Transcript Slide 1

Retirement Plans Overview and
Regulatory Update for 2012
Presented by:
Mary Scott, CFP®, CRPS®
Vice President, Retirement Plan Specialist
1
Today’s Agenda
• Overview of Employer Sponsored Plans
– Defined contribution and defined benefit plans
• Fee Disclosure Rules for 2012
– Service provider fee disclosures
– Participant level fee disclosures
2
Employer Benefit Plans
MANDATORY
VOLUNTARY
Social Security
Unemployment Tax
TAX FAVORED
SEP/SAR-SEP
SIMPLE-IRA
Health, Medical &
Retirement Plans
QUALIFIED
403(b)
NONQUALIFIED
457(b)
457
Deferred Compensation
Top Hat (SERP)
Excess Benefit
DEFINED CONTRIBUTION
Profit Sharing
Age Weighted/Cross Tested P/S
401(k)/SIMPLE 401(k)
Money Purchase Pension
ESOP
DEFINED BENEFIT
Pension
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Retirement Plan Options
•
•
•
•
•
•
SEP-IRA
SIMPLE-IRA
Profit Sharing
401(k) Profit Sharing
Defined Benefit
403(b)
4
SEP-IRA
• Flexible, employer-only contributions are
made to individual IRAs on behalf of
employees
• Limited fiduciary liability as employees direct
their own IRA investments
• Simple to establish and maintain with minimal
administration costs
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SEP-IRA Limits
• Maximum contribution for a participant is 25%
of comp ($250k max) up to $50k
• Employer can deduct a max of 25% of eligible
payroll
• Deadline for plan set up and contributions is
tax filing due date, plus extensions
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SIMPLE-IRA
• For business owners who want employees to
share responsibility for their retirement
• Funding to SIMPLE IRAs, where employees
direct investments, minimizes employer
fiduciary issues
• Plan administration costs are minimal
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SIMPLE-IRA Limits
• Employee deferral limit for 2012 is $11,500 with
a $2,500 catch up for participants over age 50
• Mandatory employer contribution
– 3% match or
– 2% non-elective contribution
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Profit Sharing
• Employer funded plan
• Flexible employer contributions
• Vesting schedule available
• Generally contributions are prorated based
on each participants share of total
compensation
• May allow for loans
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Profit Sharing Limits
• Maximum contribution for participant is 100% of
compensation up to $50k (2012)
• Employer can deduct a max of 25% of eligible
payroll
• Plan must be established by end of taxable year
• Contributions must be made by tax filing
deadline
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Age-Weighted Profit Sharing
• Profit Sharing plan designed to provide greater
benefits for older employees
• Plan bases contributions on benefits at
retirement age, not on allocations in the current
year
• Sophistication of plan design requires a higher
level plan document, testing, and more costly
administration
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New Comparability Profit Sharing
• Profit Sharing plan designed to vary the
benefits by different employee groups
• Plan measures benefits at retirement, not
on contribution in current year - similar to
Age Weighted plan
• Plan appeals to businesses interested in
favoring specific employees
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Employees
Age
Compensation
Standard
Integrated
Age-Weighted
New Comp
Doctor, B*
44
$250,000.00
$50,000.00
$50,000.00
$50,000.00
$50,000.00
Doctor, A*
53
$250,000.00
$50,000.00
$50,000.00
$50,000.00
$50,000.00
$500,000.00
$100,000.00
$100,000.00
$100,000.00
$100,000.00
Group A
Asst, C
23
$26,000.00
$5,200.00
$4,370.67
$1,138.74
$1,300.00
Asst, B
26
$26,000.00
$5,200.00
$4,370.67
$1,414.66
$1,300.00
Asst, A
46
$30,000.00
$6,000.00
$5,043.08
$6,933.75
$1,500.00
Nurse, B
29
$40,000.00
$8,000.00
$6,724.11
$2,703.73
$2,000.00
Nurse, A
40
$60,000.00
$12,000.00
$10,086.17
$8,985.61
$3,000.00
Receptionist, A
24
$24,000.00
$4,800.00
$4,034.47
$1,129.98
$1,200.00
Group B
$206,000.00
$41,200.00
$34,629.18
$22,306.47
$10,300.00
Total
$706,000.00
$141,200.00
$134,629.18
$122,306.47
$110,300.00
Group A %
70.82%
70.82%
74.28%
81.76%
90.66%
Group B %
29.18%
29.18%
25.72%
18.24%
9.34%
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401(k) Profit Sharing
• May be primarily employee funded
• Employee deferrals on pre-tax, tax-deferred
basis
• May include discretionary employer
contributions and/or matching contributions
• May allow for loans
• Vesting schedule available for employer
contributions
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401(k) P/S Limits
• Employee contributions up to $17,000 with a
$5,500 catch up for participants age 50+
• Employer contribution cannot exceed 25% of
eligible payroll
• Maximum benefit an employee can receive in
the plan $50k or 100% of comp
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Safe Harbor 401(k) P/S
• Suitable for businesses where owners/ highly
compensated employees are limited in their
contributions
• Plan eliminates the need for some
nondiscrimination tests
• Mandatory employer contribution must be
made to plan
• No vesting schedule on the S/H contribution
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Safe Harbor 401(k) Contributions
• Non-elective contribution of 3%, or a
• Matching contribution
– Basic match formula matches 100% of the
first 3% of deferrals, then 50% between
3%-5% of deferrals
• Enhanced match available
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Safe Harbor 401(k) / New Comp Profit Sharing
Deferral$
EE%
%Safe
Harbor
3%
Catchup
$7,500
3.00%
$7,500
3.00%
$Safe
Harbor 3%
Name
Income
NCPS $
NCPS %
Total$
Total%
415 Limit
Doctor, B
$250,000
$17,000
6.80%
$0.00
$25,500
10.20%
$50,000
20.00%
$50,000
Doctor, A
$250,000
$17,000
6.80%
$5,500
$25,500
10.20%
$55,500
22.20%
$50,000
Group A
$500,000
$34,000
$5,500
$51,000
Asst, C
$26,000
$1,300
5.00%
$780
3.00%
$0.00
$364
1.40%
$2,444
9.40%
$26,000
Asst, B
$26,000
$0.00
0.00%
$780
3.00%
$0.00
$364
1.40%
$1,144
4.40%
$26,000
Asst, A
$30,000
$1,500
5.00%
$900
3.00%
$0.00
$420
1.40%
$2,820
9.40%
$30,000
Nurse, B
$40,000
$0.00
0.00%
$1,200
3.00%
$0.00
$560
1.40%
$1,760
4.40%
$40,000
Nurse, A
$60,000
$3,000
5.00%
$1,800
3.00%
$0.00
$840
1.40%
$5,640
9.40%
$50,000
Receptionist,
A
$24,000
$0.00
0.00%
$720.00
3.00%
$0.00
$336
1.40%
$1,056
4.40%
$24,000
Group B
$206,000
$5,800
$6,180
$0.00
$2,884
$14,864
Total
$706,000
$39,800
$21,180
$5,500
$53,884
$120,364
Group A %
70.82%
85.43%
70.82%
100.00%
94.65%
87.65%
Group B %
29.18%
14.57%
29.18%
0.00%
5.35%
12.35%
$15,000
$105,500
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Defined Benefit Pension Plan
• Provides a determinable annual benefit at
retirement
• Plan contribution formulas are based on a
specific retirement benefit
– Max benefit to fund for in 2012 is $200,000
• Contribution is actuarially determined and is
usually made quarterly
• No loans or in-service withdrawals allowed
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403(b) Plans
• Non-profit 501(c)(3) organizations and public
schools, college or university
• ERISA and non-ERISA plans
• Limits same as 401(k)s
• Document required for all types (2009)
• Information sharing arrangements required with
providers allowed under the plan
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DOL’s Fee Disclosure Initiatives
• Part 1: Schedule C of the form 5500 (2009)
• Part 2: Covered service provider disclosure
under ERISA 408(b)(2) (July 1, 2012)
• Part 3: Plan fiduciary disclosure to participants
who direct their own investments DOL 404a-5
(August 30, 2012)
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Purpose of the new rules
• Help plan fiduciaries to determine if contracts
are “reasonable”
• Provide transparency with regards to plan fees
• Inform participants of the fees they pay inside of
the plan
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Covered Plans
• All ERISA governed plans, including:
*401(k)
*403(b)
*Profit sharing
*ESOP
*Money purchase pension
*Target benefit
*Defined benefit
*Cash balance
• Plans NOT covered by 408(b)(2)
– SEP-IRAs and SIMPLE-IRAs
– Governmental plans; non-electing church plans
– Certain orphaned 403(b) plans
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Covered Service Providers
•
•
•
•
•
•
Broker-Dealers
Registered Investment Advisers (RIAs)
Recordkeepers
Third Party Administrators (TPAs)
Banks and trust companies
Only if expected to receive $1000 over life of
contract
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Plan Sponsor Obligations
• Determine “covered” service providers
• Make sure each has disclosed by July 1, 2012
– All required information been disclosed?
– Non-compliant service providers must be reported to
the DOL and terminated (90 days)
• Determine whether each service arrangement is
“reasonable”
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Participant Fee Disclosure 404a-5
• Applies to plans with participant directed
investments
• Initial disclosure by August 30, 2012;
subsequent quarterly by November 14, 2012
• Many relying on TPAs to send the disclosure,
get confirmation to make sure that they are sent
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Participant Fee Disclosure Contents
• Disclosure must contain:
– Plan related information
– Information regarding plan administrative and
individual expenses
– Investment information about designated investment
alternatives
• Performance data, benchmarks, fees, website, etc.
• Comparative chart format
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Preparing Your Participants
• Communicate, communicate, communicate!
• The fees are not new, nothing has changed but
the disclosure
• Don’t let fee disclosure overshadow the many
benefits of the plan
– Tax savings
– Matching contributions
– Higher contribution limits
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Questions?
Contact: Mary Scott at 605-716-8935 or [email protected]
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