401(k) SAVINGS
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401(k) SAVINGS

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  • Training Nuggets: Savings & Investment: 401(k) This is one of the PowerPoint information presentations in a series of “training nuggets” designed for US Navy Fleet and Family Readiness (F&FR) employees, supervisors and managers. This one is intended for new regular, full-time and part-time NAF employees . Designer/Developer: Dave Hobson, July 2005
  • This training nugget covers:  Key points of the NAF 401(k) Savings Plan.  Key Investment Terms and Plan eligibility.  Determining tolerance for investment risk.  401(k) enrollment.  Making changes: (e.g., investment choices / percentages, beneficiaries, continued participation, contribution amounts, etc.)  Investment elections.  Effect leaving current employment has on 401(k) Plan participation.  Accessing money – taking a distribution.  Income tax liability.  Saving for the “future” with suggested resources.  Examples of compounding.  Three retirement programs.  MassMutual Information Services and Retirement Planner.  Cruise Control and Rebalancing.
  • This presentation includes “highlights” from the Navy, Non-Appropriated Fund (NAF) 401k Plan . For additional information, refer to the Summary Plan Document. If language here differs from the current terms of the 401(k) Plan, the Plan language governs . Let participant/s read this information. Ask if they have questions.
  • Let participant/s read this information. Ask if they have questions.
  • Let participant/s read this information. Ask if they have questions.
  • Let participant/s read this information. Ask if they have questions.
  • Let participant/s read this information. Ask if they have questions. Employer match – To encourage employees to save for their future, CNI contributes additional funds to participating employee’s 401(k) Plan. This employer match is in addition to the employee’s annual contribution and is based on a percentage of the employee’s annual contributions. The NAF Plan matches 100% (dollar-for-dollar) of employee contributions of a minimum of one percent (1%) to a maximum of three percent (3%) of the employee’s salary. Example: The employee earns $40,000 per year and contributes 15%. The company automatically matches 3% of the employee’s contributions. $ 40,000 x .15 = $ 6,000 employee contribution $ 40,000 x .03 = $ 1,200 employer match Total 401(k) employee + employer contribution = $ 7,200.
  • Let participant/s read this information. Ask if they have questions.
  • Let participant/s read this information. Ask if they have questions. “Non-resident aliens with no U.S. source of income” refers to Foreign Nationals paid by the host country.
  • Let participant/s read this information. Ask if they have questions. Investment risk is the chance that an investment will lose money or yield a negative return. All investing involves some risk, but not investing for the future, or investing too conservatively can be far more risky! If you invest your savings very conservatively and receive a rate of interest less than the annual inflation rate, your original investment has less purchasing power each year. Social Security is a retirement source that is adjusted for interest rate inflation. Stocks and Bond investments historically outperform stable value investments as well as inflation. As with all investments, “past performance is not indicative of future results” . Stable value investments (cash) include bank savings, Savings Bonds, Treasury Bills, Money Market Accounts, Certificates of Deposit (CDs), etc. Keeping it in your pocket (never saving) as a retirement plan is NOT advisable. A diversified savings, protection and investment plan IS preferable.
  • Let participant/s read this information. Ask if they have questions. Tell participant/s that the “Investor Profile Quiz” is provided in the 401(k) Saving and Investment Plan booklet they will receive following the briefing.
  • The MassMutual Risk Profiler Quiz only takes a few minutes. Based on the information you receive from the quiz, you may decide to make some changes to your investment mix. Plan participants can simply log on to The Journey or call FLASH to make changes. Plan Participants on The Journey®, who take the Risk Profiler Quiz, receive information on how they might want to diversify their dollars into the investment options of their plan. A hypothetical example follows… (next slide)
  • MassMutual offers sample asset allocation portfolios that are made up of plan investment options. Each sample portfolio is designed to meet different risk/return profiles – short-term, conservative, moderate, aggressive and ultra aggressive. Participants can elect a sample portfolio through The Journey sm Web site and can take a Risk Profile quiz first if they aren’t sure which one may be appropriate for their own situations. Participants may also make adjustments to the sample portfolios and that they are always free to create their own investment strategy by simply choosing from the investments available under the plan.
  • Let participant/s read this information. Ask if they have questions. Tell participant/s that a “Participant New Enrollment” form is provided in the 401(k) Saving and Investment Plan booklet. Participants may contribute a specified percentage (or fraction – 6.25%) of salary, every pay period. Remember – you must contribute an amount equal to between 1% and 3% of your salary to get the company’s dollar-for-dollar match.
  • Let participant/s read this information. Ask if they have questions. Tell participant/s that a “Participant Information Change” form is provided in the 401(k) Saving and Investment Plan booklet. Changes that require hardcopy to benefits representative include: Increase / decrease contribution Stop / start Beneficiary Address These changes can be made during the months of December, March, June, and September
  • Explaining Pre-Tax Savings: Money contributed by an employee goes into his/her account before federal and state income taxes are calculated. (Employees pay less tax on their current pay!) Participants do NOT pay income taxes on the “savings” or the “earnings” as long as their money stays in their 401(k) Plan account. Since the IRS does not count the savings or earnings as taxable income, the participant will owe less current income tax. Pre-tax savings do NOT affect other pay-based benefits like Disability, Life Insurance and the Retirement Pension – these benefits as well as pay raises are based on the participant’s FULL pay. Pre-tax savings do NOT affect the participant’s future Social Security benefits either, as these are also based on the participant’s FULL pay.
  • Let participant/s read this information. Ask if they have questions. Tell participant/s that the 401(k) Saving and Investment Plan booklet lists and explains all of the 401(k) investment selections available from the Plan administrator. Reinforce the fact that “past performance does not guarantee future results” – an investment warning they will hear and read over and over.
  • Let participant/s read this information. Ask if they have questions. Tell participant/s that a “Rollover Statement” form is provided in the 401(k) Saving and Investment Plan booklet. This is used to move their account to another (or from another) qualified 401(k) Plan, thereby avoiding early withdrawal tax and penalty assessments. If you have been in the plan for a year, on the date of termination, the employee’s investments, plus employer investments, plus growth (or loss) to-date are “valued” (calculated) and “locked” for payout or transfer.
  • Let participant/s read this information. Ask if they have questions. Must be in the 401(k) Plan for one year to receive company match.
  • Let participant/s read this information. Ask if they have questions. Remind participant that by exercising the roll-over options, he/she can avoid the requirement to pay income tax and perhaps an excise (penalty) tax. Roll-overs are a transfer of 401(k) Plan funds (contribution plus earnings) from one IRS authorized Plan to another. (The participant does not “receive” a distribution from his/her 401(k) Plan.)
  • Let participant/s read this information. Ask if they have questions.
  • Should Participants Use Their 401(k) to Resolve Hardships? When participants have money problems, withdrawing from their 401(k) seems like an easy solution. But…, in most cases, it's a bad idea! Shortchanging the Plan costs the participant a fortune by losing years of tax-free compounding for every dollar they withdraw. The law says that to qualify for a hardship withdrawal, the participant must have an immediate and heavy need for cash. However, hardship withdrawals are likely to cause more hardship than they cure because the participant is going to owe taxes on the money, which the employer withholds at 20%. And, the participant may have a 10% penalty and he/she will be prohibited from making any more contributions for up 6 months! The NAF 401(k) Plan does NOT provide for “loans”. See 401(k) calculators at http://www.finance.cch.com/text/c40s10d060.asp
  • Let participant/s read this information. Ask if they have questions.
  • WARNING! If you have amassed significant savings and “elect” a one time withdrawal AT/AFTER AGE 59½, the servicing administrator will withhold the IRS required amount of 20%. However, if your gross, unadjusted income for the year will be high ($150,000 or higher) you should consider additional withholding, This large cash withdrawal from your 401(k) (also Thrift Savings Plan [TSP]) counts as additional income for the year. So, even though 20% will be withheld and paid to the IRS by the 401(k) fund administrator, your total unadjusted gross income increase may place you in a significantly higher tax bracket, perhaps creating a significant additional tax liability for the tax year. To prevent this, you can ask your 401(k) representative to withhold additional funds from your withdrawal. Example for a $300,000.00 withdrawal (or payment at end of employment, vice a non-taxed, IRS authorized roll-over): 300,000.00 300,000.00 60,000.00 withheld at 20% x .20 x .16 48,000.00 additional withheld as a specified dollar 60,000.00 48,000.00 108,000.00 total paid to IRS $300,000.00 x .36% = $108,000.00 (Remember, these taxes were not initially withheld and are due when you use you 401(k) savings. Don’t forget you State Tax liabilities.)
  • Let participant/s read this information. Ask if they have questions.
  • Let participant/s read this information. Ask if they have questions. Remind participant/s that they can avoid early withdrawal tax and penalty assessments by moving their account proceeds (distributions plus earnings) to another qualified Plan.
  • Let participant/s read this information. Ask if they have questions.
  • Let participant/s read this information. Ask if they have questions.
  • Let participant/s read this information. Ask if they have questions.
  • Let participant/s read this information. Ask if they have questions. Maybe your savings goal is a bit high for your budget right now. Look at your current spending habits to see where you might be able to shift some extra dollars to savings. For example, how much do you spend each week on these items?
  • Let participant/s read this information. Ask if they have questions. Increasing your deferral amount, even $10, can make a significant difference in your account over time. (If there are matching contributions and if the employee in this hypothetical example hasn’t already maximized the matching contributions, s/he would then be matched on this additional $10 contribution. Small amounts can add up!)
  • Let participant/s read this information. Ask if they have questions.
  • Let participant/s read this information. Ask if they have questions.
  • Let participant/s read this information. Ask if they have questions.
  • Let participant/s read this information. Ask if they have questions. Remember -- these services are available free of charge.
  • Let participant/s read this information. Ask if they have questions.
  • Optional slide to be placed before “Why Rebalance” slide. Presenter: mention Cruise Control does not work with employer stock and may not work with any investment options that have round tripping limitations.
  • How Are We Doing? Please let us know if this meets your needs, how you use it, what you would add, delete, or change, and other “training nugget” subjects you would like to have. Thanks! Suggestions and requests to: Commander, Navy Installations Command F&FR Training Branch, N947 5720 Integrity Drive Millington, TN 38055-6540 Com: (901) 874-6727 DSN: 882-6727 [email_address]

401(k) SAVINGS 401(k) SAVINGS Presentation Transcript

  • 401(k) SAVINGS & INVESTMENT PLAN No matter how near or far, your future needs your attention…, now!
  • It’s Your Future… Let’s Talk About
    • 401(k) Savings
    • Four Key Investment Terms
    • Eligibility
    • Your Risk Tolerance
    • Enrollment
    • Making Changes
    • Investment Elections
    • Leaving Current Employment
    • Accessing Your Money
    • Income Tax Liability
    • Saving for Your Future
    • Savings + Time + Compounding
    • The Three Legged Stool
    • MassMutual Information Services
    • Retirement Planner
    • Cruise Control & Rebalancing
    • That’s All…
  • 401(k) Savings, 1 of 5
    • 401(k) savings are tax deferred savings as defined by the Internal Revenue Service (IRS)
    • You can contribute up to the current IRS maximum limit on 401(k) accounts
    • Every dollar you save reduces your current “taxable income”, so you pay lower “income” taxes when you contribute to your 401(k) Plan
  • 401(k) Savings, 2 of 5
    • Earnings from your pre-tax contributions are credited to your account; are automatically reinvested for you; and like your contribution, grow tax-deferred
    • 401(k) Plans put more of your retirement planning in your hands
    • As long as you stay in the 401(k) Plan, you can manage your savings program to fit your current budget and to achieve your goals for financial security
  • 401(k) Savings, 3 of 5
    • You decide how much to save and how to invest it
    • The 401(k) Plan has many investment funds from which to choose – you can invest your savings in one of them or you can diversify your investment in percentage increments across several of the funds
    • For example: You can put 10% in one fund, 30% in another, and 60% in a third, etc.
  • 401(k) Savings, 4 of 5
    • You will receive a statement of your account quarterly, so that you can follow the performance of your investment choices
    • You can also see your account on-line
    • MassMutual administers the NAF 401(k) Plan See general consumer information at:
    • http://www.massmutual.com/mmfg/prepare/learn.html
  • 401(k) Savings, 5 of 5
    • Company Matching:
    • You automatically receive a company match when you contribute from one to three percent of your salary
    • Financial advisors encourage investors to use “tax-deferred” and “company-match” programs like the 401(k) Plan
  • Four Key Investment Terms
    • Investment Return is how much money is earned by an investment during a period of time, such as a year, a quarter, a month or a day.
    • Market Risk is a chance that an investment will lose money or have a negative return.
    • Diversification means investing your money in two or more different investments in order to reduce risk, while still trying to maximize return potential.
    • Asset Allocation is your distribution of investment dollars among asset classes, such as stocks, bonds, and cash.
    C: 01816-06
  • Eligibility
    • You can participate if you:
    • Are age 18 or over
    • Are a regular, full-time or part-time NAF employee
    • Notes:
    • Non-resident aliens with no U.S. source of income are NOT eligible to participate in this 401(k) Plan
    • You must be a citizen of the United States to participate
    • Contributions must be made by payroll deduction
    • You may join within 30 days of hire. Current employees may join during open enrollment periods. (Open enrollments occur in the first month of each quarter.)
  • Your Risk Tolerance, 1 of 4
    • Typical
    • Investment
    • Risks:
    Moderate Gain Potential Moderate Risk No Gain Potential No Risk Higher Gain Potential Higher Risk Don’t save Bond Funds Money Market Accounts Stock Funds
  • Your Risk Tolerance, 2 of 4
    • Investor Profile:
    • Complete an investor profile quiz to examine your:
      • Investment timelines
      • Current age and retirement timelines
      • Risk tolerance regarding your money
      • Short and Long Term Financial Plans
      • Current financial situation
    • This short profile quiz, provided by the investment company that administers the NAF 401(k) Plan, will help you choose an appropriate investment strategy that is best for you at this point in time
    • Remember – as your personal/financial condition changes, you can change your investment strategy whenever appropriate
  • Your Risk Tolerance, 3 of 4 Risk Profiler Quiz Don’t know which investment strategy is right for you? By taking the Risk Profiler Quiz, you can find out!
  • Your Risk Tolerance, 4 of 4 Conservative Investor - Sample
  • Enrollment
    • Complete an Enrollment Form and indicate:
      • The percentage of your wages you desire to contribute
      • The funds in which you wish to invest
      • A beneficiary
    • Return the completed enrollment form within the next calendar quarter
    • You will become a 401(k) Plan member beginning the next quarter after enrolling
  • Making Changes
    • You can change your enrollment choices after you join the 401(k) Plan by submitting a completed Participant Change Form to the Benefits Representative or, in some cases, by going on-line
    • You can:
      • Increase/decrease the amount of your contribution (benefits rep)
      • Stop savings at any time and start again at the beginning of any calendar quarter (benefits rep)
      • Change your investment choices at any time on the Web
      • Make new elections for money already in the Plan (Web)
      • Change your beneficiary designation (benefits rep)
      • Change your address (benefits rep)
  • Investment Elections, 1 of 2
    • You can contribute between 1% and 100% of your annual base pay up to the IRS specified “maximum” – for 2006, this is $15,000
    • If you reached age 50 by January 2006 (or you are older) you can make additional contributions up to $5000 ($20,000 max)
    Note: Since saving in this Plan allows you to reduce your taxable income, federal regulations limit the amount you can save in the 401(k) Plan each year.
  • Investment Elections, 2 of 2
    • Your contributions are invested in the funds you choose
    • You may change your investment options
    • You can transfer your existing balance to other investment options
    • If you don’t select one or more investment options, your contributions go into the Money Market investment option.
  • Leaving Current Employment, 1 of 3
    • You will receive the money in your account, if you leave your NAF employment for:
      • Retirement
      • Disability
      • Involuntary Termination
      • Voluntary Separation from Employment
    • Your investments will be “valued” and “locked” the date of your termination
    • Should you have $10,000 or more in the account, you may elect to maintain the account. However, you may NOT make contributions or change any Plan options.
  • Leaving Current Employment, 2 of 3
    • Your balance will be paid, in a lump sum approximately 60-days after receiving your last paycheck
    • Unless you have reached age 59 ½ , you will owe current income taxes and may also have to pay an excise tax on your payment
    • You may avoid these tax payments if you roll your account into a different tax deferred plan [new 401(k) / IRA]
    • Regardless of when you take contributions after age 59 ½, you will owe taxes on this “income” – remember, your contributions are “tax deferred”
  • Leaving Current Employment, 3 of 3
    • You may elect to roll your account to a different tax advantaged account to avoid paying taxes at closeout
    • Your beneficiary will receive the balance of your account if you die before it is paid to you
    • A trust must be established for beneficiaries who are minors – trust establishment is your responsibility
  • Accessing Your Money, 1 of 4
    • Because of the tax advantages of pre-tax savings like the 401(k), federal law limits withdrawals from the Plan while you are still working
    • The committee that administers the Plan must approve all withdrawals to ensure withdrawals meet federal requirements
    • Only one approved withdrawal is allowed per calendar year
  • Accessing Your Money, 2 of 4
    • Before you reach age 59 ½, you can only withdraw money from your account to help resolve defined financial hardships:
      • The purchase of your first primary home
      • Major medical expenses, not covered by insurance
      • Foreclosure or eviction from your primary home
      • College tuition for yourself or a dependent
  • Accessing Your Money, 3 of 4
    • You may only withdraw contributions, your “company match” is not available
    • You may only withdraw the amount needed to meet your hardship expenses; however the withdrawal must be at least $1000.00
    • After you make a hardship withdrawal, you must stop contributions to the Plan for 6 months
  • Accessing Your Money, 4 of 4
    • You may receive your account balance at job termination – additional requirements may apply
    • After age 59 ½, you can make withdrawals for any reason
    • The IRS requires that you withdraw at least a minimum amount, known as a required minimum distribution, from your retirement accounts annually, starting the year you turn age 70 ½
  • Income Tax Liability, 1 of 2
    • You will owe current income taxes on any money you take out of your account
    • You will pay an additional 10% penalty tax on any money withdrawn before age 59 ½; this includes hardship withdrawals.
    • You will NOT pay the 10% penalty tax if early withdrawal is made because of death, disability, or early retirement
  • Income Tax Liability, 2 of 2
    • When you receive final pay out from the Plan, you can transfer it to an IRA account and continue deferring taxes on it
    • You will receive information about tax implications of your pay out or withdrawal when you apply for it
    • You may find it helpful to talk with a tax advisor before your account is paid out
  • Saving for Your Future, 1 of 6
    • The 401(k) Plan is designed to help you save for a long-term goal like retirement – the longer you leave your money in the Plan, the greater your final benefit
    • Social Security is intended to “supplement” your retirement, representing perhaps 25% to 40% of your pre-retirement income
  • Saving for Your Future, 2 of 6
    • Other savings / investment options include:
      • Company Retirement Plan
      • Keoghs
      • IRAs
      • Mutual Funds
      • Real Estate
      • Savings:
        • Money Market Accounts Certificates of Deposit (CDs)
        • US Treasury Bills Passbook Savings
        • US Savings Bonds State/Local Bonds
        • Corporation Bonds
      • Stock Market Investments
      • Insurance Programs
  • Saving for Your Future, 3 of 6
    • Prepare for your future – treat lifelong savings as one of your monthly obligations – pay now and each month for your future security
    • Seek professional assistance
    • Read about savings, retirement planning, and managing your finances
    • Take classes – attend seminars
    • Use the web for information and tools
      • E.g., http://www.youngmoney.com/calculators/retirement_planning/401k_savings
  • Saving for Your Future, 4 of 6 Small Amounts Add Up
    • How much do you spend each week?
      • Fast food/restaurants
      • Coffee/soda/other beverages
      • Snacks (e.g., vending machine)
      • Pizza delivery
      • Magazines
      • Movies
    Shifting a portion of money to your savings can mean more money for your retirement!
  • Saving for Your Future, 5 of 6 Small Amounts Add Up How $10 per week can grow Number of years Assumed rate of return is 8%. Hypothetical example for illustrative purposes only.  Not intended to reflect the actual performance of any specific investment.  Individual experience will likely vary.
  • Saving for Your Future, 6 of 6
    • Resource Examples:
    • Financial Peace , Dave Ramsey, Viking Penguin, New York, NY, 1997; www.daveramsey.com
    • The Millionaire Next Door , Thomas Stanley and William Danko, Longstreet Press, Marietta, GA, 1996
    • Personal Financial Planning Guide , Ernst & Young, John Wiley and Sons, New York, NY, 2000, and Retirement Planning Guide , Ernst & Young, John Wiley and Sons, New York, NY, 1997
    • Forbes Magazine – www.forbes.com
    • Money Magazine – www.magazines.com (for Wall Street Journal, Money, The Economist, Kiplinger’s Personal Finance, Business Week, Financial Times, Business 2.0, Barron’s, Fortune, Entrepreneur, etc.)
    • Wall Street Journal – wallstreetjournal.com and www.wsj.com/home
    • Morningstar Financial Services -- www.morningstar.com
    • CNN–Money, www.money.cnn.com
    • Microsoft/MSN Money – www.moneycentral.msn.com
    • Quicken Financial Planning Software – www.quicken.co
    • Smart Money – www.smartmoney.com
    • Yahoo! Finance – www.finance.yahoo.com
    • AOL Personal Finance – www.finance.aol.com
    • Check out your library, your favorite bookstores, and/or hunt the web. A recent Goggle® search for “money” yielded 270 million
    • “ hits”; “retirement planning” 14.7 million hits; “investment” 125 million; “Savings” 62.5 million; “Financial Advice”, 863 thousand, etc.
    • – one can certainly find help and information on the Internet!
  • Savings + Time + Compounding “ Past performance is not indicative of future results” . 1,745,503.92 590,980.67 40 Years 745,179.72 347,024.70 30 Years 294,510.21 183,387.31 20 Years 91,473.02 73,624.90 10 Years $500/mo @ 8% $500/mo @ 4% EXAMPLE
  • The Three Legged Stool
    • Components of NAF Retirement:
    • Defined Benefit or Pension Plan
      • Employees contribute 1% of salary
      • Pension Benefit determined by preset formula - years of service, annual benefit accrual, high three years salary
    • Defined Contribution or 401(k) Savings Plan
      • Amount available for Retirement determined by amount contributed and investment returns generated by investment options chosen by the employee
    • Social Security
      • Retirement supplement
  • MassMutual Information Services
    • The Journey sm at www.massmutual.com/retire
    • FLASH sm automated telephone services:
    • 1-800-743-5274
      • -- Customer Service Representatives 8 a.m. to 8 p.m. ET
    • Retirement Specialist Group:
    • 1-888-526-6905
      • -- Assist with rollovers and retirement planning
  • MassMutual Retirement Planner
    • Provides an analysis of your ability to reach your retirement income goal
    • Determines a plan to help you reach your goal
    • Provides asset allocation guidance to give you a truly diversified portfolio
    Available on The Journey sm , under the “Solutions” tab – Guided Solution C: 01816-06
  • MassMutual – Cruise Control Available Through The Journey sm
    • You can automatically rebalance your account to match your investment strategy
    • Available 24 hours a day, 365 days a year.
    • May select a model investment strategy, or set up your own strategy
    • You initiate the rebalancing process
    • Can turn rebalancing on and off
    You can rebalance anytime using The Journey sm or FLASH sm www.massmutual.com/retire
  • MassMutual Why Rebalance?
    • Market ups & downs can change your asset allocation over time. Rebalancing can bring your investments back to your original asset allocation.
    Stocks 60% Stocks 70% Fixed-Income 40% Fixed-Income 30% Stocks 60% Fixed-Income 40% Sample allocation data is for illustration purposes only Original Asset Allocation Asset Allocation Over Time Rebalanced Asset Allocation [Note: Asset allocation portfolios are automatically rebalanced for you on a periodic basis.] C: 01816-06
  • That’s all for now…
    • Your future security deserves your attention right now , what are you going to do about it?
    • Suggestions and requests to:
    • Commander, Navy Installations Command (CNIC)
    • F&FR Training Branch, N947
    • Millington, TN 38055-6540
    • Com: (901) 874-6727 DSN: 882-6727
    • [email_address]
    Whatever your savings and investment strategies, do your homework , knowing that past financial performance does not guarantee similar future results!