Keynote Presentation - HRMA

HRMA - St. Louis
January 20, 2016
Susan Conrad ([email protected])
636-532-7824
Plancorp, LLC
Time in retirement
Probability of living beyond the age of 65
Chance of living beyond the age of…
Male
Chance of living beyond the age of…
Female
At least one person has a chance of
living beyond the age of…
Couple
50%
25%
85
92
25%
50%
88
94
Plancorp, LLC
65
70
75
50%
25%
92
80
85
97
90
95
100
Data extracted from: Analysis of the 2007 Period Life Table for Social Security Area Population. Retrieved from
http://www.ssa.gov/oact/STATS/table4c6.html, downloaded March 7, 2013
3
A Generation Lost
Over 32 million late
boomers may never
be able to retire,
a population the
size of the state of
California.
72 million
workers will be
at retirement
age by 2020
76% of workers
expect to delay
retirement.
Plancorp, LLC
Unprepared & underserved leads to
unpredictable outcomes.
http://www.plansponsor.com/Downturn_Remakes_Americans_Retirement_Expectations.aspx
http://www.fidelity.com/inside-fidelity/employer-services/fidelity-investments-study-finds-shift-in-generation-y-attitudes
http://www.lifeinsuranceselling.com/Issues/2010/October-2010/Pages/MDRT-study-sheds-light-on-connecting-with-Generation-X.aspx?page=1
http://www.plansponsor.com/Younger_Boomers_Worry_More_about_Retirement_than_Older_Boomers.aspx
http://www.metlife.com/assets/cao/mmi/publications/studies/2010/mmi-early-boomers.pdf The MetLife Report on The Oldest Boomers, May 2013
Retirement savings crisis
Reported Total Savings and Investments Among Working Americans
Amount Saved
Less than $10,000
$10,000 - $24,999
All Workers Ages 25-34
48%
12%
57%
19%
Ages 35-44
Ages 45-54
Ages 55+
10%
8%
9%
51%
46%
31%
Plancorp, LLC
$25,000 - $49,999
$50,000 - $99,999
$100,000 - $249,999
$250,000 or More
10%
10%
10%
10%
12%
6%
5%
1%
11%
14%
12%
3%
9%
8%
9%
12%
17%
22%
12%
18%
Source: 2012 Retirement Confidence Survey, Employee Benefits Research Institute and Mathew Greenwald & Associates,
www.ebri.org
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Employee & Employer Goals
Plancorp, LLC
Let me retire on my own terms.
We need to survive in an ever
changing competitive environment.
Insurance Costs & Salary Differential Add Up
Annual employer
Healthcare &
Disability Premiums
$3,100
$11,300
Plancorp, LLC
20 - 30
Average
Annual salary
Differential
$38,400
20 - 30
Source: CIGNA (healthcare premium) Source: www.lanl.gov (Voluntary LTD rates); Ge Re Research,
www.genre.com/aboutus/press-releases/gen-re-announces-2013-us-group-disability-and-group-term-lifemarketsurvey-results.html Source: Bureau of Labor Statistics, www.bls.gov/news.release/archives/wkyeng_10202015.pdf (Salary Differential)
60+
$50,700
60+
Three companies with 100 employees
Age 60+
Age 40 - 60
Age < 40
Annual Healthcare &
Disability
Company 1
Company 2
Company 3
45%
40%
35%
30%
25%
20%
40%
10%
55%
Plancorp, LLC
Annual Salary Costs
Savings
$760,000
$4.9m
$660,000
$550,000
$250,000
$510,000
$4.8m
Source: CIGNA (healthcare premium) Source: www.lanl.gov (Voluntary LTD rates); Ge Re Research,
www.genre.com/aboutus/press-releases/gen-re-announces-2013-us-group-disability-and-group-term-life-market-survey-results.html
Source: Bureau of Labor Statistics, www.bls.gov/news.release/archives/wkyeng_10202015.pdf (Salary Differential)
$4.6m
Financially Stressed Employees
Costs
employers
$5,000
annually per
employee on
average
Plancorp, LLC
http://www.forbes.com/sites/financialfinesse/2013/06/13/are-you-financially-stressed/”
https://www.kansascityfed.org/publicat/cap/carwp09-01.pdf
Research objectives:
To explore the
disconnect
between the value
employees
place on their
employer-provided
benefits and other
aspects of their lives, to
understand
employees’ perceptions
of their benefits, and to
determine the level of
interest in employee
benefits and personal
finance guidance tools.
Plancorp, LLC
Research released October 2015 – Employee Benefits Security Study – conducted by KRC Research on behalf of MassMutual Retirement Services
Do I save for
healthcare
costs today?
As health savings
accounts and other
benefits become more
prevalent, there will be
competition for savings.
Should I
start saving
for
retirement?
Should I pay
off school
loans before
saving for
retirement?
Plancorp, LLC
Plan Design
Dual approach to
positive outcomes
Plancorp, LLC
Employee Action
•
•
•
•
•
Five Tier Focus
Plan Design
Fiduciary Responsibilities & Governance
Competitive Fees and Expenses
Disciplined Investment Strategy
Successful Participant Outcomes
Plancorp, LLC
SIMPLE IRA for Small Businesses
• Fewer than 100 employees
• Cannot offer in conjunction with another plan
• Contributions
– Employee – Maximum $12,000 + $2,500 if over age 50
– Employer
Plancorp, LLC
• 2% to all eligible employees or
• Dollar-for-dollar match up to 3% of compensation
• Tax return filings - not required
Employer must contribute only for employees with >$5,000 in annual compensation
for prior 2 yrs w/reasonable expectation of the same in current year.
14
SEP – Simplified Employer Pension
•
•
•
•
•
Contribution limited to 25% of pay
Employer contributes to SEP- IRAs
No startup or plan management costs
Sole proprietors, partnership & corporations are eligible
Plan must cover all eligible employees
Plancorp, LLC
– Age 21 and over
– Worked at least 3 of the last 5 years
• Must contribute the same percentage to all employees
• Tax return filings - not required
15
Profit Sharing Plan with 401(k)
Defined Contribution Plan
• Eligibility requirements defined
• Employer contributions discretionary
• Employee 401(k) up to $18,000 + $6,000 if over age
50
• Loans and Hardship withdrawals optional
• Roth and Traditional 401(k) options
• Safe Harbor provision recommended
• Custom plan design features
Plancorp, LLC
401(k) maximum contributions based on 2016 limits.
16
Plan Design Considerations
Are the owners/executives…
• Able to contribute the maximum 401(k) contribution?
Are they receiving refunds at year-end due to failed
tests?
– A Safe Harbor plan removes the testing requirement and
allows everyone to contribute the maximum $18,000 + $6,000
if over age 50.
Plancorp, LLC
• Interested in contributing a profit sharing contribution if
the majority is allocated to their accounts?
– A New Comparability plan design can allow this depending
upon the plan’s specific employee demographics
401(k) maximum contributions based on 2016 limits.
17
Plan Design Options
Plancorp, LLC
18
Plancorp, LLC
19
Defined Benefit Pension Plan
• Plan Sponsor promises a specified monthly benefit at
retirement
• Amount is predetermined by a formula based on the
employees earnings history, tenure of service and age.
• Generally permit employer contributions only
• Actuarial calculation and tax returns required annually
• Investments are determined by the employer
• Limits can exceed profit sharing / 401(k) plans
Plancorp, LLC
20
DB/DC Combo
Defined Benefit/Defined Contribution
• Two separate plans working in tandem
• Defined Benefit Cash Balance Plan
– Contributions determined by age allowing larger contributions for senior
employees
– Contributions can significantly exceed 401(k) contribution limits
– Interest (fixed rate or tied to an index) added to accounts annually
– If investments perform better than expected, required contributions decrease
Plancorp, LLC
• Defined Contribution Plan generally Safe Harbor 401(k)
• Reliable cash flows needed
• Portable accounts
21
Comparison of Roth vs. Traditional
Traditional
Roth
Eligibility
All employees
All employees
$18,000, plus $6,000 if age 50+*
$18,000, plus $6,000 if age 50+*
2016 Contribution Limits
*Limits are combined
If the following criteria are met: 5 year
holding period and distribution due to:
Tax-Free Qualified
Not available. All distributions are
- Attainment of age 59.5
Distributions
taxed as ordinary income.
-Disability
-Death
-Age 59.5
-Age 59.5
Distributions Permitted
-Death
-Death
(may be subject to taxation
-Disability
-Disability
if the distribution is not a
-Separation from service
-Separation from service
Qualified Distribution)
-Financial hardship
-Financial hardship
Applicable to all amounts distributed
IRS 10% Premature
Applicable to earnings distributed prior
prior to age 59.5, unless an exception
Distribution Penalty Tax
to age 59.5, unless an exception applies
applies
Loans Available
Yes
Yes
Plancorp, LLC
Required Minimum
Distributions
Yes
Yes (Not required from Roth IRA
during the owner's lifetime.)
22
Fiduciary Liability
Fi360 provides tools to help clients gather,
grow & protect assets through better
investment and business decision making.
AIF – Accredited Investment Fiduciary
certification with annual CE requirement
for individual fiduciaries
Plancorp, LLC
Cefex - Center for Fiduciary Excellence
certification includes an independent annual
fiduciary audit.
23
Fiduciary Responsibility & Financial Advisors
Non-Fiduciary
• No explicit
acknowledgement of
fiduciary responsibility
with respect to the plan
or its participants
ERISA § 3(21) Fiduciary
(limited scope)
• Can provide guidance
regarding investment
options
• Has authority to render
investment advice to
plan sponsor for
compensation with respect
to plan assets
ERISA § 3(38)
Investment Manager
• Legal liability for investment
selection, monitoring and
model portfolio construction.
• Must be a bank, insurance
company, or RIA
Plancorp, LLC
• May be subject to
conflicts of interest
• Investment guidance only
has to be suitable based
upon services provided.
• Agrees to adhere to a
fiduciary standard and is
thereby legally liable to serve
the client’s best interest.
24
Value Relative to Cost
Plancorp, LLC
2016 Chevy Spark
Starting MRSP: $15,000
2016 Corvette Z06
Starting MRSP:>$100,000
2016 Toyota Camry
Starting MRSP: $30,000
25
20-Year Annualized Returns by Asset Class
12%
10%
8%
6%
11.5%
(1995-2014)
9.9%
6.2%
5.9%
5.7%
5.4%
Plancorp, LLC
4%
2%
3.2%
2.5%
2.4%
0%
Source: Dalbar, Inc. Indexes include REITs: NAREIT Equity REIT Index; International: MSCI EAFE; Oil: WTI Index; Bonds: Barclays Capital US Aggregate Index; Homes: median sale price of existing single-family
homes; Gold: USD/troy oz; Inflation: CPI. Average Investor return is based on a Dalbar Inc. analysis, which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a
measure or investor behavior.
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Target Risk or
Target Date
Roth 401(k)
Competitive
Plan
Plancorp, LLC
Auto Enrollment
Auto Escalation
Focus on the long-term
Plancorp, LLC
Bottom Line for Employers
Structure your plan to:
• Meet your current goals and objectives
• Conform to fiduciary guidelines
• Optimize long-term returns and outcomes
• Incorporate guidance tools and holistic
solutions
Plancorp, LLC