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TRENDS, TOOLS, TRAPS, and TIPS:What Advisors Need to Know About Qualified
Retirement Plans to Add Value to Their Clients.. and Grow Their Practices
Presented to
Illinois CPA Society
Investment Advisory Services/
Personal Financial Planning Forum
By Jerry Kalish
President, National Benefit Services, Inc.
January 13, 2015
Retirement as Part of the Picture
What We’ll Cover
• Overview of ERISA
• Trends
• Tools
• Tips
• Traps
An Overview
What ERISA Covers
Guarantees payment of certain
benefits if a defined plan is
terminatedRequires plans to
provide participants with
information about the plan including about
plan features and funding
Sets minimum standards for participation,
vesting, benefit accrual and
funding
Requires accountability of plan fiduciaries
Gives participants the right to sue for
benefits and breaches of
fiduciary duty
Gives participants the right to sue for
benefits and breaches of
fiduciary duty
Other Laws Besides ERISA
• Age Discrimination in Employment Act (ADEA)
• Uniformed Service Employment and Reemployment Rights Act (USERRA)
• Federal securities law.
Note: While ERISA expressly preempts any state law with respect to retirement plans, certain state laws governing insurance, banking and securities may be applied to retirement plans.
1974
Passage of ERISA
1978
401(k) enacted into law
1981
IRS proposed regulations
2015
Amendment and Restatement for Pension Protection Act of 2006
The History of 401(k)
.
The Regulatory Agencies
Internal Revenue Service
Service
Tax Qualification
Department of Labor
Reporting, Disclosure, and
Fiduciary Requirements
Pension Benefit Guaranty
Corporation
Insures Terminated Underfunded
Defined Benefit Plan
Trends and Demographics Affecting Our Business
Overview of theRetirement Plan Market
• Changes in workforce demographics
• New plans waiting to be started
• Decline in service
• Change in the tax laws
• Just not listening
Just Not Listening
Employees
• Just do it for me process
• Little work; little time
• Minimize tough decisions
Employers
• Keep it simple
• Participant needs
• User friendly
• Personal service
The New Retirement Plan Focus
Accumulation
• Dollar cost averaging
• Asset allocation
• Rebalancing
• Cost of waiting
• Tax free compounding
• Tax-deferrals
Lifetime Income
• When to retire
• When to apply for Social Security benefits
• What to do, if anything, about housing
• What choices to make about insurance and health care
• How financial assets should be invested
• What distribution options to take
The Political Dichotomy
Retirement Savings
Income Inequality
The Affordable Care Act
TOOLS
Possible Benefit Reductions
• The Administration's Budget Proposals
• The 1982 TEFRA experience
• Grandfathered prior to effective dates beginning in 1983
Key 2015 Limits
401(k) Elective Deferrals $18,000
Catch-Up Contributions $6,000
Annual Defined Contribution Limit $53,000
Annual Defined Benefit Limit $210,000
Annual Compensation Limit $265,000
Highly Compensated Employee $120,000
Key Employee $170,000
SIMPLE Employee Deferral $12,500
SIMPLE Catch-Up $3,000
Maximum Annual Pension Benefit $215,000
Individual Retirement Plan $5,500
Individual Retirement Plan Catch-Up $1,000
The Interplay Between Allocations and Deductions
Individual Limits Employer Limits
Maximum Annual 401(k) Contribution
Lesser of 100% of compensation or $18,000 plus $6,000 catch-up if applicable
Maximum Annual Allocation Lesser of 100% of compensation or $53,000 exclusive of $6,000 catch-up
Maximum Tax DeductionFor DC Plan
Not to exceed 25% of compensation
Combined DC and DB Tax Deduction - Not subject to PBGC
DB: Maximum permittedcontribution PLUSDC: 6% of compensation
Combined DC and DB Tax Deduction - Subject to PGBC
DB: Maximum permittedcontribution PLUSDC: 25% of compensation
TRAPS
What the Regulators Look For
Asset Protection Issues
• Special requirements of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)
• One-person plans and creditors
• Special rules for IRAs
The Perils of Procrastination
• Compensation of S-corporation Owner-Employee
• Notice requirements for Safe-Harbor Plan
• Notice requirements for terminating SIMPLE
• Timing of 401(k) contributions
But pre-funding contributions can also cause problems.
Delinquent Form 5500-EZ
• One-person plan not Title I Plan - not eligible for Department of Labor Delinquent Filer Compliance Program
• Pilot Penalty Relief Program under IRS Revenue Procedure 2014-32
Expires June 2, 2015
The CFO as a Fiduciary
Thomas Perez, Plaintiff
vs.
Geopharma, Inc., et al., Defendants
United States District Court
Middle District Of Florida
Tampa Division
Case No. 8:14-cv-66-T-33TGW
TIPS
Compensation for Plan Purposes
Ownership Income Plan Compensation
Owner of C-Corporation W-2 Income W-2 Income
Owner/Employee ofS-Corporation
W-2 Income + K-1 Schedule W-2 Income Only
Sole Proprietor Schedule C (Net Profit) *Earned Income
Partner in Partnership K-1 Schedule (Net Profit) *Earned Income
Member of LLC Taxed as Partnership
K-1 Schedule (Net Profit) *Earned Income
*Earned Income = net profit minus 1/2 self employment tax minus plan contribution. Deductions for sole proprietors and partners are limited to net profit minus 1/2 self-employment tax.
Query: When must contributions be made?
Timing of ContributionsType Required Timing Vesting Schedule
Employee Pre-Tax 401(k) Within 7 business days from date of payroll deduction
Required 100% immediate
Employee After-Tax Roth Within 7 business days from date of payroll deduction
Required 100% immediate
Employer Safe Harbor No later than the time the employer’s tax return is due including extensions
Required 100% immediate
Employer Discretionary Profit Sharing
No later than the time the employer’s tax return is due including extensions
Graded vesting not to exceed 6 years
Employer DiscretionaryMatch
No later than the time the employer’s tax return is due including extensions
Graded vesting not to exceed 6 years
Query: What about Sole Proprietor, Partner, or Member of LLC?
Plan Design
• 3% Safe Harbor
• Safe Harbor Match (100% up to first 3% plus 50% on next 2% (4% maximum)
• New Comparability/Age Weighted
• Cash Balance Plans
• Spouse as employee
NATIONAL BENEFIT SERVICES, INC.
Helping you get your retirement plan from where it is now . . . to where it needs to be.
National Benefit Services, Inc.
300 West Adams, Suite 415
Chicago, IL 60606
Phone: 312-419-9080
Contact: Jerry Kalish, President
www.retirementplanblog.com
©2014, National Benefit Services, Inc.