Overview of Employee Benefits (DWC University - Workshop #1)


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This presentations provides an overview of the various types of benefit programs that companies offer to their employees. It is the first session in a series that will ultimately provide in-depth coverage of employer-sponsored retirement programs.

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Overview of Employee Benefits (DWC University - Workshop #1)

  1. 1. Overview of Employee BenefitsDWC University – Workshop 1<br />Presented By<br />Adam C. Pozek,<br />ERPA, QPA, QPFC<br />Partner<br />DWC ERISA<br />Consultants, LLC<br />
  2. 2. Part 1<br />Introduction, Schedule and Format<br />
  3. 3. Introduction<br />Why are we here?<br />Consistency of knowledge<br />Uniformity of advice<br />Why do we care?<br />Client service<br />Liability protection<br />Competitive advantage<br />Reputation risk<br />Creative solutions<br />
  4. 4. Schedule & Format<br />Once or twice per week through January<br />Most sessions are 90 minutes but some are shorter<br />Material is cumulative<br />Interaction is encouraged BUT remain on topic<br />Content will include…<br />Rules and regulations<br />Practical application<br />Case studies<br />Operational efficiencies, excel tricks, etc.<br />Homework<br />
  5. 5. Part 2<br />Employee<br />Benefits<br />
  6. 6. Employee Benefits<br />Benefits provided by employers to their employees<br />Three broad categories<br />Retirement<br />Health<br />Welfare<br />Reasons<br />Attract and retain employees<br />Paternalism<br />Government mandate<br />Tax deductions<br />Cost<br />$1.5 trillion in 2007, according to EBRI<br />
  7. 7. Employee Benefits<br />Source: Joint Committee on Taxation January 2010 Estimates (http://www.jct.gov/publications.html?func=startdown&id=3642)<br />
  8. 8. Retirement Benefits<br />Designed to provide retirement savings for covered employees<br />Subject to federal law<br />Generally include the following:<br />Qualified plans<br />403(b) and 457 plans<br />SIMPLEs, SEPs, Payroll-deduction IRAs<br />Non-qualified plans<br />
  9. 9. Health Benefits<br />Generally include the following:<br />Medical<br />Dental and vision<br />Long term care<br />Funding<br />Insurance<br />Full or partial self-funding<br />Trust account<br />General assets of plan sponsor<br />Subject to federal and state law<br />
  10. 10. Welfare Benefits<br />Generally include the following<br />Life and disability<br />FSAs, HRAs, MSAs and HSAs<br />Transportation<br />Tuition reimbursement<br />Other fringe benefits<br />Subject to federal and state law<br />
  11. 11. Contrast To Individual Benefits<br />Retirement<br />Greater complexity<br />More uniform benefits<br />Higher limits<br />Different availability<br />Different tax benefits<br />Health<br />Greater availability<br />Expanded options<br />Welfare<br />Generally not available individually<br />
  12. 12. How To Learn More<br />Retirement<br />These classes<br />BenefitsLink<br />Free daily e-newsletter<br />Message boards<br />Professional credentials<br />QKA, QPA, QPFC, CPC, TGPC (www.asppa.org)<br />APR, APA (www.nipa.org)<br />ERPA (www.erpaexam.org)<br />ERISA Outline Book<br />No substitute for experience<br />
  13. 13. How To Learn More<br />Health and welfare<br />State insurance license<br />Professional credentials<br />CEBS (www.ifebp.org)<br />RHU, REBC (www.theamericancollege.edu)<br />In general<br />www.ebri.org/publications/books/index.cfm?fa=databook<br />
  14. 14. Part 3<br />What Is The Private<br />Retirement System?<br />
  15. 15. The Private Retirement System<br />Not Social Security and government plans<br />Qualified plans<br />Defined contribution<br />Defined benefit<br />Other employer-sponsored plans<br />Simplified Employee Pension (SEP)<br />Savings Incentive Match Plan for Employees (SIMPLE)<br />403(b) Plan<br />Individual retirement arrangements<br />
  16. 16. Putting It In Context<br />Largest financial asset most Americans hold<br />Second largest tax expenditure in the Code<br />Nearly 13% of the budget<br />Larger than US GDP<br />Only source of mutual fund holdings for 316 million US households<br />
  17. 17. Putting It In Context – Number of Plans<br />(Thousands)<br />Source: Employee Benefits Research Institute (June 2008)<br />
  18. 18. Putting It In Context – Assets<br />(Trillions)<br />Source: Investment Company Institute Research Fundamentals, October 2008<br />
  19. 19. Putting It In Context – Number of Workers<br />Source: Employee Benefits Research Institute (June 2008)<br />
  20. 20. Putting It Together<br />108 million private sector workers x 53% =<br />57.2 million participants<br />50.8 million non-participants<br />$6.8T private plans/$57.5T value global public cos =<br />12%<br />
  21. 21. Effectiveness of 401(k) Plans<br />Participation Rates by Moderate Income ($30,000 - $50,000) Workers<br />Source: Employee Benefits Research Institute (2010)<br />
  22. 22. Part 4<br />Qualified<br />Plans<br />
  23. 23. Qualified Plans<br />Provide significant tax benefits to employers and employees<br />Must be nondiscriminatory as to coverage and benefits<br />Must hold assets in trust, protected from employer, creditors, legal judgments, etc.<br />Must be operated in the best interest of participants<br />Required to file annual reports with the government<br />
  24. 24. Types of Qualified Plans<br />Defined benefit (“DB”) plans<br />Traditional<br />412(i)<br />Cash Balance<br />Defined contribution (“DC”) plans<br />Profit sharing plans<br />401(k)<br />Employee stock ownership plans<br />Money purchase pension plans<br />Target benefit plans<br />
  25. 25. DB Plans<br />Define benefits to be paid at retirement<br />Based on compensation, service and/or participation<br />Participant earns a portion of benefit each year<br />Maximum benefit is $195,000 per year (indexed)<br />Maximum deductible contribution up to 150% of funding requirement<br />
  26. 26. DB Plans<br />After-tax employee contributions may be permitted/required<br />No individual accounts<br />Employer bears investment risk<br />Benefit expressed as annuity at NRA though actual payment may be different<br />Forms<br />Lump sum, etc.<br />Timing<br />
  27. 27. Examples of DB Formulas<br />Unit-benefit<br />2% of final average compensation x YOS<br />Flat percentage of earnings<br />40% of final average compensation<br />Flat amount based on service<br />$200 per month x YOS<br />Flat benefit<br />$1,200 per month<br />Cash balance<br />2% of compensation + interest at 30-year Treasury rate<br />
  28. 28. DB Funding<br />
  29. 29. DC Plans<br />Employee and employer contributions<br />May be mandatory or discretionary<br />Unspecified future benefit<br />Usually based on current year compensation<br />Employee bears investment risk<br />Maximum contribution is $49,000 (indexed)<br />Higher if age 50+<br />
  30. 30. Part 5<br />Other<br />Employer Plans<br />
  31. 31. 403(b) Plans<br />Only for non-profits and public schools<br />Similar to 401(k) plans<br />May include employer and employee contributions<br />Different eligibility and nondiscrimination requirements<br />May or may not be subject to ERISA<br />Government plans exempt<br />Church plans exempt but may elect to be covered<br />Limited employer involvement plans exempt<br />
  32. 32. SEPs<br />Employer contributions only<br />Salary proportional allocations<br />DC contribution limits<br />Funding through IRA accounts<br />Eligibility restrictions<br />Any employee earning at least $550 in 3 of the last 5 years<br />Easy and inexpensive to establish<br />Form 5305<br />Minimal maintenance<br />
  33. 33. SIMPLEs<br />May be IRA-type or 401(k)-type<br />Limited to employers with fewer than 100 employees on the first day of the year<br />Must be the only plan of an employer in a given year<br />SIMPLE 401(k) must file Form 5500 each year<br />
  34. 34. SIMPLEs<br />Salary deferrals<br />IRA version limited to $11,500 + $2,500 catch-up<br />401(k) version same as qualified plans<br />Mandatory employer contribution<br />Match of 100% of the first 3% deferred, or<br />Nonelective contribution of 2% of pay<br />Immediate vesting required<br />
  35. 35. Part 6<br />Individual<br />Retirement Plans<br />
  36. 36. Deductible IRAs<br />Maximum deductible contribution<br />$5,000<br />Catch-up of $1,000 for those age 50+<br />Deduction subject to AGI limit<br />Married<br />$89,000 if also covered by employer plan<br />$166,ooo if not covered by employer plan<br />Single<br />$55,000 if covered by employer plan<br />No cap if not covered by employer plan<br />
  37. 37. Non-Deductible IRAs<br />Contributions not deductible<br />Account grows tax-deferred<br />Tax assessed on earnings upon withdrawal<br />No AGI limit<br />Same contribution limits<br />
  38. 38. Roth IRAs<br />Contributions not deductible<br />Tax-free withdrawals of basis and earnings if<br />At least age 59 ½, and<br />5-year period has elapsed<br />Eligibility phased out based on AGI<br />Married<br />$166,000 to $176,000<br />Single<br />$105,000 to $120,000<br />No AGI limit to convert non-deductible IRA to Roth<br />
  39. 39. Sources of IRA Assets<br />Source: Investment Company Institute Research Fundamentals, October 2008<br />
  40. 40. Page | 40<br />Questions<br />
  41. 41. The content of this presentation general in nature and is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances.<br />To ensure compliance with the requirements imposed on us by IRS Circular 230, we inform you that any tax advice contained in this communication (including any attachments) is not intended and cannot be used for the purpose of: (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.<br />Caveats & Disclaimers<br />
  42. 42. Appendix<br />
  43. 43. About DWC ERISA Consultants, LLC<br />Established in 1999<br />National, full-service ERISA consulting firm<br />Locations in multiple states<br />Nearly 750 clients nationwide<br />No E&O claims since company inception<br />
  44. 44. Expertise & Leadership<br />Our consultants…<br />Average more than 10 years of experience<br />Are registered with the IRS as return preparers, subject to strict ethical standards<br />Hold active industry leadership roles<br />IRS Advisory Committee on Tax Exempt & Government Entities<br />ASPPA Board of Directors and Executive Committee<br />ASPPA Government Affairs Committee<br />Editorial Board of The Journal of Pension Benefits<br />
  45. 45. Professional Development<br />Mandatory professional credentialing program<br />In-house training on technical developments and process improvements<br />Required CPE and participation in industry conferences and events<br />
  46. 46. Relationship-Based Service & Cost-Effective Pricing<br />DWC’s service model is straight-forward. We assign a consultant and a partner to each plan. DWC adheres to a strict peer-review policy, so all work is reviewed prior to delivery to our clients. Our structure provides high-touch, accurate service to our clients while maintaining cost-effective pricing.<br />At DWC we dig deeper to understand each client’s unique financial and operational needs. With decades of experience, critical thinking and exceptional service, DWC combines strategic solutions with flawless execution. <br />