Pennsylvania Association of School Business Officials

Transcription

1 Pennsylvania Association of School Business Officials Mailing Address: Office Location: P.O. Box Market Place Harrisburg, PA Harrisburg, PA Telephone FAX Workshop Series 403(b) vs. PSERS: What You Should Know* January 25, 2017 Webcast (9:30 11:00 am) Charter Schools have the ability to offer a 403(b) retirement plan in lieu of a traditional PSERS pension plan. Negotiating the transition to a 403(b) from PSERS requires the involvement of a financial institution (403(b) administrator) and the PSERS legal department. Achieving this transition and communicating to faculty and staff require careful planning and forethought. Attend this webcast to learn how to communicate and involve your staff in order to achieve a successful retirement plan. Learn about: - Basic Financial Terms - 403(b) v. Pensions - Difference between Index Funds and Mutual Funds - Choosing the best mix of funds for employee INTENDED AUDIENCE: Human Resource Directors, Business Managers, Assistant Business Managers SPEAKERS: Sandy Emerich, Senior Director of Human Resources, Commonwealth Charter Academy James F. Schlucter, Vice President of Business Development, Kades-Margolis Corporation M. Kristi Cook, Benefits Consultant ANNOUNCEMENTS: All participants must sign-in on the Webcast Attendance Form found at the back of the handout packet for attendance/credit tracking. The site coordinator is asked to collect and submit information on every participant at your site. For credit to be given, forms must be returned to PASBO by February 1. Your webcast experience will be only as good as your Internet connection. If you are having technical difficulties, close all other browsers on your desktop and reconnect, or restart your computer. If you are disconnected at any time during the program, please repeat the log-on procedure to reconnect. You can submit a question at any time using the Chat function at the left side of your screen type your question in the message box and click on Enter to send. Please track your CEU credits for PASBO Professional Registration. (Professional Registration CEUs = 1) Your evaluation of this program is important to us. The primary contact will receive an evaluation link via . Please provide feedback to ensure that PASBO programs are meeting your needs. This program is being recorded to provide access to those not able to participate in the live program and serve as a review tool. Find information in your handout and check out the PASBO Store at for other webcast titles. Thank you for your participation!

2 Pennsylvania Association of School Business Officials 403(b) vs. PSERS: What You Should Know January 25, 2017 Webcast (9:30 11:00 AM) Listen to audio over your computer speakers (If you prefer to listen by phone, you may dial-in using the numbers at the top of your screen. Phone lines will be available 10 minutes prior to the event start.) 1 Sandy Emerich Senior Director of Human Resources Commonwealth Charter Academy James F. Schlucter Vice President of Business Development Kades-Margolis Corporation M. Kristi Cook Benefits Consultant Retired Presenters: 2

3 Retirement Planning 3-Legged Stool Pension Social Security We are going to skip this leg today Personal Savings 3 Pension Plan Basics Two Types Defined Benefit Defined Contribution 4

4 Defined Benefit Pension Plan Retirement benefit (Pension Amount) is specified in the plan as a formula Retirement benefit is certain PSERS is a Defined Benefit Pension Plan Ex) 2.5% x Final Average Salary (FAS) x Yrs. of Credited Service 2.5% x $50,000 x 35 = $43,750 5 PSERS Member Class Benefit Formulas T-C/T-E 2% x FAS x Yrs. of Service T-D 2.5% x FAS x Yrs. of Service (TD School Service) plus 2% x FAS X Yrs. of Service (T-C or Non- School Service) T-F 2.5% x FAS x Yrs. of Service 6

5 PSERS Funding Investment Earnings Employers (SDs, IUs, Charter Schools, etc.) Members (Employees) 7 T-C 5.25%/6.25% T-D 6.5%/7.5% T-E 7.5% (shared risk) T-F 10.3% (shared risk) PSERS Member Contributions 8

6 Defined Contribution Pension Plan Certain amount or percentage of money set aside each year by the employer for the benefit of each employee Retirement benefit is uncertain Depends on how much is contributed and how it is invested Can be 401(a), 401(k), 403(b), etc. Later we are going to discuss how a 403(b) plan can be used as a defined contribution pension plan 9 Personal Savings Employer-sponsored plan funded with voluntary employee contributions 403(b) & 457(b) in K-12/non-for-profit world 401(k) in the for-profit world Designed to supplement Pension and Social Security legs Can be Traditional (before-tax) or Roth (after-tax) Contribution limits $18K/$24K Other plan features Ex.) Loan Provision 10

7 Personal Savings 403(b) Example Assumptions 25 year old teacher starts voluntary before-tax contributions of $600/yr. ($25/pay x 24 pays) Increases contributions 10% each year Investment earnings of 4% Contributes for 30 years Account value at Year 10 $11,580 Year 20 $47,178 Year 30 $147, So, a 403(b) Can be set up as either a voluntary supplemental retirement savings plan or a pension plan Let s take a deeper dive to look at it as a pension plan We will compare and contrast it to a Defined Benefit Pension Plan, specifically PSERS 12

8 Overview 403(b) plan is an individual account plan Means an account is created for each participant Providers of annuities or mutual funds invest the contributions Individual participant accounts are set up with the selected product providers and will be invested by those selected vendors Some providers offer group products but individual accounts are still established under the group contract Participant is entitled to the amount held under his or her account PSERS is a defined benefit plan ( DB ) funded through a trust All contributions are deposited into the trust Aggregate trust proceeds are invested by trustees and used to provide benefits to participants If too much in fund, employer s contributions are reduced in future years If too little is available to pay benefits, employers must put more into the trust Participant is entitled to the benefit specified in the plan 13 Smart Business + Informed Decisions = Great Schools Important Differences Between 403(b) and DB Plans 403(b) Plans The amount of the benefit is uncertain Depends on how much is contributed and how it is invested The contributions into the plan are certain Usually based on a percentage of pay, but sometimes uses service to determine amount of contributions Plan assets are held in annuity contracts or custodial accounts Defined Benefit Plans The payout amount is certain The payout period is determined by the plan Life annuity unless another option is selected by participant The benefit is actuarially determined based on the plan s formula Plan assets are held in trust and participants are beneficiaries 14 Smart Business + Informed Decisions = Great Schools

9 Important Similarities Both are designed to provide retirement benefits Immediate access to benefits is restricted 403(b) plans may permit limited access prior to retirement/termination There is no immediate tax impact to the participant for employer contributions to either plan Taxed when paid out to participant (federal) Generally not taxed by PA if paid as a retirement payment from a plan that meets certain requirements Survivor benefits are generally available if participant dies before receiving entire benefit 15 Important to Know Payouts - 403(b) plans distribute the account balance to participants No requirement on form of distributions Participant elects when and how to receive retirement benefits Subject to the IRS goldilocks rules Upon death of participant, designated beneficiary receives whatever is left in the account Product provider holding account may impose restrictions on how benefits are paid Payouts - DB plans provide a guaranteed monthly payment either for life or over a period of years If married, spousal benefit is guaranteed, but participant s payment is reduced If unmarried, payments end at death of participant unless a different distribution form was elected BEFORE payments began 16 Smart Business + Informed Decisions = Great Schools

10 Important to Know Pre-retirement access- 403(b) permit loans, hardship distributions and access after 59½. Plan may restrict access, but permitted by Tax Code Participants can take their accounts with them to new employer s plan when they leave Participants can determine how and when to take account balance But must start distributions by age 70 ½ Pre-retirement access- DB plans do not permit participants to access their retirement benefits before retirement Distributions at retirement or death Difficult to move if employee changes employers If participant changes employers, service with a prior employer may not count under benefit formula But under PSERS, all creditable service counts towards PSERS benefit 17 Smart Business + Informed Decisions = Great Schools Which is Better? It depends.on Benefit formula and employer contribution rate Age of participant and length of service Importance of guaranteed monthly income at retirement Importance of benefit portability Investment returns and risk tolerances Employer costs of plan Employee perceptions and understanding Both plans can provide adequate retirement benefit but for each individual results will vary 18

11 Alternative Plans for Charter Schools PSERS establishes criteria for these plans PSERS review and preapproval required Must comply with PA Charter School law and IRS regs 19 Typical Alternative Plan Design 403(b) Defined Contribution Plan Employee pre-tax contribution Employer match Vesting on match Investments typically mutual funds and a fixed account 20

12 Summary Remember 3-legged Retirement Planning Stool Pension Social Security Personal Savings Voluntary 403(b) plan is a powerful personal savings supplement to the two other legs Traditional pension is a defined benefit plan 403(b) can be used as a defined contribution plan 21 Thank You! Securities and Registered Investment Advisory Services Offered Through: GWN Securities, Inc N. Jog Road Palm Beach Gardens, FL (561) Member FINRA & SIPC For more information and to carefully consider the securities offered, including investment objectives, risks, charges, expenses and fees, please request a prospectus from your GWN Registered Representative. Please read it carefully before you invest or send money. If this presentation is used in the offer or sale of a variable annuity or mutual fund, it must be preceded or accompanied by the appropriate product prospectus. An investment in a mutual fund or variable annuity involves risk, including loss of principal, and is not a deposit or obligation of, or guaranteed by any bank. The investment return and principal value of an investment in a mutual fund or variable annuity will fluctuate so that you may have a gain or loss at redemption. Kades-Margolis Corporation, a USRP company, is not affiliated with GWN Securities, Inc. Kades-Margolis Corporation is endorsed by PSEA. Kades- Margolis Corporation has no sponsorship, affiliation or endorsement of the Pennsylvania Public School Employees Retirement System. 22

13 Time for Questions Send text questions using the Chat function at the left side of your screen. Type message in box and click Enter to send. 23 REMINDER: Webcast sites are asked to have every participant sign-in on the Attendance Form and return to the PASBO Office for attendance and credit purposes. Forms must be received by February 1. Thank you for your participation! 24

14 Join us at these upcoming programs: PREPARING TRANSPORTATION BUDGETS January 26, Webcast ALPHABET SOUP OF RETIREMENT OPTIONS February 3, Webcast COMMONWEALTH BUDGET SEMINAR February 9, Pittsburgh Marriott North February 10, Riverview IU #6 February 13, Grantville February 14, Montgomery IU #23 February 16, Webcast HOMELESS TRANSPORTATION ISSUES March 9, Webcast 25 For info, visit