Slides from July 2019 Webinar for Financial Advisors. Topic is Nonqualified Deferred Compensation (NQDC) for Financial Advisors. Presenters include Phil Currie, Managing Director, Fulcrum Partners, an executive benefits consultancy.

1. Non-Qualified Certificate
Program: Webinar II

2. 1© 2017 |
Nancy Gray
Account Executive
Matrix Financial Solutions
Phillip L. Currie Jr.
Managing Director
Fulcrum Partners
Jeff Acheson
Chief Business Development Officer
Independent Financial Partners
Trisha G. Morrison
Chief Operating Officer
The Pangburn Group
Non-Qualified Webinar II

3. A People vs. Plan Perspective

4. 3© 2017 |
What do Investment Advisors, Financial Planners,
Wealth Managers, Retirement Plan Specialists and
Life Insurance Agents all have in common?
ANSWER:
A desire to LOCATE multiple IDEAL CLIENTS

5. 4© 2017 |
Ideal Client Profile By Income
FACTS
• Top 1% of U.S. Earners have an average income of $718,766
• Top 5% of U.S. earners have an average income of $299,819
• Top 10% of U.S. earners have an average income of $118,400

6. 5© 2017 |
Ideal Client Profile By Net Worth
FACTS:
• Top 1% have a net worth of >$10M
• Top 5% have a minimum net worth of $2.4M
• Top 10% have a minimum net worth of $1.2M

7. 6© 2017 |
Ideal Client Profile
YOU KNOW THEIR INCOME
AND
NET-WORTH PROFILES…
…. HOW TO LOCATE THEM?

8. 7© 2017 |
Top three assets of
TOP 1%
1. Business Equity
2. Non-Retirement Account Financial Assets
3. Retirement Account Assets

9. 8© 2017 |
Top three assets of
TOP 10%
1. Non-Retirement Financial Assets
2. Retirement Account Assets
3. Business Equity
**NOTE*** Home Equity is not in top three in either case

10. 9© 2017 |
Statistical evidence
Percentage of tax returns reporting K1 earnings
from an S Corp or Partnership (includes LLCs)
 42% of returns with an AGI in excess of $250,000
 72% of returns with an AGI in excess of $1M
 90% of returns with an AGI in excess of $10M

11. 10© 2017 |
Small business defined “The People
Business”
According to the U.S. Small Business Administration a
small business is defined as:
• Having less than 500 employees and
• Number 30.2 million businesses or
• 99.9% of all businesses in the U.S.

12. 11© 2017 |
Conclusion: Ideal prospect profile
Small business owner
with
a successful business

13. 12© 2017 |
IDENTIFYING A SUCCESSFUL BUSINESS
LEADS TO THE BUSINESS OWNER
STRATEGY:
Find a successful retirement plan, you will find a successful business with a
business owner with multidisciplinary needs

14. 13© 2017 |
IDENTIFYING A SUCCESSFUL BUSINESS
LEADS TO THE BUSINESS OWNER
Total 401(k) Plans by Number of Employees:
 >500 EEs = 2%
 100 – 500 EEs = 8%
 < 100 EEs = 90%

15. 14© 2017 |
Identifying a successful business leads to
the business owner
Total 401(k) Plans by Assets under Management:
 $50M = 9,267 plans or 2% of total
 $10M - $50M = 32,317 plans or 6% of total
 < $10M = 502,959 plans or 92% of total

16. 15© 2017 |
Every day in America…
Business interests are bought, sold and liquidated on unfavorable
terms because:
· Somebody wants to retire
· Somebody dies
· Somebody becomes disabled
· Somebody’s estate owes taxes
· A business goes bankrupt
· Somebody wants to sell without a buyer

17. 16© 2017 |
Identifying a successful business leads to
the business owner
It is estimated that over 4 million businesses
• Are owned by retiring baby boomers with 8 out of 10 needing guidance on
succession and buy-sell planning, and
• Assistance retaining the services of their mission critical employees through
non-qualified plans, and
• Can create great door opening introductions to small and mid-size CPA firms
to cultivate as COIs.

18. 17© 2017 |
Business Succession/Continuation
OWNER
Spouse
Children
“In” Children
“Out” Other
Owners Key
Employees
Income
Opportunity
Cash
Control
Security
“Potential Conflicts”

19. 18© 2017 |
Nonqualified Deferred Compensation Plans by FTE’s
QUESTION: Do you offer a Nonqualified Deferred Compensation, Nonqualified Benefit or
other Key Person benefit plan?
Overall
100 or
Fewer
101 – 250 251 – 750 751-1500
1500 or
more
YES 37% 17% 19% 45% 59% 87%
NO 63% 83% 81% 55% 41% 13%
Base 439 182 86 60 27 76
Newport Group: Compensation, Retirement and Benefits Trends Report Executive Summary 2018-2019 Edition.

20. 19© 2017 |
Prospecting Strategies
• Existing Plan Sponsor Clients
• “What’s in it for me?”
Reframe the narrative to “mission critical employees”
Business Continuation/Succession Success

21. 20© 2017 |
Retirement Responsibility
 Historically, the employer owned the responsibility and risk of providing retirement benefits:
 Defined benefit (DB) pension plans were common practice
 Social Security income could be relied upon to supplement company pension benefits
 However, the shift to defined contribution (DC) 401(k) plans has transferred the responsibility and
risk for retirement from employers to employees
 The problem – qualified DC plans do not provide sufficient retirement savings opportunities for
management and highly compensated employees
Traditional DB Pensions
vs. Account-Based
Plans Among Fortune
500, 1998-2015
Source: “A Continuing
Shift in Retirement
Offerings in the Fortune
500”, Willis Towers
Watson, February 2016

22. 21© 2017 |
Is there a Retirement Savings Gap in our
future?
Assumptions:
 45-year-old with current annual
compensation as shown above; 20
years of contributions until
retirement at age 65.
 401(k) contributions are maximized
under current law; starting balance
at age 45 of $75,000
 Social Security increased using a 2%
annual cost-of-living adjustment;
compensation increased an average
of 4% annually
 7% annual return
 Based on 2018 qualified plan limits

23. 22© 2017 |
Harness the Power of Tax-Deferred Savings
Not
Deferred
Tax-
Deferred
Annual Savings $20,000 $20,000
Tax on Savings 32% Deferred
Estimated Taxes $6,400 $0
Net amount invested (annually) $13,600 $20,000
Investment Return 7% 7%
Annual Earnings $952 $1,400
Taxes on Earnings 27.3%* Deferred
Account Earnings $692 $1,400**
After-Tax Earnings $692 $952
Assumptions:
* Assumes that half is taxed at
capital gains tax rate (15%),
half is taxed at ordinary
income tax rate (32%), plus
Medicare Net Investment
Income tax of 3.8% on
investment gain.
** All deferrals and earnings in
the tax-deferred example
are taxed as ordinary income
upon distribution.

24. 23© 2017 |
Outside Savings vs. Plan Balance
Maximize tax-efficiency, maximize time
Pre-tax deferral Assumptions
 45-year-old; retires at age 65
 $20,000 of pre-tax income until retirement
 7.00% annual pre-tax return
 Benefit payments are taxed as ordinary
income when received.
After-Tax Personal Investment Assumptions
 45-year-old; retires at age 65
 $20,000 of compensation until retirement
 Does not defer
 Pays ordinary income tax (32%)
 Invests the $13,600 net income at 7.00%
annual pre-tax return.
 The investor pays blended tax rate of 27.3%;
one half taxed at capital gains rate (15%);
one half taxed at ordinary income tax rate of
32% plus Medicare Net Investment Income
Tax of 3.8% in investment gain
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
5 Years 10 Years 15 Years 20 Years
477,052
877,304
After-Tax Savings Pre-Tax Deferral Balance
* Assuming a 32% income tax rate, the Deferral Plan net lump sum benefit is $596,566.
*

25. 24© 2017 |
After-Tax Benefit of Deferring
Pre-tax deferral Assumptions
 Sum of all payments
 45-year-old; retires at age 65
 $20,000 of pre-tax income until
retirement
 7.00% annual pre-tax return
 Benefit payments are taxed as ordinary
income when received.
After-Tax Personal Investment
Assumptions
 Sum of all payments
 45-year-old; retires at age 65
 $20,000 of compensation until retirement
 Does not defer
 Pays ordinary income tax (32%)
 Invests the $13,600 net income at 7.00%
annual pre-tax return.
 The investor pays blended tax rate of
27.3%; one half taxed at capital gains rate
(15%); one half taxed at ordinary income
tax rate of 32% plus Medicare Net
Investment Income Tax of 3.8% in
investment gain
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
Lump Sum 5 Annual
Installments
10 Annual
Installments
15 Annual
Intallments
$477,052
$528,140
$602,529
$690,888
$596,566
$686,140
$824,243
$999,409
After-Tax Savings Deferral Plan
25%
45%
37%
30%

26. 25© 2017 |
Step 1
• Select study group
– Human Resources
– Finance
– Legal
– Other Key Executives
• Discuss corporate objectives
• Solicit input from study group and selected
executives
• Analyze and understand current problems and
agreements
Objectives &
Design Issues
Implementation
Final
Recommendations
Finalize Funding
& Security
RFP
Preliminary
Plan Design
Administration

27. 26© 2017 |
Step 2
Preliminary design of:
• Plan Features
• Eligibility
• Deferral Sources
• Distribution Options
• Funding Options
• Benefit Security Options
Preliminary
Plan Design
Implementation
Final
Recommendations
Finalize Funding
& Security
RFP
Objectives &
Design Issues
Administration

28. 27© 2017 |
RFP for Third Party Administrator:
• Organization
• Capabilities
• Participant & Sponsor Experience
• Fees
Conduct RFP
Implementation
Final
Recommendations
Objectives &
Design Issues
Finalize Funding
& Security
Preliminary
Plan Design
Administration
Step 3

29. 28© 2017 |
• Finalize benefit security
• Finalize financing structure
• Evaluate funding vehicles based on:
– IRR
– Cash Flow
– P&L Impact
– Liquidity
Finalize Funding
& Security
Implementation
Final
Recommendations
RFP
Objectives &
Design Issues
Preliminary
Plan Design
Administration
Step 4

30. 29© 2017 |
• Final design of plan based on Steps 2, 3 and 4
• Selection of asset provider
• Selection of investment options
• Selection of rabbi trustee provider
• Draft plan document
• Prepare Board Overview
Final
Recommendations
Implementation
Objectives &
Design Issues
Finalize Funding
& Security
RFP
Preliminary
Plan Design
Administration
Step 5

31. 30© 2017 |
• Determining final eligibility list
– Must select only a select group of management or
highly compensated employees
– No official IRS or DOL rulings on what constitutes “top
hat”
– Rules of thumb:
• Number of employees covered by the plan versus total
employees
• Covered job categories
• Relative salaries of participating employees versus non-
participants
• Nature of employment duties
Final
Recommendations
Implementation
Objectives &
Design Issues
Finalize Funding
& Security
Preliminary
Plan Design
Administration
Step 5 – “Fine Tuning”
Conduct
RFP

32. 31© 2017 |
• Determine the types of compensation
deferrals allowed
– Importance of understanding the election timing for
different types of compensation (e.g., bonus v. salary)
• Types, timing, and frequency of employer
contributions (if any)
• Select funds
– Mirror 401(k) or alternative selection of mutual funds
– Subaccounts of a VUL product
– Interest rate
Final
Recommendations
Implementation
Objectives &
Design Issues
Finalize Funding
& Security
Preliminary
Plan Design
Administration
Step 5 – “Fine Tuning”
Conduct
RFP

33. 32© 2017 |
• Define time & form of payment options
– Participant or plan sponsor directed
– Options can vary by event – but beware of “toggles”
– Source tax considerations
– In-service distributions
– Administrative burden and associated costs
Final
Recommendations
Implementation
Objectives &
Design Issues
Finalize Funding
& Security
Preliminary
Plan Design
Administration
Step 5 – “Fine Tuning”
Conduct
RFP

34. 33© 2017 |
• Formalizing the arrangement
– Board approval
– Formal, written agreement
– Department of Labor filing
– Varying formats
– Generally separate and distinct from an employment agreement
– Often TPA/recordkeeper can assist with documentation with
legal counsel approval
Final
Recommendations
Implementation
Objectives &
Design Issues
Finalize Funding
& Security
Preliminary
Plan Design
Administration
Step 5 – “Fine Tuning”
Conduct
RFP

35. 34© 2017 |
• Vendor selection
– TPA/recordkeeper
• TPA v. Recordkeeper in the nonqualified world
• Bundled v. unbundled
• Specialist v. generalist
• Custom plan designs v. prototype designs
• Size of the plan
• Bells and whistles required by client
• Communication requirements – boots on the ground v.
virtual
• Advisor role
• Fee models
Final
Recommendations
Implementation
Objectives &
Design Issues
Finalize Funding
& Security
Preliminary
Plan Design
Administration
Step 5 – “Fine Tuning”
Conduct
RFP

36. 35© 2017 |
• Vendor selection
– Asset provider
• Type of informal funding vehicle
• Investment options and fee considerations
– Trust
• Evaluate participant security concerns
• Consider costs and vendorsFinal
Recommendations
Implementation
Objectives &
Design Issues
Finalize Funding
& Security
Preliminary
Plan Design
Administration
Step 5 – “Fine Tuning”
Conduct
RFP

37. 36© 2017 |
RABBI TRUST AND/OR CUSTODIAL CONSIDERATIONS FOR A
NON-QUALIFIED PLAN:
– Trust Type
• Revocable or Irrevocable Grantor Trust services
• Open Architecture Investment menu with ability to custody Mutual Funds,
ETFs, COLI/BOLI and Company Stock
– Required Services
• Mutual Fund/ETF trading platform
• Support of company stock features
• Trust Statements and online portal automation feature for efficiencies
with account access via secure website
• Paying Agent services including participant tax reporting for both W2 and
1099M reportable distributions
• Ability to track taxable income from taxable investments
• Report any trust taxable income earned annually via Form 1041 Grantor
Tax Letter
• Ability to hold COLI/BOLI for safekeeping, tracking cash surrender values
for annual corporate reporting
Final
Recommendations
Implementation
Objectives &
Design Issues
Finalize Funding
& Security
Preliminary
Plan Design
Administration
Step 5 – “Fine Tuning”
Conduct
RFP

38. 37© 2017 |
RABBI TRUST AND/OR CUSTODIAL CONSIDERATIONS FOR A
NON-QUALIFIED PLAN:
– Legal Consideration and Security of Benefits
• Experience to act upon a Change in Control or Change of Heart to
protect interest of plan participants
• Experience in handling corporate insolvency matters and administering
the trust through such action
• Reducing the potential for conflict of interest
• Tax deferral by employees with taxable income attributed to the
employer.
• Funds subject to the claims of the employer’s creditors as the plan is a
corporate asset
• Services provided are a core competency of the financial institution
acting as trustee/custodian.
• Dedicated client servicing staff with expertise in non-qualified plans
• Ability to strategically partner with various services providers allowing
plan sponsor flexibility to use experts
Final
Recommendations
Implementation
Objectives &
Design Issues
Finalize Funding
& Security
Preliminary
Plan Design
Administration
Step 5 – “Fine Tuning”
Conduct
RFP

39. 38© 2017 |
Implementation:
• Participant Communication
• Conduct Enrollment
Implementation
Objectives &
Design Issues
Final
Recommendations
Finalize Funding
& Security
RFP
Preliminary
Plan Design
Administration
Step 6

40. 39© 2017 |
• Assembling the proper internal team and
understanding the role of all parties – internal and
external
– Payroll
– HR
– Accounting/Finance
– Executive/Compensation Committee
– Plan administrator
• Education and training
– Accounting entries
– FICA (Social Security and Medicare)
– Payroll processes for contributions and distributions
– Asset/liability management
Implementation
Objectives &
Design Issues
Final
Recommendations
Finalize Funding
& Security
Preliminary
Plan Design
Administration
Step 6
Conduct
RFP

41. 40© 2017 |
• Participant Communication
– No one size fits all
– Consider the audience (small v. large eligibility)
– Eligibility letter
– SPDs are not required, but providing a summary is best
practice
– One-on-one meetings, group meeting, or virtual meeting
• The Fine Print
– Tax implications
– 409A compliance requirement
– No rollovers or loans
– Exemption from ERISA
– General creditor status
Implementation
Objectives &
Design Issues
Final
Recommendations
Finalize Funding
& Security
Preliminary
Plan Design
Administration
Step 6
Conduct
RFP

42. 41© 2017 |
• Enrollment
– Online or hard copy forms
– 30 days or less
– Frequency of enrollments and new entrants
– Deferrals begin after the elections become irrevocable –
timing is critical
Implementation
Objectives &
Design Issues
Final
Recommendations
Finalize Funding
& Security
Preliminary
Plan Design
Administration
Step 6
Conduct
RFP

43. 42© 2017 |
• Existing Plan Transitions
– Broken plans, orphaned plans, and unhappy clients
– Opportunity to evaluate plan for compliance issues and/or
refresh plan design
– Re-evaluate fund selection
– Reassess informal funding and benefit security
– Transition recordkeepers
Implementation
Objectives &
Design Issues
Final
Recommendations
Finalize Funding
& Security
Preliminary
Plan Design
Administration
Step 6
Conduct
RFP

44. 43© 2017 |
Administration:
• Set up system
• Recordkeeping
• Cash flow and P&L projections
• Ongoing Plan Management
Administration
Implementation
Final
Recommendations
Finding Funding
& Security
RFP
Preliminary
Plan Design
Objectives &
Design Issues
Step 7

45. 44© 2017 |
• Recordkeeping
– Processing transactions
– Monitoring distributions
– Periodic reporting --- accounting, benefit statements,
fund summary, impact on earnings
– Online access
– Facilitate timely enrollments and elections
– Asset/liability monitoring and management
• Consulting
– Events
– Amendments
– Monitoring legislative and regulatory impacts on the
industry
Administration
Implementation
Final
Recommendations
Finding Funding
& Security
Preliminary
Plan Design
Objectives &
Design Issues
Step 7
Conduct
RFP

46. 45© 2017 |
Identifying Goals & Objectives
Mission Critical Employee Benefits
• How important are your key people to your business success?
• Have you implemented any plans designed to attract, reward and retain your best people?
• Would you be interested in plans that only involve your key people?
• Would your highest paid employees like to defer more of their income on a pre-tax basis?
• Do your key people factor into your business succession or continuation plan? Should they?

47. 46© 2017 |
Identifying Goals & Objectives
Case Study Discussions
• Difference in Mega, Large, Mid-Size and Small corporate plans
• Considerations in each size
• Actual Case Studies in the Mega and Large Size corporate plans
• Actual Case Studies in the Mid and Small corporate plans