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

Investing In Your Future A Capital Accumulation Program Presenter: Nolan Financial / Cornerstone Financial Date: March 2015

Investing In Your Future – A Capital Accumulation Program • Introduction • Plan Features • Plan Example • Enrollment • Questions and Answers 2

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. 3

Introduction Result: Investing In Your Future A Capital Accumulation Program 4

2013 Report on U.S. Physicians’ Introduction Financial Preparedness* 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. * 2013 Report on U.S. Physicians’ Financial Preparedness ; April 2013; sponsored by AMA Insurance, a subsidiary of the American Medical Association (AMA) 5

New Taxes for High Introduction Income Earners 6

New Taxes for High Introduction Income Earners Addi$onal ¡Provisions ¡ 7

Investing In Your Future – A Capital Accumulation Program • Introduction • Plan Features • Plan Example • Enrollment • Questions and Answers 8

Plan Features Eligibility • Full time physicians with an FTE status of .75 or 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 70 ½ years, as of the policy issue date 9

Plan Features Participant Contributions • 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 10

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 11

Plan Features Accumulation Vehicle • Policy is issued on a guaranteed issue basis with no medical underwriting required up to age 65 ½ , as of the policy issue date, if enrolling during initial eligibility period • Simplified underwriting with evidence of insurability required between ages 65 ½ - 70 ½ as of the policy issue date, or if enrolling after initial eligibility period 12

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 13

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. ¡ 14

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) 15

Plan Features MedStar Matching Contributions • 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 16

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 17

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 18

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 19

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 20

Plan Features Distribution Options • Upon the later of 7 policy years or termination of 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 21

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 22

Investing In Your Future – A Capital Accumulation Program • Introduction • Plan Features • Plan Example • Enrollment • Questions and Answers 23

Plan Example – Match & Vesting SAMPLE 45-YEAR-OLD PARTICIPANT ($30,000 After-Tax Contribution; $300,000 Total Compensation) 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 0 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 0 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 8,250 18 62 30,000 15,000 15,000 (6,750) 19 63 30,000 15,000 15,000 (6,750) 8,250 20 64 30,000 15,000 15,000 (6,750) 8,250 Total 600,000 300,000 176,857 * 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. 24