By Julia Jenkins
An incorporated professional or business owner may create one’s own defined benefit (DB) pension plan since 1991. Structured by CRA to provide a solution for high net worth individuals to replace salary at retirement and provide tax sheltering, the Individual Pension Plan (IPP) allows wealth transfer of corporate assets via tax-sheltered, tax deductible contributions to personal holdings. Plan benefits prove comparable or superior to large corporate structured defined benefit pension plans in Canada.
To date, there has been scant acceptance or implementation by accountants, advisors, and their clients, considering the basket of benefits: enhanced annual deductible contributions; multi-family participation; succession planning to pass assets tax-sheltered to the next generation; potential to reduce corporate tax to the small business level; predictable income at retirement; investment diversification unique to the IPP shelter; creditor proofing corporate assets, to name a few. Michael Byrne, endeavored to develop an offering to make IPPs easily accessible, understandable, workable, successful and enduring: the Self-Employed Personalized Pension Plan. After two years of research and set-up, SEPPP is open for applications.
The Administrator: Michael Byrne, Edmonton, is an advisor and Dealing Representative with Accilent Capital Management; his financial career spans decades as a manager, trainer, and innovator.
Q: Michael, what solutions have you incorporated in SEPPP?
A: As originally intended, the IPP is an incredible financial instrument. It is a super-charged RRSP for the incorporated business owner or professional, who has taken all the risks associated with growing a successful business or practice, to reap the rewards associated with that risk.
The implementation and administration of an IPP requires the resources of an actuary, custodian, trustee, the CRA, investment advisor, accountant, tax planner, and a manager of investment assets. Seldom has there been a working relationship among these entities; I found them as an orchestra without a conductor, making the IPP build difficult to undertake.
SEPPP has become the conductor of this orchestra by creating a strategic plan backed by resources that hold the entities together. SEPPP as the conductor moves the plan forward to successful conclusion.
Through Accilent Capital Corp., SEPPP established a discretionary portfolio management platform to source both public and private equity classes at the institutional level. This broad access has not been previously available to the IPP client.
Q: Michael, what is the role of CRA in setting up the IPP, and now SEPPP?
A: CRA’s role is much the same as with RRSPs, RRIFs, and other registered financial instruments. Everything must be approved by them, they issue the certificates, each account has a CRA registration number, and of course they have provided the list of eligible investments that may be held in the IPP trust. Until they provide the final certification, nothing moves to the investment and administration stage. In the past, the instruments, being the actuary, custodian, accountant, including the client and CRA, have met with challenges keeping in harmony.
Q: Michael, Does technology play a part?
A: Technology is a massive part of the SEPPP model. Electronically we track and control the flow and facilitate communication. Each entity now knows what the other is doing, where each fits, who provides the next step, who needs help, reporting is clear and accurate. Ultimately the long term investment management and administration of the SEPPP client trust will be handled electronically; client has online access, just as now the RRSP investor has.
"Technology is a massive part of the SEPPP model. Electronically we track and control the flow and facilitate communication."
The Portfolio Manager: Dan Pembleton, CFA, MBA, CEO of Accilent Capital Management, Toronto, and Mark Taucar, CFA, Portfolio Manager; Accilent Capital Management, Toronto.
Q: Dan, what is the role of Accilent Capital and yourself in SEPPP?
A: Accilent Capital is the portfolio manager for each IPP. This involves assessing the client’s needs and assigning a portfolio mix based on those needs. We work with the custodian, accounting and actuary partners to ensure all IPP requirements and reporting are met. SEPPP brings us all together.
Q: Dan, what benefits do you see for the SEPPP model over previous IPP attempts?
A: SEPPP has built a unique integrated program; and the approach we take with the portfolio using public/private mix of securities was not provided in previous IPP constructs. This allows for a more diverse portfolio which should provide higher return for each level of risk undertaken, than a solely public portfolio could provide. IPPs, while conceptually not overly complicated, do require specialized knowledge in multiple disciplines, which are so diverse that no one individual or specialized group could possess them all; yet each is necessary to fulfill the IPP’s extraordinary demands. SEPPP’s conducting brings each of us in to play our role as needed. It is this timely, integrated and coordinated approach with seasoned service providers that sets the SEPPP IPP apart.
"SEPPP has built a unique integrated program; and the approach we take with the portfolio using public/private mix of securities was not provided in previous IPP constructs."
Q: Mark, How does having a dedicated Portfolio Manager benefit the SEPPP program?
A: It allows clients to access expertise typically reserved for institutional, high-net-worth and ultra-HNW clientele, and opens the door to participation in investment opportunities usually closed to the average retail investor. We deliver a discretionary service that allows the portfolio manager to be as tactical as possible. We are able to bring to the client’s portfolio investment products we feel best suited to the needs of the clients.
Q: Mark, does this mean that the portfolio is designed to the needs of each client?
A: Yes. I personally engage with the clients and endeavour to understand their goals. We design a program that addresses how we intend to attain those goals. Our portfolio design process reflects that of large public and private pension plans. Each client goes through a risk/return assessment to determine individual objectives. We match their specific needs with an appropriate strategy and portfolio. Finally, the approach details both a strategic and tactical asset allocation.
The Actuary: Mark Lesniewski, FSA, FCIA; and CEO, Lesniewski Moore Consulting, a national actuarial firm.
Q: Mark, How is an actuary integral to the IPP solution?
A: As an actuarial and retirement plan consulting firm, our role is two-fold. First, we are a resource to SEPPP and provide consulting for those clients that require a personalized approach to meet their specific objectives. Second, we provide the analysis to determine the initial contribution levels, future contributions, options on retirement or plan wind-up, and the funding status through triennial valuations.
Q: Mark, Where does technology come in to play?
A: Success of the SEPPP model will result from the coordinated efforts of the team members interacting with the clients and their advisors and each other using technology. Planning for and using scalability as the IPP accounts grow in number will add further efficiency. LMC Group is embarking on a major technology upgrade that will permit increased sharing of data and tools among ourselves and SEPPP professionals. It will result in efficient and scalable SEPPP implementations.
Michael Byrne’s orchestra has taken shape with the above representatives. They are the professional service providers that accountants and advisors and their clients will scrutinize. That scrutiny has begun. We ask accountant Glenn Skolney, and advisor Kelly Smith about SEPPP:
The Accountant: Glenn Skolney, CA, Edmonton.
Q: Glenn, when you first reviewed Michael Byrne’s plan for SEPPP, what did you think?
A: IPP’s have been under-utilized as a tax and retirement planning tool due to the limitations on investments and the complexity of the plans. SEPPP simplifies implementation and administration and provides flexibility for the investment opportunities.
Q: Glenn, What should the client’s accountant consider in determining to invest in an IPP or the new SEPPP model?
A: The IPP should be a consideration for shareholder employees looking to gain increased corporate tax deductions and maximize the individual’s retirement savings plan. It works well for transferring corporate retained earnings or pretax profits from the corporation to the shareholder’s retirement plan where the past service contribution is substantial. The plan should be considered for individual employees over 45 to age 71 with high employment earnings for 10 years or more to gain the most benefit.
"The IPP should be a consideration for shareholder employees looking to gain increased corporate tax deductions and maximize the individual’s retirement savings plan."
The IPP can also be used as a planning tool for: Reducing tax on the sale of company assets; Long term buyout of a shareholder; Succession plans for intergenerational family transfers; Equity protection; Retirement and Estate planning; and Other large taxable income events. The SEPPP model is an efficient solution to deliver the IPP benefits.
The Financial Planner: Kelly R. Smith, CFP CLU CH.F.C. IPP specialist and advisor, Edmonton
Q: Kelly, you have incorporated IPPs into your financial planning practice for many years. What do you see as advantages of SEPPP for advisors and their clients?
A: There are several. In my practice these are the chief considerations:
1. Advanced retirement planning to achieve retirement income greater than RRSP strategy.
2. Tax effective transfer of company assets to personal holding.
3. Significant corporate tax deduction with the initial deposit and using the ‘buy-back’ component.
4. The only registered money where exists potential tax free wealth transfer from one generation to the next.
5. Retirement income protection for the spouse.
As all SEPPP panning will ultimately go through the client’s accountant, as this is a tax strategy, perhaps the first call should be to your accountant, or one with whom you have worked well in the past. The best source of referrals for you for building your IPP client base is the accountant.
Q: And, Kelly, the benefits to the advisor’s practice?
A: Larger accounts, the average SEPPP account will exceed One Million in a few short years; Business owner clients will see you in a different light; Working with accountants will lead to other referrals and more sophisticated business opportunities; and Business owner and professional clients need help in succession planning, buy-sell funding, key person insurance, estate planning. The opportunities are endless. Basically, there is an untapped market out there and like most good ideas we just need to talk about it more, bring it to the table for our clients to discover the upside potential for themselves.
In conclusion, every self-employed individual should have access to an institutional quality pension plan. The career financial advisor, accountants, consultants who work with IPP eligible clients should feel comfortable in recommending this financial instrument as a retirement planning tool.
Julia Jenkins EPC, SEPPP Education & Marketing Julia entered the financial services business in 1987, and became a branch manager in Victoria, there hosting radio show ‘Talk About Wealth.’ She long recognized the need for equitable retirement investment plans for professionals and business owners. When her colleague Michael Byrne posed the solution to the IP problem she followed SEPPP’s evolution with intense interest, and wrote the first SEPPP application. Although maintaining an active practice, she has taken on the role of developing SEPPP’s education and marketing programs. Julia is a life-long Vancouver Islander, lives in Nanaimo BC, walks the wild beaches with her dog Willow, and keeps track of three sons, six grandchildren and three great-grandchildren. firstname.lastname@example.org