Tax Benefits of an EmployeE Stock Ownerships Plan (ESOP) – Video

An American College Interview with Dan Zugell of Business Transition Associates and Matthew E. Schiff, CLU of Schiff Benefits Group, LLC about why a business owner might want to sell his business to an Employee Stock Ownership Plan.  Dan goes into the benefits of the transaction, how the owner still controls the company, and can be part of his estate planning strategy.

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Check out the latest trends in Executive Benefits and the percentage of companies that are implementing them.


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Deferred Compensation Ins and Outs – Video

Deferred Compensation Ins and Outs, and Interview with Matthew Schiff

This is the Third Clip in a series of three. Check out our articles for additional videos.

Deferred Compensation in Not For Profits – Video

What are the issues that the employer and employee must be aware of when they implement a deferred compensation plan for any not for profit entity?

This is the Second Clip in a series of three. Check out our articles for additional videos.

Recruit, Retain, and Defer? – The Wealth Channel Interview with Matthew – Video

The First of Three Interviews on the American College’s Wealth Channel about how to create benefit  programs that Attract, Retain and Reward your key employees.  Here we will go into a discussion about the types of programs available for these plans that are subject to IRC 409A.

Death, Taxes, and Relationships

There are three things that never seem to change here in America: no one lives forever, relationships rule and taxes aren’t going away. Death, taxes and relationships are here to stay, and they all play a role in the past, present and future of life insurance.

Yesterday, I called one of my widow clients. Her husband of 45 years passed away in a freak car accident, and now she’s trying to make it one day at a time. When our clients die, we walk in with cash to help when they need it the most. The loss of a loved one leaves a huge hole in our clients’ hearts. Life insurance can help them carry on when depression is knocking at the door.

Taxes are here to stay. The first federal income tax was enacted by President Abraham Lincoln in 1861 to assist in the Civil War effort and was meant to go away five years later. However, federal income taxes never went away. Today, with the national debt registering nearly $17 trillion of debt and $115 trillion of debt plus unfunded liabilities, we are beyond the point of no return.

In his best-selling book “Aftershock,” Bob Wiedemer writes, “Well, as everyone knows, there is no repayment plan.” He says there are still two bubbles that will burst in our economy in the next several years. First, the U.S. dollar will collapse, and second, U.S. government bonds will default. This means we will have to raise taxes to cover our obligations, period.

So what can you do about these severe economic problems? Relationships will open doors to help you serve your clients with additional security in uncertain times. You have the solution of bringing in tax-preferred cash into desperate situations when everyone else is asking clients to pay their bills. For pennies on the dollar, you can bring guarantees into your clients’ unstable financial worlds.

We are here on a mission to bring security and assistance to those who need it most. Life insurance is not bought; it is sold. Those sales happen through relationships between you and your best clients. You need to help clients buy life insurance so that you will walk in with tax-free cash when their loved one walks out.

Matthew Schiff, CEO of Schiff Benefits Group in Horsham, PA (contact Matthew), is one of the friendliest guys I’ve ever met. He’s a sanguine extravert who is, at his core, a quick-start entrepreneur. Matthew reminisced about his earliest recollection of working with his father in the life insurance business: “I remember when I was 13 years old, I was doing data entry on qualified plans. I would go in to work in the morning with my father, then take the train to the yacht club and sail through the afternoon, and my mother would pick me up.

“My father had a qualified-plan business because he had grown up in the qualified plans division of a major life insurance company. Dad’s first major non-qualified plan was written in 1973 with a Fortune 500 company.”

The world is changing all around us. Qualified plans have changed. Our clients’ income has changed. “What works for us today are our marketing campaigns to our centers of influence,” Schiff says. “We’re showing clients how to create executive benefit plans for their key employees. We set it up on a tax-efficient basis, and if they want to, they can fully recover their costs.

“If I look at what ties the past, present and future together, here’s what I see. In the 1970s, it was all about defined benefit income. Pre-1974 ERISA, it was all about creating plans to benefit the owners and key employees of companies. We had a long time-horizon. We looked out 10 years with a 7% interest rate. We got into the ’80s and ’90s, it was fast money.

Today, we are getting back to the defined benefit income; that’s what’s working today for us. Everybody wants the same thing today as they did in the 1970s — benefits for key employees. Today, we use non-qualified plans to fulfill what the owner and the key employees want to accomplish.”

Share your competence with those who can use it most. Help others solve their problems with tax-efficient, investment-grade life insurance.

by Brent Welch

Published in Life Insurance Selling Magazine, September, 2011

The Future of Life Insurance

Micki Hoesly, CLU, ChFC,
entered the financial services business 34 years ago with Mutual of New York, which is now part of AXA Advisors. In 1983, Micki began her own company, Capital Resources, specializing in pensions. Micki is also principal of Resource 1, a registered investment advisory firm. She is a 32-year Qualifying and Life member of the Million Dollar Round Table (MDRT) with three Court of the Table and eight Top of the Table qualifications. She also currently serves as the association’s second vice president. (Investment advice through Resource 1 Inc. Securities offered through Ceros Financial Services Inc. — not affiliated with Resource 1 Inc. Member FINRA/SIPC.)

Stephen O. Rothschild, CLU, ChFC, CRC, RFC,
is president and owner of M21 Consulting in Scottsdale, Ariz. His organization works exclusively through and with the high-net-worth and business clients of independent registered investment advisors, independent broker dealers and a few other financial professionals. M21 Consulting does not solicit clients directly. Stephen also has a long history of industry leadership. He is a Life and Qualifying Member of the MDRT and holds numerous Top of the Table and Court of the Table qualifications. He served as MDRT president in 2006-2007. Stephen also has served on the board of directors with both the International Forum and the AALU.

Matthew E. Schiff, CLU,
is the president of Schiff Benefits Group, specializing in the design, implementation, financing and ongoing administrative support of supplemental executive benefits programs. With more than 20 years of experience in the financial services industry, he is recognized as a leader in the deferred compensation field. Matthew is a Lifetime Member of the MDRT, with nine consecutive Top of the Table distinctions.


I’ve been a part of the life insurance business for the past 30 years, and like a lot of industry veterans, I’ve seen my share of change. A lot of the more experienced agents back in the early 1980s used to tell me — a newcomer at the time — that the business had shuffled along at a fairly slow pace until universal life burst on the scene. That single product brought an era of change and challenges, and although UL is now viewed as a traditional product, it seems like the business is still living in that era of rapid change.

At the risk of stating the obvious, though change is often difficult, it’s clearly not all bad. Whether change is good or bad for producers depends much upon how the producer integrates new developments into his or her business, and how willing he or she is to look beyond the immediate challenges toward a more successful future.

The best producers do just that, and for this month’s roundtable, we are asking some of the most talented, most forward-thinking and most articulate producers around to share their thoughts on the future of our business. No doubt we face some real challenges. But the future also provides some tremendous opportunity, and we’ve asked the following panel to share their thoughts on just what lies in store: Micki Hoesly, CLU, ChFC; Stephen O. Rothschild, CLU, ChFC, CRC, RFC; and Matthew E. Schiff, CLU.

Question 1

Charles K. Hirsch, CLU: There continues to be a tremendous focus in the life insurance business on the boomer market. That seems sensible when you consider the financial needs of the large number of people in that age group. But it also makes one wonder whether the business may be neglecting the needs of other demographic groups — like Generations X and Y. What are your thoughts on that?

Micki Hoesly, CLU, ChFC: There seem to be several logical reasons for the current focus on boomers. First, the boomers are now in the pre-retirement and early retirement years, which are critical times in their financial lives. Additionally, the average age of advisors has been getting much older, meaning that many of the advisors are also boomers.

It wouldn’t be surprising for their focus to be on people of their own demographic. There is also the wealth of the boomers’ parents’ generation, which is beginning to transfer, prompting an even greater need for financial advice.

But I don’t believe that Generations X and Y are being ignored. Every professional meeting I attend has information-packed sessions about how advisors can meet, communicate with and serve the X and Y generations. There are also sessions on how Gen X and Y advisors can meet, communicate with and serve other generations as well. I believe that advising Gen X and Y offers a great opportunity for advisors to build multigenerational practices so that the wealth built by each previous generation is preserved through their children and their grandchildren.

We can do that by either strategically making multigenerational planning with specialized products and services for each generation, or we can do that by apprenticing X and Y generation agents with our boomer agents to create multigenerational practices serving multigenerational families.

Stephen O. Rothschild, CLU, ChFC, CRC, RFC: Our industry has aged, and it is only natural to work with prospects close to your age. I worked with boomers before the name existed. Sadly, we do not have enough younger agents to work with their own age group, like Generations X and Y. Thus, it is not neglect but lack of younger entrants in our industry. As Generations X and Y age, they will get more attention paid to them as they will earn more and inherit more. They are also being addressed in some non-traditional ways. They are more likely to buy over the Internet, through worksite marketing, and through agents who have set seminar methodologies that address their market and needs.

Matthew E. Schiff, CLU: The insurance industry, as well as the professionals in it, has always looked at the demographics of a population and tried to focus its energy on the largest population. In this case, the baby boomers have been, and probably will be, the industry’s focus for the continued future because it’s the largest demographic. This does leave the under-45 market underserved, and I believe that the best way to help those in this market is by fostering the hiring of financial advisors under that age who can relate to their peers.

Question 2

Hirsch: Some companies and some producers are doing a lot of work in various ethnic markets. Is this a trend that makes sense to you, and do you see it continuing? Where do you believe we are headed in the area of serving the financial needs of specific ethnic groups?

Rothschild: Those addressing the various ethnic markets are simply following demographics. Population trends and birthrates show the ethnic markets are growing at a faster rate than the non-ethnic markets. The same logic applies to entrants into our business, as new insurance agents will often address their own ethnic market.

Schiff: This is not a new trend. New York Life prides itself in its ethnic marketing and has for many years. Their company, like many others, is focused on diverse markets. It’s just that, to be effective in those markets, just like any specialty, it takes time to establish a reputation and a presence in the specific market.

As for where we’re headed, the industry as a whole in the United States has to hire more diverse agents. Carriers that develop career agents understand that. But because of the drop in new agents over the years, it may be difficult to have a large impact in ethnic markets.

Hoesly: Many top-producing advisors have built practices that strategically focus on one market or one client demographic. Narrowing the focus allows the advisor to completely understand the needs of that market and become a recognized expert. With the United States becoming increasingly diverse, it makes sense to serve the needs of a defined demographic and provide specialized services that are specific to that market. This could be based on ethnicity, on age, on the type of business or those who need a certain type of service.

Question 3

Hirsch: When you look around at the competition these days, it seems there are more sales coming from or through non-traditional sources — like banks, the Internet, etc. Is this type of competition something that producers should fear? Or are there good ways to partner with these non-traditional sources to benefit everyone? And looking even further ahead, what type of competition do you believe has the potential to negatively impact the producer’s business to a significant degree?

Schiff: No. “Insurance is a product that is sold, not bought” is a well-known anonymous quote that describes our product. If agents get concerned that the commodity portion of our products are being sold through different channels, then we as agents have brought no value to our clients.

To partner with the non-traditional channels, you need to be a specialist at what you do, like a doctor (OB/GYN, orthopedist, family doctor, etc.). This brings value to them where they don’t normally have the expertise. But in my 21 years in the insurance industry, the only thing that can negatively impact the potential sales of life insurance is not competition, but rather legislation.

Hoesly: There is more need for life insurance and financial advice than our current advisors have been able to reach. Offering good products and services and reaching more people and encouraging them to take hold of their financial lives makes us all better. I don’t believe that producers should fear alternative distribution as long as it is reputable and builds on the good character and values of putting clients’ needs first.

The risk I see is competition that is deceptive, products that are financially unsupportable, or companies that put the guarantees of the industry in question. I think the greater risk today is the onerous disclosures and restrictions on advice that make it difficult for clients to understand their options and sift through the complex array of products and strategies. It seems backwards to me that the more licenses one holds, the more the advisor is restricted in how he or she can communicate and advise clients. Often, procedures appear to be primarily driven by the need to defend and not by the need to inform.

If we lose sight of our primary purpose — helping the client do what is in his or her best interest — then our service loses its value.

So where do I see future competition? I see it coming from the bold firms that believe clients need advice and that are not fearful of having that advice subject to fiduciary standards. I see it coming from advisors who understand that clients are overwhelmed with too much information and that a valuable service we provide is helping them find which information is significant and meaningful to them.

Rothschild: Producers who have not grown or changed should have great fear. Competition is coming from banks, registered investment advisors, broker-dealers, casualty brokers, accountants and a few attorneys. Many life producers have entered some of the competitors’ arenas as well, particularly in the investment arena. The key is your ability to differentiate yourself.

Frankly, most life producers are being commoditized, just like the insurance carriers. If you hold up two ledger statements from two different carriers, they look the same. Unfortunately, the prospect will determine value by looking at the premium and as we all know…

This analogy applies to the producer as well. Being a trusted advisor is no big deal. Rather, it is just table stakes. Is a prospect going to work with someone they don’t trust? Becoming the most-valued advisor is what is important. How is the advisor bringing value to the prospect? Are you leaving it up to the prospect to determine the parameters of value? Or are you helping them determine these parameters?

At our firm, M21 Consulting in Scottsdale, Ariz., we work primarily with independent registered investment advisors and independent broker-dealers. We do not go after the retail market directly. We bring our expertise to those who want to deepen their client relationships and diversify and increase their revenue. Their high-net-worth clients are our target.

Other producers can partner in other ways, or others can partner with life producers. It depends on who is doing the marketing. I am never concerned about a negative impact on the producer’s business, as there are still way too many prospects who are never called on or do not have a life insurance advisor. Again, those who don’t make changes to their practice will find themselves out of the business.

The Future Impact of ObamaCare on companies and their employees !?!

2014 – The Year The Pie Changes – (Allison Bell – Author Reprint)

In less than 3 years, U.S. employers may have a chance to use much of the money now spent on group health coverage for other purposes – such as increasing the income of highly paid employees.

Paul Fronstin, a researcher at Employee Benefit Research Institute (EBRI), Washington, writes about the possibility of employers dropping coverage — and using some of the savings to increase the pay of highly paid employees — in an analysis released by EBRI.

Some of the negotiators involved in drafting the Patient Protection and Affordable Care Act of 2010 (PPACA) went to great lengths to try to tailor the act in such a way that it would not crowd out much private group health coverage when major provisions take effect in 2014.

In 2014, health insurance exchanges are supposed to give consumers a “one-stop” health insurance shopping system along with health coverage purchase subsidies delivered in the form of tax credits. Employers over a certain size will have to choose between offering group health coverage or paying a penalty.

To qualify for health insurance purchase tax subsidies, workers must have incomes below a cut-off. They also must be ineligible for employer-sponsored coverage or be eligible for group coverage that costs more than 9.5% of their income or covers less than 60% of the cost of covered care.

It’s possible that PPACA opponents could have the act repealed or declared unconstitutional, Fronstin says.

But, if PPACA takes effect and works about as expected, Congress could still throw off projections about PPACA private group health coverage by imposing a tax on all or part of employer group health benefits expenditures, Fronstin says.

Critics of the group health benefits tax exclusion argue that it will cost the government about $1.1 trillion in revenue from 2012 to 2016 while doing more to help higher-income workers than lower-income workers. About 53% of the U.S. residents who have employment-based health coverage have annual incomes over 400% of the federal poverty level, or about $88,000 for a family of 4, while only 6% have incomes under 133% of the federal poverty level — the 2014 Medicaid income cut-off, according to EBRI figures.

Employers that issue 250 or more W-2’s must start reporting the value of group health benefits on the forms starting Jan. 1, 2013.

“Given that the information on the value of health benefits will already be reported on Form W-2, employers will already be providing enough information to workers to include the value of the benefit on tax returns for purposes of taxation of the benefit,” Fronstin says. “Once employment-based health benefits are counted as taxable income, workers would start questioning the value of keeping such coverage rather than seeking coverage on their own in the insurance exchange.”

The typical worker could be paying about $1,500 in annual premiums for employer-sponsored employee-only coverage and about $6,600 for family coverage in 2014, Fronstin says.

“Some workers will find that the net premium in the health insurance exchange is lower than their share of the premium under an employment-based plan, even when the employer portion of the premium is excluded,” Fronstin says.”If employers gave workers 60% of the employer share of the premium for employee-only coverage, and only 21% of the employer share of the premium for family coverage, then all workers below 400% of the federal poverty level would be able to cover their full share of the premium in the insurance exchange…. Even if only a fraction of these workers preferred coverage through an insurance exchange, it would send a clear message to employers that millions of workers no longer valued employment-based health benefits.”

If workers signal to employers that they prefer buying health insurance through an exchange, “employers would then start to ask themselves why they should continue to offer health coverage,” Fronstin says. “At that point, they might simply drop the benefit, which would enable workers to get subsidized coverage in the exchange. Predicting how this might play out by firm size, industry, worker earnings, geographic region, among other things, is highly uncertain.”

The “buy your own coverage” approach would leave an employer about $2,000 left over per worker with employee-only coverage and about $8,500 per worker with family coverage, and the employer could use that extra cash to pay the $2,000 PPACA penalty for not offering coverage, Fronstin says.

“What about workers above 400% of the federal poverty level?” Fronstin asks. “Employers that dropped coverage could increase their compensation on an after-tax basis using part or all of the savings from the employer share of the premium that was not paid out to lower-income workers.”

AALU Washington Report Bulletin 11-46 – PLR 201117001

Amendments to Tax Exempt Organization’s Deferred Compensation Plan Will Not Cause Grandfathered Deferrals to Be Subject to Code § 457

Under § 457(b), state and local governments and tax-exempt entities may establish and maintain “eligible deferred compensation plans” for the benefit of their employees. These 457(b) plans may be maintained in addition to 401(a), 403(a) and 403(b) plans. They must, however, satisfy certain conditions, including an annual limit on the amount that may be deferred by each participant. If the conditions are satisfied, amounts deferred under the plans are not includible in income until they are paid to the participant. Generally, if a deferred compensation plan maintained by a governmental or tax-exempt entity is not a 401(a), 403(a) or 403(b) plan and does not satisfy the conditions of § 457(b), it is considered a 457(f) plan under which deferred amounts will be includible in income in the first year in which no substantial risk of forfeiture exists, regardless of when such amounts are actually distributed to the participant. For these purposes, a substantial risk of forfeiture exists so long as rights to compensation are conditioned upon the future performance of substantial services by any individual.

Prior to 1986, deferred compensation plans and arrangements maintained by tax-exempt entities were not subject to the requirements of § 457. Rather, such plans and arrangements were treated similarly to deferred compensation plans and arrangements maintained by for-profit entities, under which no annual limitation on deferred amounts exists. So long as a promise to pay deferred compensation in the future is unsecured, the deferred amounts are not includible in the employee’s income. The Tax Reform Act of 1986 (“TRA ’86”), however, extended the rules of §457 to deferred compensation plans maintained by tax-exempt organizations for tax years beginning after 1986. “Grandfathered” plans of tax-exempt employers, though, are not subject to the requirements of § 457.

A deferred compensation plan maintained by a tax-exempt organization is considered “grandfathered” to the extent that deferrals under that plan were fixed pursuant to a written document on August 16, 1986. For this purpose, a deferral was considered fixed on that date if the deferral was then determinable under the written terms of the plan as a (i) fixed dollar amount, (ii) a fixed percentage of a fixed base amount (e.g., amount of regular salary, commissions, bonus or total compensation), or (iii) an amount to be determined under a fixed formula. Additionally, even if the plan, by its terms, did not contain a fixed deferral amount on August 16, 1986, the deferrals continue to be treated as though they were fixed if the deferral formula was not changed after August 16, 1986. Provided the deferred compensation plan remained grandfathered, all deferrals made pursuant to the formula in existence on August 16,
1986, even if made in subsequent tax years, remain exempt from § 457.

A plan, however, will lose its grandfathered status and will be subject to § 457(b) (or 457(f) if the conditions of 457(b) are not satisfied) as of the effective date of any modification to the plan that directly or indirectly alters the (i) fixed dollar amount, (ii) the fixed percentage or (iii) the fixed base amount to which the percentage is applied or the fixed formula.

Because these grandfathered plans do not fall within any exceptions under § 409A, they (unlike 457(b) plans) are subject to the requirements of that section. It appears that in this instance the employer is amending the plan to ensure that its terms are in compliance with § 409A, particularly with regard to the timing of payments and the participant’s right to change the time or form of payment. Without expressing any opinion regarding § 409A, the Service ruled that the proposed amendments would not affect the grandfathered status of the plans in question.

This ruling is the first in this area in over twelve years and was probably triggered by the Treasury regulations and guidance existing under § 409A. For an example of a ruling issued in 1992 on this subject, see our Bulletin No. 92-61. Although PLRs cannot be used or cited as precedent, PLR 201117001 provides employers of grandfathered deferred compensations plans with some comfort that amendments to such a plan to comply with the § 409A time and form of payment requirements will likely not cause the plan to be subject to the current requirements of § 457.

Any AALU member who wishes to obtain a copy of PLR 201117001 may do so through the following means: (1) use hyperlink above next to “Major References,” (2) log onto the AALU website at and enter the Member Portal with your last name and birth date and select Current Washington Report for linkage to source material or (3) email Anthony Raglani at and include a reference to this Washington Report.

PDF Copy of this Summary – AALU PLR 201117001 Summary (Bulletin 11-46)


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