A Forward Thinking Retirement Plan Design

The Direct Recognition Variable Investment Plan (VIP) is a qualified retirement plan1 designed to optimize benefits, mitigate risk and minimize costs, for companies with business owners and professionals who seek high tax-deductible contributions2 in excess of the defined contribution plan limits.

TYPICAL RETIREMENT PLANS FOR PROFESSIONAL FIRMS & BUSINESSES

Defined contribution plans (401(k) and profit sharing) are subject to relatively low contribution limits3. Traditional defined benefit and cash balance plans permit much higher contributions4, but assets must be pooled together, and the firm is responsible for underfunding due to underperforming investments. This creates a risk of unfunded benefits and uncertainty with respect to future contribution requirements.

HOW VIP WORKS

VIP leverages the best features of defined contribution and defined benefit plans.
• 401(k) profit sharing plan assets continue to be individually directed by participants.
• VIP assets are pooled together and invested in accordance with the firm’s overall investment objectives.
• Participants may access their 401(k) profit sharing and VIP benefits at any time online, via smart phone, tablet or telephone.
• VIP participant benefits increase or decrease in direct relation to investment results, mitigating the underfunding risk associated with traditional defined benefit pension plans and cash balance plans.

VIP PLAN ADVANTAGES

1. Contributions are tax-deductible.
2. Total contributions can be as high as $300,0005 per person6.
3. Plan assets are exempt from creditors7.
4. Risk of the plan being underfunded is mitigated.
5. Plan contributions are known, consistent and reliable.
6. With the risk of underfunding mitigated, the plan assets can be invested to optimize returns.
7. Every plan is submitted to the IRS for review8.

1As defined under IRC Sections 401(a) and IRS Regulation 1.411(a)(13)(d)(6)
2As allowed under IRC Section 404
3In accordance with IRC Sections 402(g) and 415(c)(1)(A)
4In accordance with IRC Section 415(b)(1)(A)
5When integrated with a 401(k) profit sharing plan, and determined by age and other factors.
6Determined by individual participant age & other factors.
7IRS Code Section 401(a)(13).   
8The submission, made on behalf of each individual plan, is an application for a letter of favorable determination of the plan’s tax qualification.

5120.S0805.0143