056: Supercharged Cash Balance Plans: A Powerful Tax Control Tool for Business Owners with Bruce Gendein

In this podcast episode, I welcome Bruce Gendein, a pension consultant with McHenry Advisors, to discuss the complex world of pension consulting and the critical role of cash balance plans for business owners.

This episode explores Bruce's extensive background and the evolution of pension consulting, highlighting the unique benefits of cash balance plans in tax planning and retirement savings.

Bruce's Journey: From Actuarial Training to Pension Consulting

• Career Path: Originally trained to be an actuary, Bruce transitioned through various roles in the computer business and medical facilities management before finding his niche in the pension business.
• Professional Achievements: Over four decades, he has built and sold multiple actuarial, consulting, and third-party pension administration firms. He now works exclusively with McHenry Advisors, administering approximately 2,200 pension plans with a team of nine actuaries.

McHenry Advisors and The Importance of Cash Balance Plans

• Consulting Services: McHenry Advisors offers continuity and stability for financial advisors and their clients by ensuring a seamless transition and consistent service through a large, experienced staff.
• Virtual Family Office (VFO) Expertise: Bruce acts as a VFO expert, collaborating with financial advisors and accountants to provide specialized knowledge and support in pension consulting and tax planning.
• Defined Benefit vs. Defined Contribution Plans: Bruce explains the differences between 401k profit-sharing plans (defined contribution) and cash balance plans (defined benefit), emphasizing the advantages for business owners.
• Target Audience: Successful business owners who are making more than they need to live on, dislike paying taxes, and want to save a significant amount for retirement quickly.

Elite Resource Team (ERT) and the Virtual Family Office Model

• Collaborative Approach: ERT's model fosters collaboration among financial advisors, accountants, and specialized experts like Bruce, ensuring comprehensive and effective planning for clients.
• Benefits of the VFO: Financial advisors can leverage the expertise of seasoned professionals, enhancing their credibility and providing clients with top-notch service without needing to master every aspect themselves.

Key Takeaways and Future Directions

• Flexibility and Tax Benefits: Bruce highlights the flexibility of pension plans, their potential for significant tax savings, and the growing importance of tax-deductible strategies in light of increasing national debt.
• Owner Benefits: Adding a pension plan to a 401k provides substantial benefits for business owners, making it an essential component of a well-rounded retirement strategy.
• Creative Funding Approaches: Utilizing life insurance contracts within pension plans can provide a mix of taxable and tax-free future income, maximizing after-tax benefits.

About our Guest:
Bruce Gendein, a pension consultant with McHenry Advisors

You can learn more about his work at:
LinkedIn:  https://www.linkedin.com/in/brucegendein/

About Your Host:  Paul G. McManus is an accomplished author and expert in helping financial professionals grow their businesses. With over eight years of experience working exclusively with financial professionals, Paul has helped his clients generate tens of millions of dollars in fees and commissions.

Claim your free audiobook copy at: www.theshortbookformula.com

Transcript

Speaker 1: 0:32

Welcome everyone to another episode of the Million Dollar Producer Show. I'm your host, paul G McManus. Today I have a special guest, bruce Gendine. Bruce is a pension consultant with McHenry Advisors. Welcome to the show, bruce. Thank you, my pleasure.

Speaker 1: 0:49

And before we went live, we were having a nice conversation and I believe, but is this the first time to actually be a guest on a podcast? It is, thank you, my pleasure, and before we went live, we were having a nice conversation and I believe, but is this the first time to actually be a guest on a podcast? It is, it's my pleasure to have you. Just for our audience to know, the reason and why Bruce and I got together for this podcast is that we're going to both be speaking at the upcoming Elite Growth Academy in San Diego in June. I just took it upon myself to reach out to some of the fellow speakers, presenters, and invite them to the podcast so I can get to know them and my audience on the Million Dollar Producer Show as well could get to know them. So thank you for taking the time. Let's go ahead and dive into it. So, for someone that doesn't know who you are, what's your background story? How'd you get from where you started to where you are today you are.

Speaker 2: 1:32

What's your background story? How'd you get from where you started to where you are today? I took the circuitous route. I was trained to be an actuary and when I got to the place where I was interviewing for jobs and found out what they actually did, I learned that I didn't actually have the personality for it, and I'll let the listeners decide what that actually means. And what happened along the way is I spent some time in the computer business and I managed some medical facilities along the way, and I had an opportunity to get back involved in the pension business.

Speaker 2: 2:02

My actuarial background was perfectly suited for the pension business and the life insurance business, and so I found a home that has served me well for well into four decades, and I've built and sold a couple of different actuarial, consulting and third-party pension administration firms, and now I work exclusively with McHenry Advisors out of Columbus Ohio. I work as a pension consultant and we administer about 2,200 pension plans. We have nine actuaries on staff, so you can tell it's more than a hobby, and what's nice about it is it gives continuity for the financial advisor, their client and the other professionals that the client works with, so that it's not just dependent on one person, but we have a large staff and a growing staff of people that could take this on and without any kind of break, and it's seamless. So the continuity aspect is very comfortable for me and hopefully for them.

Speaker 1: 3:10

What you do, especially vis-a-vis ERT, is that you act as a VFO expert, and just for our audience that doesn't understand, what that means is that ERT has what they call a proactive planning team, which typically consists of a financial advisor and an accountant or CPA. They're the ones that have the key relationship with the client, but then, on an as-needed basis, they have access to what they describe as a virtual family office with experts who have very specialized knowledge, like yourself. And I want to start just by asking before pandemic and now, as that specialized expert with that specialized knowledge and probably working with people across the country, how has the world changed for you, either for the better, or how has the world changed?

Speaker 2: 3:53

I hate to admit that I was a slow learner and that it took COVID to make me realize that I didn't have to travel 100,000 miles a year to make a living. I was able to turn that time into productive, useful time and help a lot more people as well as help myself. So that was a very important learning point for me. The other thing is I've always been a fan of the virtual family office, which also really accelerates and facilitates working with clients, because the client already has been introduced to the fact that there are a number of different tax control techniques that they can avail themselves to, and ERT positions themselves well with that virtual family office in providing a number of different strategies as possibilities.

Speaker 2: 4:43

It's a little bit like eating an elephant If you try and swallow it whole, you'll probably choke, but if you eat it in small bites you'll probably get it entirely eaten. So, while I would love to do business with every one of the financial advisors' clients, sometimes we play a small role, sometimes we play a large role, but there are other strategies that piggyback with what we do and can make the client a diversified tax control client for them and get a great result and have a lot of different opportunities. Our strategy is fairly simple. In the qualified pension arena, our real advantage is that it's all black letter law. There aren't any opinion letters and likely than not or anything like that. If you want to know if it works or not, you go to the Internal Revenue Code and so that works, steeped in tradition and law, and these are plans that have been around for many years. A hundred years ago they had retirement plans.

Speaker 1: 5:46

Can just jump in for a second. So specifically what you'll be talking about at the event, it's listed as supercharged cash balance plans. Correct, correct? For someone who may not be familiar with what is a cash balance plan and, by extension, what is a supercharged cash balance plan and who's it for?

Speaker 2: 6:08

Yeah, Okay, great, let's first of all talk about it. Everybody knows about 401k profit sharing plans. Those fall in a category called defined contribution plans and all the limitations and restrictions are on what can go in, as the name implies, and they're a wonderful employee benefit plan. But for a 60-year-old or 55-year-old business owner who doesn't have very many years left to do it, then the limitations on what can go in limit what he can take out.

Speaker 2: 6:39

So a cash balance plan is a type of pension plan and when you say pension plan, it falls in a category of defined benefit pension plans. So now we're going to define the benefit and all the limitations and restrictions are on the back end, what can come out. So what happens is now I can get very large contributions and I can fund a lifetime of pensions, perhaps over 10 years. So now the owner who is delayed making that decision he's been pouring money back into the company to make it grow and everything else and wakes up one morning and says, oh, my goodness, I need to do something and so I need to save a lot of money quickly. And oh, by the way, I'm making a lot of money and I just hate paying those income taxes. So maybe this is the ideal structure for him, where he can make very large contributions, maybe five, eight, 10 times as much as he could put into a defined contribution plan and deduct it. Now, all of a sudden, have an owner benefit plan instead of an employee benefit plan.

Speaker 2: 7:44

So you had asked who does it apply to? Successful business owners? They're making more than they need to live on. They would like to save a large amount of it. They don't like paying the tax, and so they would like to have something that they could save on a tax deductible basis. They want to act in enlightened self-interest. They would like to get 80, 85, 90, 95% or more of the contributions that go into this plan.

Speaker 1: 8:14

I'm going to give you back. My understanding is that the cash balance plan is meant more for the owner of the business than it is a traditional 401k, which is typically meant more for the employee, and generally it could be an ideal vehicle for someone who's a business owner, maybe in their 50s already 60s doesn't necessarily have enough saved up for retirement or simply is earning more money than they need to fund their lifestyle and they'd rather find a way to put it back into their future retirement than paying it to the government. So it's really optimized for a business owner.

Speaker 2: 8:52

It's a great question and I can't give people 30 years experience in 30 minutes. What I'd like to do is hypersensitize people to thinking about oftentimes these plans work conjunction with one another. You have a defined contribution, a 401k profit check and a pension plan, a cash balance plan, sitting side by side. The owner's getting the majority of their benefits in the cash balance plan. The employees are getting the majority of their benefit in the profit sharing piece. We cross-test them to make sure that we have adequate coverage and that we have non discrimination. That doesn't mean that everybody gets the same. It means that we pass the rules that the IRS has set up for it.

Speaker 1: 9:39

Tell our listeners. It's going to be a cross-section of people that are already part of the elite resource team, who understand the concept of a virtual family office, and then there'll be other listeners who are either financial advisors or accountants, who may not be as steeped in the virtual family office model. Just from your perspective as a VFO expert or virtual family office expert, what is a virtual family office and how do you interact with financial advisors and or accountants in order to help the client?

Speaker 2: 10:08

Great question. I always look and say well, if you're Elon Musk, you probably have a whole staff of lawyers and a whole staff of accountants and other wealth managers and other people who are doing handling investments and cash management. You've got a whole team of people that create your actual family office. Most of our clients can't afford a big staff like that to handle their personal business. The virtual family office Most of our clients can't afford a big staff like that to handle their personal business. The virtual family office says what we're going to do is pay for what you use, so let's call it together when we need it and we'll pay for it on an as-needed basis. That's the best of all possible worlds. We'll take a relatively small business and give them what an Elon Musk has on a day-to-day basis, and that's what makes it such a great strategy.

Speaker 2: 11:00

The way we work is I sit with my feet up on my desk most all day. When the phone rings, I answer it like most people would, and if the conversation starts I have a client who I put my feet on the floor, I grab a pen and paper and I start writing Tell me about it. Let's see what we can do. And what we'll do is we'll gather a bunch of information about that client and it won't just be verbal. We'll have actual input of data, census data and other things that are important to the design and we'll set some objectives what is the client trying to accomplish? And we'll do a feasibility study and we'll find out if this strategy works well for a client. Once we do that, we'll get back to the financial advisor and the CPA and say here are some strategies that we think might be appropriate for this client and let's take a look at it. And if you want, let's review it in detail and if you want me to, I'll help make a presentation to the clients.

Speaker 1: 12:01

There was something really interesting that you said again before we started recording, in terms of who makes the best prospect for you, and I don't know if you recall the answer, but I do, yeah. So who makes the best prospect for you? And I don't know if you recall the answer, but I do yeah. So who makes the best prospect for you?

Speaker 2: 12:14

And I will give you a more appropriate answer. But the very best client that anybody can have is one that takes your advice. They can be ideally perfect on paper, they can be very high income, they could have be quite a bit older and much higher paid than their employees, they could have few if any employees, and all of those things can all be true. That's the model. But if they don't take your advice, they're not a very good prospect. Okay so, older, higher paid, few if any employees, and we can design plans around those factors. Our hurdle, if you will hurdle rate, is Can we get the owner 80, 85, 90, maybe even 95 or more percent of every contribution dollar going in? If we can do that, we've hit. I think the technical accounting term is home run.

Speaker 1: 13:11

Interestingly, I was just speaking with a prospect from my own business earlier today and he's only a couple of years in to being a financial advisor. He specializes more in life insurance, but he's really I could just tell from talking to him he's very ambitious, he wants to grow, he reads a lot, and so he's the kind of person that I think has a lot of potential to grow very and be very successful. And one of the things that I was I was actually more excited telling him was talking about a book for him. But I was actually more excited telling him I was talking about a book for him. But I was also equally excited to introduce him to Elite Resource Team and what they provide and, by extension, the virtual family office, and I'll give you my reasoning for that. Then I'll ask you for your take on it.

Speaker 1: 13:54

But what I said is that if you come into a business, at the end of the day as a financial advisor, what you're really in the business of is selling credibility, selling trust.

Speaker 1: 14:05

Right, and you can be the smartest person in the world, you can have all the answers in the world, but if the client doesn't trust you or see that you're competent and credible, chances are, they're not going to listen to you, and that kind of goes back to what you said.

Speaker 1: 14:19

It's a client that listens to you, and what I told to him is that one of the amazing factors of the ERT model, and the virtual family office by extension, is that you don't have to be the expert in all these different fields, because someone like yourself you've been doing this for decades and you have a very deep, specialized knowledge of what you do. But imagine this person if he was part of ERT and he had his own virtual family office and he could say how long have you been in the business? What do you specialize in? Let me tell you about Bruce, one of the people who's on our team. He's been working for 30, 40 years in cash balance plans. Now, as a prospect, suddenly I have a high level of trust in your expertise, even though the person that I'm talking to may only be a couple of years in, and so I think that's one of the amazing things that ERT provides is access to resources such as yourself, and I'd just love to get, maybe, your perspective on the other end of that.

Speaker 2: 15:19

I will tell you that for years, I have told financial advisors if you're trying to become the top tech, you're making a terrible error. You want to be chairman of the board. I have a great admiration and respect for a guy by the name of Bill Gates, but I don't want him programming anything for me. I know that he controls an enormous resource that could be very useful. The chairman of a board controls the resource. He doesn't sit down and do the work, and I think financial advisors who are able to position themselves in the virtual family office become the chairman of the board, and it's a much higher, more respected place than chief tech. So I think that's a very important distinction and that I have always been an advocate of.

Speaker 2: 16:11

The other thing that I think comes into being, and why it's important, is most of the financial advisors that I deal with are very smart and they could know everything. I know it took me 30 years. It takes them three. However, they'd like to do a case like today. They don't want to shut down for three years to get tooled up. The virtual family office and the subject matter expert model allows them to do a case. Today. It's on-the-job training as we go along, and so the first case is hard, the second case a little easier. By the time you're at the third or fourth case, they're very knowledgeable about what to do for their clients, and so that's how I see it, paul. It's not different. I think it's more appropriate to have the virtual family office and the collaboration that it generates, rather than saying I do it all and I don't need these other people.

Speaker 1: 17:09

Let me ask you this, and so I know that you work with advisors and accountants that are part of elite resource team, but you also work with a broader group of advisors and accountants and accountants. What's the difference, from your point of view, of engaging with an advisor accountant that's already set up in ERT and has all the resources that ERT provides, versus, say, someone who listens to this podcast and says, oh, I want to talk to Bruce about this, but they don't have an existing relationship with you.

Speaker 2: 17:36

It just takes longer. See the ERT member who has relationships already. A large part of it isn't already in place and I can just interject myself into the relationship With somebody who doesn't have it. The first thing we have to do is stop and build the relationships. I say let's get the accountant involved. I don't know the accountant.

Speaker 2: 17:59

Okay, I'm going to guess that if we do something and it's spectacularly done well, and we give it to the accountant and say he's going to get him, he or she is going to get a very big surprise, and surprises aren't always good. When I was little, I loved them because my mom handled them and they involved a little red bicycle and they were pretty nice. Today, winning the lottery has its own set of problems. So what I'm saying is I think you have to get the team on board before you go and get the client all revved up to take action in a particular tax strategy and then say let's see if we can convince the accountant. It's a good idea, because now you're in an adversarial role as opposed to a collaborative role. I think that's the big difference. For me anyway, it's how well it is facilitated before you even get started.

Speaker 1: 18:55

I think you've alluded to some of these things, but I can't resist asking the question. And again, just from your perspective as the expert within the VFO, again, I think ERT just has a really good model because they create and facilitate advisors and accountants working together as a proactive planning team. So that is already in place and by the time they come to an expert such as yourself, there's already trust built into the relationship. The client listens to them, presumably, and now they see that they have a need for an expert such as yourself, they call you in. So you're not having to battle or try to establish your expertise or all those issues, but instead they come. You come in and say and work with them to determine if this is a potentially a good fit. And I just maybe love to have you expand upon it again from your point of view and just that ERT model and what you see.

Speaker 2: 19:48

Let me start by telling you I do not envision my job and responsibility as trying to pound square pegs into round holes. When I said we do a feasibility study, we're very true to that. This will work and it will bring you great results, or it won't, and you should look elsewhere for this kind of tax planning. Our strategy doesn't fit your unique situation and that's the whole crux of the issue is does it fit? And you're absolutely correct. I've said for many years that selling, parenting, coaching, managing all of those kinds of roles all require the same two things. They're all the same job, the audience changes, but they all require trust and respect to do them well. And that's why I think what the virtual family office does is we get to cascade all of those trust and respect from one advisor to the next.

Speaker 1: 20:52

You'll be speaking at this event and again, it's supercharged cash balance plans. What are some of the key takeaways that you want the attendees to get from your time spent there? Great?

Speaker 2: 21:05

question. First, I want people to look at pension plans or cash balance plans as a flexible tax control tool. Historically, when somebody said pension plan, the immediate thought was this is a fixed commitment. There's not very many ways of making it work. I can tell you that from the Pension Protection Act to the SECURE Act, to SECURE Act 2.0, the government has made a great effort to make these plans extremely flexible from year to year and that's what's made them an excellent tax control tool that accountants are likely to find attractive to use for their clients. It's that flexibility.

Speaker 2: 21:51

There's a lot of other tools in the actuarial toolkit that if that built-in flexibility doesn't work, they can use some other tools as well to make them even more flexible. You can pause the plan, you can amend the plan, you can terminate the plan. There's a lot of tools that you get to use because our clients are closely held businesses and professional practices and their incomes change year to year. But I can tell you that in four decades of doing this, I have never had a client could not meet their contribution objective, whether it was a good year or there are some ceilings, there are some limits. Obviously, if it's too good for the taxpayer, there will always be limits. Okay, we're not going to let this just run rampant On the downside. People always worry about what happens if my world is not as bright, and I think that's where these plans really come in. The other thing that I'd like them to walk away with is that 401k plans are wonderful employee benefits, but if you want an owner benefit, you need to add a pension plan to it.

Speaker 1: 23:02

Again, Bruce, I think you're talking to me specifically as a business owner. That's my fear, right. This year has been great. I get all this excess cash. I don't know what to do with it. I just don't want the tax man to take it. And then in the back of my head, I'm thinking but what if next year is not as good? I don't want to have some sort of commitment that I can't keep up with, and so that's yeah, I can assure you, Paul, that's not the first time I've heard that.

Speaker 2: 23:23

Yeah, If you can put a plan in that goes big, big little, that's pretty flexible, yeah.

Speaker 2: 23:38

The third thing I would like people as a takeaway is we use a unique funding approach when it's appropriate. We would like to have a life insurance contract, an investment-oriented life insurance contract, as a component of the plan funding, Because if I can reposition that, I get two things. I have a pension plan that eventually will be deferred growth but when it comes out it will be a taxable benefit. But if I can have an insurance product in there that I can reposition outside the plan eventually and I will get into detail at the Elite Growth Academy about how that happens and the laws that allow it but if you can reposition, it becomes a source of tax-free future income. So now all of a sudden I have some taxable, some tax-free. It correlates to people's interest in having a Roth is because it multiplies your after-tax benefit. That's the third thing. The three things are that plans are flexible, that pension plans offer an owner benefit to the employee benefit that the 401k offers, and if I use creative funding for the plan, I get a much bigger benefit down the road.

Speaker 1: 24:51

In the time that I have you, bruce, I'd like to shift gears a little bit and ask you some professional slash personal questions about your philosophy. Is there any guiding principle or book maybe, that has shaped your career, that stands out to you?

Speaker 2: 25:09

Yeah, I think that, as I mentioned, I read a book when I was in college.

Speaker 2: 25:13

I actually read several, but that one stuck out and it was a book called the Prince by Niccolo Machiavelli, who is probably better known for the ends justifying the means. I disagree with that piece of his philosophy, but one thing that he did say that was very important was your only reliable ally is someone who benefits from your success, and so I have always tried to work closely with the investment companies, the insurance companies who would like to sell their product, or the ERTs who have financial advisors who would like to have access to this sort of thing, and when they bring us the business, we're able to make that happen. They have end up with a happy client who buys the products, and, whether they're collecting a fee or a commission, or whether they're the insurance company or the investment company is getting the benefit. They're all willing. With our track record of doing this for many years, they're always willing to introduce us to the best and brightest to be able to do that and get it in place with the least possible upset and energy.

Speaker 1: 26:26

A couple of final questions. The world is changing at a rapid pace. I know for myself I'm really into artificial intelligence and how it's impacting both my industry and marketing and publishing and different things, and I hear from others that's one of the things that's really changing the world. And so, whether that just as an example, what do you see the trends or the future of what you do? But if you had your crystal ball, so to speak, what do you see going forward?

Speaker 2: 26:55

Yeah, I start out with the fact that all of the things we do start out as being tax motivated. So when I look at the environment, I see a very bright future, and here's why we have a country that has a $34.5 trillion national debt and it's growing. That, to me, says there will be some upward pressure on tax rates or you will reach those current tax rates at a much lower level because they have an insatiable need for tax revenue. Anytime you have that situation, I can tell you that things that have tax deductibility become much more valuable, or things that provide tax-free income down the road become much more valuable. So that's why I think our industry, and specifically the financial advisor business and qualified plans, is a very bright future.

Speaker 1: 27:53

What I hear you saying is that if you're in the business of helping people save on taxes, then you're in a really good business going forward. Two final questions I have you. Number one is there any question that I haven't asked you that you'd like to talk about or share before we wrap up?

Speaker 2: 28:19

One of the things that people don't generally know is one of the things that makes retirement plans specifically attractive is their asset protection characteristic. They're doubly asset protected. They're free from the claims of creditors of the business because the business has put money into a trust for the benefit of the employees, and so it's no longer an asset of the business that could be attacked by a creditor. And the flip side of it is the beneficiary the employee or the owner of the business, who happens to be an employee hasn't received the benefit yet, so it's not subject to the claims of his or her creditors. So it's doubly asset protected. And I give you the OJ effect, if you will, where he got a $33 million judgment against him, but they didn't access his Screen Actors Guild pension, his NFL pension or his private company pension.

Speaker 1: 29:10

Interesting. Okay, I did not know that specific example before. I haven't heard that. It's interesting. Growing up, I always thought of the idea of being sued or a lawsuit as something really strange and foreign. That would never happen. And I guess just in the past 10 years, through a variety of experiences, I've woken up to the fact that people can and will sue you for anything, and especially if you have assets that they want a piece of and without getting political. I think we're going to see some of that playing out in the media today.

Speaker 2: 29:41

So yeah, something else that you ought to know about me personally. I've been in business for four decades or more and I've never been sued and I've never sued anyone, so it doesn't mean I was perfect, it's just that we always did the right thing.

Speaker 1: 29:54

Final question in two parts One for an ERT advisor what's the best way to connect with you outside of the event? And then, by extension, for someone who's not already part of the elite resource team or ERT what's the best way for them to reach out and contact you or just find more information about you?

Speaker 2: 30:12

reach out and contact you or just find more information about you. Yeah, the school website is probably the best way for an ERT member to get in touch. We monitor that. It's the elite VFO community website. And for anybody else, I think LinkedIn is probably the best way to connect. Or my cell phone number, which I answer regularly. It's 818-968-2966. And I always love chatting with financial advisors about the opportunity that they have and would like to know more about.

Speaker 1: 30:45

I appreciate it and looking forward to meeting you in person in San Diego.

Speaker 2: 30:49

Thank you, paul, I appreciate being included and I look forward to seeing you in San Diego. Thank you, Paul. I appreciate being included and I look forward to seeing you in San Diego.