Thinking outside the box, without stepping out of bounds.
A Forward Thinking Retirement Plan Design
The Direct Recognition Variable Investment Plan (VIP) is a qualified retirement plan designed to optimize benefits, mitigate risk and minimize costs, for companies with business owners and professionals who seek increased tax-deductible contributions 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 limits. Traditional defined benefit and cash balance plans permit much higher contributions, 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
- Contributions are tax-deductible.
- Total contributions can be as high as $300,000* per person.
- Plan assets are exempt from creditors.
- Risk of the plan being underfunded is mitigated.
- Plan contributions are known, consistent and reliable.
- With the risk of underfunding mitigated, the plan assets can be invested to optimize returns.
- Every plan is submitted to the IRS for review.**
*When integrated with a 401(k) profit sharing plan, and determined by age and other factors.
**The submission, made on behalf of each individual plan, is an application for a letter of favorable determination of the plan’s tax qualification.