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TRENDS TO HELP GROW YOUR BUSINESS

• WOMEN AS THE GROWTH MARKET

• EXECUTIVE COMP

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THE AALU BRAND - WHO WE ARE

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IN THIS ISSUE:

Leadership for Advanced Life Underwriting

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AALU CEO | David J. Stertzer, [email protected]

EditorJames E. Lee • [email protected]

Graphic dEsiGn Carolyn Schmid • [email protected]

advErtisinG salEsKristen Russi • [email protected]

Editorial BoardKathleen W. Bilderback, J.D., LL.M.

David A. Culley, CLU, ChFCDeborah O’Neil, J.D., CFP®, CLU

Marc P. Schwartz, J.D.Kenneth R. Samuelson, CLU, ChFC

Peter M. Viliesis, CLU, ChFC

contriButorsRahul Bhagwat

Kristin O. Bulat, JD, LLMRobert R. Carter, CLU, ChFC

Craig Copeland Jonathan M. Forster

Michael G. Goldstein, J.D., LL.MRuth Helman

Lori Messina, J.D.R. Lee Nunn, CPA, CLU

Andrew J. Rinn, J.D., CFP®, CLU, ChFC Jennifer M. Smith

Jack VanDerhei

staff contriButorsDavid J. Stertzer, FLMI

Jaimee NilesJames E. Lee

Carolyn SchmidTom Korb, J.D.Marilyn Maticic Jeremy Figoten

Anthony RaglaniSarah Spear, J.D., LL.M.

Karla Kirk Kristen Russi

Elizabeth Jarvis

photoGraphYAALU Staff

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Mission statEMEntThe mission of AALU is to promote,

preserve and protect advanced life insurance planning for the benefit of our members,

their clients, their industry and the general public.

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62826 AALUSpring.indd 3 2010/04/15 11:55 AM

4 Spring 2010 The Quarterly

president’s message

knowledge

$2 Trillion – Yours for the Taking Part 1by Lori Messina, Best Practices of America

Recent Economic Developments and Impact on Pay Practicesby Michael G. Goldstein, J.D., LL.M and Rahul BhagwatClark Consulting

The 2010 Retirement Confi dent Survey: Those Who Plan Tend to Have Higher Assets, More Realistic Expectations

by Ruth Helman, Mathew Greenwald and Associates and Craig Copeland and Jack VanDerhei, Employee Benefi t Research Institute

The AALU Brand Gets A Makeoverby James E. Lee, AALU

The Tipping Point Solution: The Business Continuation Retirement Partnershipby Andrew J. Rinn, J.D., CFP®, CLU, ChFC, MetLife

Life Insurance Alternatives To A Roth IRA Conversionby Maggie Mitchell, J.D. CLU, ChFC & Peter McCarthy, J.D., CLU, ChFC,ING Life Sales Support Team

contentsSpring 2010


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knowledge

REBA: Handcuffing Employees in a Tax-Exempt World by Kristin O. Bulat, JD, LLM, John Hancock Life Insurance Co.

Giving Private Split Dollar a Second Chanceby Johnathan M. Forster & Jennifer M. Smith, Greenberg Traurig, LLP FASB Accounting Standards Codification by R. Lee Nunn, AALU NQP Committee

advocacy Legislative Circle Program - Learn about the AALU Endorsed Candidates

networking 2010 Annual Meeting Agenda At-A-Glance

Thank You to Our Sponsors

Pay It Forward

Rising Star

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AALUQuarterlySpringEd#200D.indd 1 2010/04/14 1:55 PM

The Association for Advanced Life Underwriting 5

As we begin the 2010 Annual Meeting, my year as the President of the AALU ends. What a year it has been.

President Franklin D. Roosevelt is quoted as saying when the Japanese attacked Pearl Harbor in World War II that “no one wants to fi ght a two front war.” Yet, that’s exactly how the past year has unfolded for our industry and the AALU.

When I started my year as President of the Association, we were fi ghting a legislative battle about taxes. Lawmakers and bureaucrats at all levels of government were seeking new sources of revenue as the economy struggled. Suddenly our livelihoods were threatened by a new regulatory battle over whether we were advisors or fi duciaries.

The expansion of the “Standard of Care” became the second front of our war to ensure policymakers did not violate the law of unintended consequences and harm consumers – our clients and their constituents – by misguided and unnecessary laws and regulations. Both battles continue as I write.

Not everything this past year required hand to hand combat. There were a number of signifi cant accomplishments.

· We modernized our board governance and committee structure to be more effective for members going forward. We have a streamlined process to evaluate Board members, recruit committee chairs and grow new leaders.

· We hosted our fi rst Leadership Conference to give potential new leaders a peek inside the workings of the AALU and our government.

· Our membership has surged to its highest level ever. We brought in 358 new members in 2008-09 and we’re already ahead of our goal of 393 new members in 2009-10. I especially want to thank Jimmy Jacobs as Membership Committee chair and Mike James for their contributions to expanding the AALU.

We’re all active in various organizations, but one of the hallmarks of the AALU is the amount of work accomplished by the volunteer members. Our Board devotes a tremendous amount of their personal time and expertise to make our Association the successful, trusted organization that it is. These leaders help plan and organize the Annual Meeting. They host campaign fundraisers and help generate revenue for the AALU. The Board helps recruit new AALU members and they speak on behalf of the AALU and our industry. This isn’t their “day job” but it is a full-time job. When you see one of our AALU leaders at the Annual Meeting or in your day-to-day business dealings, be sure to say “thank you” for their service.

The same goes for our volunteer member committee chairs and committee members.

Serving as the president of this great organization has been a high-point in my career. It has been a pleasure and an honor to take on the responsibility passed along from previous leaders to me and the Board that has served with me. Some of you reading this will take the AALU gavel in the years to come and help continue to grow and strengthen our industry and our Association. I know you will fi nd the experience equally rewarding.

Now is the time, though, to welcome my friend Nat Perlmutter as the AALU President for 2010-11. I know when he writes this column next year, it will be fi lled with many accomplishments achieved by the collective AALU team. The volunteer leadership team may change, but the challenges remain constant. I wish him well.

Preserving our products is not cheap or free. It is not easy. It often requires us to fi ght a two front war. Today, we enjoy the benefi ts won by those who fought before us. It’s our turn as members to do the same for those coming behind us.

Thanks for the confi dence you have shown in me and the opportunity to serve you as President.

Robert R. Carter, CLU, ChFCAALU President

PPRESIDENT’S MESSAGE

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KNOWLEDGEKKNOKN

What if I told you there’s $2 trillion dollars sitting on a table and you can have as much of it as you want? Well, it’s true. I’m going to show you where it is, and how to earn your share of it. All you have to do to get started is turn your attention to women.

WHY SHOULD I FOCUS ON WOMEN? LET’S DO THE MATH

It’s no secret that the world’s economy has shifted dramatically over the past few years. So much so that in their Harvard Business Review article The Female Economy, authors Michael J. Silverstein and Kate Sayre conclude that women now represent the largest market opportunity in the world. Statistics appear to back that up. Women currently control approximately $20 trillion in annual consumer spending, and that number’s expected to grow to $28 trillion in the next fi ve years. Women represent a growth market more than twice as large as China and India combined. They make up 51% of the U.S. population and hold 43% of the country’s wealth.

Those aren’t the only eye-openers in The Female Economy. For all of their tremendous gains in wealth and decision-making power, women still feel that they are undervalued and underserved in the marketplace. They are also underinsured. Studies reveal that nearly 60% of women have no individual life insurance and those who are insured are covered 40% less than their male counterparts. When women do purchase insurance, they prefer permanent life products and the long term security they provide.

The Harvard study also states that the Financial Services industry wins the prize as being the least sympathetic to women. But it is also the industry that stands to gain the most - if it changes its approach. In fact the authors rank life insurance as one of the top three categories in untapped sales to women worth trillions. At some point in their lives, 80% of women will be solely responsible for all household fi nancial decisions. This means there is extraordinary opportunity in the fi nancial services market. Opportunity you can

capitalize on - if you know how to attract and work with women clients. ARE WOMEN DIFFERENT FROM MY MALE CLIENTS? WHAT DO THESE WOMEN WANT?

That’s the age-old question isn’t it? Well, when it comes to fi nancial services, affl uent women are pretty clear about what they want. They want to be treated with respect, listened to, and given clearly defi ned solutions that are tailor-made to their needs. They also want ongoing help and support as their needs change.

Research shows that women are more likely to follow the advice they receive from a fi nancial professional when it’s presented in an integrated and structured plan that they clearly understand and helped create. So in this market, the old stereotypical adage about women being better at asking for and following directions may actually hold true.

Barbara Annis, author of the highly informative book Leadership and the Sexes, says the difference between women and men is just that, difference. Neither sex is smarter than the other. “What do women bring? The research is clear: as a gender, women take in and process more information, ask more questions, and worry more about details and inconsistencies.” Annis says this can slow down the decision-making process

$2 Trillion – Yours for the Taking$2 Trillion – Yours for the TakingThe fi rst of a two part series of articles

Female income

$18T2014$13T

2009 $6.6T2014

China’s GDP

$4.4T2009

The World’s Largest Opportunity A growth forecast (in trillions)

India’s GDP

$1.8T2014

$1.2T2009


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Eand might even make you think women are going off track when they’re not. She says it’s important to remember that the ways in which women process information can bring nuance, richness and wisdom to their actions.

I guess you could simply say that what the modern affl uent woman wants is someone who will take the time to get to know her, understand her needs, and work with her to develop a clear, long-term plan. She fi nds human contact meaningful and an effective way to gather information. And make no mistake she is looking for a long-term commitment. The good news is it’s easier than you might think to provide all that. But fi rst you have to fi nd her.

HOW DO I FIND THIS AFFLUENT WOMAN CLIENT?

One thing to keep in mind is she may not look the way you thought she would. She may have traded in her corporate power suit and heels for something a little more comfortable. She could be married, divorced, single or sharing life with a partner, so rings on fi ngers are no longer useful guides to her marital or fi nancial status. She could work and have kids or be retired without them. But the one thing you can bet on is that her life and fi nancial situation will be unique. With this client, assumptions only lead to trouble, as does trying to fi t her into a category with “all women.”

The ability to network is one of the most crucial skills needed to tap into this wide-open $2 trillion dollar opportunity. The key to successful business networking? Focus more on how you can help your strategic partners than on how they can benefi t you. Then make a plan and stick to it.

Consider joint marketing initiatives with CPA’s, attorneys and other professionals who have built strong, trusting relationships with a signifi cant female

client base. Sponsor educational luncheons and seminars with them where you have the opportunity to speak as an expert. Present a niche subject, something not everyone has already talked about and one that is interesting and relevant to the women in attendance.

A topic such as Benefi ciary Designation Review, focused on the importance of matching current designations of life insurance, retirement plans, IRA’s, annuities, and other assets in accordance with women’s desired dispositions, could help set you apart. These assets often represent a signifi cant portion of a women’s overall estate, and she may be unaware of the possible drawbacks of utilizing these instruments. If you warn her about such potential landmines as unintentional incidence of ownership, conservator issues for minor children, and the potential to override a valid testamentary disposition, you could win both her interest and her business.

TEST YOUR EXPERTISEIf you plan to speak as an expert, you must be in command of the most current and relevant information about your topic. For example, when it comes to Benefi ciary Designation, did you know:

Early this year a federal court held that the ex-wife of a decedent properly received her ex-husband’s 401(k) balance in spite of a divorce decree providing that each would keep and hold control of their respective individual pension benefi ts. The court ruled that the benefi ciary designation was never changed and that the former wife had never explicitly given up her rights to the money. (Stalens v. Stalens D. Mass., No. 08-30159-KPN).

When you can provide this sort of information - timely, relevant and useful to women - you will go a long way toward establishing yourself as a trusted advisor.

No matter what your chosen topic, you must prove to be its master anytime you commit to educate others. If it’s Benefi ciary Designation, be prepared to discuss contingencies, irrevocability, per stirpes and the effect of the uncertainty surrounding the estate tax in our current year of 2010, including the possibility of retroactively reviving the tax for this year. (Good luck on this last one...)

WOMEN ENTREPRENEURS: A UNIQUE OPPORTUNITY

Women own more than ten million fi rms employing more than 13 million people and generating nearly two trillion in sales (as of 2008). One in fi ve companies with revenues of $1 million or more is woman-owned. If you already count male business owners among your clients, you are already familiar with the typical business planning tools: defi ned benefi t, defi ned contribution and non qualifi ed plans; key man; buy/sell; succession planning, et cetera. These represent signifi cant opportunity for you with women business owners as well. Just like her male counterpart, the female business owner is dedicated to growing and protecting her company, helping her employees as well as herself save for retirement and gaining business tax deductions wherever possible.

HOW DO YOU FIND WOMEN BUSINESS OWNERS?

One excellent resource is your local chapter of the National Association of Women Business Owners (www.nawbo.org). NAWBO represents more than 10 million women-owned businesses (the fastest-growing segment of our economy) across the country with 80 chapters and over 7,000 members. Consider forming a strategic partnership or alliance with NAWBO. The group uses professional, educational and social events to expand its members’ spheres of infl uence within the entrepreneurial community at large, which h can mean even more connections for you.


If you do decide to court the woman business owner, be sure you take the time to learn about her industry. You don’t need to become an expert but you do need to know enough about her fi eld to ask intelligent and useful questions. And stay abreast of current issues that affect her, like the recent SBA proposal that would give women business owners an edge in winning federal contracts (see below).

RESOURCES

• • Harvard Business Review: Harvard Business Review: “The Female Economy”“The Female Economy”http://hbr.org/2009/09/the-female-http://hbr.org/2009/09/the-female-economy/ar/1economy/ar/1

• • National Association of Women National Association of Women Business OwnersBusiness Ownershttp://nawbo.org/http://nawbo.org/

• • Local Chapters of the National Local Chapters of the National Association of Women Business Association of Women Business OwnersOwnershttp://nawbo.org/newfeatures/http://nawbo.org/newfeatures/chapter_map.cfmchapter_map.cfm

• • SBA proposed rule directs set-aside SBA proposed rule directs set-aside contract to women owned fi rms – contract to women owned fi rms – Washington Technology - March 3, Washington Technology - March 3, 20102010http://washingtontechnology.com/http://washingtontechnology.com/articles/2010/03/03/women-owned-articles/2010/03/03/women-owned-small-business-rule-details.aspx?sc_small-business-rule-details.aspx?sc_lang=enlang=en

• • American Business Women’s American Business Women’s AssociationAssociationhttp://www.abwa.org/http://www.abwa.org/

• • Estate Planning: A Female Prespective Estate Planning: A Female Prespective at the AALU Annual Meeting at the AALU Annual Meeting - - Pacifi c Life Women and Wealth KitPacifi c Life Women and Wealth Kitwww.pacifi clife.com, click on the www.pacifi clife.com, click on the “news”link“news”link

• • Leadership and the SexesLeadership and the SexesBarbara Annis Barbara Annis http://www.baainc.com/http://www.baainc.com/

ABOUT THE AUTHORLORI MESSINA, J.D. based in Newport Beach, California, is CEO of Best Practices of America. She can be reached at (888) 623-2728 or [email protected].

Best Practices of America is the industry’s premier multidisciplinary and collaborative producer network.

BPA membership offers insurance professionals, fi nancial advisors, CPA’s, attorneys and others instant access to peer-vetted partners and the nation’s most advanced concepts and services. BPA members benefi t from the leverage of our carrier relationships and from quality strategic partnerships to provide outstanding, long-term solutions to their clients. Visit www.bestpracticesofamerica.com!

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Now that you are aware of the tremendous opportunity presented by this market sector, you will no doubt come up with some creative prospecting ideas of your own.

In Part Two of this series, we will help you understand the unique challenges and subtle nuances involved in working with women, and give you strategies to ensure your success with affl uent women clients.

$2 Trillion – Yours for the Taking An AALU Quarterly Two Part Series

Coming Soon in the Summer Quarterly Edition


6th Annual BPA Symposium6th Annual BPA SymposiumEve of Sunday, July 25 – Tuesday July 27, 2010The Acclaimed Ritz Carlton, Laguna Niguel CA

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Clark Consulting’s Study of the Executive Benefi ts Landscape: Results, Implications and Relation to the Economic Environment

For over a decade, Clark Consulting’s biennial study, Executive Benefi ts – A Survey of Current Trends, has examined trends in the prevalence, design, funding and administration of executive benefi t plans, focusing on two key types of nonqualifi ed retirement benefi ts - nonqualifi ed deferred compensation (NQDC) plans (i.e., voluntary deferral arrangements) and supplemental executive retirement plans (SERPs).

The results of the 2009 edition show that although extraordinary developments in the United States economy over the past two years have affected executive benefi ts, employers continue to recognize the value of well-designed executive benefi ts plans that are adequately and effi ciently funded, and administered in compliance with regulatory requirements.

Since the fall of 2007, ripples from the US real estate crisis have spread across markets and have impacted the global economy in unprecedented ways. The United States, in particular, is still feeling the consequences of a massive recession, the most severe since the 1930’s. Unemployment at one point climbed to over 10%, and is a continuing concern. After peaking in October 2007, the Dow Jones Industrial Average dropped to just above 6,500 points by March 2009, and hovers at about 10,000 points as of March 2010. Although we are starting to see the early

signs of recovery, it is too early to tell if they are statistical blips or whether the cycle has indeed turned. The United States and the world still await broader consensus on the timing and signs of sustained lift in all sectors of the economy.

In addition to their impact on the macro economic environment, these developments have created concerns amongst employers around responsible, equitable pay practices that can stand up to public and regulatory scrutiny. In times such as these, public sentiment may actually carry more weight than the regulatory environment. Recent events in the fi nancial services and insurance sectors are prime examples of this.

RESULTS OF THE SURVEY

Although reported usage rates have dropped somewhat since 2007, NQDC plans and SERPs remain widespread; 85% of responding companies report having NQDC plans and 67% report having SERPs. Informal funding for NQDC plans has actually increased since 2007, with 71% of respondents reporting informally funding their NQDC plans (informal SERP funding has, however, decreased). Corporate-owned or Trust-owned Life Insurance (COLI/TOLI) remains the funding vehicle most commonly reported by responding companies for both types of plans.

In addition, the need to satisfy the requirements of Internal Revenue Code section 409A (§409A) appears to have increased the demand for more specialized and sophisticated plan administration. This may be inferred by the fact that only 3% of the respondents who sponsor NQDC plans and 32% of the respondents who sponsor SERPs exclusively administer these plans in-house. Both of these percentages have decreased in comparison to the results of the 2005 survey, when §409A had only recently become effective and before extensive Treasury regulations had been released.

CONCLUSIONRecent challenges in the economy, as well as concerns about public sentiment,

KNOWLEDGEKKNOKN


may have made some employers uncertain about their approach to executive compensation and benefi t plans. However, they are also presented with a unique opportunity to reexamine their pay practices and develop programs promoting behaviors that drive truly sustainable growth and profi tability. These behaviors must be embraced at all levels of the organization, which requires a combination of top down and bottom up approaches.

Although a majority of today’s companies will likely survive the current turmoil, those that will thrive are the ones with the fundamentals in place: a clear vision, a compelling offering, the right infrastructure and most importantly – talent. This creates an imperative for companies to continue to invest wisely in their business, and that includes recruiting, retaining and rewarding key employees.

ABOUT THE SURVEY

The 2009 edition of Executive Benefi ts – A Survey of Current Trends (the Survey) is the fourteenth survey on executive benefi ts conducted by Clark Consulting.The Survey is based on the 2009 Survey questionnaire, which was sent to Fortune 1000 companies. Over 11% of the Fortune 1000 companies completed and returned their questionnaires to Clark Consulting. Respondents are located throughout the country and represent a wide variety of industries.

The information contained in the returned questionnaires was entered into a database by an outside database management fi rm and analyzed by Clark Consulting’s professional staff.

Download the Survey in PDF format from www.clarkconsulting.com/execbenefi tssurvey.

Please direct questions about the Survey to Rahul Bhagwat at (214) 661-9769 or [email protected] Consulting, LLC is an AEGON company. AEGON NV is an international life insurance, pension and investment group based in The Hague, The Netherlands, with businesses in over twenty markets in the Americas, Europe and Asia. Clark Consulting, LLC is a leading source of strategic fi nancing solutions such as bank- owned life insurance and corporate-owned life insurance for ineffi ciently funded and unfunded liabilities that result from executive and employee benefi t programs. Since 1967, Clark Consulting, LLC has helped place thousands of benefi t plans and serves as the record keeper for billions in assets for leading American corporations and banks.

This communication is for information purposes only. It is not intended as an offer or solicitation for the purchase or sale of any fi nancial instrument or as an offi cial confi rmation of any transaction, unless specifi cally agreed to otherwise.

ABOUT THE AUTHORSMICHAEL G. GOLDSTEIN, J.D., LL.M., is Senior Vice President, National Director for Strategic Development at Clark Consulting and a

registered representative of, and securities products are offered through, Clark Securities, Inc., DBA CCFS, Inc. in Texas, 2100 Ross Avenue, Suite 2200, Dallas, TX 75201-7906, Ph. 1.800.999.3125, member FINRA and SIPC.

RAHUL BHAGWAT is on staff at Clark Consulting as a strategic marketing consultant. Over a career of almost 10 years in the fi nancial services sector, he has focused on combining market analysis with strategic thinking. Mr. Bhagwat received his MBA from the Indian Institute of Management at Ahmedabad, and his B.S. from the Birla Institute of Technology and Science in Pilani India.

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INTRODUCTION

The 20th wave of the Retirement Confi dence Survey (RCS) fi nds that Americans’ confi dence in their ability to afford a comfortable retirement, which had dropped sharply over the past two years, has stabilized now that the economic volatility of the recession has abated. The steep declines in other retirement confi dence indicators also appear to be slowing. However, fewer workers report that they and/or their spouse have saved for retirement, and an increased percentage of workers report they have virtually no savings and investments.

This article examines data from the RCS demonstrating the importance of doing a retirement savings needs calculation to achieving a comfortable retirement.

RETIREMENT SAVINGS NEEDS

Many workers continue to be unaware of how much they need to save for retirement. Less than half of workers (46 percent) report they and/or their spouse have tried to calculate how much money they will need to have saved by the time they retire so that they can live comfortably in retirement. This is comparable to the percentages measured from 2003–2009, but is lower than the high of 53 percent recorded in 2000 (Figure 1).

Instead of doing a systematic retirement needs calculation, workers often guess at how much they will need to accumulate. In the 2010 RCS, 44 percent of workers reported they determined the amount they needed to save by guessing, including 14 percent of those who report having done a calculation (Figure 2). Approximately 2 in 10 each report doing their own estimate (26 percent) and asking a fi nancial advisor (18 percent). Others read or heard how much is needed (9 percent), use an online calculator (7 percent), or fi ll out a worksheet or form (5 percent).The propensity to guess or do their own calculation may help to explain

why the amounts that workers say they need to accumulate for a comfortable retirement appear to be rather low. Twenty-nine percent of workers say they need to save less than $250,000, and another 17 percent mention a goal of $250,000–$499,999.

Workers who have done a retirement savings needs calculation also tend to have higher savings goals than do workers who have not done the calculation. Twenty-eight percent of workers who have done a calculation, compared with just 8 percent of those who have not, estimate they need to accumulate at least $1 million for retirement. At the other extreme, 19 percent of those who have done a calculation, compared with 39 percent who have not, think they need to save less than $250,000 for retirement.The savings goals cited by workers who have done a retirement needs calculation have increased over time. In the 2000 RCS, 31 percent said they needed to accumulate at least $500,000

for retirement. This percentage increased to 43 percent in 2005 and again to 54 percent in 2010.

Despite this, workers who have done a retirement needs calculation are more likely than those who have not to feel confi dent that they will be able to accumulate the amount they need for retirement. Twenty-

The 2010 Retirement Confi dence Survey:Those Who Plan Tend To Have Higher Assets, More Realistic Expectations

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Workers Having Tried to Calculate how Much Money They Need to Save for a

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Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, 1993-2010 Retirement Confidence Surveys.

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Do your own estimate

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Method of Determining Savings Needed for Retirement, by doing a Retirement

Needs Calculation

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Did Calculation

All Workers

Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, 2010 Retirement Confidence Survey.


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fi ve percent of those who have done a calculation report they are very confi dent that they will be able to accumulate the amount they need, compared with just 11 percent of those who have not done a calculation (Figure 3). At the other extreme, only 15 percent of those who have done a calculation are not at all confi dent they will reach their goal, compared with 24 percent of those who have not done a calculation. Overall, 18 percent of workers are very confi dent, 38 percent are somewhat confi dent, and 44 percent are not too or not at all confi dent that they will be able to accumulate the amount they need by the time they retire.

The RCS fi nds that those who have done a retirement needs calculation continue to be more likely than those who have not to say they are very confi dent about having enough money for a comfortable

retirement (22 percent vs. 10 percent). Moreover, those who think they need to accumulate at least $1 million in retirement savings are six times as likely as those who think they need less than $250,000 to be very confi dent (36 percent vs. 6 percent).

Finally, the retirement savings calculation appears to be a particularly effective tool for changing retirement planning behavior. Forty-four percent of workers who calculated a goal amount in the 2008 RCS report having made changes to their retirement planning as a result. Most often, these workers say they started saving or investing more (59 percent). Other actions reported include:

• Changing their investment mix (20 percent).

• Reducing debt or spending (7 percent).

• Enrolling in a retirement savings plan at work (5 percent).

• Deciding to work longer (3 percent).

• Researching other ways to save for retirement (3 percent).

Full results of the 2010 Retirement Confi dence Survey, along with six related RCS fact sheets and related material, are online at http://www.ebri.org/surveys/rcs/2010/. All documents are free to download. You may also access past years’ results from that site.

The RCS was co-sponsored by the Employee Benefi t Research Institute (EBRI), a private, nonprofi t, nonpartisan

public policy research organization (www.ebri.org), and Mathew Greenwald & Associates, Inc., a Washington, DC-based market research fi rm (http://greenwaldresearch.com/). The 2010 RCS data collection was funded by grants from more than 30 public and private organizations, with staff time

donated by EBRI and Greenwald.

METHODOLOGY

These fi ndings are part of the 20th annual Retirement Confi dence Survey (RCS), a survey that gauges the views and attitudes of working-age and retired Americans regarding retirement, their preparations for retirement, their confi dence with regard to various aspects of retirement, and related issues. The survey was conducted in January 2010 through 20-minute telephone interviews with 1,153 individuals (902 workers and 251 retirees) age 25 and older in the United States. Random digit dialing was used to obtain a representative cross section of the U.S. population. To further increase

representation, a cell phone supplement was added to the sample.

In theory, the weighted sample of 1,153 yields a statistical precision of plus or minus 3 percentage points (with 95 percent certainty) of what the results would be if all Americans age 25 and older were surveyed with complete accuracy. There are other possible sources of error in all surveys, however, that may be more serious than theoretical calculations of sampling error. These include refusals to be interviewed and other forms of nonresponse, the effects of question wording and question order, and screening. While attempts are made to minimize these factors, it is impossible to quantify the errors that may result from them.

ABOUT THE AUTHORSRUTH HELMAN is a Research Director at Mathew Greenwald & Associates, Inc. With more than 20 years of research experience, Greenwald is responsible for managing the well-respected Retirement Confi dence and Health Confi dence Surveys that are released to the public each year. CRAIG COPELAND is a Senior Research Associate with the Employee Benefi t Research Institute. He has been with EBRI since 1997, where he is the Director of the EBRI’s Social Security Reform Evaluation Research Program.

JACK VANDERHEI is the research director of the Employee Benefi t Research Institute (EBRI), a private, nonprofi t, nonpartisan organization committed to original public policy research and education on economic security and employee benefi ts. He has been with EBRI since 1988.

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Worker Confidence in Ability to Accumulate Needed Retirement Savings,

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Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, 2010 Retirement Confidence Survey.


We’re all consumers, trained in the art, if not the science, of doing business with people we like. If we don’t like with whom we’re dealing, we go someplace else. That is the very essence of branding – establishing a relationship with people who share a common bond or value with you.

When a person’s values match with an organization’s, that is a recipe for a long and happy relationship – or a strong brand, if you will – that goes beyond loyalty and moves into the territory of business Nirvana: customer engagement. A loyal customer makes repeat purchases. An engaged customer makes repeat purchases and brings their friends, too.

The path to engagement begins, though, with understanding and articulating the values of your organization. What are the attributes that make up your brand so that when you explain them, the value you share with a customer – or in the case of the AALU, a member – becomes obvious?

TO THYSELF BE TRUE

Beginning in late 2008 and continuing for a year, we undertook a comprehensive review of how we talk about the AALU. We looked at every aspect of our brand and the many ways and places the brand is expressed. Using staff experts, member volunteers, and outside consultants, every piece of literature, e-mail, Web site and presentation was reviewed, catalogued and analyzed.

People inside and outside the AALU were interviewed in a comprehensive process designed to answer some basic questions:

• Who are we? • What do we do? • How are we different from the

competition?• What value do we share with

our members?

This process resulted in a collection of words - known as brand attributes - and a new positioning statement – sometimes called an elevator speech – that were reviewed by the Communications Committee and approved by the Board of Directors in January 2010. Combined with the new logo unveiled last year, the brand attributes and revised positioning statement complete the branding process started in nearly two years ago.

CORE VALUES

So what did the research reveal? First and foremost, the surveys show the AALU is a well respected and trusted organization. Ours is a highly credible association made up of people whom elected offi cials, clients and other members look to for sound advice and counsel.

The brand attributes refl ect that fi nding and form the core of how we describe ourselves and what we do. The attributes also refl ect the shared values that form the basis of a relationship that leads to member engagement. Not only does the

AALU as an organization refl ect these attributes, so do its members as well as the clients of members.

Our brand attributes are:

Leaders - we lead the industry in performance, knowledge and action.

Successful – we are a collection of the most successful insurance professionals who help create positive results in the public policy arena.

Knowledgeable - we have deep knowledge of the advanced life marketplace and how public policies impact it. We share what we know with our peers to help them grow professionally and our clients to reach their fi nancial goals. Trusted, Infl uential – our knowledge, experience and willingness to be actively involved in all aspects of the public policy process make us a trusted source of information for public offi cials, clients and the public.

BRANDING IN ACTION“A brand for a company is like a reputation for a person. You earn reputation by trying to do hard things well,” says Amazon founder Jeff Bezos. We already know that AALU enjoys a great reputation. Now it’s time to use that brand as a powerful platform for growth.

A classic reputation-based brand is predicated on three simple concepts

The AALU Brand Gets a Makeover

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illustrated in the graph below:

Simply put, a person must know who we are (awareness) and care who we are (shared or perceived value) before they will commit to taking some action on our behalf like join the AALU, make a political contribution or develop a relationship with an elected offi cial.

How we increase awareness and build shared values becomes the focus of our tactical plans during the balance of 2010. Keep an eye out for signifi cant changes in how we market and communicate, including: • New materials to promote the AALU, including the “elevator speech” that accompanies this

article.• A

new Web site that will give us more fl exibility in how

we deliver information to members and position ourselves as experts to prospective members and policy makers. • The ability to create and communicate through communities within the Members’ Only section

of the Website as well as integrate information sharing tools into the

public and private areas of the Web site.

• Routine surveys to get member feedback on a variety of topics.

• Results-based metrics to ensure we are undertaking only those

efforts that create positive results. If they do, we’ll keep doing them. If they don’t we’ll stop and fi nd new tactics that do produce the results we seek.

As the year progresses and you begin to see the new AALU brand comes to life, I hope you’ll share your thoughts about what you see and how we can make the brand work for you.

ABOUT THE AUTHORJAMES E. LEE is the AALU’s Vice President for Marketing & Communications. He can be reached at [email protected] or 703.641.8128.

WHAT’S AN “ELEVATOR SPEECH” AND WHY DO I NEED ONE?

It’s probably happened to you. You’re sitting next to someone on an airplane or riding up in an elevator when they ask the question “What do you do?” How you answer the question in that 10 or 15 seconds is known as an elevator speech.

If you fi nd yourself talking about the AALU, here’s some tools you can use to answer these key questions on your next ride.

WHO IS THE AALU & WHAT DO WE DO?

The AALU is the leading organization of successful insurance professionals who are dedicated to focusing on the unique issues facing the advanced life markets.

We have deep knowledge and understanding of the marketplace and how public policy impacts our business, our clients and the public.

Our knowledge and the active involvement of our members make us a trusted, infl uential voice on which public offi cials and our clients rely.

WHY DOES SOMEONE JOIN THE AALU?

As the leading organization that is dedicated to addressing the issues unique to the advanced life markets, the AALU is the place where you turn knowledge into a competitive advantage.

Government plays an increasing role in today’s marketplace. Knowledge of what’s happening in Washington, DC and how it affects businesses and people allows you to attract and retain clients in a way competitors cannot.

Being fully engaged in the policy process – an opportunity you get through membership in the AALU – gives you an even greater competitive advantage because you gain insight and are part of the trusted, infl uential voice that helps shape legislation and regulations.

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Put the promise of MetLife® to work

for you. Highlight the flexibility of life

insurance to help accumulate, protect,

and transfer wealth—backed by

guarantees. We want to be your partner

of choice and help you grow your

business the only way that matters—

your way.

Contact our Life Insurance Sales Desk

at 877-638-0411 or visit

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ourpromisefor life.

For Producer or Broker Dealer Use Only. Not for Public Distribution.Life insurance products are issued by MetLife Investors USA Insurance Company, Metropolitan Life Insurance Company and in New York only by First MetLife Investors Insurance Company. All guarantees are based on the claims-paying ability and financial strength of the issuing insurance company. Variable products are distributed by MetLife Investors Distribution Company (MetLife Investors), Irvine, CA. © 2009 MetLife, Inc. L0709047829[exp0810] 1003-1147 ©UFS

Yours can be too.


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The business owner market can be both a The business owner market can be both a rewarding and vexing undertaking. Most rewarding and vexing undertaking. Most seasoned producers recognize that the seasoned producers recognize that the principal share of an owner’s individual principal share of an owner’s individual net worth can be tied up in the business. net worth can be tied up in the business. For this reason, these assets represent the For this reason, these assets represent the primary way to help an owner meet his or primary way to help an owner meet his or her business, retirement and estate planning her business, retirement and estate planning goals. While it is relatively easy to identify goals. While it is relatively easy to identify these objectives, it is less obvious how to these objectives, it is less obvious how to help the business owner bring these goals help the business owner bring these goals to fruition. to fruition.

This opportunity soon proves elusive This opportunity soon proves elusive and becomes much like the proverbial and becomes much like the proverbial double edged sword. The sheer number double edged sword. The sheer number of lucrative sales possibilities tempts the of lucrative sales possibilities tempts the producer to offer a plethora of seemingly producer to offer a plethora of seemingly viable solutions. The inevitable result – viable solutions. The inevitable result – too many solutions – leads to the resistance too many solutions – leads to the resistance and inaction on the part of business owner and inaction on the part of business owner clients. clients.

While the desire for effective planning While the desire for effective planning solutions undoubtedly exists, business solutions undoubtedly exists, business owners have little patience for multiple owners have little patience for multiple shortsighted solutions that serve to shortsighted solutions that serve to complicate, rather than simplify their complicate, rather than simplify their busy lives. The lack of a straightforward, busy lives. The lack of a straightforward, targeted approach will keep them targeted approach will keep them perpetually stuck on the tipping point perpetually stuck on the tipping point between inaction and action. The key is to between inaction and action. The key is to assist the business owner in attaining their assist the business owner in attaining their unique planning needs with a solution that unique planning needs with a solution that can be leveraged to reach their personal can be leveraged to reach their personal goals. Unfortunately, conventional goals. Unfortunately, conventional approaches offer something less than a approaches offer something less than a complete solutioncomplete solution

HAZARDS OF TRADITIONAL HAZARDS OF TRADITIONAL TECHNIQUESTECHNIQUES

Traditional buy-sell planning typically Traditional buy-sell planning typically involves some form of a cross purchase, involves some form of a cross purchase, stock redemption or trusteed arrangement. stock redemption or trusteed arrangement. While each can be effective in transferring While each can be effective in transferring a business interest, these techniques are a business interest, these techniques are also encumbered with drawbacks that may also encumbered with drawbacks that may lead to unfavorable tax treatment or prove lead to unfavorable tax treatment or prove unwieldy in application. unwieldy in application.

Redemption plans have the benefi t of one Redemption plans have the benefi t of one policy per owner, all controlled and owned policy per owner, all controlled and owned by the business. Yet these arrangements by the business. Yet these arrangements often fail to allocate a full increase to often fail to allocate a full increase to the survivors’ basis. Even fl ow through the survivors’ basis. Even fl ow through entities, such as S Corporations, may entities, such as S Corporations, may fall short of providing a full increase in fall short of providing a full increase in basis to the extent that insurance proceeds basis to the extent that insurance proceeds are allocated to the deceased owner’s are allocated to the deceased owner’s interest. Another possible drawback interest. Another possible drawback is the alternative minimum tax (AMT) is the alternative minimum tax (AMT) since this tax may have an adverse impact since this tax may have an adverse impact on the treatment of death proceeds in on the treatment of death proceeds in a C Corporation. Moreover, a transfer a C Corporation. Moreover, a transfer of policies to corporate shareholders of policies to corporate shareholders at retirement may have adverse tax at retirement may have adverse tax consequences while the “attribution” rules consequences while the “attribution” rules can generate unforeseen estate planning can generate unforeseen estate planning issues. issues.

Cross purchase plans contain their own Cross purchase plans contain their own shortcomings. This technique allocates shortcomings. This technique allocates a full step-up in basis to the survivors, a full step-up in basis to the survivors, although younger and healthier owners although younger and healthier owners pay more than their proportionate share of pay more than their proportionate share of premiums, since they own life insurance premiums, since they own life insurance

on the older and less healthy partners. on the older and less healthy partners. Also, since each owner must own a policy Also, since each owner must own a policy on the others, multiple polices can prove on the others, multiple polices can prove unwieldy if the business has more than unwieldy if the business has more than two owners. Finally, since the company two owners. Finally, since the company will have no direct control over the life will have no direct control over the life insurance, they are not a balance sheet insurance, they are not a balance sheet asset of the company. Trusteed buy-sell asset of the company. Trusteed buy-sell strategies, often offered as an alternative to strategies, often offered as an alternative to the other techniques, contain latent transfer the other techniques, contain latent transfer for value issues upon the transfer of the for value issues upon the transfer of the deceased’s ownership interest to survivors. deceased’s ownership interest to survivors.

The inconvenient truth is that none of The inconvenient truth is that none of these solutions may fully address the needs these solutions may fully address the needs of the modern business owner. What’s of the modern business owner. What’s needed is a strategy that preserves the best needed is a strategy that preserves the best traits of these solutions, while meeting traits of these solutions, while meeting the owner’s retirement and estate goals. the owner’s retirement and estate goals. The challenge is to transform inaction The challenge is to transform inaction into action by moving business owners into action by moving business owners beyond their tipping point with a focused beyond their tipping point with a focused and elegant strategy. The Business and elegant strategy. The Business Continuation Retirement Partnership Continuation Retirement Partnership (BCRP) may represent just such a solution.(BCRP) may represent just such a solution.

THE BCRP: THE TIPPING POINT THE BCRP: THE TIPPING POINT SOLUTIONSOLUTION

The owners initially enter into a typical The owners initially enter into a typical wait-and-see agreement with the primary wait-and-see agreement with the primary business entity. This is accomplished by business entity. This is accomplished by giving the fi rst option to purchase the giving the fi rst option to purchase the deceased’s shares to the business. The deceased’s shares to the business. The surviving owners then have the option surviving owners then have the option to purchase the remaining interest. The to purchase the remaining interest. The company retains the ultimate obligation to company retains the ultimate obligation to redeem any un-purchased shares. Note, redeem any un-purchased shares. Note,

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The Tipping Point Solution: The Business Continuation Retirement Partnership


it is vital the surviving shareholders it is vital the surviving shareholders have an have an optionoption, but not the , but not the obligationobligation, to , to purchase the ownership interest. If these purchase the ownership interest. If these owners had a legal obligation to purchase owners had a legal obligation to purchase the deceased interest and failed to do so, the deceased interest and failed to do so, then the corporation’s purchase would then the corporation’s purchase would be treated as a dividend to the survivors be treated as a dividend to the survivors because the corporation would be deemed because the corporation would be deemed to have discharged their obligation. to have discharged their obligation.

A general partnership or LLC taxed as A general partnership or LLC taxed as partnership will act as owner, premium partnership will act as owner, premium payer, and benefi ciary of one policy on payer, and benefi ciary of one policy on each business owner. Note, a partnership each business owner. Note, a partnership formed solely to hold the policies may formed solely to hold the policies may not pass IRS scrutiny as it relates to a not pass IRS scrutiny as it relates to a valid business purpose. Consequently, valid business purpose. Consequently, only an otherwise valid partnership only an otherwise valid partnership should be utilized for this technique. should be utilized for this technique. Fortunately, many business owners Fortunately, many business owners already utilize partnership entities for real already utilize partnership entities for real estate ventures, lease back arrangements, estate ventures, lease back arrangements, and other investment purposes. and other investment purposes.

The partnership agreement provides that The partnership agreement provides that upon the death of a partner, the deceased upon the death of a partner, the deceased owner’s interest in the partnership is owner’s interest in the partnership is transferred to the BCRP. The partnership transferred to the BCRP. The partnership will then pay the deceased partner’s will then pay the deceased partner’s estate an amount equal to the deceased’s estate an amount equal to the deceased’s partnership, value including their share partnership, value including their share of the value of life insurance policies on of the value of life insurance policies on the survivors. This avoids a potential the survivors. This avoids a potential taxable transfer for value, as a transfer taxable transfer for value, as a transfer to a partnership in which the insured is a to a partnership in which the insured is a partner is a specifi ed exception under this partner is a specifi ed exception under this rule. The remaining allocated proceeds rule. The remaining allocated proceeds are then available for the survivors to are then available for the survivors to draw from to effectuate the original draw from to effectuate the original wait-and-see agreement with the primary wait-and-see agreement with the primary business. business.

Let’s take a closer look at three facets of Let’s take a closer look at three facets of the BCRP technique. the BCRP technique.

ALLOCATION OF PREMIUM BURDENALLOCATION OF PREMIUM BURDEN

The life insurance premiums are paid by The life insurance premiums are paid by the primary business as a tax deductible the primary business as a tax deductible

IRC 162 bonus to each of the partners. IRC 162 bonus to each of the partners. These premiums will then be treated as These premiums will then be treated as capital contributions by the individual capital contributions by the individual partners as the policies are owned by the partners as the policies are owned by the BCRP. The amount of total premium BCRP. The amount of total premium bonus allocated to each individual bonus allocated to each individual partner is determined by the partnership partner is determined by the partnership agreement. It is usually tied to the agreement. It is usually tied to the premium a particular partner would have premium a particular partner would have to pay if he or she owned the policies to pay if he or she owned the policies under a cross purchase arrangement. under a cross purchase arrangement.

Alternatively, the owners may choose Alternatively, the owners may choose to allocate the premiums equally. For to allocate the premiums equally. For example, assume the three owners, A, B, example, assume the three owners, A, B, and C, each possess a one-third interest and C, each possess a one-third interest in the primary business and the BCRP. in the primary business and the BCRP. Also assume the premiums necessary Also assume the premiums necessary to insure A, B, and C are $20,000, to insure A, B, and C are $20,000, $17,000, and $23,000 respectively. The $17,000, and $23,000 respectively. The partnership agreement can direct the partnership agreement can direct the allocation of the total $60,000 premium allocation of the total $60,000 premium equally ($20,000 to each partner) as equally ($20,000 to each partner) as a capital contribution. Every owner/a capital contribution. Every owner/partner would then have $20,000 of partner would then have $20,000 of taxable income and $20,000 of capital taxable income and $20,000 of capital contributed to the partnership with contributed to the partnership with the primary business taking a $60,000 the primary business taking a $60,000 income tax deduction. This is just one income tax deduction. This is just one of many ways the BCRP can resolve the of many ways the BCRP can resolve the disparity of premium burden. disparity of premium burden.

DEATH OF AN OWNERDEATH OF AN OWNER

A signifi cant benefi t of this technique A signifi cant benefi t of this technique is the ability to fully allocate, to the is the ability to fully allocate, to the surviving partners, the tax-exempt death surviving partners, the tax-exempt death proceeds that are paid to the entity. This proceeds that are paid to the entity. This enables them to obtain a full increase of enables them to obtain a full increase of basis without “wasting” any basis on a basis without “wasting” any basis on a deceased owner who already obtains a deceased owner who already obtains a basis step-up to fair market value under basis step-up to fair market value under existing tax provisions. existing tax provisions.

For instance, assume an accrual basis S For instance, assume an accrual basis S corporation has fi ve shareholders/partners corporation has fi ve shareholders/partners and each owner’s interest is worth $1 and each owner’s interest is worth $1 million. In a stock redemption funded million. In a stock redemption funded with life insurance, upon the death of with life insurance, upon the death of

an owner, the cost basis of each owner an owner, the cost basis of each owner would increase by $200,000. However, would increase by $200,000. However, the BCRP can specify the cost basis the BCRP can specify the cost basis increase will be allocated entirely to the increase will be allocated entirely to the survivors. As a result, the four surviving survivors. As a result, the four surviving partners will each obtain a $250,000 partners will each obtain a $250,000 increase in basis. Furthermore, this increase in basis. Furthermore, this allocation can exclude any portion of the allocation can exclude any portion of the death benefi t from being included in the death benefi t from being included in the deceased’s estate provided the agreement deceased’s estate provided the agreement prevents a partner from exercising any prevents a partner from exercising any control of the policy insuring his or her control of the policy insuring his or her life. life.

RETIREMENT OF AN OWNERRETIREMENT OF AN OWNER

Another important aspect of the BCRP, Another important aspect of the BCRP, is the manner in which a policy can be is the manner in which a policy can be used at an owner’s retirement. When used at an owner’s retirement. When a partner retires or withdraws from the a partner retires or withdraws from the partnership, the policy insuring that partnership, the policy insuring that owner may be distributed in exchange for owner may be distributed in exchange for the partner’s interest in the partnership. the partner’s interest in the partnership. Unlike a transfer from a C corporation Unlike a transfer from a C corporation to a shareholder, under IRC 731to a shareholder, under IRC 7311 1 there there will be no gain or loss recognized on will be no gain or loss recognized on this transaction. If the value of the life this transaction. If the value of the life insurance is not equal to the share of insurance is not equal to the share of that owner’s interest in the partnership, that owner’s interest in the partnership, withdrawals from other polices can be withdrawals from other polices can be also be made prior to distribution. also be made prior to distribution.

This method of distribution may be This method of distribution may be more in line with the owner’s retirement more in line with the owner’s retirement and estate planning objectives. Once and estate planning objectives. Once transferred to the retiring owner, the transferred to the retiring owner, the policy can be used meet the owner’s policy can be used meet the owner’s personal planning needs through tax personal planning needs through tax favored distributions and loans.favored distributions and loans.22 The The policy may also be leveraged to help the policy may also be leveraged to help the client attain their estate planning goals. client attain their estate planning goals. The transfer of the policy to the departing The transfer of the policy to the departing owner will not adversely impact the owner will not adversely impact the subsequent taxation of the death proceeds subsequent taxation of the death proceeds as transfers to an insured are exempt from as transfers to an insured are exempt from the transfer for value rule. the transfer for value rule.

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CONCLUSIONCONCLUSION

The The Business Continuation Retirement Business Continuation Retirement PartnershipPartnership technique is a strategy technique is a strategy that may capture the business owner’s that may capture the business owner’s undivided attention. This strategy also undivided attention. This strategy also avoids the seemingly unavoidable trade-avoids the seemingly unavoidable trade-offs between cross purchase and entity offs between cross purchase and entity redemption plans, while accentuating redemption plans, while accentuating many of their best attributes. The fl exible many of their best attributes. The fl exible design of this strategy provides the initial design of this strategy provides the initial assurance of business continuation, assurance of business continuation, while simultaneously building potential while simultaneously building potential accumulation of tax advantaged future accumulation of tax advantaged future retirement dollars. Most importantly, retirement dollars. Most importantly, it may offer the necessary prod to move it may offer the necessary prod to move business owners beyond their tipping business owners beyond their tipping point. Business owners considering this point. Business owners considering this technique should be sure to consult with technique should be sure to consult with their independent tax and legal advisors. their independent tax and legal advisors.

11 I.R.C. 731(a). Under 731(a), a I.R.C. 731(a). Under 731(a), a distribution of property rather than distribution of property rather than money generally results in no gain or money generally results in no gain or loss recognition to the partnership or the loss recognition to the partnership or the distributee partners.distributee partners.

22 Loans and withdrawals will decrease the Loans and withdrawals will decrease the cash value and death benefi t. Tax-free cash value and death benefi t. Tax-free distributions assume that the life insurance distributions assume that the life insurance policy is properly structured, is not a policy is properly structured, is not a modifi ed endowment contract (MEC), and modifi ed endowment contract (MEC), and distributions are made up to the cost basis distributions are made up to the cost basis and policy loans thereafter. If the policy and policy loans thereafter. If the policy

has not performed has not performed as expected and to as expected and to avoid a policy lapse, avoid a policy lapse, distributions may need distributions may need to be reduced, stopped to be reduced, stopped and/or premiumand/or premium

Please note: This article Please note: This article is designed for use with is designed for use with fi nancial professionals fi nancial professionals only and provides only and provides introductory information introductory information on the subject matter. on the subject matter. MetLife does not provide MetLife does not provide tax and legal advice. tax and legal advice. Clients should consult Clients should consult their attorney and /or tax their attorney and /or tax advisor before making advisor before making

fi nancial investment or planning decisions.fi nancial investment or planning decisions.

L1009066144[exp1110]L1009066144[exp1110]

Pursuant to IRS Circular 230, MetLife is Pursuant to IRS Circular 230, MetLife is providing you with the following notifi cation: providing you with the following notifi cation: The information contained in this document is The information contained in this document is not intended to (and cannot) be used by anyone not intended to (and cannot) be used by anyone to avoid IRS penalties. This document supports to avoid IRS penalties. This document supports the promotion and marketing of insurance the promotion and marketing of insurance products. Clients should seek advice based products. Clients should seek advice based on their particular circumstances from an on their particular circumstances from an independent advisor. Neither MetLife nor its independent advisor. Neither MetLife nor its representatives provide tax or legal advice.representatives provide tax or legal advice.

MetLife, its agents, and representatives may not MetLife, its agents, and representatives may not give legal or tax advice. Any discussion of taxes give legal or tax advice. Any discussion of taxes herein or related to this document is for general herein or related to this document is for general information purposes only and does not purport information purposes only and does not purport to be complete or cover every situation. Tax to be complete or cover every situation. Tax law is subject to interpretation and legislative law is subject to interpretation and legislative change. Tax results and the appropriateness change. Tax results and the appropriateness of any product for any specifi c taxpayer may of any product for any specifi c taxpayer may vary depending on the facts and circumstances. vary depending on the facts and circumstances. You should consult with and rely on your own You should consult with and rely on your own independent legal and tax advisors regarding independent legal and tax advisors regarding your particular set of facts and circumstances.your particular set of facts and circumstances.

Life insurance products are issued by Life insurance products are issued by MetLife Investors USA Insurance Company, MetLife Investors USA Insurance Company, Metropolitan Life Insurance Company and Metropolitan Life Insurance Company and in New York only, by First MetLife Investors in New York only, by First MetLife Investors Insurance Company. All guarantees are Insurance Company. All guarantees are based on the claims-paying ability and based on the claims-paying ability and fi nancial strength of the issuing insurance fi nancial strength of the issuing insurance company. Variable products are distributed company. Variable products are distributed by MetLife Investors Distribution Company by MetLife Investors Distribution Company (MetLife Investors), Irvine, CA. April 2010(MetLife Investors), Irvine, CA. April 2010

ABOUT THE AUTHORANDREW J. RINN, JD, CFP, CLU, CHFC is a Senior Advanced Markets Consultant for MetLife’s Wealth Advisory Group. As

Senior Advanced Markets Consultant with MetLife InvestorsWealth Advisory Group, Andrew’s expertise includes wealth preservation, estate planning, business planning and executive benefi ts. He consults with insurance professionals, and client’s tax advisors when appropriate to facilitate sales opportunities.

Andrew is a frequent speaker and has authored articles in Life Insurance Selling, Senior Market Advisor, and National Underwriter.

Prior to joining MetLife Investors, Andrew was an Advanced Markets consultant at Mutual of Omaha andnPrincipal Financial Group where he specialized in business and estate planning.

Andrew obtained his B.S. from Midland Lutheran College and received honors as an Academic and Athletic All-American. He was inducted into the NAIA Athletic Hall of Fame in May of 07’. He obtained his Juris Doctorate(JD) from Drake University Law School in Des Moines, Iowa where he was a member of the Dean’s List. After passing the Iowa Bar exam, Andrew served as an Assistant County Attorney and Iowa Assistant Attorney General before beginning his career in Advanced Markets.


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• Offering a broad line of protection productswith the potential for cash accumulation

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©2010. The Prudential Insurance Company of America, 751 Broad Street, Newark, NJ 07102-3777. 1Amounts available are subject to underwriting and may be reduced based on other in-force or applied-for policies. Theselimits are graded down for smokers, rated cases, and issue ages over age 65. Limits are also graded down for celebrities, sports figures, private pilots, non-U.S. residents, and juveniles. 2LIMRA Sales Reports, PrudentialFinancial Fourth Quarter 2009 Sales. 3Tillinghast VALUE report, Prudential Financial Fourth Quarter 2009. 4The Prudential Insurance Company of America.Life insurance is issued by The Prudential Insurance Company of America, Pruco Life Insurance Company (except in New York and/or New Jersey), and Pruco Life Insurance Company of New Jersey (in New York and/or NewJersey). Variable life insurance is distributed by Pruco Securities, LLC. All are located in Newark, NJ, and are referred to collectively above as “Pru,” “Prudential,” and “Prudential Financial.” Each Prudential Financial companyis solely responsible for its own financial condition and contractual obligations. PruLife Return of Premium Term, which is issued by Pruco Life Insurance Company except in New York and New Jersey where it is issued by PrucoLife Insurance Company of New Jersey, can return the premiums paid under certain conditions. Guarantees are backed by the claims-paying ability of the issuing company and do not apply to any underlying investment options.FOR THE EDUCATION OF PRODUCERS/BROKERS ONLY. NOT FOR USE WITH THE PUBLIC.Investors should consider the investment objectives, risks, and charges and expenses carefully before investing in the contract, and/orunderlying portfolios. The prospectus of the contract, and/or the underlying portfolios contains this information as well as other importantinformation. A copy of the prospectus may be obtained from prudential.com. You should read the prospectus carefully before investing.It is possible to lose money by investing in securities.0170311-00002-00 Ed. 03/2010


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2010-THE YEAR OF THE CONVERSION2010-THE YEAR OF THE CONVERSION

The advertising blitz has started. Financial The advertising blitz has started. Financial services fi rms across the country are services fi rms across the country are promoting Roth IRA conversions. The promoting Roth IRA conversions. The calendar year 2010 is the fi rst (and perhaps calendar year 2010 is the fi rst (and perhaps only) opportunity many traditional IRA only) opportunity many traditional IRA owners may have to convert to a Roth owners may have to convert to a Roth IRA. This should come as no surprise. In IRA. This should come as no surprise. In previous years and for years after 2010 previous years and for years after 2010 Congress has limited the conversion Congress has limited the conversion opportunity to IRA owners with modifi ed opportunity to IRA owners with modifi ed adjusted gross incomes of $100,000 or adjusted gross incomes of $100,000 or less; this limitation has been suspended for less; this limitation has been suspended for 2010. 2010.

SOME ROTH IRA ADVANTAGES SOME ROTH IRA ADVANTAGES

Why would someone want to convert a Why would someone want to convert a traditional IRA to a Roth IRA? Because traditional IRA to a Roth IRA? Because Roth IRAs offer several potentially Roth IRAs offer several potentially valuable advantages:valuable advantages:

• Income tax free growth• Income tax free growth• Income tax free distributions (the • Income tax free distributions (the

account must be open for fi ve account must be open for fi ve years before account earnings years before account earnings may be distributed income may be distributed income tax free) tax free)

• No required distributions-- • No required distributions-- Owners decide for themselves Owners decide for themselves when and how much to take when and how much to take distributions; owners of distributions; owners of traditional IRAs, on the other traditional IRAs, on the other hand, generally must begin hand, generally must begin taking distributions in the year taking distributions in the year after they reach age 70 ½. after they reach age 70 ½.

• Spousal Rollover-a spouse • Spousal Rollover-a spouse who is the benefi ciary at the who is the benefi ciary at the owner’s death may roll the Roth owner’s death may roll the Roth IRA over into his/her own name IRA over into his/her own name and continue to enjoy these and continue to enjoy these benefi ts benefi ts

• After the account owner’s death • After the account owner’s death non-spouse benefi ciaries may non-spouse benefi ciaries may continue to receive income tax continue to receive income tax free account growth and free account growth and income tax free distributions income tax free distributions (although they will be (although they will be required to take minimum required to take minimum distributions each year based distributions each year based on their individual life on their individual life expectancies) expectancies)

With advantages like these, converting With advantages like these, converting from a traditional IRA to a Roth IRA from a traditional IRA to a Roth IRA initially sounds like a “no-brainer.” Who initially sounds like a “no-brainer.” Who wouldn’t want to turn an asset with wouldn’t want to turn an asset with taxable distributions into one with the taxable distributions into one with the ability to distribute all its future growth ability to distribute all its future growth federal income tax free for years into the federal income tax free for years into the future? It’s like having a chance to be future? It’s like having a chance to be Rumpelstilskin and turn straw into gold.Rumpelstilskin and turn straw into gold.

WHO ARE THE BEST CONVERSION WHO ARE THE BEST CONVERSION CANDIDATES?CANDIDATES?

Converting to a Roth IRA won’t make Converting to a Roth IRA won’t make fi nancial sense for everyone. Many experts fi nancial sense for everyone. Many experts believe that a Roth IRA conversion makes believe that a Roth IRA conversion makes the most sense for IRA owners with these the most sense for IRA owners with these characteristics:characteristics:

• Have enough liquid cash outside • Have enough liquid cash outside the IRA account to pay the IRA account to pay the income taxes the income taxes (taking distributions from (taking distributions from the converted Roth IRA the converted Roth IRA to pay income taxes could to pay income taxes could substantially reduce substantially reduce how much tax free income the how much tax free income the Roth IRA produces over time) Roth IRA produces over time)

• Aren’t likely to need distributions • Aren’t likely to need distributions from the converted from the converted Roth IRA during their lifetimes Roth IRA during their lifetimes

• Are likely to be subject to higher • Are likely to be subject to higher

income tax rates in the future income tax rates in the future• Are comfortable with uncertainty • Are comfortable with uncertainty

over future income tax rates over future income tax rates

POTENTIAL DISADVANTAGESPOTENTIAL DISADVANTAGES

When the conversion opportunity is When the conversion opportunity is examined closely, however, the decision examined closely, however, the decision to convert may not be so clear. There are to convert may not be so clear. There are several potential disadvantages, including several potential disadvantages, including these:these:

1. Income taxes must be paid on the 1. Income taxes must be paid on the amount converted. amount converted. Most clients prefer not to pay income taxes Most clients prefer not to pay income taxes to the IRS before they have to. Converting to the IRS before they have to. Converting all or part of a traditional IRA to a Roth all or part of a traditional IRA to a Roth IRA is a voluntary decision to pre-pay IRA is a voluntary decision to pre-pay income taxes. This is important because income taxes. This is important because the amount of income taxes payable can the amount of income taxes payable can be substantial. Most experts recommend be substantial. Most experts recommend that these income taxes be paid from funds that these income taxes be paid from funds outside the account. Table A summarizes outside the account. Table A summarizes the income taxes potentially due on the income taxes potentially due on different sized Roth IRA conversions at different sized Roth IRA conversions at different tax brackets. different tax brackets.

The size of the income tax bill depends The size of the income tax bill depends on a number of factors, including: the on a number of factors, including: the taxable income from other activities and taxable income from other activities and transactions during the course of the transactions during the course of the year. For example, some “converters” year. For example, some “converters” may still be gainfully employed. The may still be gainfully employed. The amount converted will be added to their amount converted will be added to their other taxable income, including wages. other taxable income, including wages. For converters over 70 ½, the required For converters over 70 ½, the required minimum distributions in 2010 from their minimum distributions in 2010 from their traditional IRAs and other tax qualifi ed traditional IRAs and other tax qualifi ed accounts will also add to their taxable accounts will also add to their taxable income. In addition, converters receiving income. In addition, converters receiving Social Security benefi ts may fi nd that those Social Security benefi ts may fi nd that those benefi ts may be treated as taxable income benefi ts may be treated as taxable income

KNOWLEDGEKKNOKN

Life Insurance Alternatives To A Roth IRA Conversion


in the year the conversion is reported. in the year the conversion is reported. State income or other taxes may also be State income or other taxes may also be due.due.

2. The amount of income taxes payable 2. The amount of income taxes payable is not currently known.is not currently known. Income taxes Income taxes on the amount converted may be on the amount converted may be calculated under either of two schedules. calculated under either of two schedules. Converting owners may choose to Converting owners may choose to include:include:

1. 100% of the conversion’s 1. 100% of the conversion’s taxable income in their 2010 taxable income in their 2010 return, or return, or

2. 50% of the taxable income 2. 50% of the taxable income in their 2011 return and the in their 2011 return and the remaining 50% in their 2012 remaining 50% in their 2012 return returnWhich tax payment option is better? For Which tax payment option is better? For now it’s impossible to know. That’s now it’s impossible to know. That’s because no one can be certain what because no one can be certain what the federal income tax rates are going the federal income tax rates are going to be in 2011 or 2012. The “Bush tax to be in 2011 or 2012. The “Bush tax cuts” expire at the end of 2010 and it cuts” expire at the end of 2010 and it is entirely possible that Congress will is entirely possible that Congress will increase income tax rates on high income increase income tax rates on high income taxpayers. Higher income tax rates taxpayers. Higher income tax rates will increase the cost of the conversion. will increase the cost of the conversion. Further, the additional taxable income Further, the additional taxable income may push some converters into higher may push some converters into higher income tax brackets. income tax brackets.

Until Congress resolves the future Until Congress resolves the future income tax situation, no one can say with income tax situation, no one can say with certainty what the income tax cost of a certainty what the income tax cost of a Roth IRA conversion will be. Converters Roth IRA conversion will be. Converters will not know the tax costs of both will not know the tax costs of both payment options; they won’t know which payment options; they won’t know which will produce the best result.will produce the best result.

People who choose to convert to a Roth People who choose to convert to a Roth IRA in 2010 do have a limited window IRA in 2010 do have a limited window in which they may choose to “undo” in which they may choose to “undo” their conversion. A conversion in 2010 their conversion. A conversion in 2010 can be “re-characterized before October can be “re-characterized before October 15, 2011. Some advisors are suggesting 15, 2011. Some advisors are suggesting clients do separate conversions for each clients do separate conversions for each of the asset classes in their IRA. The of the asset classes in their IRA. The Roth IRAs holding assets which under-Roth IRAs holding assets which under-perform may be re-characterized back perform may be re-characterized back into traditional IRAs before October 15, into traditional IRAs before October 15, 2011.2011.

3. Growth on the converted balance is 3. Growth on the converted balance is

not guaranteed. not guaranteed. Much of the value of a Roth IRA Much of the value of a Roth IRA conversion is based on the expectation conversion is based on the expectation that the account’s value will grow in that the account’s value will grow in the future. This is one of the strongest the future. This is one of the strongest reasons to convert to a Roth IRA. reasons to convert to a Roth IRA. However, there is no guarantee that the However, there is no guarantee that the new Roth IRA account will grow in new Roth IRA account will grow in value. Projections that are sometimes value. Projections that are sometimes offered to show the potential impact of a offered to show the potential impact of a conversion to a Roth IRA often illustrate conversion to a Roth IRA often illustrate annual growth rates of between 6-8%. annual growth rates of between 6-8%. Everyone knows that the performance Everyone knows that the performance of any type of investment varies from of any type of investment varies from year to year. In some years there may be year to year. In some years there may be excellent growth. In other years growth excellent growth. In other years growth may be small. In some years there may may be small. In some years there may be no growth or there may be losses. be no growth or there may be losses. Clients need only look to the performance Clients need only look to the performance of their IRAs in 2007, 2008 & 2009 to of their IRAs in 2007, 2008 & 2009 to see this for themselves. see this for themselves.

Just like a traditional IRA, a Roth IRA Just like a traditional IRA, a Roth IRA carries a certain amount of investment carries a certain amount of investment risk. Conversion to a Roth IRA doesn’t risk. Conversion to a Roth IRA doesn’t lessen or eliminate investment risk. In lessen or eliminate investment risk. In fact, converting raises the stakes because fact, converting raises the stakes because of the additional investment of paying of the additional investment of paying the income taxes. For the conversion to the income taxes. For the conversion to pay off, the owner (and the benefi ciaries) pay off, the owner (and the benefi ciaries) must manage the account so that the Roth must manage the account so that the Roth IRA grows in value. Before converting, IRA grows in value. Before converting, clients might do well to articulate the clients might do well to articulate the investment strategy they are going to use investment strategy they are going to use to grow the account. Without a sound to grow the account. Without a sound investment strategy, the conversion may investment strategy, the conversion may not produce positive results. not produce positive results. IS THERE A BETTER WAY TO INVEST IS THERE A BETTER WAY TO INVEST THE CASH THAT WOULD BE USED THE CASH THAT WOULD BE USED TO PAY THE CONVERSION INCOME TO PAY THE CONVERSION INCOME TAXES? TAXES? Before deciding to convert, IRA owners Before deciding to convert, IRA owners should make sure they are comfortable should make sure they are comfortable with the potential risks and uncertainties. with the potential risks and uncertainties. There is a very important question they There is a very important question they should ask themselves and their fi nancial should ask themselves and their fi nancial advisors: “Is pre-paying income taxes advisors: “Is pre-paying income taxes the best use of this money? What other the best use of this money? What other options do I have for it that may have less options do I have for it that may have less risk or which are more likely to produce a risk or which are more likely to produce a good result?” good result?”

CONSIDER LIFE INSURANCE. CONSIDER LIFE INSURANCE. IRA owners who do not expect to IRA owners who do not expect to need distributions from the Roth IRA need distributions from the Roth IRA during his/her lifetime may consider during his/her lifetime may consider life insurance as one of their options. life insurance as one of their options. Owners healthy enough to qualify for Owners healthy enough to qualify for life insurance may be surprised at the life insurance may be surprised at the fi nancial benefi ts a life insurance policy fi nancial benefi ts a life insurance policy may provide them and their families. may provide them and their families. Life insurance has a number of potential Life insurance has a number of potential advantages, including: advantages, including:

• • Growth /LeverageGrowth /Leverage—Premiums —Premiums paid for death benefi t paid for death benefi t protection can provide protection can provide signifi cant leverage in signifi cant leverage in the early years and may provide the early years and may provide a competitive rate of return a competitive rate of return through life expectancy through life expectancy

• • Income Tax-Free PaymentIncome Tax-Free Payment— — Policy death benefi ts (including Policy death benefi ts (including amounts in excess of premiums amounts in excess of premiums paid) are generally income tax paid) are generally income tax free under IRC Section 101 free under IRC Section 101

• • Predictable ValuePredictable Value—unlike —unlike a Roth IRA, a life insurance a Roth IRA, a life insurance policy may be structured to pay policy may be structured to pay a known death benefi t amount a known death benefi t amount when the insured dies when the insured dies

• • Value Not Directly Linked to Value Not Directly Linked to Market Performance Market Performance—the —the policy may be structured so policy may be structured so that the death benefi t may not that the death benefi t may not directly depend on fi nancial directly depend on fi nancial market performance market performance

• • LiquidityLiquidity—the death benefi ts —the death benefi ts are paid in cash; generally the are paid in cash; generally the death benefi t is not reduced by death benefi t is not reduced by income taxes, transfer costs, income taxes, transfer costs, commissions or management commissions or management fees fees

• • Control of DistributionsControl of Distributions— — no distributions are required no distributions are required during the policy owner’s during the policy owner’s lifetime and distributions lifetime and distributions after death can be controlled after death can be controlled through policy benefi ciary through policy benefi ciary designations; if further control designations; if further control is desired, the policy owner is desired, the policy owner may establish a trust to own may establish a trust to own the policy and be the benefi ciary. the policy and be the benefi ciary. The trust would receive the The trust would receive the

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policy death benefi ts; its terms policy death benefi ts; its terms would tell the trustee how and would tell the trustee how and when to make distributions when to make distributions to the trust benefi ciaries. to the trust benefi ciaries.

• • May Avoid Estate TaxesMay Avoid Estate Taxes—unlike —unlike either a traditional or either a traditional or Roth IRA, ownership of Roth IRA, ownership of a life insurance policy may be a life insurance policy may be structured so that the death structured so that the death benefi ts will not be subject to benefi ts will not be subject to federal estate taxes as part of federal estate taxes as part of an insured’s taxable estate an insured’s taxable estate

LIFE INSURANCE ALTERNATIVES. LIFE INSURANCE ALTERNATIVES. If the traditional IRA owner is insurable at If the traditional IRA owner is insurable at reasonable rates, then there are a number reasonable rates, then there are a number of potential ways a life insurance policy of potential ways a life insurance policy could be designed to provide alternatives could be designed to provide alternatives to the uncertainties of a Roth IRA to the uncertainties of a Roth IRA conversion. The cash being considered conversion. The cash being considered to pre-pay income taxes on a Roth IRA to pre-pay income taxes on a Roth IRA conversion could be used to pay policy conversion could be used to pay policy premiums in several ways:premiums in several ways:

1. Pay a single premium. 1. Pay a single premium. 2. Pay premiums in a series of equal 2. Pay premiums in a series of equal

installments installments3. Purchase a policy on IRA owner 3. Purchase a policy on IRA owner

so that its death benefi ts could so that its death benefi ts could give the surviving spouse the give the surviving spouse the

cash needed to convert to a Roth cash needed to convert to a Roth IRA at the account owner’s death IRA at the account owner’s death

Let’s see how these alternatives might Let’s see how these alternatives might work for a hypothetical couple: Harry and work for a hypothetical couple: Harry and Ginny Parker are both age 65 and in good Ginny Parker are both age 65 and in good health. Harry has a $1,000,000 traditional health. Harry has a $1,000,000 traditional IRA which he does not believe they will IRA which he does not believe they will need for retirement income. They have need for retirement income. They have $2,500,000 in other assets, including $2,500,000 in other assets, including $1,000,000 in cash and certifi cates of $1,000,000 in cash and certifi cates of deposit. They are considering converting deposit. They are considering converting all or part of their traditional IRA to a all or part of their traditional IRA to a Roth IRA; they estimate the income tax Roth IRA; they estimate the income tax cost of a full conversion to be $400,000 cost of a full conversion to be $400,000 and have the liquidity to pay these taxes and have the liquidity to pay these taxes without impacting their fi nancial situation. without impacting their fi nancial situation. They are in good shape fi nancially so their They are in good shape fi nancially so their primary goal is to maximize what they can primary goal is to maximize what they can pass on to their four children. They aren’t pass on to their four children. They aren’t excited about pre-paying such a large excited about pre-paying such a large amount of income taxes but will do so if it amount of income taxes but will do so if it helps them pass on more. helps them pass on more.

1. SINGLE PREMIUM POLICY1. SINGLE PREMIUM POLICY

Instead of using the $400,000 of cash and Instead of using the $400,000 of cash and CD’s to pay income taxes, the Parkers CD’s to pay income taxes, the Parkers could use it to purchase a policy on either could use it to purchase a policy on either Harry or Ginny. Depending on their Harry or Ginny. Depending on their underwriting status, a single premium underwriting status, a single premium of $400,000 could produce a signifi cant of $400,000 could produce a signifi cant death benefi t. A survivorship policy death benefi t. A survivorship policy paying death benefi ts at the survivor’s paying death benefi ts at the survivor’s death would likely produce an even larger death would likely produce an even larger death benefi t. death benefi t.

2. PAY FIVE PREMIUMS2. PAY FIVE PREMIUMS

chase a policy can be an appealing chase a policy can be an appealing because of its simplicity. However, it may because of its simplicity. However, it may not be the most effi cient way to purchase not be the most effi cient way to purchase coverage. Sometimes paying smaller coverage. Sometimes paying smaller amounts in installments over a period of amounts in installments over a period of years may increase the amount of death years may increase the amount of death benefi t protection available. For example, benefi t protection available. For example, suppose the Parkers wanted to stretch suppose the Parkers wanted to stretch premiums out over a fi ve year period. premiums out over a fi ve year period. This would call for $80,000 in premiums This would call for $80,000 in premiums each year for fi ve years and would likely each year for fi ve years and would likely produce a larger death benefi t than the produce a larger death benefi t than the single premium regardless of whether single premium regardless of whether Harry, Ginny or both of them were the Harry, Ginny or both of them were the insureds.insureds.

In evaluating the single premium and In evaluating the single premium and multiple premium scenarios, Harry and multiple premium scenarios, Harry and Ginny may want to compare the policy Ginny may want to compare the policy death benefi t to the Roth IRA balance. death benefi t to the Roth IRA balance. This would be a mistake. The goal of This would be a mistake. The goal of the analysis should be to determine the the analysis should be to determine the best way to use the $400,000 in cash best way to use the $400,000 in cash that would be used to pay the conversion that would be used to pay the conversion income taxes. In both of these life income taxes. In both of these life insurance alternatives, Harry and Ginny insurance alternatives, Harry and Ginny have both the life insurance death benefi t have both the life insurance death benefi t and the traditional (unconverted) IRA and the traditional (unconverted) IRA balance. To realistically compare them to balance. To realistically compare them to the converted Roth IRA account, Harry the converted Roth IRA account, Harry and Ginny should add the traditional and Ginny should add the traditional IRA balance and the life insurance death IRA balance and the life insurance death benefi t together and compare the total to benefi t together and compare the total to the Roth IRA. the Roth IRA.

3. FUND A SPOUSE’S POST-2010 3. FUND A SPOUSE’S POST-2010 ROTH IRA CONVERSION ROTH IRA CONVERSION

Instead of converting to a Roth IRA in Instead of converting to a Roth IRA in

2010, a traditional IRA owner may be 2010, a traditional IRA owner may be happier postponing the conversion (and happier postponing the conversion (and delaying the income tax payment) to a delaying the income tax payment) to a future time. A life insurance policy on the future time. A life insurance policy on the IRA owner’s life has potential to provide IRA owner’s life has potential to provide cash to fund a full or partial conversion cash to fund a full or partial conversion at the owner’s death. If the owner’s at the owner’s death. If the owner’s spouse is the IRA benefi ciary and if the spouse is the IRA benefi ciary and if the spouse survives the IRA owner, the spouse spouse survives the IRA owner, the spouse currently is permitted to roll over the currently is permitted to roll over the traditional IRA into his/her name. After traditional IRA into his/her name. After rolling it over, the spouse could then elect rolling it over, the spouse could then elect to convert all or part of it into a Roth IRA to convert all or part of it into a Roth IRA (assuming income and other restrictions (assuming income and other restrictions are satisfi ed). By naming the spouse as are satisfi ed). By naming the spouse as the policy benefi ciary, the IRA owner may the policy benefi ciary, the IRA owner may provide the spouse with the cash income provide the spouse with the cash income tax free death benefi ts which may be used tax free death benefi ts which may be used to pay the income taxes due if the spouse to pay the income taxes due if the spouse elects to convert all or part of the IRA elects to convert all or part of the IRA balance. balance.

Here’s how this strategy might work for Here’s how this strategy might work for the Parkers. Harry purchases a $500,000 the Parkers. Harry purchases a $500,000 policy on his life and names Ginny as the policy on his life and names Ginny as the benefi ciary; she is also the sole benefi ciary benefi ciary; she is also the sole benefi ciary of Harry’s IRA. At Harry’s death, Ginny of Harry’s IRA. At Harry’s death, Ginny rolls over the balance of the IRA into rolls over the balance of the IRA into her own name. She also receives the her own name. She also receives the $500,000 death benefi t. She decides $500,000 death benefi t. She decides to convert it to a Roth IRA and uses a to convert it to a Roth IRA and uses a portion of the policy death benefi t to portion of the policy death benefi t to pay the income taxes. Now she can take pay the income taxes. Now she can take distributions from the converted Roth IRA distributions from the converted Roth IRA as she needs them for the rest of her life. as she needs them for the rest of her life. She names the children as the benefi ciaries She names the children as the benefi ciaries of her Roth IRA and at her death the of her Roth IRA and at her death the remaining Roth IRA balance is divided remaining Roth IRA balance is divided among them.among them.

This life insurance strategy offers a This life insurance strategy offers a number of possible advantages, including:number of possible advantages, including:

1. Harry doesn’t need to use his 1. Harry doesn’t need to use his liquid assets to pre-pay income liquid assets to pre-pay income taxes taxes

2. if Ginny rolls over the IRA and 2. if Ginny rolls over the IRA and elects to convert the elects to convert the remaining balance to a Roth IRA, remaining balance to a Roth IRA, then the resulting income taxes then the resulting income taxes can potentially be paid at a can potentially be paid at a “discount.” That’s because life “discount.” That’s because life insurance policy death benefi ts insurance policy death benefi ts almost always exceed the total almost always exceed the total premiums paid into the policy. premiums paid into the policy.


Consequently, it should take less Consequently, it should take less money to pay the premiums money to pay the premiums than it will take to pay the than it will take to pay the income taxes on the conversion. income taxes on the conversion.

3. Because Ginny is the policy 3. Because Ginny is the policy benefi ciary, the death benefi ciary, the death benefi ts should qualify for the benefi ts should qualify for the estate tax marital deduction and estate tax marital deduction and not increase Harry’s taxable not increase Harry’s taxable estate estate

4. Ginny doesn’t have to decide 4. Ginny doesn’t have to decide whether to convert to a whether to convert to a Roth IRA immediately after Roth IRA immediately after Harry’s death; she can take her Harry’s death; she can take her time. Under current law her time. Under current law her ability to convert her IRA to a ability to convert her IRA to a Roth IRA continues up until the Roth IRA continues up until the day she dies. day she dies.

THERE ARE ALSO SOME THERE ARE ALSO SOME POTENTIAL DISADVANTAGES, POTENTIAL DISADVANTAGES, INCLUDING:INCLUDING:

1. Income tax rates may increase 1. Income tax rates may increase between 2010 and when Ginny between 2010 and when Ginny decides to convert; thus, the decides to convert; thus, the income taxes due on the income taxes due on the conversion could increase conversion could increase

2. The $100,000 modifi ed AGI 2. The $100,000 modifi ed AGI requirement is only suspended requirement is only suspended for 2010. If Harry dies and for 2010. If Harry dies and Ginny decides to convert after Ginny decides to convert after 2010, she may have to satisfy this 2010, she may have to satisfy this requirement and any others requirement and any others which may be added in the which may be added in the future. future.

3. It is also possible that Ginny 3. It is also possible that Ginny may die before Harry. Because may die before Harry. Because only a surviving spouse has the only a surviving spouse has the ability to roll over the IRA, if ability to roll over the IRA, if Ginny dies fi rst, no one else Ginny dies fi rst, no one else will have the legal ability to roll will have the legal ability to roll the IRA over and convert the the IRA over and convert the remaining balance into a remaining balance into a Roth IRA at Harry’s death. Roth IRA at Harry’s death.

LIFE INSURANCE MAY BE NEEDED LIFE INSURANCE MAY BE NEEDED IF THERE IS A CONVERSION IF THERE IS A CONVERSION

After carefully reviewing their options, After carefully reviewing their options, suppose the Parkers go ahead and convert suppose the Parkers go ahead and convert their IRA to a Roth IRA. Also assume their IRA to a Roth IRA. Also assume the Roth IRA grows as their advisors the Roth IRA grows as their advisors projected. The success of their Roth IRA projected. The success of their Roth IRA

may increase the size of their taxable may increase the size of their taxable estate to the point where it could trigger estate to the point where it could trigger federal estate taxes. Where will the federal estate taxes. Where will the money come from to pay the federal estate money come from to pay the federal estate taxes? taxes?

In many cases the easiest place to get In many cases the easiest place to get these funds may be the Roth IRA. But, these funds may be the Roth IRA. But, of course, from a fi nancial perspective, of course, from a fi nancial perspective, that’s last place the executor/personal that’s last place the executor/personal representative should go for the money. representative should go for the money. Distributing funds from the Roth IRA Distributing funds from the Roth IRA to pay estate taxes will likely reduce its to pay estate taxes will likely reduce its ability to grow long term. ability to grow long term.

Life insurance owned by an Irrevocable Life insurance owned by an Irrevocable Life Insurance Trust (ILIT) may be able to Life Insurance Trust (ILIT) may be able to provide the cash to pay the estate taxes so provide the cash to pay the estate taxes so the Roth IRA doesn’t have to. The ILIT the Roth IRA doesn’t have to. The ILIT trustee can be given the discretion to lend trustee can be given the discretion to lend money to the estate or to purchase assets money to the estate or to purchase assets from the estate. If a client decides to from the estate. If a client decides to convert and there is a potential estate tax convert and there is a potential estate tax problem, the traditional life insurance for problem, the traditional life insurance for estate liquidity sale could be utilized.estate liquidity sale could be utilized.

CONCLUSION CONCLUSION

The ability of every owner of a traditional The ability of every owner of a traditional IRA to convert to a Roth IRA in 2010 is IRA to convert to a Roth IRA in 2010 is getting a lot of attention. But a Roth IRA getting a lot of attention. But a Roth IRA conversion isn’t advisable for everyone. conversion isn’t advisable for everyone. Generally, it only makes sense if the Generally, it only makes sense if the income taxes are paid from funds outside income taxes are paid from funds outside the IRA and the Roth IRA grows in value the IRA and the Roth IRA grows in value after the conversion. Unfortunately, after the conversion. Unfortunately, investment growth isn’t automatic and is investment growth isn’t automatic and is never guaranteed. Before IRA owners never guaranteed. Before IRA owners decide to convert, they should consider decide to convert, they should consider what other options they have for the what other options they have for the money they will have to use to pay income money they will have to use to pay income taxes. taxes.

Life insurance has the potential to Life insurance has the potential to offer healthy IRA owners reasonable offer healthy IRA owners reasonable alternatives to pre-paying income taxes alternatives to pre-paying income taxes on Roth IRA conversions. Its unique on Roth IRA conversions. Its unique combination of advantages may make it combination of advantages may make it attractive to clients who are reluctant to attractive to clients who are reluctant to pre-pay income taxes at unknown rates. pre-pay income taxes at unknown rates. It has the potential to provide some of the It has the potential to provide some of the advantages of a Roth IRA at an acceptable advantages of a Roth IRA at an acceptable cost.cost.

ABOUT THE AUTHORS

PETER MCCARTHY is a Senior Advanced Marketing Consultant on ING’s Life Sales Support Team. He has over 30 years of experience in estate and business planning. Peter joined

ING in 2000. Prior to that, he served as advanced marketing counsel for Minnesota Life, Prudential Insurance Co. and American Express Financial Advisors (now Ameriprise). He has also practiced law as an estate planning attorney with a large Minneapolis law fi rm. Peter graduated from Rollins College with a BA degree in 1971 and an MBA in 1972. In 1975, he earned his JD degree from the University of Miami. Peter can be reached at 612-342-7699, or by email at [email protected].

MAGGIE MITCHELL is Vice President of Advanced Sales for ING. She has more than 25 years experience in the fi nancial services, tax, legal and insurance industry. Prior to joining

ING, Maggie worked as a life insurance consultant, where she provided expertise for life insurance needs of high net-worth individuals and business owners, and practiced law as an estate planning attorney. She is the chair of the LIMRA Advanced Sales Committee. Maggie can be reached at [email protected].

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REBA: Handcuffi ng Employees in a Tax-Exempt WorldEmployers often report that the two biggest business challenges they face are attracting and retaining employees. To overcome these obstacles, employers generally offer their employees various types of additional compensation, the most common being a qualifi ed plan. A qualifi ed plan, however, requires the employer to extend the plan benefi ts to all employees and caps the annual contribution amounts. For more specialized employees employers tend to leverage deferred compensation plans that can discriminate in favor of the highly compensated and are not subject to contribution limits. Tax-exempt employers, due to their special tax status, are signifi cantly limited by Internal Revenue Code Section 457 in the types of additional compensation they can offer to their employees.

Under §457, tax-exempt and government employers have two options for deferred compensation: qualifi ed “eligible” plans under §457(b) and “ineligible” plans under §457(f)1. As with qualifi ed plans created by for-profi t employers, §457(b) “eligible” plans have contribution limits: in 2010, the maximum annual deferral for a §457(b) eligible plan is the lesser of $16,500 or the employee’s total compensation. In addition to capping the contribution amounts, §457(b) requires that deferred funds be made available upon the earlier of: (i) the calendar year in which the participant employee reaches age 70 ½; (ii) when the participant has a severance

from employment with the employer; or (iii) when the participant is faced with an unforeseen emergency.2 The upside to §457(b) eligible plans is that they are not considered a “nonqualifi ed deferred compensation plan” and are therefore not subject to §409A.3

If the tax-exempt employer wishes to provide for compensation deferrals in excess of the statutorily proscribed limits of §457(b), then the tax-exempt employer has to provide the employee with an “ineligible” plan under §457(f). Under the ineligible §457(f) plan, while there is no statutorily proscribed maximum annual deferral, compensation that is considered “excess” and “unreasonable” is subject to an excise tax imposed by §4958.4 Section 457(f) requires that amounts deferred under a §457(f) ineligible plan be included in the employee’s gross income when that deferred compensation is no longer subject to a substantial risk of forfeiture. 5 Further, the IRS has indicated6 that §83’s defi nition of substantial risk of forfeiture7 applies to §457(f) plans; specifi cally, that “the rights of a person in property are subject to a substantial risk of forfeiture if such person’s rights to full enjoyment of such property are conditioned upon the future performance of substantial services by such individual.”8 Because ineligible §457(f) plans are considered deferred compensation plans they are subject to the rules of §409A and its corresponding Treasury Regulations.9 While a thorough discussion of §409A is

outside the scope of this article, §409A provides a complicated set of rules for electing to defer compensation, the method of deferral, the timing for paying that compensation to the employee and penalties for not meeting 409A’s rules.

The following example will illustrate the impact of §457(f) and what makes it is so unappealing to employees. Suppose that a tax-exempt hospital has a hospital administrator who has become instrumental in ensuring the hospital’s overall success. The hospital agrees to provide the administrator with additional retirement income by putting aside $50,000 each year for the next 15 years. When the employee reaches age 65 and retires the hospital will divide the amount in her account and pay her a level amount for the next 20 years. Since the funding amount is in excess of the maximum annual deferral allowed under §457(b), the agreement between the administrator and the hospital will constitute a §457(f) ineligible plan. The hospital annually funds the administrator’s deferred compensation at $50,000. That account grows at 5% each year so that by the time the administrator reaches age 65 there is $1,132,875 in her deferred compensation account. When the administrator retires, the $1,132,875 will no longer be subject to a substantial risk of forfeiture and, under §457(f), will be included in the administrator’s taxable income in her year of retirement.10 This means that (assuming a 35% income


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tax bracket) the administrator will have to pay initial tax of $396,506, leaving $736,368 in her nonqualifi ed deferred compensation account. The problem, from the administrator’s viewpoint, is that under the terms of her agreement with the hospital, she will have to wait 20 years before she receives the full $736,368, even though she’s already paid income taxes on that amount.11

This chart illustrates the function of a §457(f) ineligible plan and shows the impact to the employee each year if she were to retire at the end of that year:

This highly unfavorable result leaves tax-exempt employers wondering what they can do to retain and compensate their employees. For employers, both for-profi t and tax-exempt, the goal is to provide compensation plans that are: (i) nonqualifi ed plans; (ii) outside the scope of §409A; (iii) not subject to §457(f); and (iv) function as a “golden handcuff”, tying the employee to the current employer. To achieve all of these aims, employers should consider entering into restrictive endorsement bonus agreements (REBAs) with their employees.

The REBA employs the use of a life insurance policy whose premiums are paid as annual bonuses to the employee and includes a vesting schedule under which the employer and the employee decide the rate at which the employee will recognize those premiums as compensation income. The REBA functions much like an employee bonus agreement under

§162 in that the employee owns the life insurance policy and the employer pays the premiums as annual bonuses. Unlike the §162 bonus plan, the REBA gives the employer the ability to retain the employee through the use of golden handcuffs in the form of a restrictive endorsement that the employee places on the policy. The restrictive endorsement transfers all ownership rights in the life insurance contract, other than the right to change the benefi ciary, from the employee to the employer.

The REBA’s vesting schedule provides that the employee will recognize the annual premium bonuses over a set period of time. Scheduling the employee’s recognition of income tax means that, unlike with the 457(f) plan, the employee can recognize the income

tax over several tax years. The golden handcuff piece of the REBA is also a part of the vesting schedule because at separation from service, the employee is required to repay the unvested premium bonuses. After the employee has repaid the unvested bonuses, the employer will release the restrictive endorsement on the policy. The employee can use either the policy’s cash values or her personal assets to fund the repayment of the unvested premium bonuses. Once the employee is fully vested in the premium bonuses the employer releases the restrictive endorsements on the policy. This gives the employee full access to the policy and its cash values, which can serve as additional retirement funds. If the vesting schedule is a term of years, after the employee is fully vested, the employer can continue to fund the policy with annual premium bonuses that are taxable to the employee upon receipt or the employee can take over funding the policy.

Because the REBA is technically a nonqualifi ed deferred compensation agreement, as it is broadly defi ned in §409A, it is subject to the terms of §409A, and must be drafted accordingly. However, even though the REBA is a deferred compensation agreement under §409A, it falls within two exceptions to §409A, making complying with the requirements of §409A much simpler. First, all unvested annual premium bonuses are subject to a substantial risk of forfeiture, in that if the employee has a separation from service all unvested amounts are forfeited and have to be repaid to the employer. Under §409A, amounts that are subject to a substantial risk of forfeiture are not included in the defi nition of “deferred compensation”, which means that they are not subject to the rules that §409A applies to deferred compensation.12 Once the annual premium bonuses are vested, they are taken into the employee’s income in the tax year in which they become vested. This allows the vested amounts to qualify for 409A’s short-term deferral exception.13

Let’s return to the hospital administrator to examine the effects of putting a REBA in place instead of the ineligible §475(f) plan. The hospital is going to provide the same annual bonus of $50,000 and, under the terms of the REBA, the administrator will be completely unvested for the fi rst 5 years of the agreement, but will vest at 10% per year over the next 10 years, ensuring that she is fully vested by age 65. With either plan the administrator would have received a total of $750,000 in additional income. The difference is that under the REBA, the administrator’s income tax liability (assuming a 35% tax bracket) is $262,500 instead of the $396,506 that would have been due with the §457(f) ineligible plan. Moreover, the employee has invested her $750,000 in a John Hancock Protection Whole Life insurance policy which provides her with

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Year

Employee

Age

Employer's

Cumulative

Outlay

BOY

Account

Balance

Account

Growth

EOY Account

Balance

Employee's

Income Tax

Employee Net

Account

Value

1 51 $50,000 $50,000 $2,500.00 $52,500.00 $18,375.00 $34,125.00

2 52 $100,000 $102,500 $5,125.00 $107,625.00 $37,668.75 $69,956.25

3 53 $150,000 $157,625 $7,881.25 $165,506.25 $57,927.19 $107,579.06

4 54 $200,000 $215,506 $10,775.31 $226,281.56 $79,198.55 $147,083.02

5 55 $250,000 $276,282 $13,814.08 $290,095.64 $101,533.47 $188,562.17

6 56 $300,000 $340,096 $17,004.78 $357,100.42 $124,985.15 $232,115.27

7 57 $350,000 $407,100 $20,355.02 $427,455.44 $149,609.41 $277,846.04

8 58 $400,000 $477,455 $23,872.77 $501,328.22 $175,464.88 $325,863.34

9 59 $450,000 $551,328 $27,566.41 $578,894.63 $202,613.12 $376,281.51

10 60 $500,000 $628,895 $31,444.73 $660,339.36 $231,118.78 $429,220.58

11 61 $550,000 $710,339 $35,516.97 $745,856.33 $261,049.71 $484,806.61

12 62 $600,000 $795,856 $39,792.82 $835,649.14 $292,477.20 $543,171.94

13 63 $650,000 $885,649 $44,282.46 $929,931.60 $325,476.06 $604,455.54

14 64 $700,000 $979,932 $48,996.58 $1,028,928.18 $360,124.86 $668,803.32

15 65 $750,000 $1,078,928 $53,946.41 $1,132,874.59 $396,506.11 $736,368.48


$2,299,857 million of death benefi t and has a guaranteed cash value at age 65 of $918,356.14 Overall, using the REBA rather than the §457(f) ineligible plan, the administrator will have paid $134,000 less in income taxes, giving her $181,988 in additional retirement funds and a death benefi t of nearly $2.3 million.

This chart illustrates the function of the REBA, the employee’s vesting schedule over 15 years and the amount that she would have to pay back to the hospital were she to leave the hospital before she retires at age 65.

As illustrated, the REBA offers benefi ts to both the employee and the employer in the form of tax-favored additional

compensation and through its ability to facilitate retention of the employee through normal retirement age. In addition, the REBA provides fl exibility in terms of the bonus amount, the vesting schedule, and the repayment requirements. Finally, REBAs offer tax-exempt employers a valuable alternative to the compensation plans created under §457, giving tax-exempt employers the fl exibility to create compensation plans that fi t each particular employment relationship.

1 For purposes of simplicity in this article I will just be referring to tax-exempt entities, although §457 applies to both tax-exempt entities and government employees. 2 IRC §457(d)(1).3 Treas. Reg. §1.409A-1(a)(1).4 IRC. §4958.5 Treas. Reg. §1.457-11(a).6 PLR 9219011.7 Treas. Reg. §1.83-3(c).8 IRC §83(c)(1) and Treas. Reg. §1.83-3(c). 9 IRC § 409A and Treas. Reg. §1.409a-1(c)(1).10 IRC §457(f)(1)(A).11 PLR 9822030.12 §1.409A-1(b)(1).13 §1.409A-1(b)(4).14 The cash values illustrated are based on a sample illustration of the John Hancock Protection Whole Life Insurance policy run on a 50 year old female at a

standard-plus risk class with $50,000 annual premiums in years 1 through 15. The guaranteed cash values will vary based on the assumptions used to generate the Protection Whole Life policy illustration.

ABOUT THE AUTHORKRISTIN O. BULAT, JD, LLM is Assistant Vice President and Associate Counsel, Advanced Markets for the U.S. Individual Life operations of John Hancock Financial, a Manulife company. In her current position, Ms. Bulat provides advanced marketing support to John Hancock’s home offi ce employees, fi eld personnel, and producers. In addition, Ms. Bulat is responsible for the development of innovative advanced marketing materials, programs, and strategies.

Ms. Bulat was in private practice in the Boston area for many years prior to joining John Hancock Financial. Ms. Bulat concentrated her practice on estate planning, probate, business succession planning, corporate benefi ts, and charitable planning for moderate and high net worth individuals and companies.

Ms. Bulat received her Bachelor of Arts degree in Comparative Literature from SUNY College at Geneseo, Geneseo, New York, and her Juris Doctor degree cum laude from Suffolk University Law School, Boston, Massachusetts. Ms. Bulat also received a L.LM. in Taxation from the University of Washington School of Law, Seattle, Washington. Ms. Bulat is licensed to practice law in the Commonwealth of Massachusetts. Ms. Bulat can be reached by calling 1-888-266-7498 x 20238 or by e-mail at [email protected].

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Policy

Year

Employee

EOY Age

Employee

Vested

Percent

Employee

Vested

Amount

Employee's

Income

Tax

Employee's

Reimbursement

Obligation

Employer's

Cumulative

Outlay

Policy's

Cash

Value

Policy's

Death

Benefit

1 51 0.00% $0 $0 $50,000 $50,000 $0 $2,299,857

2 52 0.00% $0 $0 $100,000 $100,000 $16,743 $2,299,857

3 53 0.00% $0 $0 $150,000 $150,000 $71,859 $2,299,857

4 54 0.00% $0 $0 $200,000 $200,000 $127,021 $2,299,857

5 55 0.00% $0 $0 $250,000 $250,000 $185,391 $2,299,857

6 56 10.00% $30,000 $10,500 $270,000 $300,000 $246,062 $2,299,857

7 57 20.00% $70,000 $14,000 $280,000 $350,000 $309,055 $2,299,857

8 58 30.00% $120,000 $17,500 $280,000 $400,000 $374,532 $2,299,857

9 59 40.00% $180,000 $21,000 $270,000 $450,000 $442,630 $2,299,857

10 60 50.00% $250,000 $24,500 $250,000 $500,000 $513,581 $2,299,857

11 61 60.00% $330,000 $28,000 $220,000 $550,000 $587,590 $2,299,857

12 62 70.00% $420,000 $31,500 $180,000 $600,000 $664,843 $2,299,857

13 63 80.00% $520,000 $35,000 $130,000 $650,000 $745,522 $2,299,857

14 64 90.00% $630,000 $38,500 $70,000 $700,000 $829,949 $2,299,857

15 65 100.00% $750,000 $42,000 $0 $750,000 $918,356 $2,299,857


KNOWLEDGEKKNOKN

Giving Private Split Dollar a Second Chance

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Private split dollar provides a powerful Private split dollar provides a powerful tool for leveraging the acquisition of life tool for leveraging the acquisition of life insurance for high net worth individuals. insurance for high net worth individuals. Many advisors have avoided split dollar Many advisors have avoided split dollar arrangements since the issuance of the arrangements since the issuance of the fi nal split dollar Treasury Regulations, fi nal split dollar Treasury Regulations, put off by their concerns of complexity put off by their concerns of complexity and adverse tax consequences. Yet the and adverse tax consequences. Yet the planning fl exibility and benefi ts provided planning fl exibility and benefi ts provided by private split dollar, coupled with the by private split dollar, coupled with the limited accessibility of the commercial limited accessibility of the commercial credit markets, should encourage advisors credit markets, should encourage advisors to reconsider this strategy for their high to reconsider this strategy for their high net worth clients. net worth clients.

OVERVIEWOVERVIEW

Generally, a split-dollar arrangement Generally, a split-dollar arrangement (“SDA”) is an agreement between two (“SDA”) is an agreement between two parties to fund the acquisition of a life parties to fund the acquisition of a life insurance policy. One party funds all insurance policy. One party funds all or part of the premiums, while the other or part of the premiums, while the other party receives most of the death benefi t. party receives most of the death benefi t. The premium-paying party has a right to The premium-paying party has a right to repayment upon termination of the SDA, repayment upon termination of the SDA, generally secured by or paid from the generally secured by or paid from the policy proceeds. policy proceeds.

Private SDAs (those outside of an employer-employee context) are used in estate planning to acquire life insurance on a gift-tax favored basis, particularly when annual exclusion gifts are insuffi cient to cover yearly premiums. In the typical “private” situation, a client enters into a SDA with his irrevocable life insurance trust (“ILIT”) to split the cost of a policy insuring his life (and possibly that of his

spouse). The client’s reimbursement right is secured by a “bare bones” collateral assignment of the policy to the client, under which the ILIT retains all incidents of policy ownership apart from the assigned security interest. This premium-sharing arrangement lowers the potentially taxable contributions required from the client to fund the policy premiums. TWO REGIMES

Under the fi nal split dollar regulations, private SDAs are governed by two mutually exclusive tax regimes: (1) the economic benefi t regime, and (2) the loan regime. In a typical economic benefi t arrangement, the client agrees to fund all policy premiums in exchange for an interest in the policy equal to the greater of its cash value or the total premiums paid. For gift tax purposes, the client makes an annual gift of the “economic benefi t” provided to the ILIT, generally equal to the term cost of the current insurance protection provided to the ILIT, without regard to surrender charges and offset by any consideration paid by the ILIT. The term cost is determined by using the premium rates published by the IRS (as set forth in Table 2001) or, if lower, the qualifying one-year term rates published by the insurance carrier.

Under the loan regime, the client makes interest-bearing loans to the ILIT to pay the policy premiums. The client has no specifi c interest in the policy’s cash value;

rather, the ILIT retains all rights to the policy’s cash value and death benefi t, subject to its obligation to repay the loan(s) at the specifi ed maturity date(s). If the loan provides for suffi cient interest, it is governed by the general tax rules for debt instruments and should not result in a gift by the client. Interest on a properly structured split-dollar loan generally is suffi cient if it equals the applicable federal rate (“AFR”) prescribed by the IRS each month for the applicable term of the note (e.g., demand or short, mid or long-term). The AFR typically applies for the duration of the loan.

BENEFITS OF PRIVATE SPLIT DOLLAR

Private SDAs provide several unique benefi ts for fi nancing insurance premiums, particularly as compared to third-party loans.

Structuring Flexibility. Private SDAs offer superior fl exibility in structuring, since the client has complete control over the terms of the arrangement, including in the following areas:

Regime Selection. The client can select which tax regime best suits his particular circumstances. An economic benefi t SDA is generally desirable in situations where the term cost of the insurance coverage is low (e.g., policies insuring younger individuals; survivorship policies). Split-dollar loans generally are a good


alternative when the term insurance rates provided under the economic benefi t regime are too high or where the client wants the ILIT to have tax-free access to the policy’s cash value.

Term Creation. The client sets the terms of the SDA with his personal ILIT, avoiding negotiations with a potentially infl exible commercial lender. For example, the client can structure a split-dollar loan that allows the ILIT to pay or accrue the interest, or that permits loan prepayment or renewal. The loan can also be re-fi nanced at a lower AFR, generally without adverse tax consequences. Exit Strategy Planning. Clients with economic benefi t SDAs will face increasing annual costs (and corresponding annual gifts) as the insured(s) age, and split-dollar loans must eventually be repaid, with interest. Accordingly, like third-party fi nancing, private SDAs require exit strategies. Clients, however, will have more fl exibility in developing the strategy and a greater opportunity to integrate it into their overall estate plan. The client unilaterally determines the length of the SDA and decides when to roll-out (rather than requiring the approval of an outside lender). The client also can restructure the arrangement mid-stream, for example, switching from an economic benefi t regime to a loan regime if the term costs become too great. Integrating private SDAs with common estate planning techniques, such as grantor retained annuity trusts or installment sales to grantor trusts, can generate side funds to pay-off the private SDA while simultaneously limiting the client’s gift tax exposure and protecting the estate-tax free wealth transfer of the policy death benefi t.

MINIMAL COLLATERAL REQUIREMENTS

A collateral assignment of the policy can provide the sole security for a private SDA. Traditional commercial

fi nancing, on the other hand, often require personal guarantees and/or signifi cant commitments of personal collateral to secure the loan, potentially tying up liquid assets. In addition, the client may need to supplement the security if the value of the previously pledged collateral (e.g., stock) declines.

NO APPROVAL PROCESS

Clients can avoid the administrative hassles of gathering and submitting the fi nancial information required by lending institutions for credit checks and loan approvals. In the current market, these procedures have become exceedingly cumbersome and could delay the closure of transactions.

LESS RATE FLUCTUATION RISK

Economic benefi t SDAs depend on insurance term costs or Table 2001 rates as opposed to interest rates, which can provide some predictability regarding the client’s future costs. As for split dollar loans, they are tied to the AFR, which is generally les volatile than a commercial LIBOR rate. Furthermore, clients can choose to lock in a low AFR by making a single lump-sum loan to the ILIT from which the trust will pay future premiums as they become due. Clients can supplement the loan with annual exclusion gifts to the ILIT, which also can be applied to premiums or used to repay the loan.

NO ORIGINATION OR LOAN FEESNO ORIGINATION OR LOAN FEES

Private SDAs avoid origination or other Private SDAs avoid origination or other loan fees and collateral or guarantee loan fees and collateral or guarantee requirements typically required by third-requirements typically required by third-party lenders.party lenders.

FAVORABLE IRS RULINGS FAVORABLE IRS RULINGS

The IRS has recently issued several, The IRS has recently issued several, favorable private letter rulings related favorable private letter rulings related to private economic benefi t SDAs that to private economic benefi t SDAs that confi rm the potential gift tax consequences confi rm the potential gift tax consequences to clients of these agreements.to clients of these agreements.

ONE MORE TOOL IN THE TOOLBOXONE MORE TOOL IN THE TOOLBOX

Finding liquidity for the acquisition of signifi cant life insurance coverage has become diffi cult for many clients in this market. While traditional premium fi nancing certainly has a place in the planning toolbox (such as when a client has temporary liquidity issues prior to an anticipated liquidity event), the restricted credit markets may present signifi cant obstacles to obtaining funding and closing transactions. Advisors should consider private split dollar as a funding alternative that can be tailored to a client’s unique needs while avoiding the complications associated with traditional premium fi nancing.

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ABOUT THE AUTHORJONATHAN M. FORSTER, Shareholder, National Chair of the Wealth Management Group, Chair of the Insurance Regulatory and

Transactions Group, Greenberg Traurig, LLP.

JENNIFER M. SMITH, Associate, Wealth Management Group, Greenberg Traurig, LLP.


KNOWLEDGEKKNOKN

FASB Accounting Standards Codifi cation

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The Financial Accounting Standards Board (FASB) has reorganized Generally Accepted Accounting Standards (GAAP) into a single source: FASB Accounting Standards Codifi cation (Codifi cation). Codifi cation, a project that required fi ve years and 200 people, supersedes all previous US GAAP. The old hierarchy that included Statements (Financial Accounting Standards, or FAS) down to Staff Positions (Financial Staff Positions, or FSP) is now a unifi ed single source, searchable by topic and cross-referenced with pre-Codifi cation Standards. A separate section of each paragraph identifi es any Securities and Exchnage (SEC) (what is this?) guidance on the topic.

Why did FASB devote so much effort to just rearrange accounting rules? Surveys had confi rmed that the old structure of US GAAP was “unwieldy, diffi cult to understand, and diffi cult to use.” Researching an accounting issue took too much time; missing important points created unintentional noncompliance; and updating authoritative sources was cumbersome. Codifi cation now allows users to identify all related content in a single location without having to rely on internet searches.

FASB intended to codify, not change, US GAAP. For example, “Technical Bulletin 85-4” is now “Codifi cation paragraph 325-30,” found under “Assets.” “Paragraph 325” is now labeled as “Investments – Other.” Likewise, “Subparagraph 30”

is has been changed to “Investments in Insurance Contracts.” However, FASB acknowledges “combining disparate standards into a codifi ed format introduces the possibility of unintentional changes.” Codifi cation allows constituent feedback on content in order to identify unintentional changes and to alert FASB on the need for intentional changes as part of the ongoing standard setting process.

Ready to explore Codifi cation? Go to FASB.org. Locate the tabs across the top of the home page and click on “Standards.” Next, on the right side of the page, fi nd the box labeled “New User” and click “Order.” Scroll down to the bottom and click on “Select for Basic View,” which is free. After you have registered, you can go back and log in as a registered user.

Now try searching for a topic. Let’s use COLI accounting as an example. Suppose you aren’t familiar with Technical Bulletin 85-4. You would probably guess that COLI is an asset. From the topics on the left side of the page, click on “Assets.” Under Paragraph 325 you will fi nd “Investments – Other.” Subparagraph 30 is “Investments in Insurance Contracts.” Now suppose you are familiar with Technical Bulletin 85-4. From the tabs across the top of the home page, click on “Standards.”

Throughout the coming months, we will begin identifying unintentional changes in US GAAP that affect AALU members

and we will submit feedback to FASB as necessary. In the meantime, give us your feedback on any unintentional changes that AALU should address.

ABOUT THE AUTHORR. LEE NUNN, CPA, CLU IS senior vice president on Aon’s Executive Benefi ts team. Lee advises clients on the tax, accounting, and SEC reporting issues

associated with nonqualifi ed benefi t plans and related fi nancing. Lee serves on the Editorial Advisory Board of Aspen Publishers’ Journal of Deferred Compensation and contributes articles regularly to both the Journal of Deferred Compensation and the Journal of Pension Planning & Compliance.

The Association for Advanced Life Underwriting 35TTThTheTheTheTheTheThThhheheheeeeeeeheThThhheeTThhhehThTheTTheThTheThhTheThhehheTThheeeTTTT AAsAssA socsocsociatiationion ffofofofooofooforr r Ar AArrrr ddvdvadvancenced Ld LLifeife UnUnUnddederddd wrwrrriritintinntint g gggg 35

BUILDING

RELATIONSHIPS,

SHAPING OUR

FUTURE2010 AALU

LEGISLATIVE CIRCLE PROGRAM

SPECIAL SECTION

SENATE DEMOCRATIC LEADERSHIPMake a personal check payable to “Friends for Harry Reid” and mail to:426 C Street NERear BuildingWashington, DC 20002Contribute online at: www.harryreid.com

SENATE MAJORITY LEADER HARRY REID (D-NV) 2010 � He is one of the most powerful people in Washington. � His leadership has stopped repeated attempts to repeal

the Estate Tax.

AALU Endorsed Candidates are selected based on their leadership and committee assignments, level of infl uence in Washington and relationships with AALU members. They are nominated by a Candidate Selection Committee made up of your peers and approved by AALU’s Board of Directors.

2010 AALUENDORSED CANDIDATES

Make personal check payable to “Friends of Schumer” and mail to:426 C Street, NEWashington, DC 20002Contribute online at: www.chuckschumer.com

SENATOR CHARLES SCHUMER (D-NY) 2010 � As member of the Senate Finance Committee and Vice

Chairman of Senate Democratic Conference, he is an infl uential member of the Democratic caucus.

� Co-sponsor of IRA charitable rollover legislation.

SENATOR PATTY MURRAY (D-WA) 2010 � Member of Budget Committee and Appropriations

Subcommittee on Financial Services. � Democratic Conference Secretary of the U.S. Senate,

responsible for charting the Senate Democrats’ policy positions.

Make personal check payable to “People for Patty Murray” and mail to:Attn: Tracey Buckman1602 Belle View Boulevard, #510Alexandria, VA 22307Contribute online at: www.pattymurray.com

SENATOR RICHARD BURR (R-NC) 2010 � Minority Chief Deputy Whip and ranking Member

of Senate Subcommittee on Retirement and Aging, with oversight over pension issues that may affect our membership.

� Co-sponsor of IRA charitable rollover legislation and rising GOP star.

Make a personal check payable to “Burr for Senate” and mail to:666 Eleventh Street NW, Suite 800 Washington, DC 20001Contribute online at: www.burrforsenate.com

SENATOR BOB MENENDEZ (D-NJ) 2012 � Chairman of the Democratic Senatorial Campaign

Committtee. � Serves on both the Senate Finance and Banking

Committees.

Make personal check payable to “Menendez for Senate” and mail to:315 C Street, NEWashington, DC 20003

SENATOR JOHN THUNE (R-SD) 2010 � Chairman on the Republican Policy Committee. � Very active on small business issues, having spent time at

the Small Business Administration.

Make personal check payable to “Friends of John Thune” and mail to:P.O. Box 841Sioux Falls, SD 57101Contribute online at: www.johnthune.com

SENATE REPUBLICAN LEADERSHIP


The Association for Advanced Life Underwriting 37ThThe A Associ tiatiion f fo Ar Addvanced Ld Lifife U Undder iwrititing 3737

SENATOR MAX BAUCUS (D-MT) 2014 � Chairman of Senate Finance Committee. � Sets the legislative agenda for tax issues in the Senate.

Make a personal check payable to “Friends of Kent Conrad” and mail to:426 C Street NEWashington, DC 20002

SENATOR KENT CONRAD (D-ND) 2012 � Chairman of Senate Budget Committee and Chairman

of Senate Finance Subcommittee with jurisdiction over AALU issues.

� Strong champion of the life insurance industry.

Make a personal check payable to “Friends of Max Baucus” and mail to:Post Offi ce Box 586Helena, Montana 59624

SENATOR TOM CARPER (D-DE) 2012 � Member of Senate Finance Committee, Subcommittee

on Taxation. � Lead sponsor of responsible and sustainable tax reform

legislation (“freeze 2009”) in the Senate.

Make a personal check payable to “Carper for Senate” and mail to:426 C Street NEWashington, DC 20002Contribute online at: www.carperforsenate.com

SENATE FINANCE

HOUSE REPUBLICAN LEADER JOHN BOEHNER (R-OH) � Top Republican in the U.S. House of Representatives. � Will play a pivotal role in determining House

Republican policy positions on tax issues.

Make a personal check payable to “The Freedom Project” and mail to:424 C Street NELower LevelWashington, DC 20002Contribute online at: www.freedomproject.org

HOUSE REPUBLICAN WHIP ERIC CANTOR (R-VA) � Responsible for ensuring House Republican members

support the legislative priorities of their caucus; viewed as a rising star by his House colleagues.

� Co-sponsor of COLI Best Practices Act and favorable to the historic tax treatment of the life insurance product.

Make a personal check payable to “Cantor for Congress” and mail to:Post Offi ce Box 21027Washington, DC 20009Contribute online at: www.ericcantor.com

REP. CHRIS VAN HOLLEN (D-MD) � Member of House Ways and Means Committee and

rising Democratic star. � Chairman of the Democratic Congressional

Campaign Committee and Assistant Speaker of the House of Representatives.

Make a personal check payable to “Van Hollen for Congress” and mail to:10605 Concord Street, Suite 202Kensington, Maryland 20895Contribute online at: www.vanhollen.org

REP. JOHN LARSON (D-CT) � Member of House Ways and Means Committee. � Has extensive knowledge of the industry as a former

partner of his own insurance fi rm.

Make personal check payable to “Larson for Congress” and mail to:Post Offi ce Box 261172Hartford, Connecticut 06126Contribute online at: www.larsonforcongress.org

HOUSE REPUBLICAN LEADERSHIP

HOUSE DEMOCRATIC LEADERSHIP

SENATOR MIKE CRAPO (R-ID) 2010 � In unique position of having seats on all three committees

with oversight over economic issues: Senate Finance Committee, Senate Budget Committee and Senate Banking Committee.

� Member of Senate Republican Capital Markets Task Force, a study group to monitor competitiveness in the fi nancial markets.

Make a personal check payable to “Crapo for U.S. Senate” and mail to:128 N. Columbus StreetAlexandria, VA 22314Contribute online at: www.crapoforsenate.com

38 Spring 2010 The Quarterly38 Spring 2010 The Quarterly

SENATOR TIM JOHNSON (D-SD) 2014 � In-line to take over the chairmanship of the Banking

Committee. � Estate Tax swing vote and supporter of Estate Tax reform

in 2002.

Make personal check payable to “Tim Johnson for South Dakota” and mail to:P.O.Box 1536Sioux Falls, SD 57101Contribute online at: www.timjohnson.com

SENATOR JACK REED (D-RI) 2014 � Senior member of the Senate Banking Committee;

Chairman of the Securities, Insurance & Investment Subcommittee.

� Strong relationship with the life insurance agent community.

Make a personal check payable to “The Reed Committee” and mail to:P.O. Box 8638Cranston, RI 09290Contribute online at: www.jackreed2014.com

SENATOR RICHARD SHELBY (R-AL) 2010 � Ranking member of the important Senate Banking

Committee. � Key Senate infl uencer on regulatory issues affecting life

insurance.

Make personal check payable to “Shelby for Senate” and mail to:PO Box 1091Tuscaloosa, AL 35403Contribute online at: www.shelbyforsenate.com

REP. SANDER LEVIN (D-MI) � Chairman of the House Ways and Means Committee. � Strong supporter of inside build up.

Make personal check payable to “Sander Levin for Congress” and mail to:8322 East 12 Mile RoadWarren, Michigan 48093Contribute online at: www.levinforcongress.com

SENATE FINANCE (CONT.)

SENATOR BOB CORKER (R-TN) 2012 � Key ‘bell weather’ member of the Senate Banking

Committee. � Enjoys a reputation for seeking bipartisan solutions even

in the face of political opposition.

Make a personal check payable to “Bob Corker for U.S. Senate” and mail to:P.O. Box 848Chattanooga, TN 37401Contribute online at:www.bobcorkerforsenate.com

SENATOR ORRIN HATCH (R-UT) 2012 � Second ranking Republican member of Senate Finance

Committee. � Leader on COLI best practices in 2005 and 2006.

Make personal check payable to “The Hatch Election Committee” and mail to:6510 Anna Maria CourtMcLean, Virginia 22101Contribute online at: www.hatchforsenate.com

SENATOR RON WYDEN (D-OR) 2010 � Member of Senate Finance and Senate Budget

Committees. � Active in promoting the need for tax reform.

Make personal check payable to “Wyden for Senate” and mail to:122 C Street, NW Suite 505Washington, DC 20001Contribute online at: www.standtallforamerica.com

SENATE BANKING

SENATOR CHARLES GRASSLEY (R-IA) 2010 � Highest-ranking Republican on Senate Finance Committee

and member of Senate Budget Committee; Member of Joint Committee on Taxation, which reports to Congress on the effects and administration of tax policy.

� Longtime supporter of inside buildup.

Make personal check payable to “Grassley Committee” and mail to:Post Offi ce Box 1000Des Moines, Iowa 50304Contribute online at: www.grassleyforsenate.com

HOUSE WAYS & MEANS

The Association for Advanced Life Underwriting 39TheThe As Assocsociatiationion fo for Ar Advadvancenced Ld Lifeife Un Underderwriwritintingg 3939

HOUSE WAYS & MEANS (CONT.)

REP. CHARLES BOUSTANY (R-LA) � An identifi ed House Republican up and comer, as having

been tasked with the Republican response to President Obama’s health care address to a joint session of Congress in September, 2009.

� Enjoys good working relationships with AALU members.

Make personal check payable to “Boustany for Congress” and mail to:PO Box 80126Lafayette, LA 70598Contribute online at: www.charlesboustany.com

REP. RON KIND (D-WI) � Member of House Ways and Means Committee and the

business-friendly New Democrat Coalition. � Strong supporter of life insurance and leader on

protecting the tax treatment of life insurance products.

Make a personal check payable to “Ron Kind for Congress” and mail to:1207 C Street NEWashington, DC 20002Contribute online at: www.ronkind.org

REP. EARL BLUMENAUER (D-OR) � Infl uential member of the House Democratic Caucus. � Enjoys a close working relationship with the agent

community.

Make personal check payable to “Blumenauer for Congress” and mail to:830 NE Holladay, #105Portland, OR 97232Contribute online at: www.earlblumenauer.com

REP. DAVE CAMP (R-MI) � Highest-ranking Republican member of House Ways and

Means Committee. � Serves on Subcommittee on Income Security and Family

Support, which has jurisdiction over pension issues.

Make personal check payable to “Dave Camp for Congress” and mail to:2501 Wisconsin Avenue NW, #304Washington, DC 20007Contribute online at: www.davecampforcongress.com

Make personal check payable to “Brady for Congress” and mail to:P.O. Box 8277The Woodland, TX 77387Contribute online at: www.bradyforcongress.com

Make personal check payable to “Crowley for Congress” and mail to:84-56 Grand AvenueElmhurst, NY11373Contribute online at: www.crowleyforcongress.com

REP. JOE CROWLEY (D-NY) � Chairman of the pro business New Democrat Coalition. � Receptive to the policy concerns of the life insurance

agent community.

REP. KEVIN BRADY (R-TX) � Key Republican on the important House Ways and

Means and Joint Economic Committee. � Strong appreciation and understanding of the uses of life

insurance in the business context .

REP. RICHIE NEAL (D-MA) � Member of House Ways and Means Committee and

chairs subcommittee with purview over tax issues that affect life insurance.

� His expertise as a former life insurance producer provides unique insight into our policy concerns.

Make personal check payable to “Richard E. Neal for Congress Committee” and mail to:Post Offi ce Box 15906Chevy Chase, Maryland 20825Contribute online at: www.nealforcongress.com

REP. EARL POMEROY (D-ND) � Former Insurance Commissioner of North Dakota. � Point Man in the Democratic Caucus for life insurance

policy.

Make personal check payable to “Earl Pomeroy for Congress” and mail to:P.O. Box 9336Fargo, ND 58106Contribute online at: www.pomeroyforcongress.com

REP. DAVE REICHERT (R-WA) � Developing into a key infl uencer on the House Ways and

Means. � Strong working relationship with the life insurance agent

community.

Make personal check payable to “Friends of Dave Reichert” and mail to:P.O. Box 53322Bellevue, WA 98015Contribute online at: www.davereichert.com

40 Spring 2010 The Quarterly40 Sprp ingg 2010 The Quarterlyy

REP. PAUL RYAN (R-WI) � Member of House Ways and Means Committee

and highest ranking Republican on House Budget Committee.

� Infl uential national voice on budget and federal defi cit issues.

Make personal check payable to “Ryan for Congress” and mail to:1006 Pendleton StreetAlexandria, VA 22314Contribute online at: www.ryanforcongress.com

REP. PAT TIBERI (R-OH) � Member of House Ways and Means Committee. � Strong relationship with agent community and a rising

GOP star.

Make personal check payable to “Tiberi for Congress” and mail to:217 Third Street, SEWashington, DC 20003Contribute online at: www.tiberiforcongress.com

HOUSE WAYS & MEANS (CONT.)

REP. BARNEY FRANK (D-MA) � Chairman of House Financial Services Committee, which

has jurisdiction over regulatory reform issues that may affect life insurance.

� Supporter of Optional Federal Charter legislation.

Make a personal check payable to “Barney Frank for Congress Committee” and mail to:38 Ivy Street, SEWashington, DC 20003Contribute online at: www.barneyfrank.net

HOUSE FINANCIAL SERVICES

REP. LEONARD LANCE (R-NJ) � Member of the important House Financial Services

Committee. � Key infl uencer among Republican moderates in the

House.

Make personal check payable to “Leonard Lance for Congress” and mail to:P.O. Box 225Colonia, NJ 07067Contribute online at: www.leonardlance.com

REP. KEVIN MCCARTHY (R-CA) � Rising Star within the Republican Party. � Serves at the Chief Deputy Republican Whip for the

Republican Caucus.

Make personal check payable to “Kevin McCarthy for Congress” and mail to:P.O. Box 12667Bakersfi eld, CA 93389Contribute online at: www.mccarthyforcongress.com

REP. GARY PETERS (D-MI) � New member of the Financial Services Committee and a

member of the subcommittee that oversees Insurance and Capital Markets.

� Has over 20 years of professional experience in the fi nancial sector.

Make personal check payable to “Gary Peters for Congress” and mail to:50 E Street NE, Suite 1Washington, DC 20003Contribute online at: www.petersforcongress.com

OPEN SENATE SEATS

REP. ROY BLUNT (R-MO) � Key past House supporter of the business uses of the life

insurance. � Enjoys a strong working relationship with the life

insurance agent community.

Make personal check payable to “Friends of Roy Blunt” and mail to:1736 E Sunshine, Suite 189Springfi eld, MO 65804Contribute online at: www.royblunt.com

REP. BOB PORTMAN (R-OH) � Looked to as public policy expert on pensions,

retirement, and, more generally, taxes. � Strong understanding of the policy issues that impact the

life insurance community.

Make personal check payable to “Portman for Senate” and mail to:P.O. Box 39Terrace Park, OH 45174Contribute online at: www.robportman.com


QUALIFYING FOR LCP IS AS EASY AS ONE - TWO - THREE

STEP 1: CONTRIBUTE TO THE AALU PAC

Pay online at www.aalupac.org with your personal credit card.

OR

Fill out the insert on the following page and fax to (202) 742-4479, attn: Karla Kirk ([email protected]).

OR Write a personal check made payable to “AALU PAC” and mail to:

AALU PACP.O. Box 632313

Baltimore, MD 21263-2313

STEP 2: CONTRIBUTE TO ONE OR MORE OF OUR 2010 CANDIDATES

Examine the Endorsed Candidates profi les in the following pages and select the candidate(s) you wish to support. Contributions must be sent directly to the candidate either by mail with a personal check or online with a personal credit card.

If you are mailing a personal check, be sure to write “AALU” in the memo portion of the check.

STEP 3: NOTIFY THE AALU STAFF OF YOUR LCP CONTRIBUTIONS

There are two ways to notify the AALU staff of your LCP contributions: Fax copies of your contributions (or web payment confi rmation if contributing online) to Karla Kirk at (202) 742-4479.

OR

Email copies of your contributions (or web payment confi rmation if contributing online) to Karla Kirk at [email protected].

REMEMBER:Qualifying for the Legislative Circle Program requires a

contribution to the AALU PAC and an Endorsed Candidate

LEGISLATIVE CIRCLEPROGRAM QUALIFICATION

AALU PAC:Broader outreach to various

Members of Congress

ENDORSED CANDIDATES:Targeted outreach to specifi c

Members of Congress

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42 Spring 2010 The Quarterly42 Spring 2010 The Quarterly

Contribute to the AALU PAC online with your personal credit card (visit

www.aalupac.org) or mail your personal checks payable to:

AALU PACP.O. Box 632313

Baltimore, MD 21263-2313

If you have any questions about donating to AALU PAC or

qualifying for the Legislative Circle Program, please contact

Karla Kirk at [email protected] or (202) 772-2495.

Larry AndersGlenn AronsMarla AspinwallDon BacqueGuy BakerBob BallDan BarryJohn BeckerJim BelkRod BenchJim BensonBoyd BertBob BirgenGeorge BlahaLyle BlessmanSteven BlockLaura BousloughMitch BrillSteve BroadbentTom BrownSteve BurkJ.R. BurkeDavid ByersMarc CadinCharlie CalderwoodBruce CallahanDon CameronWalter CardinetJohn CarterBob CarterChris ChristensenFred ChurchleyTom CiardellaJim ClaryBurt ClementsMike CohnGus ComiskeyMike CorryTait CruseDave CulleyVince D’AddonaMayur DalalBill Damora

John DavisEd DempseyKay DempseyRich DeVitaAnthony DominoBill EbelMelissa EdelmanMark EdenBob FashanoEd FeimanSaul FeingoldDick FlahChris FosterJim FoytDon GarlikovCampbell GerrishGrant GierJoel GilleyMike GoldsteinNeal GroffJason HackmannMark HannaRod HansenJerry HarnikJeff HarrisonJane HaysTerry HeadleyDermot HealeyTodd HealyLarry HermanHess HesslerTom HollingerScott HoltonBill HoltonTerry HoranLou HymanJohn IrvinPaul JablonEd JamiesonCarol JensenEleanor JohnsonMarshall JonesMichael Kaleel

Terry KaltenbachGeorge KarrDavid KarrBill KatzJohn KessingerKelly KidwellBrent KinetzPaul KrasnowArt KrausBryan KrupinJohn LaganaBeth LangPaul LaPianaAndy LeeBob LeeperBill LeismanLanny LevinSid LevineErik LiljenwallJerry LindbergLuther LockwoodDavid LoewRoger LowreyMac LowryLarry LuccoMichael LymanRobert MacArthurDavid MaloneBob MathisGerry MaurerMatt McAvoyBruce McGuirkPat McNamaraDon MehligJohn MeisenbachAllan MendelsGwen MiddekeKeith MillerMarshall MillerDon MorrisJim MorrisonDan MulheranJohn Mulheran

Peter MullinMark MurphyGreg MyersGregg NeimanBob NienaberMike NolanTom NortonLee NunnJoe OakesDebbie O’NeilMike PadonNick PalumboWayne PangburnAl PapaDave ParselsDon PayneDavid PeacockAndie PerlmutterNat PerlmutterTony PerricelliMark PfaffMatt PhillipsPhil PickettJulie PinkertonPaul PistilliLynda PittsBob PlybonJoe PombriantRichard PopeBob PowellLisa PowellSteve PriceJohn QualyReggie RabjohnsFrank RainaldiMarguerite RangelLeonard RaskinLarry RaymondRick RomanoRon RosbruchMickey RosenzweigBob RubinAndy Rubin

Larry RybkaRod SagerKen SamuelsonBob SavageThomas ScaliciAndrea SchafferWes SchantzBob ScharffBud SchiffMatt SchiffCorey SchneiderMarc SchwartzDale SeymourJoel ShapiroBrian SharkeyJeff SharpGeoff ShepardWalt ShieldsMike SilverbergGary SitzmannLee SlavutinDavid StertzerGib SurlesRoger SuttonTed TafaroMatt TasseyRick Thomas

Barb TomeoBarbara TreadwellJack TurnerBruce UdellRick VanBenschotenHardy VaughnPaul VecchionePeter ViliesisTom Von RiesenMark WaltonJohn WatsonMike WebbMark WeberJohn WheelerJim WhistlerBill WhitakerRuth WhiteBo WilkinsHal WilshinskyNorm WinerBecky WingateBilly WoodJack YaissleCline YoungSam ZachariasRichard Zacharoff

THANK YOU TO OUR 2009 AALU PAC LEADERS!

Contributions to the AALU PAC are for political purposes. All contributions to the AALU PAC are voluntary. You may refuse to contribute without reprisal. Contributions to AALU PAC are not deductible for federal income tax purposes. The above giving guidelines are merely suggestions. You are free to contribute more or less than the guidelines suggest and AALU will not favor or disadvantage you by reason of the amount contributed or the decision not to contribute. Federal law prohibits AALU from giving LCP credit for contributions to any other PAC. Only AALU members, their spouses and AALU staff may contribute to the AALU PAC. Copyright (c) 2010, All Rights Reserved

AALU PAC Leaders contributed at least $1,000 to the AALU PAC this year.

LEGISLATIVE CIRCLE PROGRAMA

DVO

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LCP Spotlight: Richard HarrisLCP Spotlight: Richard Harris

“As salespeople we know that before we can make a sale we have to get the

client’s attention. If nobody listens the most persuasive arguments do not matter.

The same is true in dealing with legislators. The AALU Legislative Circle

Program is the way we get attention and get heard.”

Richard L. Harris, CLU AEPBPN Montaigne LLC

Clifton, NJ

AALU members and staff travel throughout the country promoting AALU’s protection of the advanced markets. AALU’s Washington Report LIVE! panel and exhibit booth are available for both company and industry meetings. If you are interested in having AALU present or exhibit at your next meeting, contact Jaimee Niles at (888) 275-0092 or [email protected] today.

AALU CALENDAR

Penn Mutual Leaders Conference Palos Verdes Peninsula, CA May 5-8, 2010

New York Life Nautilus Meeting Dallas, TX May 12-14,2010

Lincoln Executive Benefi ts 8th Strategic Partner Conference Scottsdale, AZ May 12-14,2010

Penn Mutual HTK Leaders Conference Captiva Island, FL May 17-20, 2010

NAIFA Financial Literacy Presentation Seaside, OR May 21, 2010

Sun Life General Agents Summit Boston, MAJune 6-8, 2010

MDRT Annual Meeting Vancouver, Canada June 13-17, 2010

PartnersFinancial Conference June 27-July 1, 2010

JEC Meeting (GAMA) National Harbor, MD July 20-23, 2010

BPA Symposium Laguna Niguel, CA July 25-27, 2010

Mass Mutual Leaders Conference Orlando,FL July 24-28, 2010 LIMRA Advanced Sales Forum Chicago, IL August 5, 2010

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MEMBERSHIP APPLICATION

REGISTRATION FORM

PERSONAL INFORMATION

Name: _______________________________________ Designation: ______________________________ Nickname: __________________________

Title: _________________________________________ Firm: ____________________________________ Date of Birth: ________________________

Business Address: __________________________________________________________________________________________________________________

City/State/Zip: _______________________________ Phone: ____________________________________ Fax: ________________________________

Email: ________________________________________

MEMBERSHIP CATEGORYActive Membership

Associate Membership

PRODUCTION REQUIREMENTS (see reverse for details) I was a member of the Top of the Table last year I was a member of Court of the Table for the last two years.

I was a member of the International Forum last year

If you were a member of Top of the Table or International Forum last year or a member of Court of the Table for the last two years,

I will send AALU all other applicable forms (i.e. MDRT certifying letters, W-2 forms, commission statement, employer

LETTERS OF RECOMMENDATION I authorize AALU to contact the following three AALU members as my member sponsors:

1. _______________________________ 2. _ _______________________________ 3.___________________________

I was referred to AALU by: _____________________________________________________________________________________

2 9 0 1 T E L E S T A R C O U R T , 4 T H F L O O R I F A L L S C H U R C H , V A I 2 2 0 4 2 I T F : ( 8 8 8 ) 2 7 5 - 0 0 9 2 I F : ( 7 0 3 ) 6 4 1 - 9 8 8 5 I w w w . A A L U . o r g

BUSINESS ROLE BUSINESS CONCENTRATIONEstate Planning

Charitable Planning

NQDC Planning

BOLI

COLI

Investment Asset

Management

2 9 0 1 T E L E S T A R C O U R T , 4 T H F L O O R I F A L L S C H U R C H , V A I 2 2 0 4 2 I T F : ( 8 8 8 ) 2 7 5 - 0 0 9 2 I F : ( 7 0 3 ) 6 4 1 - 9 8 8 5 I w w w . A A L U . o r g

PAYMENT INFORMATION I authorize AALU to charge my annual Membership Dues

in the amount of $1,700.

I authorize AALU to charge my one-time $750 Initiation Fee.

(Initiation Fee is separate f rom the dues and will be waived for

Credit Card Type: Visa MasterCard AMEX

Credit Card Number: _______________________________________

Expiration Date: ______________

Name on the Card: _________________________________________

Amount: _________________________________________________

Signature: _______________________________ Date: ____________

PAYMENT INFORMATION Yes, I authorize AALU to enroll me in the AALU Automatic

Dues Payment Program for the future AALU Annual Dues.

Each year when annual membership dues are due, an automatic

payment for the annual dues will be charged to my credit card.

notify AALU otherwise. Please use the credit card I have

provided below.

Credit Card Type: Visa MasterCard AMEX

Credit Card Number: _______________________________________

Expiration Date: ______________

Name on the Card: _________________________________________

Amount: _________________________________________________

Signature: _______________________________ Date: ____________

tion

CEO/President

General Agent Principal

Producer

Wholesaler

Accounting

Attorney

Marketing/

Communications

Advanced Market

Professional

PLEASE LIST ANY AFFILIATIONS WITH PRODUCER GROUPS, PRIMARY CARRIERS, AND/OR BGA/MGAs:____________________


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ANNUAL MEETING SCHEDULE OF EVENTSSchedule is subject to change. All events are located at the Marriott Wardman Park Hotel, unless otherwise noted.

7:30 am - 8:30 am

8:00 am - 8:30 am

8:30 am - 11:30 am

9:00 am - 7:00 pm

11:30 am - 2:00 pm

11:30 am - 2:00 pm

12:30 pm - 2:00 pm

2:00 pm - 3:15 pm

3:30 pm - 4:45 pm

4:45 pm - 5:45 pm

4:45 pm - 5:45 pm

6:15 pm - 7:00 pm

7:00 pm - 9:30 pm

9:30 pm - 10:00 pm

IMPACT Registration IMPACT BreakfastIMPACT Political Education SeminarRegistration OpenExhibit Hall OpenLunch in the Exhibit HallNew Member/First Timer Orientation Program/LunchCE Sponsored WorkshopsCE Sponsored WorkshopsExhibit Hall OpenExhibit Hall Happy HourSponsored By Nationwide

Welcome ReceptionSponsored By Pacific Life

President’s Opening Banquet DinnerSponsored By NFP, PartnersFinancial, AVIVA USA, AXA Equitable, ING,John Hancock Life Insurance, MetLife, Nationwide Financial, Sun Life FinancialKeynote Speaker: Roy FirestoneSponsored by Prudential

SUNDAY , APRIL 25

MONDAY , APRIL 26

TUESDAY , APRIL 27

WEDNESDAY , APRIL 286:30 am - 7:15 pm

6:45 am - 7:45 am

6:45 am - 7:45 am

8:00 am - 12:00 pm

12:00 pm - 1:45 pm

12:00 pm - 1:45 pm

1:45 pm - 3:00 pm

3:15 pm - 4:30 pm

4:45 pm - 5:45 pm

5:45 pm - 7:00 pm

5:45 pm - 7:00 pm

7:30 pm

Registration OpenExhibit Hall OpenBreakfast BuffetGeneral Session Keynote Speaker(s): Newt Gingrich Sponsored By Gentry Parners Ltd. Malcolm Gladwell Sponsored By John Hancock Tony Gordon Sponsored By Wella Fargo

Lunch Buffet in Exhibit HallSponsored By Metlife

Exhibit Hall OpenCE WorkshopsCE WorkshopsAALU Members Only SessionExhibit Hall OpenNetworking Reception in Exhibit HallSponsored By MassMutual

Company Dinners

6:30 am - 7:00 pm

6:30 am - 7:45 am

6:30 am - 7:45 am

7:45 am - 9:00 am

9:15 am - 11:45 am

11:45 am - 1:00 pm

12:00 pm - 1:30 pm

1:00 pm - 4:00 pm

4:00 pm - 7:00 pm

7:30 pm

Registration OpenBreakfast BuffetExhibit Hall OpenCE WorkshopsGeneral Session - Capitol Hill Club Day Sponsored By MetLife

Keynote Speaker: Charlie Cook

Sponsored By Crump/Potomac Group

Capitol Hill Club Briefing/LunchSponsored By Metlife

Departures to Senate and HouseSenate/House Town Hall Meeting & VisitsCapitol Hill Club Debriefing Reception 101 Constitution Ave

Sponsored By Metlife

Company Dinners

6:30 am - 7:30 am

7:35 am - 9:35 am

9:50 am - 11:30 pm

“Estate Planning for Woman: A Female Perspective” BreakfastSponsored By Pacific Life

CE Super Session: Larry Brody/David Pratt

General Session Keynote Speaker(s): Howard Dean/Joe Scarborough Debate Sponsored By Guardian Bob Shullman Hon. Timothy Geithner (invited)

Schedule subject to change

NETWORKING

Dessert Buffet




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PLATINUM SPONSORS

THANK YOU TO THE 2010 ANNUAL MEETING SPONSORS!

GOLD SPONSORS

SILVER SPONSORS

BRONZE SPONSORS

®

R

Sponsors subject to change


THANK YOU TO THE 2010 ANNUAL MEETING EXHIBITORS!

AgencyOne Insurance Marketing Group, Inc.Allianz Life Insurance Co. of North America

American Para Professional Systems, Inc.Ashar Group LLC - Life Settlement Specialists

Ash BrokerageASPPA

AVIVA USAAXA Equitable

Best Practices of AmericaBrainshark, Inc.

Capitas Financial, LLCCJA and Associates

CMS - Succession Capitol AllianceCredit Suisse

Crump Life Insurance ServicesEbix CRM (fka E-Z Data)

EbixExchangeExceptional Risk Advisors, LLC

First Heartland Capital, Inc.First Insurance Funding Corporation, Inc.

Gentry Partners, Ltd. Genworth Financial

Hartford Life Private PlacementHighland Capital Brokerage, An NFP Company

Hooper Holmes/PortameticING

Innovative Solutions Insurance Services, LLCInsMark, Inc

Insurance Designers of America, LLCJohn Hancock Life Insurance

Jonathan Hind Financial GroupLife & Health Insurance Foundation for Education

Life Insurance Selling MagazineLincoln Financial Distributors

MassMutual

MetLife - Advanced MarketsMetLife Life & Protection Solutions Group

MetLife Specialized Benefi ts ResourcesMillennium Brokerage Group

Million Dollar Round Table (MDRT)NAEPCNAIFA

National Underwriter Life & HealthNationwide Financial

Newport GroupNew York Life Advanced Markets Network

Paramount Planning Group (AXA Equitable)Philadelphia Financial Group (‘PFG’)

Principal Financial GroupPro Financial Services, LLC

ProMicro, Inc.Prudential

SEI InvestmentsSelling TechnologiesSun Life Financial

Superior Mobile MedicsThe American College

The Guardian Life Insurance CompanyThe Hartford Life Insurance Company

The International ForumThe Newport Group

The Penn Mutual Life Insurance CompanyTotal Financial & Insurance Services, Inc.

Transamerica Insurance & Investment GroupUnum

Woodbury Financial Services, Inc.Wilmington Trust Company

Woodbury Financial Services, Inc.Zenith Marketing Group, Inc.

Exhibitors subject to change

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The number one reason a successful insurance professional joins AALU is because someone they trust or admire recommends them. The Quarterly highlights members who Pay It Forward by referring a colleague and showcases testimonials from new members about the value of joining the AALU.

Interested in joining AALU? Contact Marilyn Maticic at (703) 641-8124 or [email protected].

The Value of AALU for Jeffrey:“This past September Mike Corry was kind enough to come and make a presentation to our broker dealer group about AALU. Mike clearly articulated the ex-traordinary importance of AALU and the tremendous impact and infl uence the organization has on legisla-tors and legislation. I clearly understood the mission of this collective voice.

This informative and eye opening address struck a chord within me. Our business has given me wonder-ful opportunities and many wonderful friendships and with those benefi ts comes responsibility. I view myself somewhat differently now, as a steward. I am delighted to now be a part of one of the fi nest profes-sional organizations in the world.”

The Value of AALU for Joseph:“When I was an estate planning attorney, I became familiar with AALU through the Washington Report. Back then, I was mostly interested in the estate tax and income tax articles and didn’t pay much attention to the work that AALU carried out in protecting the life insurance industry. Now that I am a life insurance producer, AALU means a lot more to me and I am grateful that it continues to carry on the battles that our industry faces in Washington and in the states.”

H. JOSEPH PRICE, JR.Bryan Mark Financial Group, Inc.Kansas City, MOAALU Member Since 2009

PAY IT FORWARD

The Value of AALU for Brian:“When Shirley asked me to join AALU, it was an easy

decision. I’ve enjoyed the benefi ts that a career in

the life insurance business can provide, and am ap-

preciative of the work that AALU does to protect the

future of our Industry.”

JEFFREY W. HALESHawthorne Financial, L.L.C.St. Louis, MOAALU Member Since 2009

PPAPA

JASON HACKMANNBryan Mark Financial Group, Inc.St. Louis, MOAALU Member Since 2007

DAVID M. HOFFFirst Heartland CorporationLake St.Louis, MOAALU Member Since 1992

BRIAN BONIFANTPartnersFinancialAustin, TXAALU Member Since 2009

SHIRLEY O’NEIL, CHFCPacific LifeAliso Viejo, CAAALU Member Since 2009

NETWORKING

“In an effort to maintain the dynamics and growth of an otherwise aging

industry, Ashley joined the AALU to act as an advocate for its cause and to

educate young professionals on the importance of advanced life insurance

planning. As one of the youngest members of the AALU, Ashley works to

promote and preserve the interests of clients, producers and the insurance

industry overall.”

Ashley KrupinGilbert Krupin, LLCNew York, NY

AALU Rising Star: Ashley KrupinEach issue recognizes members whom exemplify the enthusiasm, character and success which make them a member to watch.

The AALU would like to thank our advertisers for the Spring 2010 issue:

The AALU Quarterly is the official publication of the Association for Advanced Life Underwriting. To learn more about advertising opportunities in the AALU Quarterly, contact Kristen Russi at (703) 641-8129 or [email protected].

Best Practices of America www.bestpracticesofamerica.com

page 11

ING www.ing.com

page 5

MetLife www.metlife.com

page 19

Pacific Lifewww.paclife.com

page 2

Penn Mutual www.pennmutual.com

page 49

PartnersFinancial www.partnersfinancial.com

page 29

Prudential www.prudential.com

page 23

Sun Life Financialwww.sunlife.com

back cover

The Magazine of the AALU

QUARTERLY

THE

NETWORKING



© 2010 The Penn Mutual Life Insurance Company, Philadelphia, PA 19172 www.pennmutual.com

At Penn Mutual, we believe there is no single factor more important in life than the value of strong personal relationships — people who care and believe in each other.

For over 160 years, we have been delivering the personal care and attention, trusted insight and relevant solutions exclusively through our financial professionals to help their clients reach their goals and create loyal, enduring relationships.

For more than 15 years our Producer Value Commitment has reinforced our passion for helping financial professionals succeed in building their businesses.

Call us at 1.800.818.8184 (option 4) or visit us online at www.pennmutual.com to learn more about our Producer Value Commitment and our belief in the Power of Relationships.

CompetitiveProducts

CompetitiveCompensation & Recognition

UnderwritingServices

FieldLeadership

Marketing/Lead

Generation

Broker/DealerRelationship

AdvancedSales

Support

PracticeManagement

Home OfficeResponsiveness

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Fly HIGHER. Land SAFELY.Pacific Life’s Indexed UL – Growth Potential and Guaranteed Floors

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QUARTERLY


• WOMEN AS THE GROWTH MARKET

• EXECUTIVE COMP

• RETIREMENT CONFIDENCE

THE AALU BRAND - WHO WE ARE

ANNUAL MEETING AT-A-GLANCE

UPDATES FROM ISSUE COMMITTEES

AND MUCH MORE.....

IN THIS ISSUE:



DO YOU KNOW HOW TO REACH THEM?


DO YOU KNOW HOW TO REACH THEM? Annuities. Employee Benefi ts. Life Insurance.

GetToKnowSunLife .com

www.sunlife.comThe Sun Life Financial group of companies operates under the “Sun Life Financial” name in the United States and elsewhere. Insurance products are offered by members of the Sun Life Financial group that are insurance company subsidiaries. Sun Life Financial Inc., the holding company for the Sun Life Financial group is not an insurance company and does not guarantee the obligations of the insurance company subsidiaries. * A.M. Best Rating A+ (Superior) applies to Sun Life Assurance Company of Canada, Sun Life Assurance Company of Canada (U.S.) and Sun Life Insurance and Annuity

Company of New York and is subject to change.© 2010 Sun Life Assurance Company of Canada (U.S.). All rights reserved. Sun Life Financial and the globe symbol are registered trademarks of Sun Life Assurance Company of Canada.

FOR PRODUCER USE ONLY. NOT FOR USE WITH THE PUBLIC. SLPC 21051 (10/09) Exp. 04/11

With an A+ credit rating* for fi nancial strength through good times and bad and over 20 million customers worldwide, it’s time to get to know Sun Life Financial.

how many years we’ve145 145145145

been around without asking145 145145145

for government bailout money,145 145145

would you remember our name?145 145145145

Not that we’d ever do that.145 145 145145145

If Sun Life Financial told you145145145145

Sun Life Financial proudly supports AALU and its members.

AALU_8.5x11_145YearsAd.indd 1 4/5/10 11:27 AM

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