Direct Recognition Variable Investment Plan (DR-VIP) FAQs

Frequently Asked Questions

1. WHAT TYPE OF COMPANY BENEFITS FROM A DR-VIP?
   A:  Any company with highly compensated owners and management looking to increase tax-deductible contributions to $100,000 or more.
2. WHAT DOES DIRECT RECOGNITION MEAN?
   A:  It means that a participant’s benefit is credited with the actual investment performance of the plan.
3. WHAT IS A DR-VIP ARRANGEMENT?
   A:  A DR-VIP arrangement consists of three fully integrated elements including 401(k), profit-sharing and DR-VIP defined benefit contributions.
4. IS EVERY DR-VIP REVIEWED BY THE IRS?
   A:  Yes, every plan is submitted to IRS for a favorable determination of the plan’s tax qualification.
5.  HOW ARE PLAN ASSETS INVESTED?   
   A:  401(k) and profit-sharing plan assets are generally participant directed and DR-VIP plan assets are invested pursuant to the plan sponsor’s objectives and directions.
6.  IS A DR-VIP AN ARRANGEMENT TREATED LIKE A 401(K) OR PROFIT-SHARING PLAN FOR TAX PURPOSES? 
   A:  Yes. A DR-VIP gets the same tax treatment as any other defined contribution or defined benefit plan including 401(k), profit-sharing and cash balance plans.
7. ARE EMPLOYER CONTRIBUTIONS TO A DR-VIP PLAN TAX DEDUCTIBLE?  
   A:  Yes.
8. DO DR-VIP ASSETS ACCRUE ON A TAX DEFERRED BASIS? 
   A:  Yes.
9. CAN A DR-VIP PARTICIPANT’S BENEFIT BE ROLLED OVER TO AN IRA OR OTHER RETIREMENT PLAN? 
   A:  Yes.
10. ARE DR-VIP ASSETS EXEMPT FROM THE CLAIMS OF CREDITORS?  
    A:  Yes.
11. IS THERE A CONTRIBUTION LIMIT?
    A:  Yes, the same limit that applies to cash balance and traditional defined benefit plans.
12. IS THERE A LIMIT ON HOW MUCH CAN BE CONTRIBUTED ON BEHALF OF OR ACCRUED BY A PARTICIPANT IN A DR-VIP?
    A:  Yes, the same limit that applies to a cash balance plan. However, a DR-VIP contains an automatic conversion feature, where there are no limits to roll benefits into an IRA.
13. ARE DR-VIP CONTRIBUTIONS FIXED OR FLEXIBLE?
    A:  Contributions can be set to automatically decrease when profits are reduced. Optional contributions can also be made when profits go up. A significant percentage of contributions is discretionary.
14. ARE DR-VIP CONTRIBUTIONS AFFECTED BY INVESTMENT PERFORMANCE?
    A:  No.
15. CAN DR-VIPs BECOME UNDERFUNDED LIKE CASH BALANCE PLANS?
    A:  Since the value of benefits accrued in DR-VIPs is directly tied to asset performance the exposure to underfunding or overfunding is mitigated.
16. ARE DR-VIP ASSETS INVESTED ON A PARTICIPANT DIRECTED BASIS?
    A:  No, like cash balance plans, DR-VIP assets are invested on a pooled basis. The 401(k) and profit-sharing assets in the DR-VIP arrangement are participant directed.
17. DO DR-VIP PARTICIPANT BENEFITS GROW WITH A FIXED INTEREST CREDIT LIKE CASH BALANCE ACCOUNTS?
    A:  No. DR-VIP participant benefits are credited with the actual investment performance of the associated plan assets.
18. IS THERE A LIMIT TO HOW MUCH INVESTMENT RETURN (OR LOSS) CAN BE CREDITED TO DR-VIP PARTICIPANT BENEFITS?
    A:  No.
19. CAN ANY FORM OF COMPANY IMPLEMENT A DR-VIP PLAN?
    A:  Yes. DR-VIPs can be used by partnerships, S-Corporations, LLCs and C-Corporations.

This material is for educational purposes and should not be considered a solicitation or an offer of investment advice/securities.

5119.S0913.99105