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Keith Baumgarn, CLU, ChFC, QPA, CRC ,Director of Advanced Markets, Pacific Region

LIQP Study Group Session 6: Putting it All Together Lynn Nolan, CLU. ChFC, CASL Director Retirement Planning Services. Keith Baumgarn, CLU, ChFC, QPA, CRC ,Director of Advanced Markets, Pacific Region. Agenda. Recap of Prior Sessions Profile Client/Prospecting Pension Insights and Success

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Keith Baumgarn, CLU, ChFC, QPA, CRC ,Director of Advanced Markets, Pacific Region

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  1. LIQP Study GroupSession 6:Putting it All TogetherLynn Nolan, CLU. ChFC, CASLDirector Retirement Planning Services Keith Baumgarn, CLU, ChFC, QPA, CRC ,Director of Advanced Markets, Pacific Region

  2. Agenda • Recap of Prior Sessions • Profile Client/Prospecting • Pension Insights and Success • The Pension & Sales Process • Flexible Choice Whole Life & Penn Fixed Advantage Product Features • Underwriting Considerations • Advantages of Life in QP & Case Study • Marketing Sales Materials

  3. Study Group Web Calls • Session 1: Market Opportunity Retirement Gap, Profile Client, Advantages of Life Insurance in a Qualified Plan • Session 2: Technical Fundamentals What are the basics you need to know? How does life insurance work as an asset in a plan? What are the basic types of plans? Incidental benefit tests…Taxation…Getting Life Insurance Out of the Plan

  4. Study Group Web Calls • Session 3: Defined Contribution Focus Review and deep-dive into Defined Contribution Case Study • Session 4: Defined Benefit Focus Review and deep-dive into Defined Benefit Case Study • Session 5: Combo Focus Review and deep-dive into DB and DC plans together and how they can build your business • .

  5. Profile Client • -Small business owner with < 25 employees, Less than 5 employees even better • -Sole proprietor, Partnership, LLC, S Corp (must have W2 wages), C Corp, Professional Corp • -Business owner desires to start new plan or increase contributions in existing qualified plan • -Business owner and key employees have a need for life insurance • -Stable revenue stream • -Long-term commitment to funding retirement

  6. Business Owner’s Concern • Only 29% of U.S. Small Businesses* Offer a Retirement Plan.** • Why? • Owners don’t think they will get a large enough share of the plan contribution • Owners think plan administration is too costly and too much paperwork • Owners don’t know where to go for advice or how to begin the planning process • Source: *U.S. small businesses with less than 25 workers that make up 65% of all U.S. businesses • ** Source: Government Accountability Office (GAO) Study, October 2009

  7. Sources of Prospects • Agents • CPAs, Accountants • TPAs of Retirement Plans • Current Client Base • Plan Reviews/ Feasibility Study • Banks • Retirement Plan Sponsors Found Through • Judy Diamond • FreeErisa. Com

  8. Keith’s Pension Insights • Make it Part of Your Marketing Plan • Develop a Team (Players/Roles) • Use as a Door-Opener (Business, Recruiting Agents) • Become a Resource for Advisors (offer CPE/CE Courses, Develop Study Groups, Send DRIP Emails with Resources • Tell a Story (KISS, D.A.D, 6 P’s, Feasibility Study) • Mention Pensions (Tax Season, End of Year)

  9. Keith’s Success This Year • Results: • Qualified- • $355,000 Target Flexible Choice Whole Life and • $800,000 Annuity Sales • Non-Qualified Life Insurance Sales- • Seven CPA PAA Engagements-

  10. The Pension Process…6 P’s • Plan Design- What is Available That Fits My Situation? • -Identify Prospects • -Complete Plan Review/Feasibility Study • -Complete Fact Finder • Plan Study Presentation- Show Solutions • -TPA Prepares Plan Design Options • -Offer Non-Qualified Options Too • -Review with CPA and Business Owner

  11. The Pension Process…6 P’s • 3. Plan Implementation- Adopt Plan or Solutions • -Engage TPA • -Obtain Plan Paperwork from TPA to Adopt Solutions • -Execute Plan Documents, Then Products • -Plan Announcement & Enrollment • 4. Plan Funding- Where the Money Goes • -Direction of Investments • - Liability Issues • -Plan/Product Relationship

  12. Pension Process…6 P’s • 5. Plan Administration- Paperwork • -Annual Reporting and Compliance Done by TPA • 6. Plan Advisor Services- Advisor • -Increases and Additions • -Participant Events/ Rollover Opportunities • -Spin-Off Opportunities/ Referrals, Referrals!

  13. The Sales Process • Work with a Third Party Administrator • Producer Choice. Select Local TPA (not for 412(e)(3)) • Partner TPA List. Penn Mutual’s selected TPAs who are Paid a Subsidy for Preparing Plan Designs that Include Life Insurance- • Donohue Fieman Retirement Services- Shane Fieman • Compensation Planning- Jeff Brown • T&T Benefits- Natalie Torres • Alliance Benefit Group Carolinas-Jim Comer

  14. The Sales Process • Full Service TPA List-Penn Mutual’s Selected TPAs Who are also Producers and will Provide more Sales Support in Order to Close the Case. Commission Split 15-20%. • The Senex Group- Alex Knezevich • Raymond, Reeves & Stout- Robert C. Reeves • Heritage Administrative Services- Francis J. Mullady • National Pension Associates- Stephen P. Toth • Pension Services Inc.- Bill Black (no 412(e)(3) plans)

  15. Product Penn Mutual’s One Year Term Product can be used to Calculate “The Current Insurance Cost” • Table 2001 Rate or Insurer’s Alternate Term Rate for Death Benefit In Excess of Cash Value • Taxable Amount Becomes Insured’s Cost Basis in Policy • Penn Mutual’s alternative One Year Term Policy Table Costs much lower than Table 2001 Rates. Competitive Advantage!

  16. Product: Flexible Choice Whole Life • Product Features: • Strong Internal Rate of Return & Guaranteed Income, #1 among major competitors • Lower Face Requirement for Qualified Plans, $10,000 • Supplemental Exchange Agreement • Let’s Owners Replace One Covered Employee in Plan with another Employee Without Purchasing a New Policy

  17. Product Features: Flexible Choice Whole Life • Qualified Plan Surrender Privilege • Employers can request policy surrenders on employees who terminate within first 2 policy years • Policies will be terminated • Plan receives return of premiums less economic benefit costs for time covered • 100% commission charge-back

  18. Product Features: Flexible Choice Whole Life • Supplemental Paid-Up Additions Rider • Allows increase in coverage by Paying Extra Premiums to Purchase Additional, Permanent Paid-Up Life Insurance Coverage. Increases Death Benefit, Builds Cash Faster, Can be Surrendered in the Future to Provide Income or Pay Premiums. • + Available on all Qualified Plans. However, for 412(e)(3) only “Reduce Premium” Dividend Option Must be Selected

  19. Product Features: Flexible Choice Whole Life • Change of Plan Provision* • Allow exchange from the whole life policy used as part of the qualified plan to another permanent policy** • No medical underwriting, but completion of a full app on the new policy • No compensation paid on the exchange • Whole life policy must be under our retention limit • Entire whole life cash value must be applied to the new policy Exchange can only occur between end of 3rd year and end of 7th year*Subject to the provisions allowed under their qualified plan **If the plan permits the participant to purchase their policy from the plan, this change of ownership must occur before the 1035 exchange is permitted. *Subject to the provisions allowed under their qualified plan **If the plan permits the participant to purchase their policy from the plan, this change of ownership must occur before the 1035 exchange is permitted.

  20. Product: Penn Fixed Advantage Annuity for 412(e)(3) Plans • Product Features: • Available in 49 States. (Flexible Premium Fixed Deferred Annuity Must be Used in New York) • 3% Guaranteed Fixed Interest Rate • Must be Accompanied by Flexible Choice Whole Life Unless Participant in Plan Not Insurable • Participant Separation From Plan Requires Termination of Annuity Contract • Plan Termination Requires Termination of Annuity Contract

  21. Underwriting Considerations- • Run Illustrations Using Uni-Sex Rates. Include Illustration with Life Application • Include Copy of Trust Plan Document (pages noting type of plan and trustee signature) • Supplemental Paid-Up Additions Rider is available on all Qualified Plans. However, for 412(e)(3) only “Reduce Premium” Dividend Option Must be Selected

  22. Underwriting Considerations • Additional Disclosures • Waiver: PM 1324 Profit Sharing or • PM 1323 Defined Benefit or • PM 1320 412(e)(3) Plans and • EB1118 Retirement Plan & Contract Information Form and • Compensation Disclosure: • Form 736 and Attachment to Form, Product Specific

  23. Underwriting Considerations WL • Guaranteed Issue Guidelines • Minimum Number of Lives= 5 • Participation Must be 100% of Eligible Employees • Minimum Face= $10,000 • Maximum Face= $100,000 for Groups of 5-9 Lives • Face Amount for 10-24 Lives= $20,000 x # of Lives • Business in Existence Three Years and Financially Sound • Maximum Issue Age is 65

  24. Underwriting Considerations WL • Simplified Issue Guidelines • Eligible Classes are Executives and Professional Groups Only • Business in Existence Three Years and Financially Sound • Maximum Issue Age is 65 • Participation Must Be 100% of Eligible Employees If Employer is Paying 100% of Premium. If Employer and Employee Both Contributing 75% Must Participate for Plans 10-24 Lives.

  25. Underwriting Considerations • Simplified Issue (Continued) • Minimum Face = $10,000 • Maximum Face = 10-24 Lives x $30,000 or a Multiple or % of Salary with the Largest Face Amount No More than 5 Times Average Face Amount for the Group

  26. Advantages Of Life Insurance in QP • Premiums Paid Using Discounted Dollars • Insurance Provides Immediate Protection for Participant’s Family in the Event of Pre-Retirement Death • Portability: • Participants are able to Keep the Life Insurance Policy After Separation from Service by Purchasing the Policy for its Fair Market Value OR • Request the Trustee Distribute the Policy to Them (resulting in paying tax on the Fair Market Value) OR • Ask the Trustee to Surrender the Policy and Rollover Cash Value to an IRA

  27. Case Study • Profit Sharing Plan - $49,000 Annual Contribution • Male, 35 – Contributions to Age 65 • 50% into Flexible Choice Whole Life • 50% into Investments • 35% Income Tax Rate

  28. Case Study (Continued) • $24,500 to Investments @ 8% • Total Value @ Age 65: $2,997,474 • $24,500 to Flexible Choice Whole Life (Paid-Up at 65) • $1,599,217 guaranteed death benefit (preferred non-tobacco) • Guaranteed Policy Cash Value @ Age 65: $845,986 • Non Guaranteed Death Benefit @ Age 65: $3,277,555 • Non Guaranteed Policy Cash Value @ Age 65: $1,756,525 • Total Value in Defined Contribution Plan @ Age 65 of $4,753,999 Non guaranteed values for Flexible Choice Whole Life include guaranteed values, dividends, and Paid-Up Additions purchased with the dividends, paid out based on the current dividend scale. Actual dividends may be more or less favorable than those shown

  29. Marketing Sales Materials • Current Materials: • Producers Place- “Sales Solutions and Support” • 412(e)(3) page. Life Insurance in Qualified Plan page. Educational materials, forms, references. • “Sales Solutions Library” • Sales ideas for Producers and Clients. 412(e)(3) Plans. Add Life Insurance to Existing Profit Sharing Plan. • Third Quarter: • Field Training Day Call. Producer educational materials, Case Study Sales ideas for Producers and Clients

  30. Marketing Sales Materials: Illustration • WebStory on Life Insurance in Qualified Plans

  31. Questions? • Discussion…

  32. Disclosure This presentation was prepared based on Penn Mutual's understanding of current federal estate, and income tax laws. Any changes in these laws may result in a conclusion different than what is represented. Please consult qualified legal and tax advisor regarding the client’s specific situation. • Before implementing any plans based on specific circumstances and objectives, the client should consult with a personal legal, tax, and financial advisor.

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