Investing In Your Future A Capital Accumulation Program Presenter: - - PowerPoint PPT Presentation

SLIDE 1

Investing In Your Future

A Capital Accumulation Program

Presenter: Nolan Financial / Cornerstone Financial Date: March 2015

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Investing In Your Future – A Capital Accumulation Program

• Introduction
• Plan Features
• Plan Example
• Enrollment
• Questions and Answers

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SLIDE 3

Introduction

• The employed physicians of MedStar

Health expressed an interest in having access to an employer-sponsored program that provides a capital accumulation opportunity in addition to the existing MedStar retirement plans.

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SLIDE 4

Introduction

Result:

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Investing In Your Future

A Capital Accumulation Program

SLIDE 5

Introduction

Key Findings

• Half of physician respondents believe they are behind

where they’d like to be in retirement preparedness; only 6% feel they are “ahead of schedule.”

• All have a healthy concern for the future; retirement

savings is a top issue for all age groups.

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2013 Report on U.S. Physicians’ Financial Preparedness*

* 2013 Report on U.S. Physicians’ Financial Preparedness; April 2013; sponsored by AMA Insurance, a subsidiary of the American Medical Association (AMA)

SLIDE 6

Introduction

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New Taxes for High Income Earners

SLIDE 7

Introduction

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New Taxes for High Income Earners

Addi$onal ¡Provisions ¡

SLIDE 8

Investing In Your Future – A Capital Accumulation Program

• Introduction
• Plan Features
• Plan Example
• Enrollment
• Questions and Answers

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SLIDE 9

Plan Features

Eligibility

• Full time physicians with an FTE status of .75
• r greater
• Minimum compensation requirements:

– Minimum base salary ─ $150,000, and – Minimum total compensation ─ $175,000

• Due to underwriting restrictions on the

underlying life insurance policy, the maximum eligible age to enroll in the plan is 70½ years, as of the policy issue date

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SLIDE 10

Plan Features

Participant Contributions

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• Contributed to an Employee

Grantor Trust

• Invested in an institutionally-

priced VUL insurance policy

• 7-year minimum contribution

period

• Not subject to claims of

creditors of MedStar

SLIDE 11

Plan Features

Accumulation Vehicle

• Program utilizes institutionally-priced Variable

Universal Life (“VUL”) insurance policies

• Provides additional death benefit protection
• Insurance product is not available to

individuals outside of an employer-sponsored program

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SLIDE 12

Plan Features

Accumulation Vehicle

• Policy is issued on a guaranteed issue basis

with no medical underwriting required up to age 65½, as of the policy issue date, if enrolling during initial eligibility period

• Simplified underwriting with evidence of

insurability required between ages 65½ - 70½ as of the policy issue date, or if enrolling after initial eligibility period

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SLIDE 13

Plan Features

Accumulation Vehicle

• Policy death benefit is determined by the

anticipated contributions to the plan

• Earnings within the policy accrue on a tax-

deferred basis

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SLIDE 14

Plan Features

Contribution Limits

• Minimum after-tax contribution - $5,000/year
• Maximum after-tax contributions based on

total compensation

Total ¡Compensa$on ¡ Maximum ¡Contribu$on ¡ $175,000 ¡-­‑ ¡$299,999 ¡ $30,000 ¡ $300,000 ¡-­‑ ¡$499,999 ¡ $40,000 ¡ $500,000 ¡+ ¡ $50,000 ¡

If ¡par'cipant’s ¡compensa'on ¡is ¡$1M+, ¡an ¡addi'onal ¡$20,000 ¡per ¡year ¡may ¡be ¡ contributed ¡subject ¡to ¡simplified ¡underwri'ng ¡with ¡evidence ¡of ¡insurability. ¡

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SLIDE 15

Plan Features

MedStar Matching Contributions

• 50% of participant’s after-tax contribution
• Subject to maximum match on 10% of total

compensation

– Example:

• Participant contributes $30,000 per year
• $300,000 total compensation
• MedStar maximum match:

50% x 10% x $300,000 = $15,000

• If total compensation is $200,000, MedStar matching

contribution limited to $10,000 (50% x 10% x $200,000)

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SLIDE 16

Plan Features

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• Deposited into an Employer

Funded Trust

• Invests in a conservative

portfolio of funds

• Separate taxable entity

from MedStar

• Not subject to claims of

creditors of MedStar

MedStar Matching Contributions

SLIDE 17

Plan Features

MedStar Matching Contributions

• Subject to 7-year cliff vesting (described later)
• Upon vesting, employer funded trust

liquidates assets held on behalf of the participant and pays taxes on the earnings

• After-tax amount vests to participant and

subject to taxation at the participant’s level

• Final after-tax amount contributed to

participant’s insurance policy

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SLIDE 18

Plan Features

Vesting

• Participant contributions are 100% vested
• Matching contributions account subject to

7-year cliff vesting

• After 7 years and for each subsequent 7-year

period, a new 7-year cliff vesting period will begin on new matching contributions

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SLIDE 19

Plan Features

Vesting

• Matching contributions account vests 100% at

age 60 with 5 years of service from most recent date of hire with MedStar

• Matching contributions made after age 60

with 5 years of service go into the plan 100% vested

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SLIDE 20

Plan Features

Investment Options

• 70-80 variable investment sub-accounts

available within the insurance policy

– Various investment strategies – Select investment professionals

• Default investment option: John Hancock

Lifestyle Conservative Portfolio

– First 30 days following initial premium payment

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SLIDE 21

Plan Features

Distribution Options

• Upon the later of 7 policy years or termination
• f employment, the participant may:

– Access policy cash values via policy withdrawals and loans to supplement retirement income – Convert the policy cash value to an immediate annuity – Maintain the policy for death benefit protection – Surrender the policy and pay taxes on the earnings

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SLIDE 22

Plan Features

Termination of Employment / Death / Disability

• Termination of Employment Prior to Age 60

– Forfeit any unvested matching contributions

• Death

– Matching contributions become fully-vested and distributed as lump sum to beneficiary

• Total and Permanent Disability

– Matching contributions become fully-vested and distributed as lump sum to participant

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SLIDE 23

Investing In Your Future – A Capital Accumulation Program

• Introduction
• Plan Features
• Plan Example
• Enrollment
• Questions and Answers

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SLIDE 24

Plan Example – Match & Vesting

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Participant After-Tax Employee Tax on Benefit After-Tax Year End Trust Participant Vested Contributed Contribution MedStar Trust Trust Trust Trust Tax on Vested Match to Participant Age to Insurance Matching Earnings Year End Basis at Earnings at Earnings Match Balance Insurance Year (BOY) Policy Contribution (4%) Balance Vesting Date Vesting Date (20%) Balance (45%) Policy 1 45 30,000 15,000 15,000 2 46 30,000 15,000 600 30,600 3 47 30,000 15,000 1,224 46,824 4 48 30,000 15,000 1,873 63,697 5 49 30,000 15,000 2,548 81,245 6 50 30,000 15,000 3,250 99,495 7 51 30,000 15,000 3,980 118,474 105,000 13,474 (2,695) 115,780 (52,101) 63,679 8 52 30,000 15,000 15,000 9 53 30,000 15,000 600 30,600 10 54 30,000 15,000 1,224 46,824 11 55 30,000 15,000 1,873 63,697 12 56 30,000 15,000 2,548 81,245 13 57 30,000 15,000 3,250 99,495 14 58 30,000 15,000 3,980 118,474 105,000 13,474 (2,695) 115,780 (52,101) 63,679 15 59 30,000 15,000 15,000 (6,750) 8,250 16 60 30,000 15,000 15,000 (6,750) 8,250 17 61 30,000 15,000 15,000 (6,750) 8,250 18 62 30,000 15,000 15,000 (6,750) 8,250 19 63 30,000 15,000 15,000 (6,750) 8,250 20 64 30,000 15,000 15,000 (6,750) 8,250 600,000 300,000 176,857

SAMPLE 45-YEAR-OLD PARTICIPANT ($30,000 After-Tax Contribution; $300,000 Total Compensation)

Total * Example is for illustrative purposes only. Assumes hypothetical 4% rate of return on trust investment and that all earnings on the investment in the trust are capital gains taxable to the trust at a 20% tax rate. Assumes combined participant tax rate of 45%. Illustrated returns and tax rates are hypothetical only and are not a representation of past or future performance. Actual returns and tax rates may more or less than those illustrated.

SLIDE 25

Plan Example – Institutionally-Priced VUL

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Participant Non-Vested Year End Death After-Tax Pre-Tax Contribution Cash Policy Tax Due on After-Tax Benefit Age Contribution Match Account from Employer Surrender Death Withdrawal Withdrawal Payment to Proceeds to Year (BOY) to Policy Balance Match Account Value Benefit / Loan / Loan Participant Beneficiary 1 45 30,000 15,000

• 29,244

774,741

• 2

46 30,000 30,600

• 59,617

806,914

• 3

47 30,000 46,824

• 91,991

840,188

• 4

48 30,000 63,697

• 126,162

874,659

• 5

49 30,000 81,245

• 162,199

910,396

• 6

50 30,000 99,495

• 200,380

947,677

• 7

51 30,000 118,474 63,679 241,146 986,943

• 8

52 30,000 15,000

• 354,133

1,097,830

• 9

53 30,000 30,600

• 403,188

1,146,885

• 10

54 30,000 46,824

• 455,102

1,198,799

• 11

55 30,000 63,697

• 512,104

1,255,801

• 12

56 30,000 81,245

• 573,086

1,316,783

• 13

57 30,000 99,495

• 638,322

1,382,019

• 14

58 30,000 118,474 63,679 707,957 1,451,654

• 15

59 30,000

• 8,250

850,538 1,594,235

• 16

60 30,000

• 8,250

942,382 1,686,079

• 17

61 30,000

• 8,250

1,040,151 1,783,848

• 18

62 30,000

• 8,250

1,144,154 1,887,851

• 19

63 30,000

• 8,250

1,256,470 1,887,851

• 20

64 30,000

• 8,250

1,377,157 1,887,851

• Sample Variable Universal Life Insurance Policy - Accumulation Period

* Values based upon hypothetical 7% net rate of return and non-guaranteed mortality and expense assumptions. Hypothetical returns are illustrative only and are not a representation of past or future results. Actual rate of return may be more or less than that illustrated. Mortality and expense elements are subject to change at the discretion of the insurance company. Example assumes participant mortality at age 85. Non-vested pre-tax match account balance is for illustrative purposes only and based on assumptions specified on page 25.

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Plan Example – Institutionally-Priced VUL

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Participant Non-Vested Year End Death After-Tax Pre-Tax Contribution Cash Policy Tax Due on After-Tax Benefit Age Contribution Match Account from Employer Surrender Death Withdrawal Withdrawal Payment to Proceeds to Year (BOY) to Policy Balance Match Account Value Benefit / Loan / Loan Participant Beneficiary 21 65

• 1,328,291

1,747,279 140,572

• 140,572
• 22

66

• 1,267,817

1,606,707 140,572

• 140,572
• 23

67

• 1,203,971

1,466,135 140,572

• 140,572
• 24

68

• 1,136,623

1,325,563 140,572

• 140,572
• 25

69

• 1,065,322

1,225,120 140,572

• 140,572
• 26

70

• 990,410

1,127,890 140,572

• 140,572
• 27

71

• 910,716

1,034,214 140,572

• 140,572
• 28

72

• 825,917

932,756 140,572

• 140,572
• 29

73

• 735,734

823,277 140,572

• 140,572
• 30

74

• 639,888

705,541 140,572

• 140,572
• 31

75

• 538,096

606,811 140,572

• 140,572
• 32

76

• 428,859

500,509 140,572

• 140,572
• 33

77

• 311,486

385,916 140,572

• 140,572
• 34

78

• 185,365

262,397 140,572

• 140,572
• 35

79

• 49,837

129,267 140,572

• 140,572
• 36

80

• 50,178

131,933

• 37

81

• 50,173

134,306

• 38

82

• 49,761

136,322

• 39

83

• 48,877

137,916

• 40

84

• 47,447

139,012

• 41

85

• 139,012

600,000 176,857 2,108,580

• 2,108,580

139,012 TOTAL * Values based upon hypothetical 7% net rate of return and non-guaranteed mortality and expense assumptions. Hypothetical returns are illustrative only and are not a representation of past or future results. Actual rate of return may be more or less than that illustrated. Mortality and expense elements are subject to change at the discretion of the insurance company. Example assumes participant mortality at age 85. Non-vested pre-tax match account balance is for illustrative purposes only and based on assumptions specified on page 25.

Sample Variable Universal Life Insurance Policy - Distribution Period

SLIDE 27

Plan Example – After-Tax Investments vs. Institutionally-Priced VUL

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Age After-Tax After-Tax Ending Age After-Tax Withdrawal Cash Death IRR on (BOY) Contribution Distribution Balance (BOY) Contribution / Loan Value Benefit Death 45 30,000 31,500 45 30,000 29,244 774,741 2482.47% 46 30,000 64,575 46 30,000 59,617 806,914 371.03% 47 30,000 99,304 47 30,000 91,991 840,188 163.99% 48 30,000 135,769 48 30,000 126,162 874,659 98.26% 49 30,000 174,057 49 30,000 162,199 910,396 67.66% 50 30,000 214,260 50 30,000 200,380 947,677 50.44% 51 30,000 256,473 51 30,000 241,146 986,943 39.60% 52 30,000 300,797 52 30,000 354,133 1,097,830 33.73% 53 30,000 347,337 53 30,000 403,188 1,146,885 28.33% 54 30,000 396,204 54 30,000 455,102 1,198,799 24.32% 55 30,000 447,514 55 30,000 512,104 1,255,801 21.27% 56 30,000 501,389 56 30,000 573,086 1,316,783 18.89% 57 30,000 557,959 57 30,000 638,322 1,382,019 16.99% 58 30,000 617,357 58 30,000 707,957 1,451,654 15.45% 59 30,000 679,725 59 30,000 850,538 1,594,235 14.68% 60 30,000 745,211 60 30,000 942,382 1,686,079 13.66% 61 30,000 813,972 61 30,000 1,040,151 1,783,848 12.80% 62 30,000 886,170 62 30,000 1,144,154 1,887,851 12.07% 63 30,000 961,979 63 30,000 1,256,470 1,887,851 10.96% 64 30,000 1,041,578 64 30,000 1,377,157 1,887,851 9.99%

COMPARISON OF IRR ON DEATH OF TAXABLE INVESTMENTS VS. INSTITUTIONALLY-PRICED VUL (ACCUMULATION PERIOD) Institutionally-Priced VUL Taxable Personal Investment Account

* Values assume 7% net rate of return (4% income, 1% realized gains, and 2% unrealized gains on taxable investment), 45% income tax rate, 20% capital gains tax rate, and 15 annual retirement distributions. IRR on death for taxable investments will be further reduced by any taxes due on accumulated unrealized gains at time of death. Institutionally-priced VUL values assume additional contributions of $63,679 at the end of years 7 and 14 and $8,250 at the end of years 15-20 that would come from vested employer contributions. Hypothetical returns and values are for illustrative purposes only. Actual returns and values may be more or less than those illustrated.

SLIDE 28

Plan Example – After-Tax Investments vs. Institutionally-Priced VUL

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Age After-Tax After-Tax Ending Age After-Tax Withdrawal Cash Death IRR on (BOY) Contribution Distribution Balance (BOY) Contribution / Loan Value Benefit Death 65 91,687 1,000,128 65 140,572 1,328,291 1,747,279 9.32% 66 91,687 955,778 66 140,572 1,267,817 1,606,707 8.77% 67 91,687 908,323 67 140,572 1,203,971 1,466,135 8.33% 68 91,687 857,546 68 140,572 1,136,623 1,325,563 7.97% 69 91,687 803,214 69 140,572 1,065,322 1,225,120 7.81% 70 91,687 745,079 70 140,572 990,410 1,127,890 7.69% 71 91,687 682,875 71 140,572 910,716 1,034,214 7.62% 72 91,687 616,317 72 140,572 825,917 932,756 7.55% 73 91,687 545,100 73 140,572 735,734 823,277 7.49% 74 91,687 468,897 74 140,572 639,888 705,541 7.43% 75 91,687 387,360 75 140,572 538,096 606,811 7.43% 76 91,687 300,116 76 140,572 428,859 500,509 7.43% 77 91,687 206,764 77 140,572 311,486 385,916 7.43% 78 91,687 106,878 78 140,572 185,365 262,397 7.42% 79 91,687 79 140,572 49,837 129,267 7.42% 80 80 50,178 131,933 7.41% 81 81 50,173 134,306 7.40% 82 82 49,761 136,322 7.39% 83 83 48,877 137,916 7.39% 84 84 47,447 139,012 7.38%

* Values assume 7% net rate of return (4% income, 1% realized gains, and 2% unrealized gains on taxable investment), 45% income tax rate, 20% capital gains tax rate, and 15 annual retirement distributions. IRR on death for taxable investments will be further reduced by any taxes due on accumulated unrealized gains at time of death. Institutionally-priced VUL values assume additional contributions of $63,679 at the end of years 7 and 14 and $8,250 at the end of years 15-20 that would come from vested employer contributions. Hypothetical returns and values are for illustrative purposes only. Actual returns and values may be more or less than those illustrated.

COMPARISON OF IRR ON DEATH OF TAXABLE INVESTMENTS VS. INSTITUTIONALLY-PRICED VUL (DISTRIBUTION PERIOD) Institutionally-Priced VUL Taxable Personal Investment Account

SLIDE 29

Investing In Your Future – A Capital Accumulation Program

• Introduction
• Plan Features
• Plan Example
• Enrollment
• Questions and Answers

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SLIDE 30

Enrollment

• Complete ‘Indication of Interest’ form

– Request a personalized illustration, or – Decline participation in the program

• Schedule an individual meeting, if

interested

• Complete ‘Participation Agreement’ form

and Insurance Application forms

– Will be provided at individual meeting

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Investing In Your Future – A Capital Accumulation Program

• Introduction
• Plan Features
• Plan Example
• Enrollment
• Questions and Answers

31

SLIDE 32

Questions and Answers

• Nolan Financial

– Michael Nolan – David Edwards – Richard Essig

• Cornerstone Financial

– Henry Thomas – J. Richard Thomas, Jr. – David deMuth

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SLIDE 33

Notices, Disclosures & Disclaimers

Federal Taxes Any discussion pertaining to taxes in this communication (including attachments) may be part of a promotion or marketing effort. As provided for in government regulations, advice (if any) related to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue code. Individuals should seek advice based on their own particular circumstances from an independent tax advisor. Legal, Tax, Accounting, and Investment Advice The Nolan Financial Group is not a Registered Investment Advisor and does not engage in the practice of law or accounting. Anything contained herein dealing with legal, tax, accounting, or investment matters should be discussed with your legal, tax, accounting, and investment advisors. The information in this presentation is not investment or securities advice and does not constitute an offer. Financial Illustrations The material in this report may contain financial illustrations, which may reflect hypothetical dividends, interest, rates of return, and/or expense and mortality assumptions, none of which are guaranteed. The Nolan Financial Group and Cornerstone Financial, LLP do not warrant the performance of any particular investment management firm, insurance company, or product. Broker/Dealer Registered associates of Nolan Financial are registered representatives of Lincoln Financial Advisors Corp. Lincoln Financial Advisors does not offer legal or tax advice. Securities offered through Lincoln Financial Advisors Corp., a broker/dealer. Insurance offered through Lincoln affiliates and other fine

• companies. Lincoln Financial Advisors, 8219 Leesburg Pike #200, Vienna, VA 22182.

Henry Thomas offers securities and investment advisory services and James Richard Thomas, Jr. offers securities, through AXA Advisors, LLC (212-314-4600), member FINRA/SIPC. Investment advisory products and services offered through AXA Advisors, LLC, an investment advisor registered with the SEC. Annuity and insurance products offered through AXA Network, LLC and its insurance agency subsidiaries. Individuals may transact business and/or respond to inquiries only in state(s) in which they are properly registered and/or licensed. AXA Advisors and AXA Network do not provide tax or legal advice. Cornerstone Financial, LLP is not a registered investment advisor and is not owned or operated by AXA Advisors or AXA Network. 33