Written by Rick Ransom Wednesday, 08 June 2011 18:36
The Amazing Selective Incentive Plan
This new tax-deductable plan allows the employer to focus retirement plan benefits on key employees.
This Plan:
1. Ties Employees to you
2. Increases Profits
3. Provides a Retirement Plan for Employees
In recent years, tax-qualified retirement plans have lost much of their attraction for most business owners, resulting in more plans being terminated in the past five years than new plans being installed. A number of reasons are cited for net terminations of corporate pension and profit-sharing plans, Keogh plans, and other retirement vehicles.
One reason frequently cited is the red tape or headache factor. As congress has changed laws and the IRS has issued new regulations, many business owners have become increasingly fed up with costs incurred in plan updates and increasing administrative costs.
Prior to 1984, a lengthy vesting schedule allowed the business owner to install a plan in order to entice employees to stay with him longer. Employers could use a vesting schedule which would best suit the needs of the Individual. Now, the required vesting schedule does little for employee retention.
Finally, with lower tax rates, the small business owner has less ability to add employees to his or the company plan, and have those costs covered by income tax savings. The economics of the plan do not provide the incentives they once did. Large employers with hundreds of employees may have to install a plan to compete, but the small business’s may rightfully conclude there are better ways to keep employees satisfied. This is especially true when an ever-increasing number of employers are concluding that their employees do not appreciate the plans available, but would rather have the cash instead.
So how does the astute business owner get the most bang for his buck? How can he focus retirement plan benefits on those few key employees (including and especially himself) who are really making it happen for the company? Today, savvy retirement plan advisors recommend that business owners take a look at the amazing Selective Incentive Plan. We have outlined seventeen reasons why on the next few pages:
1. Tax Deductible to the Company:
The plan contributions are tax deductible under IRC Section 162 as a compensation bonus to the plan participant.
2. The Employer is Selective on Whom to Cover:
The business owner may choose to select only certain employees to be included in the plan. Additionally, he may contribute different amounts on behalf of different employees. The employer may choose to install the plan only for himself.
3. No Contribution Limits:
Unlike qualified plans, which limit contributions, an employer may contribute $5,000, $20,000, $40,000, or more to the Selective Incentive Plan.
4. Plan Reimburses Executive For Any Tax Cost:
Because the plan is tax deductible to the employer, the employee must account for the benefit in his taxable income. However, beginning with the very first tax year, the plan fully reimburses the employee for any taxes due, thus the results are a zero net cost to the employee.
5. No Administrative Cost:
Unlike a qualified plan, there are no administrative costs associated with the Selective Incentive Plan. It is simple to design and customize for the needs of each employee:
6. Grows And Compounds Tax-free:
Like a qualified plan, the investment monies grow and compound without any taxes due on those earnings.
7. Money Can Be Accessed Tax-free:
Both Before and after retirement, there are three ways money can be accessed tax-free. This may be especially attractive, since in later years there is a probability especially in today’s environment tax rates will rise.
8. Greater Retirement Income:
Generally speaking, the Selective Incentive Plan will outperform both qualified plans and personal investing, yielding a larger retirement income. The employer may easily perform side-by-side comparisons of the options and factor in tax effects, rates of return, etc.
9. Multiple Investment Choices:
The employer may choose to allocate his accounts among many investment choices: growth stocks, international stocks, indexed strategy, bonds, real estate, a money market fund, a total return account, and a fixed/ guaranteed account.
With professional management, diversification, and superior track records, the account can be periodically reallocated among the funds to stay abreast of the changing economic conditions. And because it grows tax sheltered, transfers between the funds do not cause a taxable event. This frees the executive to make investment choices based on economics, not the tax siphon. (When you invest personally, investment changes are taxable.)
10. Death Benefit Included:
This entitles the plan to certain benefits designed by Congress under IRC section
7702A.While the economics of the plan are designed to achieve retirement planning goals, and may presume the death benefit is of little use or merit, still the death benefit is there. It may be used to provide protection for heirs, fund a buy-sell agreement, provide Key-Person Insurance, or supplement funding of estate taxes. The employee sees the insurance portions of the plan as an immediate benefit because it may free up personal dollars, which were being spent on insurance.
11. Accessible Before Retirement:
Unlike a qualified plan, the dollars may be accessed pre-retirement, penalty free and tax free. This allows the plan to be more cost-efficient-that is, the plan may provide double-duty dollars for education funding, an emergency fund, mortgage payoff, etc.
12. Vesting Schedule may provide Golden Handcuffs:
By making an IRC Section 83(b) election, the employer may add a vesting schedule to the Selective Incentive Plan. Any schedule may be designed, even different schedules for different employees. A vesting Schedule of, say 10 percent per year of employment for 10 years would not be unusual.
13. May Be Self-Completing In Case Of Disability:
This is perhaps the most unique feature of the plan. It says that should the participant become disabled, the plan contributions will continue, adding to the retirement account each year. It is the only retirement plan with this feature.
14. Not subject to Creditors or ERISA:
This feature allows the company and the executive to sleep well, knowing that plan assets are usually safe from frivolous lawsuits and bureaucratic red tape.
15. No 15 percent penalty for excess distributions:
Most professionals and business owners who are funding their retirement plans at the maximum for very many years will be hit with the 15 percent penalty tax for excess distributions, raising their marginal tax rate at retirement for the 55 percent range. This is complex, yet an important calculation. Too often the verdict is that the qualified plan is being over-funded, and an unpleasant surprise awaits at retirement. The selective Incentive Plan avoids this.
16. Social Security Does Not Become Taxable:
Unlike retirement income from qualified plans or personal investments, income from the Selective Incentive Plan will not cause Social Security to become taxable income.
17. May Replace Or Supplement A Qualified Plan:
An employer may use the Selective Incentive Plan in lieu of a qualified plan to focus benefits on key employees, or it may supplement a qualified plan to focus benefits on key employees, or it may supplement a qualified plan for additional benefits for key employees.
The Selective Incentive Plan provides a remarkable opportunity for a business owner to focus benefits on key employees while maintaining a current income tax deduction, there are no start up costs, no administrative costs, and no reporting requirements. Because of competing variable and complex calculations, the business owner should seek expert advice when considering the plan design. Then it becomes a simple and effective means to grow wealth. In the current economic and tax environment, the plan is an amazing tool that should be analyzed by every business owner desiring to optimize their executive compensation package. We would hope that the 17 different reasons outlined above, will be enough to have you contact us for a further, and more in depth discussion as to the great advantages for you.
PLS contact Mr. John C Saunders CEP,EPS,RFC Cypress Associates Inc
11767 Katy Frwy # 310
Houston TX 77079
Phone 832 492 1333 or
email This e-mail address is being protected from spambots. You need JavaScript enabled to view it
and add in the subject line retirement planning.
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