Qualified Plan Overview for Advisors
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Qualified Plan Overview for Advisors
- 1. 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
- 2. Retirement as Part of the Picture
- 3. What We’ll Cover • Overview of ERISA • Trends • Tools • Tips • Traps
- 4. An Overview
- 5. What ERISA Covers Guarantees payment of certain benefits if a defined plan is terminated Requires 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
- 6. 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.
- 7. 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) .
- 8. 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
- 9. Trends and Demographics Affecting Our Business
- 10. Overview of the Retirement Plan Market • Changes in workforce demographics • New plans waiting to be started • Decline in service • Change in the tax laws • Just not listening
- 11. 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
- 12. 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
- 14. The Affordable Care Act
- 15. TOOLS
- 17. Possible Benefit Reductions • The Administration's Budget Proposals • The 1982 TEFRA experience • Grandfathered prior to effective dates beginning in 1983
- 18. 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
- 19. 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 Deduction For DC Plan Not to exceed 25% of compensation Combined DC and DB Tax Deduction - Not subject to PBGC DB: Maximum permitted contribution PLUS DC: 6% of compensation Combined DC and DB Tax Deduction - Subject to PGBC DB: Maximum permitted contribution PLUS DC: 25% of compensation
- 21. TRAPS
- 22. What the Regulators Look For
- 23. 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
- 24. 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.
- 25. 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
- 26. 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
- 27. TIPS
- 28. Compensation for Plan Purposes Ownership Income Plan Compensation Owner of C-Corporation W-2 Income W-2 Income Owner/Employee of S-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?
- 29. Timing of Contributions Type 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 Discretionary Match 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?
- 30. 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
- 31. 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 jerry@nationalbenefit.com www.retirementplanblog.com ©2014, National Benefit Services, Inc.