Sample Letter to describe defined benefit plans

[KateSmithPA]

My manager has asked me to try to locate a sample letter we can send to a prospective defined benefit plan client to explain DB plans. We don't actually administer DB plans, but have an agreement with an actuary. I have checked these boards and another service we use, RIA, but without success. I have also sent an email to the actuary to see if he has any suggestions.

Any ideas?

Thank you.

[Effen]

I just want to make sure I understand what you’re manager is asking. He/she would like a sample letter that explains db plans to prospective clients because he doesn't really know anything about them, yet he is willing to "sell" them. And he doesn't really know anything about administration, but he did stay at a Holiday Inn Express?

I would strongly urge you to ask your manager reconsider. DB (or any qualified plan) is nothing to be "dabbled" in. Just because you do excellent DC work, doesn't mean you can do the db side. I just spent the last 3 months unraveling a db mess, sold by someone who didn't really do the work, who had an agreement with an actuary. The 100K invested in db contributions turned out to cost them about $300K to settle the law suit and pay all the legal bills.

I have several relationships where someone else makes the contacts and handles the investments and maybe the 5500, but we handle the valuations and ben calcs. The relationship works very well for both of us because we both do only what we have expertise in. Your clients will be better served, they will be happier, you will be happier.

So, to answer your question, if you are working with an actuary, ask him/her for the explanation. Isn't that his role? If he won't do it, or doesn't have it, I suggest you're probably working with the wrong actuary.

[SoCalActuary]

http://www.irs.gov/pub/irs-pdf/p3998.pdf is the IRS web link for describing new retirement plans.

In addition, you have the published info from the pension answer book, IRS Pub 560, NIPA & ASPPA text materials.

In part, your explanation depends on your audience. Do you want to talk about the funding rules, the benefit accruals, the deduction limits, the use of a combined pooled trust fund, the PBGC guarantee?

Good luck authoring your marketing piece on db plans, and I hope you sell a bunch of them.

[Effen]

I guess I came across a little strong - I'm feeling much better now. Anyway, don't get me wrong, I hope you sell a bunch of them as well; I was just trying to caution you and your manager about selling something without fully understanding it.

A lot of people see the $ that can be put in a db plan and want a piece of it. They hook up with an actuary (or not) and start selling. The problem I see quite often is that they forget about the client. They underestimate the complexity and make promises they can't deliver. We have all seen the crap documents that prototypes users can create under that assumption that if it is in a prototype, it must be ok.

Most clients have no idea what is legal and what is not. If you jump in, jump in with both feet; learn everything you can, learn what you know and what you don't know. Choose good people to work with and stay within your expertise.

[AndyH]

You don't need to backtrack; you had a valid point.

But I also agree that the IRS and DOL, and by the way the SBA all have good publications for this sort of situation, although of course they might not sufficiently emphasize the potential tax benefits to the prospect.