Retirement Planning and Employee Benefits for Financial Planners

1. Retirement Planning and Employee Benefits for Financial Planners Chapter 10: SIMPLES, 403(b) Plans, and 457 Plans

2. SIMPLEs • Savings Incentive Match Plans for Employees (SIMPLEs). • Retirement plans for small employers. • Easy to establish. • Funds are deposited in employee’s IRA • Immediate 100% vesting all contributions • Easy to maintain. • Similar tax advantages to qualified plans. • Employee elective deferral contributions. • SIMPLE IRA or 401(k)

3. Establishing a SIMPLE • Can only be established by employers < 100 employees • Must be a calendar year plan. • To establish complete and provide participants with either Form 5304-SIMPLE or Form 5305-SIMPLE. • Provide participants with 60-day period to elect deferral. • Employer cannot maintain a qualified plan. • The participant is 100% vested in all contributions to the SIMPLE.

4. SIMPLE IRAs • Eligibility: earned $5,000 in either of last two years and expect to this year • Employee Elective Deferrals • Maximum $12,000 (2014), plus $2,500 (2014) as catch-up contribution for those age 50 and over. • Not limited to 25% of compensation • Employer Contributions • Employer Matching Contributions • Dollar-for-dollar match up to 3% of compensation or • 2% of compensation contribution to each eligible employee.

5. Withdrawals and Distributions • Ordinary income to recipient. • May be rolled over to an IRA or other qualified plan. • May be subject to early withdrawal penalties. • 25%, rather than 10%, penalty if the withdrawal is completed within the first two years of the employee’s participation in the plan. • Subject to IRA early withdrawal exclusions.

6. 403(b) Plans – Tax Sheltered Annuities • Retirement plan for the following: • Public schools or educational organizations, and • Tax-exempt Organizations under IRC Section 501(c)(3).

7. ERISA • If pension plan of non-profit, ERISA applies • Excluded from ERISA if only minimal employer involvement • Church and government 403(b) plans not subject to ERISA • Plan must meet the following tests: • Nondiscrimination test • Matching contributions must satisfy ACP test • Plan must offer the following distribution options: • Preretirement Joint and Survivor Annuity • Qualified Joint and Survivor (QJSA)

8. Eligibility • Eligibility • Plan may require employees to meet the general eligibility requirements of: • Age 21 and one year of service. • Vesting • The participant is 100% vested in all contributions to a 403(b) plan.

9. Contributions to 403(b) Plans • Employee elective deferrals: • Tax deductible • Subject to payroll taxes • Limited to $17,500 per year for 2014, plus $5,500 for 2014 for catch-up (50 and over) • Combined limit with other CODA plans • Non-elective contributions: not a salary deferral • Contributions by the employer • Can also make after-tax contributions

10. 15-Year Catch-Up Contributions • Permits up to an additional $15,000 (maximum $3,000 additional per year) of contributions to the 403(b). • Participant must have completed 15 years of service with the employer. • For 2014, maximum deferral contribution would be $26,000. • $17,500 – Employee Deferral • $5,500 – Age 50 and over catch-up • $3,000 – 15-Year Catch-Up

11. Investment Choices/Loans • Funds within a 403(b) account can only be invested in either of the following: • Insurance Annuity Contracts • Mutual Funds • Loans • Only permissible from ERISA plans • Subject to same rules as loans from 401(k) plans

12. Distributions from 403(b) Plans • Distributions related to employee deferral contributions can only be paid after the following: • 59½ • Death • Separation from Service • Disability • Hardship (as defined in Chapter 5) • Distributions from nonelective contributions are not restricted. • Distributions are taxed as ordinary income, and potentially subject to a 10% penalty. • RMD rules apply to 403(b) plans

13. 457 Plans • Nonqualified Deferred Compensation Plan • Eligible tax-exempt entities • Eligible governmental entities • Employee elective tax-deferred savings

14. Eligible Entities • Trade Associations • Religious Organizations (Not CHURCHES) • Private Hospitals • Rural Electric Cooperatives • Farmers’ Cooperatives • Private Schools • Labor Unions • Charitable Organizations • Non government 457 plans: subject to claims of employer’s creditors • States • Political Subdivisions of a State • State Agencies

15. Eligibility • Eligibility • Must agree prior to start of month to defer income • No years of service requirement • Vesting • 3-year cliff vesting for employer contributions

16. Contributions to 457 Plans • Employee elective deferrals: • Tax deductible • Subject to payroll taxes • Limited to $17,500 per year for 2014, plus $5,500 for 2014 for catch-up (50 and over) if government plan • Limited to earned income • But can also contribute $17,500 to 403(b) or 401(k) during same year • Employer matching contributions count towards $17,500 per year limit

17. 3-Year Catch-Up • Three years prior to normal retirement age an employee may defer an additional $17,500 for 2014 to the 457 plan. • Limited to prior unused deferral amounts. • Maximum contribution equals $35,000 for 2014. • $17,500 for 2014 deferral contribution + $17,500 for 2014 catch-up contribution. • Cannot use 50 and over catch-up contribution when using the 3-year catch-up.

18. Distributions from 457 Plans • Government 457 plans • No 10% penalty if take distribution when retire or leave employer prior to 59 1/2 • RMD rules apply to 457 plans