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Retirement Plans Basics Peter Sullivan RVP East Region

This seminar provides an industry overview of retirement plans, highlights the changes brought by EGTRRA, and offers strategies for adding value to your client's plan. Learn about plan design and operational issues, as well as the latest developments in the retirement planning industry.

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Retirement Plans Basics Peter Sullivan RVP East Region

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  1. Retirement Plans BasicsPeter Sullivan RVP East Region The Ritz-Carlton, Bachelor Gulch, Colorado September 17-19, 2003

  2. Retirement Plan Basics • Industry Overview • EGTRRA Changes • Adding Value To Your Client’s Plan • Plan Design issues • Operational Issues • Latest Developments • Question & Answer

  3. Industry Overview • More Innovation, More Options • Cookie cutter plans not effective for everyone • Trend toward flexible, hybrid plan design • Cash Balance Plans • New Comparability Plans

  4. 401(k) Market Growth Industry Overview The Phenomenal Growth of 401(k)s Assets = $ Billions Projected Annual Growth Rate 13.5% Source: Spectrem Group estimates

  5. US Private Retirement Assets 2005E - $11.2 Trillion (10.8% CAGR) US Private Retirement Assets 1995 - $4.0 Trillion Long Term Secular Trends Retirement – Key to Penetrate Booming Market Source Morgan Stanley Equity Research Source Morgan Stanley Equity Research 10

  6. Participants (millions) Understanding the Participant The 401(k) Participant Population Projected Annual Growth Rate 4.4% Source: Spectrem Group estimates

  7. 30 Years of important Pension Legislation • ERISA • TEFRA • DEFRA • REA • SBJPA • GUST • EGTRRA • More to Follow?

  8. What Is EGTRRA ? • Economic Growth and Tax Relief Reconciliation Act of 2001 • Centerpiece of $1.35 Trillion Tax Cut • Most provisions effective 2002

  9. EGTRRA Highlights: • Increased Contribution Limits: (Indexed) • -Salary Deferrel($12,000) • -Total Plan Contributions ($40,000/100%Income) • -Profit Sharing Plans( 25%) • -Catch Up Contributions($2,000 ) • Increased Income Limits • -$200,000 (Indexed)

  10. EGTRRA Highlights • -Simplify Top Heavy Testing: • - Matching Contributions help satisfy Top Heavy testing • - Safe Harbor Plans are exempt • -Simplify Rollover Requirements • - Tax Exempt 457 excluded • -Tax Credit for Start up Plans • - 50% of first $1,000 for first three years Administration expenses

  11. Adding Value to your Client’s Plan • Most Plan Sponsors establish a Plan for two Reasons: • -Tax Advantages • -Employee Benefits

  12. Sponsor Dynamics • Deferral Rates: 8.6% in 1999 7.0% in 2002 • Matching 82% in 1997 77% in 2002 • Participation Rates 80% in 1999 • 72% in 2002

  13. Sponsor Dynamics/Movement of >$1mm Plans • - 83% of Plans moved “mainly due to • dissatisfaction with old provider”’ • - Only 15% moved due to new opportunities • - 78% of “dissatisfaction” the result of unresponsiveness to service requests • - 75% of employers cite “ease of administration” a major reason for replacing old provider

  14. Adding Value To Your Client’s Plan • The Broker/ TRS Partnership: • Opportunities to Help: • -Plan Design Issues • - Operational Issues

  15. Adding Value to Your Client’s Plan • Plan Design Opportunities: • - NCP & Safe Harbor • - Eligibility requirements: • Matching Requirements • Profit Sharing Requirements

  16. Adding Value To Your Client’s Plan • Operational Opportunities: • Profit sharing allocations • Loan Administration • Hardship Administration • Spousal Consent Requirements • Employee Deductions/Timely Contributions • Plan Document Updates • Non- Discrimination Testing • Fiduciary Assistance • Employee Education

  17. Adding Value To Your Client’s Plan • APT Has a 401(k) • For 6 years Profit sharing allocated incorrectly • Picked up on CPA Audit • No Advisor Involved • No Vendor help • Client tried to do it on their own • What do they do?

  18. Adding Value To Your Client’s Plan • APT: • Hired an attorney • Retroactively amended Plan • Re-filed 5500 • Recreate Profit sharing allocations • Filed with I.R.S. in walk in CAP • What did it cost? • Original Estimate: $280,000

  19. Adding Value To Your Client’s Plan • What did it cost? • $30,000 Attorney Fees • $40,000 additional Contributions • $9,000 I.R.S. penalty • $5,000 Misc. Admin fees • Total: $84,000

  20. Adding Value To Your Client’s Plan • What Happens if you have problems? • Must Amend Plan Document • Retroactive contributions+ Earnings • I.R.S. Scrutiny • Plan Disqualification

  21. New Developments • Enacted Legislation/Regulations • Proposed Legislation • GUST Restatements

  22. New Developments • Enacted Regulations • D.O.L. : Retirement Plan Expenses • Provides Tremendous Flexibility • Potential problems • I.R.S. has not approved

  23. New Developments • Proposed Legislation • Pension Preservation & Savings Expansion Act of 2003, H.R. 1776 • PROPOSED not ENACTED • Making EGGTRA Permanent/accelerate Limits • Increase Retirement Plan Participation & Savings • Simplifying Retirement Plan Rules • The Return of RSA’s & LSA’s? • - Industry Opposes

  24. New Developments • Proposed Regulations: • 401(k) Reg’s consolidation • PROPOSED not ENACTED • Awaiting Comments from the industry • Limits bottom up QNEC's

  25. New Developments • GUST Restatements: • Individual Drafted Plans (2/02) • VS & MPP extended until (1/31/04) • All Plans must be updated • Potential Problems for Non-compliers

  26. Conclusion • Tremendous Opportunity: • Rapidly Growing market • Favorable Pension Legislation • Need for Expert Guidance

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