What does a TPA do? We are your shield of protection for

Transcription

1

2 What does a TPA do? Assist brokers-advisors with questions Consult on initial plan design. Draft the plan document Perform up to twelve IRS non-discrimination and limitation tests Provide scenarios to correct any testing failures. Calculate employer contributions and tracks vesting. Reconcile asset activity to ensure all deposits were made. Prepare government filings and participant notices. Provide comprehensive compliance reporting package. Assist in participant distributions and loans. Respond to the client s many questions during the year.

3 What does a TPA do? We are your shield of protection for Peace of mind Knowing that government compliance is in order lets you sleep at night so you don t have to worry about: PENALTIES LEGAL ACTION UNNECESSARY BILLS PLAN SUSPENSIONS Sound & Experienced Advice We re not just a TPA we are an professional services firm and will help you with any number of questions you may have as a sponsor or advisor Unlimited Support REGULATORY SUPPORT AUDIT SUPPORT PLAN QUESTIONS

4 Why Partner With RPA? With over 40 years experience under our belt, we have the resources and expertise to support YOU and any retirement plan. Here s what sets RPA apart from the competition: 40+ years experience Core focus on plan compliance administration High touch, personalized service from accredited staff members with an average of 10 years of service Accredited Pension Administrators (APA) Qualified Plan Administrators (QPA) Qualified 401(k) Plan Administrators (QKA) Enrolled Retirement Plan Agents (ERPA) Experts in plan design for the most sophisticated retirement plans Top 10 Retirement Plan Provider 2009 and 2012 Completely independent and objective 95% client retention rate Fully disclosed and highly competitive fees Largest East Coast Retirement Plan Provider 2006

5 Disclaimer The information in this presentation is for general informational purposes only. Plan illustrations and regulations have been generalized to help convey concepts in an easily understood manner. Nothing in this presentation should be construed as providing specific financial, investment, business, tax or legal advice.

6 Cross-Testing In cross-testing, the company's contributions to plan participants are converted mathematically to projected benefits at retirement. These projected benefits are then tested against each other to ensure that the plan does not discriminate in favor of HCEs. $1,000 to a 30 year old = $7,600 at age 65 $5,700 to a 60 year old = $7,600 at age 65

7 Cross-Testing Example Illustration: Pro-Rata on Comp Safe Harbor & SH & PS First AGE Wages/Comp EE Deferral Profit Sharing TOTAL % of Comp Doctor/Owner 56 $150, $23, $34, $57, % Employee 40 $21, $0.00 $4, $4, % Employee 23 $16, $0.00 $3, $3, % $187, $23, $43, Amount to Staff: $8, Illustration: Cross-testing (new comparability) Safe Harbor & SH & PS First AGE Wages/Comp EE Deferral Profit Sharing TOTAL % of Comp Doctor/Owner 56 $150, $23, $34, $57, % Employee 40 $21, $0.00 $1, $1, % Employee 23 $16, $0.00 $ $ % $187, $23, $36, Amount to Staff: $1,890.00

8 Why you should know Everyone does cross-testing, what sets you apart. Cash balance plans are the hot new item in the retirement plan world and in many HR publications. Clients and prospects want to know that you are keeping abreast of changes and how they might benefit, even if they don t want the plan. Adds additional revenue and makes small employers a more lucrative market. A client already providing a profit sharing contribution using cross-testing will generally only cost an additional 1 to 2.5%.

9 Why you should know A client already providing a profit sharing contribution using cross-testing will generally only cost an additional 1 to 2.5%.

10 Why you should know A client already providing a profit sharing contribution using cross-testing will generally only cost an additional 1 to 2.5%.

11 How Does A Cash Balance Plan Work? The plan is typically written to provide an annual dollar amount contribution to each owner or key employee, for example $100,000. All other participants will receive a contribution that is contributed (off-set) to the 401(k) plan as a profit sharing contribution. To pass discrimination testing the plans are tested together. The maximum benefit that can be paid follows the normal rules for DB Plans - $210,000 annual benefit at age 62 ($2.5M). Participants earn a fixed annual interest credit on the account about 5%. Must use a 3-year cliff vesting (or less), 6-year graded is not available. Client will receive an annual funding range. For example, a plan with 1 owner receiving an annual $100,000 cash balance credit may have a funding range of $70,000 to $130,000. The range can be affected by gain/loss on investments, prior years contributions, Treasury rates, etc.

12 Example 2 401(k) Only W-2 Assumed Safe Harbor Profit Employer % of Name Age Compensation EE Deferral Nonelective Sharing TOTAL Comp Owner 61 $245, $23, $7, $27, $57, % Employee 54 $114, $0.00 $3, $1, $5, % Employee 53 $109, $5, $3, $1, $5, % Employee 70 $83, $0.00 $2, $1, $3, % Employee 36 $65, $4, $1, $1, $3, % Employee 30 $58, $0.00 $1, $ $2, % Employee 50 $56, $0.00 $1, $ $2, % Employee 66 $45, $0.00 $1, $ $2, % Employee 57 $42, $0.00 $1, $ $2, % Employee 33 $42, $0.00 $1, $ $2, % Employee 52 $39, $0.00 $1, $ $1, % Employee 33 $41, $0.00 $1, $ $1, % Employee 32 $39, $0.00 $1, $ $1, % Employee 25 $32, $0.00 $ $ $1, % Employee 54 $38, $0.00 $1, $ $1, % Employee 44 $4, $0.00 $ $79.05 $ % $1,060, $33, $31, $41, $95, Amount to Owner: Amount to Others: $30, $34, $57, $24, $13, $38,300.67

13 Example 2 401(k) w/cash Balance SH + PS + Additional PS Net Cash 401(k) with Employer Name Age Wages/Comp Owner Defs to Enable CB Balance Cash Balance % Wages Owner 61 $245, $57, $0.00 $247, $304, % Employee 54 $114, $5, $3, $0.00 $8, % Employee 53 $109, $5, $3, $0.00 $8, % Employee 70 $83, $3, $2, $0.00 $6, % Employee 36 $65, $3, $1, $0.00 $4, % Employee 30 $58, $2, $1, $0.00 $4, % Employee 50 $56, $2, $1, $0.00 $4, % Employee 66 $45, $2, $1, $0.00 $3, % Employee 57 $42, $2, $1, $0.00 $3, % Employee 33 $42, $2, $1, $0.00 $3, % Employee 52 $39, $1, $1, $0.00 $2, % Employee 33 $41, $1, $1, $0.00 $3, % Employee 32 $39, $1, $1, $0.00 $2, % Employee 25 $32, $1, $ $0.00 $2, % Employee 54 $38, $1, $1, $0.00 $2, % Employee 44 $4, $ $ $0.00 $ % $1,060, $95, $22, $365, Amount to Owner: $57, Amount to Others: $38, $22,817.40

14 Example 3: UROLOGY DOCTORS Cash % of Name AGE Owner Wages/Comp EE Deferral Match Profit Sharing Balance TOTAL Comp OWNER 48 33% $265, $18, $0.00 $16, $131, $166, % OWNER 44 33% $265, $18, $0.00 $16, $109, $144, % OWNER 48 33% $265, $18, $0.00 $16, $136, $171, % Employee 50 0% $67, $0.00 $0.00 $3, $0.00 $3, % Employee 25 0% $32, $0.00 $0.00 $1, $0.00 $1, % Employee 34 0% $32, $0.00 $0.00 $1, $0.00 $1, % Employee 61 0% $65, $0.00 $0.00 $3, $0.00 $3, % Employee 26 0% $30, $0.00 $0.00 $1, $0.00 $1, % Employee 33 0% $35, $0.00 $0.00 $1, $0.00 $1, % Employee 24 0% $29, $0.00 $0.00 $1, $0.00 $1, % Employee 28 0% $35, $0.00 $0.00 $1, $0.00 $1, % $400, $54, $0.00 $67, $378, $499, Amount to Owners: $50, $378, $482, Amount to Staff: $16,341.00

15 Can Contribution Amounts Be Changed? Yes, within limits. You should pick a contribution level that you can sustain for a minimum of 3 years. The plan can be amended to raise or lower cash balance credits, but you don t want to do that often. The IRS might consider a plan that s amended frequently to really be a cash-or-deferred-arrangement, like 401(k) deferrals, and could disqualify the plan. Once every 3 or 4 years may be acceptable. Changes need to be amended into the plan prior to employees reaching 1,000 hours (June 15).

16 I Can t Afford The Contribution This Year Translation: I just bought a vacation home. You will need to be diligent in explaining to the client from the beginning that they will not be able to change the contribution amount at-will. Backup with s. RPA s contract has this disclaimer on the front page along with the five years (but who reads contracts). The client will need to look for money elsewhere such as a 401(k) loan, sell assets. Possibility to make a contribution change if known prior to 1,000 hours and not within the 3-4 year period.

17 How Long Must The Plan Be In Place? One of the IRS requirements for a qualified plan is permanence. The best practice is to keep it in place for at least five years. Cash balance plans are typically structured to be in force for about 10 years, at which time the participant has accrued the maximum account balance of approximately $2.5million The plan is normally terminated and the balance rolled into the 401(k) plan or IRA.

18 Plan Investments Cash Balance plan should be conservatively invested. The Plan s objective is to earn a rate tied to the 30-year Treasury rate, established by the Internal Revenue Service. Right now = 5%. The rate of return allocated to participants in a Cash Balance plan is guaranteed and is not affected by the plan's investment performance. Right now = 5%. Excess earnings will be used to reduce future employer contributions in the following years. Excess earnings are not credited to the participants' accounts. Conversely, excess losses increase future employer contributions to make up the difference. Shortfalls are typically amortized over seven years. TPA fees can be paid out of plan assets. $250,000 in plan assets Normal plan earnings target should be around 5% Annual TPA fee is $5,000 Increase targeted earnings to 7%

19 What are the Distribution Options Upon Retirement or Termination of Employment? Cash Balance assets are portable. When participants terminate employment, they become eligible to receive the vested portion of their account balances, as determined by the plan's vesting schedule. Accounts in a Cash Balance plan can be paid as an annuity, or a lump sum distribution (spousal consent is required). Lump sum distributions can be rolled over to an IRA or another qualified retirement plan.

20 Example 4: Sample Illustration 2014 Assumed Safe Harbor & Additional PS Cash Employer Name AGE Wages/Comp EE Deferral Profit Sharing to Enable CB Balance TOTAL % Wages Partner1 56 $260, $23, $34, $0.00 $100, $157, % Partner2 54 $260, $23, $34, $0.00 $100, $157, % Partner3 61 $150, $23, $34, $0.00 $100, $157, % Partner4 38 $260, $17, $34, $0.00 $10, $62, % Partner5 49 $260, $17, $34, $0.00 $10, $62, % Partner6 66 $80, $17, $34, $0.00 $10, $62, % Partner7 49 $260, $17, $34, $0.00 $10, $62, % Staff1 43 $115, $0.00 $5, $2, $0.00 $8, % Staff2 37 $85, $0.00 $4, $2, $0.00 $6, % Staff3 39 $72, $0.00 $3, $1, $0.00 $5, % Staff4 60 $72, $0.00 $3, $1, $0.00 $5, % Staff5 46 $65, $0.00 $3, $1, $0.00 $4, % Staff6 37 $65, $0.00 $3, $1, $0.00 $4, % Staff7 31 $43, $0.00 $2, $1, $0.00 $3, % Staff8 27 $25, $0.00 $1, $ $0.00 $1, % $2,072, $139, $268, $13, $340,000 Amount to Staff: Amount to Partners: Percent of ER Total to Partners: $27, $13, $40,650 $241, $0 $581, % 93%

21 What Are The Costs? Due to the complexities of testing in a cash balance plan in combination with a 401(k), along with the need for an actuary, they are more expensive. Do not lead in with the costs. Show how much they will be able to contribute then explain the costs. Typically $4,000 for the plan document, and $4,000 to $6,500 annually. Annual fees can be paid out of the plan assets, so if an advisor can target the earnings appropriately the client does not necessarily have to pay ongoing fees out of pocket. Plan restatement and IRS filing every 5 years, about $3,000. Covered by PBGC unless a Professional Service Corp with less than 25 employees. ($57 annual premium per participant)

22 Just About Done What is included with our DB/CB services: Plan Document Annual Actuarial Valuation and Certification Annual Government Filings (5500, PBGC) Annual Participant Statements You can sell plans up to December 1 st. We need time to get paperwork ready that needs to be signed by December 31 st.

23 Free Plan Design Examples Send us a census and we will prepare illustrations like the ones we just showed you at no cost. Sales: Craig Boynton (410) CraigB@retirementplanners.com Ben Gorton (301) BenG@retirementplanners.com Contracts & Installations: Heather Sevier (888) x235 HeatherS@retirementplanners.com RetirementPlanners.com