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Planning for Retirement Needs

Planning for Retirement Needs. SEPs, SIMPLEs, and 403(b) Plans Chapter 6. SEP SIMPLE 403(b) plan. Chapter 6: SEP, SIMPLE, 403(b). Eligibility 21 3 years of service in last five with $550 (2012 & 2013) Full and immediate vesting Discretionary contributions

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Planning for Retirement Needs

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  1. Planning for Retirement Needs SEPs, SIMPLEs, and 403(b) Plans Chapter 6

  2. SEP SIMPLE 403(b) plan Chapter 6: SEP, SIMPLE, 403(b)

  3. Eligibility 21 3 years of service in last five with $550 (2012 & 2013) Full and immediate vesting Discretionary contributions Allocation as level percent of compensation or integrated with Social Security (no other choices) SEP

  4. Salary deferrals (only in grandfathered-pre ’97 plans) Simple document (IRS form available) and no reporting Funded with IRAs (no loans, life insurance) SEP

  5. Simple administration Allocation method limited 100% vesting Cover part-time employees 3 years of service No participant loans Complex admin. Allocation method is quite flexible 3-year cliff vesting Cover full-time employees 1 year of service (exceptions) Participant loans SEP vs. Profit-Sharing

  6. Employer cannot maintain any other tax-advantaged plan Employer has 100 or fewer employees Eligibility—must cover those who earn $5,000 in two prior years Defer $11,500 (for 2012) $12,000 (2013) Additional $2,500 deferral for those over age 50 SIMPLE

  7. Employer contribution must be either 100 percent match on first 3 percent deferral (reduce to 1 percent) 2 percent nonelective for all eligible employees Funded with IRAs no loans no life insurance SIMPLE

  8. Simple administration Lower salary deferral Rigid employer contribution require. Cover part-time employees 3 years of service No participant loans Complex admin. Higher salary deferral Flexible employer contribution require. Cover full-time with 1 year of service (with exceptions) Participant loans SIMPLE vs. 401(k)

  9. Only established by 501(c)(3) and public schools Can’t cover independent contractors Funded with annuities and mutual funds 403(b) Plans

  10. Loans In-service withdrawals upon financial hardship Must cover employees willing to defer $200 Can provide for “automatic enrollment” Can allow Roth elections 403(b) Features

  11. Same salary deferral limit as 401(k) Total contributions subject Code Sec. 415 dollar limit Additional catchup for 15 years of service 403(b) Contribution Limits

  12. Not covered by ERISA Still must meet plan document requirements Clarify who is responsible for major administrative tasks 403(b) Plans Only with Employee Salary Deferrals

  13. Covered under ERISA Must meet qualified plan coverage requirements 403(b) Plans withEmployer Contributions

  14. Survey, Inc. wishes to establish a tax-advantaged plan for its employees. The company is relatively new, and profits fluctuate wildly. The employer would like to reward employees when the company does well, and is somewhat concerned that the company has no retirement plan at all, which might make it difficult to attract experienced people to work there. The company is concerned about the costs of maintaining the plan. Which Plan is Best?

  15. Near Retirement, Inc. is a closely-held company whose original owners are about to retire. The company has a defined-benefit pension plan, which has already served the purpose of providing benefits for the current owners. Assume that the owners do not have family members interested in the business, the employees have worked for them for a long time, and that the employees are potential buyers of the company. Which Plan is Best?

  16. Stable, Inc. has had a modest money-purchase pension plan for a long time. Participation in the plan precludes employees from participating in a tax-deferred IRA. The company realizes that the plan is not adequate but can’t afford additional retirement benefits. Which Plan is Best?

  17. Teeny-tiny Corp. has four employees. The owner realizes that competing employers are sponsoring 401(k) plans. To compete with the other employers the owner would like a similar plan but is not willing to pay the administrative expenses associated with that type of plan. Which Plan is Best?

  18. simplified employee pension (SEP) savings incentive match plan for employees (SIMPLE) 403(b) plan Sec. 501(c)(3) organizations Vocabulary

  19. A SEP may provide that participants only become fully vested after completion of 5 years of service. Similar to a profit-sharing plan contributions to a SEP are discretionary. Contributions must be allocated in a SEP as a level percentage of compensation or integrated with Social Security. A SEP can exclude all part-time employees. A SEP can have a participant loan program. True/False Questions

  20. An employer may sponsor both a SEP and a SIMPLE. An employer with fewer than 200 employees may sponsor a SIMPLE. In a SIMPLE, plan assets may be invested in life insurance policies on the plan participants. An employer can contribute both a 3% matching contribution and a 2% nonelective contribution. The salary deferral limit is the same for SIMPLEs and 401(k) plans. True/False Questions

  21. The assets of a 403(b) plan may be invested in any type of investment option available to a qualified plan. A doctor treated as an independent contractor at a hospital can be covered under the hospitals 403(b) plan as long as the doctor provides 1,000 hours of service each year. A 403(b) program is not allowed to offer a Roth election to plan participants. A 403(b) plan that is not covered by ERISA does not have to have a formal plan document. 403(b) plans have a special coverage requirement that in most cases requires that all full time employees are given the right to make salary deferral elections. 403(b) plans are subject to the ADP test. True/False Questions

  22. SEP $49,000 allocation limit 25% maximum deduction Discretionary contribution Allocation formula level percent or integrated with SS Distributions any time Cover part-time ($550 in 3 of last 5 years) Simple administration 100% vesting No loans Grandfathered SARSEP SIMPLE Only plan 100 or fewer employees Cover those with $5,000 in any two prior years $11,500 salary deferral $2,500 catchup 100% vesting No loans Distributions any time Employer contribution only 2% nonelective OR Dollar for dollar match up to 3% (reduce to 1% in 2 of 5 years) Chapter 6 Review

  23. 403(b) Funded annuities/mutual Public school/501(c)(3) No independent contractors $49,000 allocation limit 25% maximum deduction Same salary deferral limits as 401(k) 403(b) Employer match and/or nonelective contribution Full-time employees option to make salary deferrals Roth election is allowed Not subject to ADP test Chapter 6 Review

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