New Horizon Consulting Ltd Ron Hutton Ken Berry Sean Santora Mike Hay

1. New Horizon Consulting Ltd Ron Hutton Ken Berry Sean Santora Mike Hay

2. AGENDA • Social Security as a Supplement • Personal Savings • Women and Retirement • Retirement Planning • EBISA & ERISA • PBGC • Defined Benefit v. Defined Contribution • Qualified v. Non-Qualified • Retirement Planning & Savings • Types & Characteristics About Various Contribution Plans • Defined Benefit Plans • Relationship To The Benefits Wheel • Annuity • Pensions • Summary

3. YOUR RETIREMENT MOST PEOPLE DON’T PLAN TO FAIL…. THEY JUST FAIL TO PLAN!

4. Social Security as a Supplement • Social Security has been around for more than 65 years • Offers a secure retirement plan for its workers and their families (supposedly) • Social Security system is now confronting huge financial problems

5. Social Security as a Supplement • Most financial advisors suggest you'll need approximately 70 percent of your pre-retirement earnings to maintain your pre-retirement standard of living • If you have an average income, then: • Your Social Security retirement benefits will replace only about 40 percent • Supplement other 30% or more with: • Pension Plans • Savings Plans • Investments

6. Social Security as a Supplement • Presently there is an estimated 36 million Americans age 65 or older who are eligible for Social Security retirement benefits • It is estimated in 15 years that Social Security will be paying more benefits than it is taking in through taxes • Americans 65 and older will more than double • Taxes will only cover 73 cents for each dollar of scheduled benefits • Insolvent by 2042 • More reasons to use Social Security as a Supplement:

7. Social Security as a Supplement • Estimated cash flow for Social Security

8. Personal Savings • In 1946 the United States started for the first time to gather personal savings data so it could be used for economic research • Personal savings: Our income after we pay taxes, mortgage, car payments, living expense, etc. • U.S. personal savings rate as a percentage of disposable income.

9. Personal Savings • Positive savings rate until last three months of 1998 • Low to negative savings, mostly overlooked because of the strength of the overall economy. • As of 2004-02-01 1.9%

10. Last 50 Years Last 10 Years

11. Personal Savings • Why is personal savings important? • Two economic views • High Savings: Capital Formation • Low Savings: Consumption demand to grow beyond the increase in income • And many more arguments for the either views.

12. Personal Savings • How do we compare to other nations? • 4 developed countries

13. Personal Savings • A further comparison to other nations (In 1996) • Personal savings as percentage of GDP

14. Personal Savings • Is the current method to determine PSR (Personal Savings Rate) accurate? • Some Problems: • Government method leaves out important factors

15. Personal Savings • Revised method • The Bureau of Economic Analysis decided to recalculate the PSR • Instead of putting government workers retirement plans into the category of government savings, they put it into personal savings

16. Personal Savings • New Results for the PSR:

17. Personal Savings • Economic results for a low personal savings rate (U.S.) • Undeterminable • Retirement implications • Critical • 60 % to 80 % of your current income each year is needed for your retirement requirements

18. Women’s Participation in Retirement Plans • On average women earn less than men • It is estimated they earn 73 cents to every dollar a man earns • Life expectancy of women is greater than men • Women live approximately 81.2 years compared to men at 75 years.

19. Women’s Participation in Retirement Plans • Comparison by age and gender of wages:

20. Andorra Female Andorra Male 86.58 years (2003 est.) 80.58 years (2003 est.) Women’s Participation in Retirement Plans • Comparison of life expectancy by gender:

21. Women’s Participation in Retirement Plans • The most widely used retirement program by women is Social Security • Women represent 58 percent of all Social Security beneficiaries age 62 and older and approximately 71 percent of all beneficiaries age 85 and older. • They can receive benefits as a spouse or ex-wife given they were married for ten years • They can also choose to receive their own Social Security benefits or they can choose to receive it as a spouse but can’t collect both at the same time • Special circumstances to receive Social Security

22. Women’s Participation in Retirement Plans • Problems with Social Security & Pensions in regards to women • Elderly women are less likely than elderly men to have significant income from pensions other than Social Security • In 2002, a women’s average monthly retirement benefit averaged $774, while men’s benefits averaged $1,008 • In 2000 there was only 18 percent of women aged 65 or older were receiving their own pensions (either as a retired worker or widow), compared to the 31 percent of men.

23. Women’s Participation in Retirement Plans • Good News and Recommendations • In 2001, 47 percent of all participants in a pension plan were women and 53 percent were men • But, women generally receive lower pension benefits, compared to men, due to their relatively lower earnings • Pension Plans • Defined contribution plans & defined benefit plan • Save and invest • Save a portion of your income every month • Reduce your credit card debt

24. Employee Benefits Security Administration (EBSA) • Regulatory arm, under DOL, for enforcing the fiduciary reporting and disclosure provisions of Title I of the Employee Retirement Income Security Act of 1974 (ERISA).

25. Employee Benefits Security Administration (EBSA)

26. What is ERISA? • Employee Retirement Income Security Act of 1974 • Federal law that sets minimum standards for pension plans in private industry

27. ERISA ERISA does the following: • Requires plans to provide participants with information • Sets minimum standards for participation, vesting, benefit accrual and funding  • Requires accountability of plan fiduciaries • Gives participants the right to sue for benefits and breaches of fiduciary duty • Guarantees payment of certain benefits if a defined plan is terminated under PBGC

28. Pension Benefit Guarantee Corp.

29. Pension Benefit Guaranty Corp. (PBGC) • PBGC is a federally chartered corporation established by Title IV of ERISA Act 1974 • PURPOSE: • Continuation and maintenance of defined benefit pension plans • Uninterrupted pension benefits to participants in plans covered by PBGC • Keep pension insurance premiums at lowest level necessary to carry out objectives

30. Pension Benefit Guarantee Corporation • The PBGC protects the retirement incomes of nearly 44.3 million American workers in more than 31,000 private defined benefit pension plans

31. PBGC • PBGC issued its first pension check for $140.75 on February 28, 1975, to a participant in the International City Bank of New Orleans Employees Retirement Plan

32. WHAT PBGC GUARANTEES • PBGC guarantees the basic benefits before termination date of the plan which include the following: • Pension benefits at normal retirement age. • Most all early retirement benefits. • Disability benefits from disabilities which occurred before the plan terminated. • Certain benefits for survivors of plan participants.

33. For example, in 2004, a single-employer plan adjusted annually for Social Security and based on the date the plan terminates is guaranteed $44,386.32 annually ($3,698.86 monthly) for a single life annuity beginning at age 65.

35. External Factors Affecting Performance • What key external factors may affect performance of pension plans? • General economic health and interest rates (lower interest rates often translate to higher pension plan underfunding). • The state of pension systems in general, and of defined benefit plans in particular. • Financial health of particular companies with underfunded pension plans. • New legislation affecting participation in defined benefit pension plans.

36. Recent Trends • Overall decrease in defined benefit plans • Peaked in 1985 with 114,000 • Declined to 31 million in 2003 • Participants in these plans increased from 38 million to 43.9 million

37. QUALIFIED vs. NONQUALIFIED • The main difference between the two plans is the tax treatment • Disclosure • Coverage • Participation • Vesting.

38. FINANCIAL HEALTH PBGC • 2003 Net Loss $7.600 billion • 2002 Net Loss $11.370 billon • 2001 Net Loss $1.972 billion • “Future losses remain unpredictable as the PBGC’s loss experience is highly sensitive to losses from large claims.”

39. Benefits of Qualified Plans • Employers • Employer may receive a tax-deduction for plan contributions • Employers are able to attract and retain high-quality employees. • Employers may be able to claim a tax credit for starting plan. • Employees • Employees are provided with some guarantee that their retirement years will be financially secure. • salary-deferral featuresSome plans allow employees to borrow from the plan.

40. Define Contribution Plans • What are they • Investment choices • Fees associated with investing • Employer benefits

41. 401K • Current and future contribution limits • Employer Matching • Loan Provisions • Vesting • Portability

42. 401K Contributions

43. 457 • Eligibility • Contribution limits • Employer matching • Loan provisions

44. 403B • Eligibility • Contribution limits • Employer matching • Loan Provisions

45. SEP IRA • Eligibility • Employer Contributions • Compensation limits • Portability • Vesting

46. SIMPLE IRA • Eligibility • Maximum # of employees • Contributions • Portability • Vesting

47. Benefit Wheel

48. Web Sites http://www.youthspectacular.org/contributintable.html http://www.irs.ustreas.gov/pub/irs-pdf/p560.pdf

49. Retirement Planner Website: Retirement planner • http://www.ssa.gov/retire2/index.

50. Retirement Plans Questions?