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Solid Finances Sponsor

Solid Finances Sponsor. This program is made possible by a grant from the FINRA Investor Education Foundation through a partnership with United Way Worldwide. Employer Retirement Plans & Social Security. Joel Schumacher MSU Extension.

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Solid Finances Sponsor

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  1. Solid Finances Sponsor • This program is made possible by a grant from the FINRA Investor Education Foundation through a partnership with United Way Worldwide.

  2. Employer Retirement Plans&Social Security Joel Schumacher MSU Extension

  3. Question A: How many years have you worked for your current employer? • Less than 2 • 2 to 5 • 6 to 10 • 11 to 20 • 21 or more

  4. Retirement Income • Three Legged Stool • Social Security • Employer Retirement Plans • Personal Savings • Additional Sources • Work • Asset Sale

  5. Two Types of Employer Plans • Defined Benefit Plan Pension • Defined Contribution 401k 403b 457 SEP Simple Deferred Compensation Plan ESOP KSOP Profit Sharing Plan

  6. Question B: What type of plan do you currently participate in? • Defined Benefit • Defined Contribution • Both • Neither

  7. Defined Benefit Plans • Employee and Employer Contribute • The employee rate is a fixed percentage. • The Employer is responsible for investments. • Selection of Investments • Return on Investments • The Employee is promised a retirement benefit based on a formula.

  8. Basic Benefit Formula Monthly Benefit = Years of Service x Average Salary x Retirement Factor • Typical Retirement Factors: 1.5% to 2.0% • Average salary is typically calculated over an employee’s highest 36 to 60 month period

  9. MUS Specifics • PERS (If hired before 7/1/2011) • 1.7857% Factor for Years of Service under 25 • 2.00% Factor for Years of Service Over 25 • Highest 36 months of compensation • PERS (If hired after 7/1/2011) • 1.5% Factor for 5 to 10 years of service • 1.7857% Factor for 10-30 years • 2.0% Factor for 30 or more years • Highest 60 months of compensation

  10. Benefit Examples • Employee Age 60 • 24 years x $2,500 x .01785 = $1,071 • About 42% of final salary • Employee Age 60 • 30 years x $3,500 x .02 = $1,800 • About 60% of final salary

  11. When can you claim your PERS benefit? • Early retirement (hired before 7/1/11) • 5 years of service, Age 50 • 25 years of Service • Service retirement (hired before 7/1/11) • 5 years of service, Age 60 • 30 years of service • Age 65

  12. When can you claim your PERS benefit? • Early retirement (hired after 7/1/11) • 5 years of service, Age 55 • Service retirement (hired after 7/1/11) • 5 years of service, Age 65 • 30 years of service • Age 70

  13. PERS Payment Options • Participant’s Life • Participant & Spouse’s lives • Spouse receives same benefit • Spouse receives 50% benefit • Longer of Participant’s life or 10 years • Longer of Participant’s life or 20 years

  14. Defined Benefit Plans • Where can I find out more information? • Summary Plan Description • Member’s Handbook • Available from your Human Resource Office

  15. Defined Contribution Plans • Lots of Different Names • IRS code section that provides the rules for • For Profit Companies is 401 • Sub-section “k” refers to employee contributions • Non-Profit Employers is 403 • Sub-section “b” refers to employee contributions • Government Employers is 457 • IRS code Section for IRAs is 408 • SEP Plans rules are in 408

  16. Defined Contribution (DC) Plans • Many Different Features of DC Plans • Common features • Eligibility Rules • Employee Contributions (maximum amounts) • Employer Contributions • Match or Profit Sharing • Vesting

  17. Eligibility Rules • New employees may have to wait to join the plan • Often plans have quarterly, semi-annual or annual entry dates • Plans may require up to one year waiting periods to join

  18. Employee Contributions • Most plans allow employee contributions • Some plans require employee contributions • Most plans all Employee to select their contribution level • IRS Rules place a maximum on how much can be contributed annually • 2012 limit is $17,000 • Employees over age 50 can contribute an extra “catch-up” contribution • 2012 limit is $5,500

  19. Employer Contributions • Several Types of Contributions • Matching • Employees must contribute to receive the match • Profit Sharing • All eligible employees receive the employer contribution.

  20. Employer Matching Examples • 100% of the first 3% and 50% of the next 2% • Employee Contributes 0% Employer 0% • Employee Contributes 3% Employer 3% • Employee Contributes 5% Employer 4% • Employee Contributes 10% Employer 4% • 100% of the first 6% • 50% of the first 10%

  21. Profit Sharing Examples • Example A: 3% of an employees salary • Example B: $3,000 divided evenly based on all employees salary • Employee A, $20,000 Salary Employer $1,000 • Employee B, $40,000 Salary Employer $2,000

  22. MUS Examples • TIAA-CREF • Employee contributes 7.044% • Employer contributes 5.956% • PERS-Defined Contribution • Employee contributes 6.90% • Employer contributes 6.90% • Plus 0.27% to Plan Choice/Long-Term Disability Trust

  23. Vesting • Employee contributions are always 100% vested. • Employer contributions may have a vesting schedule. • If you terminate employment before a certain number of years you may not receive 100% of the employer contributions.

  24. Vesting Examples • Common Schedules • Vesting 2/20 • 1 year of service 0%; 2 years 20%; 3 years 40%; 4 years 60%; 5 years 80%; 6 years 100% • 5 year cliff • 1 to 4 years of service 0%; 5 years of service 100% • 1/20; 1/25; 3 year cliff • Max of 5 years for Cliff vesting • Max of 7 years for other schedules

  25. Investments Choices • Employer selects a menu of investments • Typically 6 to 20 choices • Mutual Funds are common choices • Typically include most of the major asset classes • Employee is responsible for choosing the specific investments

  26. When can I access myretirement account? • When you terminate employment. • You can withdrawal funds at your own pace • You can transfer the funds to an IRA • IRS Penalty for withdrawals before age 59 ½ • Minimum Distribution Rules for those age 70 ½

  27. Question C: Would you rather have a promised benefit for life or lump sum? • Benefit for life • Lump Sum

  28. Questions?

  29. Question D: What was the average monthly social security benefit in 2011? • $780 • $959 • $1,181 • $1,310

  30. Question E: Are you concerned about the financial status of the Social Security System? • Yes, very concerned • Yes, a little concerned • No • I don’t think about it

  31. Will Social Security run out of money?

  32. Social Security System • Two Benefit Programs • Retirement • Disability

  33. Social Security Retirement • Employee and Employer pay into Social Security • Not all income is “covered” by Social Security • Generally “wage” income is covered • Income over $110,100 is not covered

  34. SS Retirement Eligibility • Workers must have 40 quarters of qualifying work (10 years) to be eligible for benefits • Spouses of a worker with 40 eligible quarters are also eligible • Workers must be at least • Age 62 for Early Retirement • Age 65 to 67 for Full Retirement

  35. Benefit Calculation • Based on your work history • Highest 35 years of work history • Adjusted for inflation • Based on your age when you apply for benefits • Reduced benefits for early retirement • Increased benefits for working past Full Retirement Age

  36. Birth year determines full retirement age.

  37. Benefit Adjustments • Reduced by 25% to 30% if you claim at age 62 • Smaller adjustment for Age 63, 64, 65 & 66 • Increase by 8% for each year you work after your Full Retirement Age • Increases stop at age 70

  38. Example for Full Retirement Age 66

  39. Question F: Do I have to quit working to claim Social Security Benefits? • Yes • No, as long as I am at Full Retirement Age • No

  40. Working While Claiming Benefits • If you are over your NRA  no negative impact on SS benefit • NRA is 65 to 67 • If you claim benefits between age 62 and your NRA there are some restrictions: • First $14,640 of wages have no impact • For each $1 you earn over $14,640 then $0.50 is reduced from SS benefit • Special Rules for year in which you reach NRA

  41. Example • John claims his SS benefit at age 62 • John works part time (at age 63) and earns $15,000 • John’s benefit is reduced by $180 • $15,000 - $14,640 = $360 • $360 * 50% = $180

  42. How do I estimate my SS Benefit? • Paper Statements • 1 mailed at age 25 • Annual Statements once you reach age 60 • Online at www.ssa.gov • Need to provide: First and Last Name Date of Birth Mother’s Maiden Name State of Birth SSN Last Year’s Wages

  43. Spouse Benefits • You have a choice of: • Claiming based on your work record • Claiming based on your spouse’s work record • Generally receive 50% of the worker’s benefit • Claiming based on your ex-spouses work record • Must have been married for at least 10 years • Generally receive 50% of the worker’s benefit

  44. Survivor Benefits • Example: • Husband Age 72 • Benefit is $1,100 • Wife Age 71 • Benefit is $900

  45. Question G: What happens to the wife’s benefit if her husband passes away? • She receives $800 • She receives $1,100 • She receives $1,900

  46. Final Thought Take Ownership of Your Retirement! No one else will!

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