403(b) & 457 Plans and Services

Transcription

1 403(b) & 457 Plans and Services Who We Are: Midwest Capital Advisors, LLC is an independent, Grand Rapids-headquartered, SEC-registered investment adviser. After a rigorous evaluation process, MCA was selected by the Michigan Retirement Investment Consortium (MRIC) as its Single Source provider of 403(b) and 457(b) retirement offerings due to our ability to offer a full array of investment options that have a variety of risk and return characteristics and very low costs. We now offer 403(b) and 457 plan services to approximately 250+ MRIC-member school districts, ISDs and community colleges. Independent means we are not affiliated with any brokerage firm, insurance company or mutual fund company. Consequently, we do not have proprietary products we are required or paid to sell. This leaves us free to find you the best possible retirement solutions, with no possible conflict of interest. We are also fee-only, which means we are paid only by our clients and do not receive sales commissions, mutual fund fee payments, product-based fees or annuity surrender fees. Being an investment fiduciary, we place our clients interests above all others. CONTACT US Jack Tunge, CRPC Midwest Capital Advisors, LLC 3001 Orchard Vista Dr. SE Grand Rapids, MI Toll free: Local: jtunge@midwestcap.com

2 The Single Source 403(b) Provider and the 10 reasons that make us different. MANY OF YOU HAVE ASKED HOW THE SINGLE SOURCE PROVIDER IS DIFFERENT THAN THE 5 CORE PROVIDERS THAT HAVE BEEN SELECTED TO IMPLEMENT YOUR 403(b) AND/OR 457 INVESTMENT PLAN. THE FOLLOWING 10 POINTS WILL ANSWER THAT QUESTION FOR YOU. SINGLE SOURCE: Chosen as the Single Source offering for 403(b) and 457 plans to 250+ districts for our low-cost, commission-free offerings. FIDUCIARY: We are an investment fiduciary, which means MCA assumes legal responsibility to put your interests ahead of our own. INDEPENDENT: No ties to any brokerage, insurance, or mutual fund company. At MCA we do not sell any products, we strictly give the best investment advice for your particular situation. FEE-ONLY: MCA does not receive any commissions (whether hidden or transparent). The only fee we charge is an annual investment management fee. This allows us to provide objective recommendations for our clients without any conflicts of interest. LOW COST OPTION: Because we are providing you with investment solutions, not selling a product, we are focused on lowering your expenses (see page 6 for our fee schedule). BUYING POWER: Because the volume of business we do, you have the advantage of combined buying power, meaning institutional share classes when available. MULTIPLE OPTIONS: As a client of Midwest Capital Advisors you have the option of selecting and building your own portfolio from the mutual fund universe, choosing investments from our Select Funds list, or choosing one of our managed model solutions. ONE-STOP SHOPPING: You can meet ALL of your investment needs in one place. NO ORPHAN ACCOUNTS: MCA can accommodate your accounts from non-authorized providers and facilitate easy consolidation. FINANCIAL MANAGEMENT: MCA has the expertise to offer you personalized advice on a wide range of financial and investment vehicles, giving you the added confidence that you will achieve your investment goals.

3 403(b) and 457 Plan Overview Employees who are eligible to participate in their employer s 403(b) and/or 457 plan can defer a portion of their salary into the investment options available under the plans. Here is how it works: You decide, within certain Internal Revenue Code (IRC) limits, how much of your income you want to defer into the plan. Your employer will reduce your paycheck (before withholding federal and, if applicable, state income tax) by that amount. The contributions and any earnings accumulate on a tax-deferred basis. You decide, with assistance from us, how your contributions with Midwest Capital Advisors are invested. The 403(b) and 457 plan has no effect of the benefits you will receive from Social Security. Social Security benefits and contributions are based on your total pay, which includes the salary deferrals. 403(b): A 403(b) plan is a retirement plan for employees of public schools and employees of certain tax-exempt organizations. Individual accounts in a 403(b) plan can be either of the following: A custodial account, which is an account invested in mutual funds; or An annuity contract, which is provided through an insurance company. 457 Plan: A 457(b) plan is a non-qualified, tax-deferred compensation plan authorized under Section 457 of the Internal Revenue Code and made available to governmental and certain non-governmental, taxexempt employers. For the most part the plan operates similar to a 401(k) or 403(b) plan. Participant Benefits: Save for retirement Reduce current taxable income Contributions and earnings grow tax-deferred Portable Generally accessible through loans or withdrawals

4 Comparison of 403(b) and 457 Plans Provision 403(b) 457(b) 2016 Contribution Limits $18,000 $18, Catch-up Contributions Employees can contribute an additional $6,000 if they are 50 years of age or older. Employees can contribute an additional $6,000 if they are 50 years of age or older. If an employee is within three years of normal retirement age (determined by district specific plan rules) this Final Three Year provision allows 200% of the annual contribution limit (i.e., $36,000 vs. $18,000 for 2015) for each of the three years leading up to retirement. Penalty-free Withdrawals Participants at least age 55 and retired, or 59.5 years old (regardless of employment status), may be eligible for a plan payout without tax penalty. Participants can receive a plan payout upon retirement or separation from service without tax penalty. Portability Availability of Loans/ Hardships/Unforeseeable Emergency Distributions Generally, eligible to rollover to or from another employer s 403(b), 401(k), governmental 457 plan, or 401(a) plan. Eligible for rollover to an IRA based on distributable event. Plan loans may be permitted. Hardships may be permitted, subject to eligible hardship requirements. Eligible to rollover to an IRA or in from another employer s 403(b), 401(k), or governmental 457 plan based on distributable event. Plan loans may be permitted. Unforeseeable emergency distributions may be allowed, subject to meeting eligibility requirements. Required Minimum Distribution (RMD) Rules RMD rules apply at age 70.5 or later, severance from service, and after death. RMD rules apply at age 70.5 or later, severance from service, and after death. Distribution Restrictions Funds cannot be distributed until: Funds cannot be distributed until: Age 59.5 or 55 and retired; Age 70.5; Severance from employment; Severance from employment; Disability; Disability; Death; or Death; or Financial Hardship. Unforeseeable emergency.

5 The Power of Tax-Deferred Savings To illustrate how contributing toward retirement on a pre-tax basis affects your paycheck, let s assume you earn $50,000 in taxable income annually (paid bi-weekly) and wish to defer $75 from each paycheck into a 403(b) or 457 plan. Paycheck with NO contributions to 403(b) or 457 Plan Paycheck with $75 contribution to 403(b) or 457 Plan Gross Income $1, $1, Salary Deferral $75.00 Net Taxable Income $1, $1, Federal Income Tax (25%) -$ $ Net (after-tax) Paycheck $1, $1, With a tax-deferred plan, your current federal income tax is reduced, so it only costs you $56.25 out-of-pocket to defer $75.00 Now, see how the $75 bi-weekly contributions could accumulate over time on a tax-deferred basis, compared with paying taxes every year. For illustrative purposes, federal income tax is calculated at 25% and investments earn an assumed hypothetical 6% rate of return on that amount. (Hypothetical returns and past performance are not indicative of actual returns or guarantees of future performance.) After-Tax Savings Plan Tax-Deferred Plan Bi-weekly Contribution $75.00 $75.00 Less income tax (25%) -$ $0.00 Net biweekly contribution $56.25 $75.00 Net yearly contribution $1, $1, After 10 years Total contribution $14,625 $19,500 Investment earnings at 6.0% +$5,017 +$6,996 Less income tax on earnings (25%) -$1,254 -$0 Total accumulated value $18,388 $26,496 After 30 years Total contribution $43,875 $58,500 Investment earnings at 6.0% +$63,217 +$100,421 Less income tax on earnings (25%) -$15,804 -$0 Total accumulated value $91,288 $158,921 After-tax value $91,288 $119,191

6 POTENTIAL 403(b)/457 FEES Sales Charge (load): Midwest Capital Advisors Typical Fees (Fee-only) Sales Charge All mutual funds offered with no sales charge or loads Surrender Charge None Mortality & None Expense Charge Gross Investment 0.50% 1 Management Fee Mutual Fund 0.08% and up Expense For more information on investment provider fees please visit 1 The net fee a participant will pay is ~ 0.38% since we do not accept 12b-1 or similar fees paid by mutual fund companies, instead these fees rebate back to participant accounts to lower the overall cost. These rebates have averaged 0.12% over the past few years. Assessed by a mutual fund when purchasing certain shares; A) Front-load B) Back-end load. Surrender Charge: Assessed by insurance companies for terminating an annuity contract prior to its maturity. Mortality & Expense Charge: Assessed by insurance companies to cover the expected cost of benefit payments due at death. Investment Management Fee: Charged by investment companies to compensate advisors for their services. Mutual Fund Operating Expense Ratio (OER): Charged by mutual fund companies to compensate the manager of the mutual fund. Costs are deducted from the performance of the fund. The long-term impact of investment costs on a portfolio, assuming a beginning balance of $100,000 and a hypothetical assumed 6% annual return. (Hypothetical returns are not guarantees of future performance.)

7 MCA Investment Options Participant Involvement Low Low Medium High Investment options Actively Managed Models Passively Managed Models Select Funds Mutual Fund Universe Description Six risk-based, professionally constructed, monitored and managed model allocations ranging from very conservative to very aggressive. These allocations are diversified, covering discrete asset classes and built using monitored and screened best in class mutual funds from a variety of fund families. See below for our six model allocations. These models mirror the investment methodology of our active counterparts, yet utilize only Vanguard index funds. This set of approximately screened and monitored mutual funds is for those who like to create their own portfolio allocations but like assistance in choosing the appropriate funds. We have access to thousands of mutual funds for those who like to research, select, and allocate investments on their own. Very Aggressive Managed Model Allocations Fixed Income Equity Aggressive Moderately Aggressive Moderately Conservative Conservative Very Conservative