (and we point out that if the plan runs to its logical conclusion, and the high-end client wishes to cash out as a lump sum, only to face the reality that at the bare minimum 35-40% best case of his CSV will be donated to the IRS as unrecoverable excess assets - worse if you're funding a subsidized 100% J&S @ 3.5%), the wink is made that the plan will only really run for 5 years. You seem to have been around awhile; remember when TRA '86 came through and you had a ton of folks at the drop of a hat facing severely overfunded plans due to radical drops in the 415 limit? Remember, the sunshine provisions of EGTRRA are still due to expire... Also look to the Senate bill, which has added a 5.5% floor on the 415 LS rate. As a client we added last year said, who when finally presented with the facts of 412(i) v. "old fogey" DB plans, "you know, I can take a million dollars cash out of the bank, have it burn to a crisp, and then get a deduction for the loss, but what I really want to know is where is my remaining $600,000?"

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This response could be a duplicate I don't think my first attempt to answer Andy was sucessful.

Andy I will be glad to introduce you to my actuaries in fact I'll have them talk to you as soon as you provide your phone number as I have requested several times. Since you don't have the cuellioni"s to use your real name I don't know how to reach you. We really do have to talk. We shouldn't be boring others on this site with whatever your problem is with me. Be a man!!!

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Gee, Dom, and to think that I was actually looking forward to your response. I figured you could have come up with something a little more clever than the junior high recess retro again.

And of your 3 employees, two of them are actuaries? Boy, you work these people to the bone with all those plans that you do. What's that, 1000 each?

But now that this discussion is off pensions it's closed.

And congrats for earning all five of those badges, BTW. Shall I link that?

I'm out.

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Andy, apparently you are smoking something, which would explain your comments, get some help lad. I have 14 employees in two offices and approximately 1000 of my 3000 clients are pension. Just wanted to set the record straight. Why not tell us a little about yourself? you know during those down times between the munchies. I still don't know how to get in touch with you.

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This has been a disappointing discussion thread, not because the topic is unworthy, but because it has degenerated to name calling. Please, let’s return to civility. If the participants want to argue/discuss the particular pros and cons of 412(i) plans, I suggest, and request, doing so with numbers, facts, and logical reasoning. It is also OK if we agree to disagree. Thank you.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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It's my personal understanding that a 412(i) plan is best suited to a situation where the client is looking for a no risk investment and the guarantee of an income for life. I do not see it as approriate in a situation where a lump sum distribution is anticipated for the reasons stated in mwyatt's post. There is a strong likelihood of a reversion subject to the reversion penalties where a plan is funded at 3.5% and a lump sum distribution is currently mandated at 5.0%. I also don't see life insurance as a good investment in a retirement plan, unless the individual is uninsurable outside the plan. The primary purpose of life insurance is to provide for protection in the event of death and putting it in the plan turns a tax exempt distribution into one taxable at ordinary income rates. In some instances the distribution may be eligible to be rolled over into an IRA, but it is still ultimately taxable.

I concede that my knowledge of 412(i) plans is limited, but I, like many other posters, would like to learn more about them to know when they would better suit my client than a traditional defined benefit plan. Dom, in a prior post you were asked to provide a scenario that you believed was proper for a 412(i) plan and then the posters would debate the relative merits of 412(i) against a traditional defined benefit plan. I don't believe you ever provided that scenario or, if you did, I missed the discussion. I still would like to see your sceario so that it can be discussed objectively and intelligently.

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