Growing and preserving wealth for generations

Welcome

To The

Financial Forum 2012

Hosted by

The financial consultants of Zeller Kern are registered representatives and investment adviser representatives with and offer securities and advisory services through Commonwealth Financial Network, Member FINRA Financial Investor Regulatory Authority / SIPC Security Investor Protection Corporation, a registered investment advisor. Zeller Kern Private Wealth Management Inc., 11335 Gold Express Drive, Suite 155, Gold River, CA 95670, 916-436-8270 The opinions voiced in this material are for general information only and are not intended to provide specific advice

or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Steven E. Zeller, President, CFP®, AIF®, CExPTM

Zeller Kern Private Wealth Management, Inc.

Trevor K. Kern, Vice President, AIF®, AAMSZeller Kern Private Wealth Management, Inc.

Special GuestsMark Bellows, Partner at Gallina LLP, CPA’s

Shannon Zajec, President of Employers Select Insurance

Today’s Speakers

• To keep you informed about our views on the economy and markets.

• To educate you about important topics presented by our guest speakers.

• A chance to get answers to your questions.

Purpose of This Event

Download Today’s Presentation

at

http://www.zellerkern.com/news.htm

• Announcements

• Current Market Perspectives

• Retirement Planning Tips

• Introduction of Mark Bellows, Partner at GallinaLLP, CPA’s

• Break

• Introduction of Shannon Zajec, President of Employers Select Insurance Services

• Closing remarks

Agenda

Current Market Perspectives

Optimism Versus Headwinds

• Recently we have seen improving technical's from a short term perspective.

• Global economy is showing signs of cooling, while things are mixed here in the U.S.

• Europe’s financial crisis appears to still be on hold, temporarily.

Optimism Versus Headwinds

• Record amounts of stimulus (i.e. QE, money printing).

• States and municipalities are struggling.

• Central bank balance sheets are becoming more bloated.

• All of this within a near zero interest rate environment.

Where We Have Been

Secular vs. Cyclical Markets

Fed To The Rescue

Financial System Risks

Source: Thompson Reuters

Bailout

Potential Bailout

Bailout

Bailout

Partial Bailout

European GDP

Bailout

Potential Bailout

So Who Pays For These Bailouts?

Outlook For Next Several Months

Two scenarios:

• Short term bear market caused by the continued credit crisis in Europe.

• A steady rally upward, backed by a viable short term solution in Europe and further quantitative easing.

The reality is, we really don’t know when and how things will unfold.

Investment Research

Determining The Right Investment Discipline

Is it better to have a tactical discipline or a strategic allocation

discipline?

Defining Strategic Allocation

• Strategic Allocation

– Premise that asset classes produce positive returns at different times.

– Risk is managed by periodically rebalancing the portfolio to keep the investments in line with their targeted weightings.

• Advantages

– Tends to outperform during long periods of a rising stock market.

– Diversification can reduce volatility and even enhance performance relative to a broad index.

Defining Strategic Allocation

• Disadvantages

– May experience significant declines to the value during periods such as 2008, or, in a deflationary period.

– Tends to have greater overall volatility than a tactical approach.

Asset allocation programs do not assure a profit or protect against a loss in declining markets. No program can guarantee that any objective or goal will be achieved. Past performance is notindicative of future results.

Defining Tactical Allocation

• Tactical Allocation– Assets are shifted to a defensive posture as risk

mounts and the chance of losses increase. – Decisions are made based on technical

analysis.

• Advantages– Historically avoids significant declines that would

be experienced if invested at all times.– Opportunity to outperform because there far less

losses to recover and alleviates the emotions of watching a portfolio decline.

Defining Tactical Allocation

• Disadvantages– Tends underperform relative to an index or a

strategic allocation in a sideways trending and or choppy market.

– Turnover is higher and investors can experience whipsawing of positions.

Conclusion

• There is no “Holy Grail” to Investing.

• We are in absolutely unprecedented times.

• Important to choose the right approach for the current circumstances.

• We offer both approaches, but we still lean towards the tactical approach.

Retirement Planning Tips

Areas To Address

• Painting the picture

– Affirming your purpose, determining your lifestyle, where you will live, work or not work, etc.

• Determining cash flow requirements

• Determine your sources and requirements for income during retirement

• Assessing your risk exposures

Areas To Address

• Developing a strategy for growing retirement assets and running a probability analysis.

• Performing a stress test.

• Getting your estate in order.

• Final preparation for your life transition.

Bucket Strategy

Retirement Investments

Travel Expense

CheckingAccount

Investment Reserve Funding

Income SupplementIncome Supplement

Expenditures

Major Expenditures

Annual Income

1-2x Annual Portfolio Income

Core Investment Account(s)

Normal Living Expenses

Discretionary Fund. May double as Emergency Fund

Emergencies: Home, Auto, Health, etc.

Pensions, Social Security, etc.

Carefully address

Health Care Risks

Ongoing Health Care

Long Term Care

General Tips For Retirement

• Minimize Debt– General Rule, avoid mortgage if you can.

• Liquidity– Have ample cash outside of investments.

• Avoid investment strategies that can experience substantial declines.

General Tips For Retirement

• Carefully monitor the rate you are withdrawing from investments.

• Follow a plan

Mark Bellows, Partner at Gallina LLP, Certified Public Accountants

Special Guest

Tax UpdateTax Update

Presented by:

Mark A. Bellows, CPA

September 20, 2012

[ 32 ]

Agenda

Introduction

1 Agenda

2 Terminology

3 - 7 Income Tax Rates

8 - 10 Health Care Tax Effects

11 - 13 Gift and Estate Tax

14 - 16 Depreciation

17 Pending Legislation

18 Other Matters

19 - 20 Planning Recap

21 Questions?

22 Contact Information

Terminology

� § __: Code section of the Internal Revenue Code

� IRS: Internal Revenue Service

� Two figures provided (e.g. $250K/$500K) represent Single & Married Filing Joint

� AGI = Adjusted Gross Income

� AMT = Alternative Minimum Tax

� FMV = Fair Market Value

� IRA = Individual Retirement Account

� LT = Long-Term (more than one year)

[ 33 ]

Income Tax Rates

� Rates are scheduled to go up, absent Congressional action

− Ordinary Income:� 2012: 10, 15, 25, 28, 33 and 35%

� 2013: 15, 28, 31, 36, and 39.6%

− Capital Gains:� 2012: Top LT is 15%

� 2013: Top LT will be 18 or 20%

− Qualified Dividends:� 2012: Same as capital gains

� 2013: Same as ordinary income

[ 34 ]

Income Tax Rates (cont.)

� Other 2013 changes:

− Payroll tax rates - employee’s share:� 2012: 4.2%

� 2013: 6.2%

� Employer share stays 6.2%

− Phase-out of up to 80% itemized deductions

− Phase-out of up to 100% of personal exemptions

− Marriage penalty is back

[ 35 ]

Income Tax Rates (cont.)

� Other 2013 changes (cont.):

− AMT patch was gone as of end of 2011� Many think it will be extended thru 2012

� 2011: AMT exemption $48,450/$74,450

� 2012: AMT Exemption $33,750/$45,000

� Nonrefundable credits can’t reduce AMT

− Credit for household and dependent care expenses:� 2012: $3,000 1st dependent, $6,000 max

� 2013: $2,400 1st dependent, $4,800 max

− Child credit:� 2012: $1,000 per child

� 2013: $500 per child

[ 36 ]

Income Tax Rates (cont.)

� Other 2013 changes (cont.):

− Accumulated Earnings Tax and Personal Holding Company Tax:� 2012: 15%

� 2013: 39.6%

− California Tax Bills?� Prop. 30: 1% ($250K/$500K) 2% ($300K/$600K) 3% ($500K/$1M)

− Effective 2012

� Prop. 38: 0.4% ($7K/$15K) – 2.2% ($2.5M/$5M)

− Effective 2013

� If both pass, whichever gets more votes prevails & the other is ignored

[ 37 ]

Income Tax Rates (cont.)

� Planning Points for remainder of 2012:

− Accelerate Income� E.g. Take bonus in December

� E.g. Accelerate IRA distributions

− Defer Deductions� E.g. Charity

� E.g. Property tax

− Analyze portfolio with respect to dividend-paying stocks

− Convert traditional IRAs to Roth IRAs

− Consider selling gain positions

[ 38 ]

Health Care Tax Effects

� Medicare Tax of 3.8% on investment income starting in 2013

− Interest, Dividends, Annuities, Royalties, Rents

− Other passive trade or business

− Gain from non-trade or business property

− Home sale to extent gain exceeds §121 exclusion ($250K/$500K)

− Tax is on lesser of net investment income or the amount by which Modified AGI>$200K/$250K

[ 39 ]

Health Care Tax Effects (cont.)

� Employee portion of Medicare increasing:

− 2012: 1.45% on all income

− 2013: 1.45% on income up to $200K/$250K

2.35% on income above $200K/$250K

� Flexible Spending Account reduced:

− 2012: $5,000

− 2013: $2,500

� Medical itemized deduction threshold increasing:

− 2012: amounts over 7.5% AGI

− 2013: amounts over 10% AGI

[ 40 ]

Health Care Tax Effects (cont.)

� Planning Points for remainder of 2012:

− Accelerate Investment Income

− Defer Investment Deductions� E.g. Property tax

− Prepay medical if can use the itemized deduction in 2012

[ 41 ]

Gift and Estate Tax

� Gift tax assessed on giver, not recipient

− FMV of gift

� Annual gift tax exemption: $13,000

− Per recipient, per giver

� Lifetime exemption:

− $5.12M in 2012

− $1M in 2013

� Maximum tax rate:

− 2012: 35%

− 2013: 55%

[ 42 ]

Gift and Estate Tax (cont.)

� Estate tax assessed on estate of decedent

− FMV of estate + gifts given since 1976 + gift tax paid within three years of death

� Lifetime exemption is same as for gifts (“unified credit”) and reduced by amount used on gifts during lifetime:

− $5.12M in 2012

− $1M in 2013

� Maximum tax rate:

− 2012: 35%

− 2013: 55%

[ 43 ]

Gift and Estate Tax (cont.)

� Portability between spouses of unused exemption

− Expires at end of 2012

� Discounting for valuation of gifts and estates:

− Minority interest

− Lack of marketability

− Lack of control

− Going away in 2013?

� Planning Points for remainder of 2012:

− Make gifts

[ 44 ]

Depreciation

� §179 write-off:

− 2012: $139K on acquisitions of $560K, then reduced

− 2013: $25K on acquisitions of $200K, then reduced

− New or used personal property

� Bonus depreciation:

− 2012: 50% of the cost of applicable property

− 2013: not in effect

− New personal property

� Real Estate acceleration not extended past 2011

[ 45 ]

Depreciation (cont.)

� New IRS capitalization Regulations allow expensing for de minimis acquisitions

− Apply if have all of the following:� Audited financial statements;

� Written accounting procedures for expensing amounts;

� Treat the deductions as expenses on financial statements; and

� The aggregate amount is less than greater of:

− 0.1% of Gross Receipts or

− 2.0% of total depreciation and amortization expense on financialstatement

− Can elect to apply to materials and supplies

− Can elect out

[ 46 ]

Depreciation (cont.)

� Planning Points for remainder of 2012:

− Accelerate purchases of personal property

− Take advantage of new de minimis rules

[ 47 ]

Pending Legislation

� Multiple bills proposed to incentivize US manufacturing

� House Bill would extend all “Bush tax cuts”

� Senate Bill would extend “Bush tax cuts” for those with income under $250K

� Exclusion of Cancellation Of Debt Income on residence expires atend of 2012

− $2M federal, $800K California

− Federal has talked about extending to 2013

[ 48 ]

Other Matters

� Recent Tax Court cases:

− Dunlap: Façade easement charitable deduction not allowed, since taxpayer did not show decrease in FMV of property

− Mohamed: Local case; charitable contribution of land not allowed because tax forms not properly completed and IRS Regulations not followed

− Durden: Charitable contributions not allowed since written authorization from organization wasn’t in compliance with IRS Regulations; cancelled checks not enough, letter from organization must specify amount of goods and services provided

[ 49 ]

Planning Recap

� Accelerate Income

− Ordinary Income

− LT Capital Gains

− Investment Income

� Defer deductions

− Ordinary Income

− Investment Income

[ 50 ]

Planning Recap (cont.)

� Accelerate deductions

− Medical if applicable

− Personal property

− New de minimis rules

� Consider portfolio rebalance

� Consider selling gain positions

� Convert traditional IRAs to Roth IRAs

� Make gifts

� Vote in November

[ 51 ]

Questions?

[ 52 ]

Contact Information

Mark A. Bellows, CPA

GALLINA, LLP

925 Highland Pointe Drive, #450

Roseville, CA 95678

mbellows@gallina.com

LinkedIn: Mark Bellows

Twitter: RE_Const_CPA

[ 53 ]

Shannon Zajec, President of Employers Select Insurance Services, Inc.

Special Guest

Health Care Reform After

The Supreme Court

Decision –

What Should Employers Be

Doing NOW?

September 20, 2012

Presented by: Shannon Zajec, CEBSPresident, Employers Select Insurance Services, Inc.President, Sacramento Association of Health Underwriters

Researched by: The National Association of Health Underwriters

57

ACA Upheld by the Supreme Court

� The Supreme Court could have taken one of three positions:

� Total repeal of the entire measure

� Total uphold of the entire measure

� Narrow ruling – to repeal specific portions of the law (severability)

� The penalty becomes a “tax” and the ACA is upheld with the exception of the required Medicaid expansion for states.

What are the issues driving the

need for health care reform?

� Growing number of uninsured

� Access to health care services and to health insurance coverage

� The cost of health care services

� Affordable coverage for all Americans

58

59

ACA – Signed Into Law

� The Patient Protection and Affordable Care Act was signed into law in March 2010

� Largest piece of legislation of its type since Medicare/Medicaidwas enacted in the 1960’s

� It was not bi-partisan and was largely passed by overwhelming Democratic majorities in the House and Senate

60

Repeal, Amendment?

� Republican control of the House in 2010 resulted in attempts to repeal

� Until the 2012 elections, most proposals are pretty much dead on arrival in the Senate

61

Rules, Regulations?

� As with any Federal legislation, there has been a series of Rules & Regulations on the legislation that began to come out beginning in the summer of 2010

� Expected to continue to release more Rules & Regulations for many years to come.

So what’s the timeline for ACA?

� 2010 – Law initiated and first provisions go into effect

� 2011 through 2013 – Additional provisions will take effect prior to 2014

� 2014 – Individual mandate, employer “play or pay” mandate and exchanges take effect, along with most other provisions of a major nature

62

63

Some things that happened in 2010

� Grandfathered status was available � Small Employer Tax Credit � National pre-existing condition

program funded� Dependent coverage up to age 26� Guaranteed Issue for children under

19� No cost sharing for preventive care

services� Minimum Loss Ratio rules went into

effect

� Qualifying small employers that provide health care coverage to employees are eligible for tax credit

� Have fewer than 25 full-time equivalent (FTE) employees

� Pay wages averaging less than $50,000 per employee per year

� Has a “qualifying arrangement” (pays premiums for each employee in a uniform percentage that is at least 50 percent of the cost of coverage)

�Small Employer Tax Credit

� Credit based on premiums paid by employer for health insurance coverage

� Credit amount = up to 35 percent of premium costs paid

� On Jan. 1, 2014, increases to 50 percent

� Depends on employees and wages � The credit phases out gradually for:

� Employers with average wages over $25,000 and

� Employers with more than 10 FTEs

�Small Employer Tax Credit

66

And some things for 2011

� Increase in tax for non-qualified distributions from an H.S.A. (20%)

� OTC Drugs must be prescribed to be paid out of an FSA/HRA/HSA

67

2012 -What Employers Need to Be Thinking About Right Now

� Employers issuing 250 or more

W-2 forms are required to include the cost of employer sponsored health benefits

� Preventive care requirements for women

� MLR Rebates

� Summary of Benefits

68

And, in the year 2013?

� Increase in Medicare Hospital Insurance tax by .09% on self-employed individuals and employees with respect to earnings and wages during the year above $200k for individuals or $250k for joint filers

� A new 3.8% Medicare contribution on certain unearned income from individuals with AGI over $200k ($250k for joint filers)

� A $2,500 Cap on Medical F.S.A. contributions

69

And, in the year 2014?� The “Individual Mandate” is

scheduled to go into effect

� “Tax” (was “Penalty”) will be paid by individuals who do not obtain coverage

� Tax will be higher of 1%, then 2%, then 2.5% of AGI or $325, then $696 in subsequent years.

� Federal Medicaid qualification raised to 133% of FPL

� A Federal Premium Subsidy for individuals at 133% to 400% of FPL via an Exchange

70

And, in the year 2014?

� Federal rules will take effect with regard to:� Guarantee issue of all coverage in all

markets

� Essential benefit definition

� Community rating rules for insured health plans

71

And, in the year 2014?

� “Play or Pay” system enacted for employers with 50+ employees� An “essential benefits” package and minimum

contribution level will be defined before 2014 –applied to insured & self insured employers

� Failure to meet either of these will result in employer penalties of $2,000 per employee (less first 30)

� Penalty increases to $3,000 if an employee obtains coverage with Premium Subsidy through Exchange

72

Play or Pay Calculator

� Employers can use a Play or Pay calculator to determine what their penalties could be if they:

� (a) Do not provide coverage to all full-time employees,

� (b) Provide coverage that is unaffordable for some or all employees, or

� (c) Provide coverage that is not of "minimum value."

73

Play or Pay

Calculator Summary of Results: Pay or Play Analysis

Potential Penalties

Full-time employees 155

Penalty (Cost) for not offering coverage to all full-time employees 0

Employees paying more than 9.5% of income for single coverage 27

Does the plan pay for at least 60% of covered expenses for a typical population? (See Benefit Plan Input page for percentage) YES

Penalty for employees paying more than 9.5% 81,000

Total Potential Penalties Accrued81,000

Cost of Providing CoverageAnnual cost of current plan

1,607,220 Employee contributions

(1,034,652)Value of Federal Tax Deduction (171,770)Employer's net cost of current plan

400,798

To begin, please have the following data available. Rate and census information including:*

Employer's marginal tax ratePlan enrollment count (by coverage tier)Plan rate (by coverage tier)Employee cost (by coverage tier)Employee identifier (name, ID, etc.)Employee W2 income

Plan information including

Deductibles

Copays

Coinsurance

Out-of-pocket maximums

74

And, in the year 2014?

� Maximum waiting period is 90 days

� Federal tax on health insurance plans

� Health Insurance Exchanges will be operational at State or Federal level

75

Beyond 2014?

� In 2018 – a 40% excise tax on insurers of employer sponsored health plans with aggregate values that exceed $10,200 for singles and $27,500 for families

� In 2019 – Law allows for a “failsafe mechanism” to adjust the Federal Premium Subsidy

76

What’s the Public Opinion?

� Seems to be against the individual mandate

� Neutral on employer mandate� In favor of many of the insurance

reforms� Concerned about affordability of

coverage if premium subsidies are cut back or eliminated

� Seems to favor the concept of exchanges – if they can reduce costs

Health Care Costs Continue Climbing

� Health care costs have been increasing at an alarming rate for over a decade.

� Following years of growth, the rate of increase has slowed for 2012 to 7 percent.

National Trends

�Source: Hewitt Health Value Initiative™, 2011

�Annual Health Care Cost Increases, National Averages 2004-2012

National Trends

�Source: Hewitt Health Value Initiative™, 2011

�Annual Health Care Costs Per Employee, National Averages 2005-2012

Contributors to Rising Costs

Several factors have led to the climbing health care costs over the past decade, including:

• Demographics

• Expansion of health care providers

• Political environment/government regulation

• Increased utilization and consumer demand

• New medical technology

• Health care spending and medical cost inflation

• Increased prescription drug costs

Contributors to Rising Costs

Contributors to the current projected spike in health care costs:

� An aging population and workforce

� Poor general health among employees

Preventable Illness

� Researchers have estimated that preventable illness makes up approximately 70 percent of the burden of illness and the associated costs in this country.*

�

� * Source: The Wellness Councils of America

What Employers Can Do

� Promoting employee health and wellness

o A common initiative, aimed at increasing employee health and effectively lowering health care costs

o Many employers targeting specific diseases and creating more comprehensive programs

o Incentives for participation, particularly for actions that promote actual behavior change (such as participating in a certain program, rather than just taking a health risk assessment)

o Penalties for nonparticipation, especially in the form of higher premiums or other employee cost-shifting

o Wellness and disease management programs are highly dependent onquality employee education and communication tactics

What Employers Can Do

� Wellness Plan ideas

� Education classes

� Subsidized use of fitness facilities

� Internal policies that promote healthy behavior

� Other activities, policies or environmental changes that affect the health of employees

What Employers Can Do

� Benefits of a Wellness Plan

• Lower health plan utilization, which in turn lowers health benefit costs and increases bottom line

• Improved employee health

• Improved productivity as healthy employees tend to perform better

• Reduction in sick leave absenteeism

• Improved reputation as a company who cares about their employees – aids in recruiting and community perception

• Improved employee morale and stronger employee retention

What Else Can Employers Do?

Employers are becoming more proactive in instituting strategies and programs to reduce overall health care costs, including:

� Using health care data to drive health care strategy

� Greater emphasis on consumer-driven health plans

� Increased employee cost-sharing

� Auditing and increasing cost-sharing for dependents

� Looking at long-term solutions and plans

What Employers Can Do Now?

� Prepare for 2014 – ACA Provisions

� Have a Wellness Game Plan

� Use CDHP & Benchmark Tools

Remembering What’s Important

Questions?

Download Today’s Presentation

at

http://www.zellerkern.com/news.htm

If you would like to receive our free “Weekly Investment Monitor” please let us know.

or

Visit our website: www.zellerkern.com

Subscribe to Zeller Kern’s Exclusive Publication

Thank You

The financial consultants of Zeller Kern are registered representatives and investment adviser representatives with and offer securities and advisory services through Commonwealth Financial Network, Member FINRA/SIPC, a registered investment adviser. Financial Planning services and fixed

insurance products and services offered by Zeller Kern Private Wealth Management, Inc., a Registered Investment Adviser, are separate and unrelated to Commonwealth. Zeller Kern Private Wealth Management Inc, 11335 Gold Express Drive, Suite 155, Gold River, CA 95670, 916-436-8270