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What type of business may adopt a

412(e)(3) Guaranteed Pension Plan?

Sole proprietors, partnerships, corporations and other business entities can adopt a 412(e)(3) plan. It is most advantageous for small, established business owners who are age 40 and over with 10 or fewer employees seeking to maximize tax deductions and provide a substantial retirement benefit for themselves and other long-term employees.

Frequently Asked Questions: Guaranteed Pension Plans

Today, many successful Americans share three financial goals: 

· deferring taxes,

· saving for retirement and,

· protecting against losses. 

 

A Fully Insured, Guaranteed Defined Benefit Plan may help you achieve these goals.

 

The Fully Insured Defined Benefit Plan has the potential to work for business owners who:

· Want Guarantees,

· Want contributions greater than $49,000,

· Want a large tax deduction,

· Have few eligible rank and file employees.

 

The ability to make plan contributions that have the potential to exceed what you can make to a Defined Contribution plan and receive a large tax deduction are reasons to consider this type of qualified plan.

Who may benefit from these plans?

Recent market conditions have created a renewed interest in 412(e)(3) defined benefit plans. Clients have seen their personal

401(k) plans diminish.

 

The concept of being able to retire on a planned income in a forced savings-type approach has appeal for many small business owners – particularly if the cost is offset by their business.

What is the difference between a 412(e)(3) Guaranteed Plan and a traditional defined benefit plan?

Traditional defined benefit plans may invest in a wide range of investments including stocks, bonds and mutual funds.

 

A 412(e)(3) plan is funded exclusively with insurance company annuity contracts or a combination of annuity contracts and life insurance policies. In addition, these plans protect employers against negative returns, bear markets and poor investment decisions.

How does a 412(e)(3)  plan work?

Insurance company annuity contracts, or a combination of annuity contracts and life insurance policies with underlying guaranteed returns, are purchased to provide the retirement benefits promised in the plan. This removes the investment risk for the employer because minimum returns are guaranteed and contributions are known at the time the plan is put in place.

 

Benefits are funded over the working lifetime of each employee. The deductible contribution goes to fund these contracts each year.