HR10 Best Practices - Association of Legal Administrators

May 19-22, 2014, Toronto ON Canada
Administering Your Firm's
Retirement Plan – Best Practices
Presented by
Ginger Brennan and Rebecca Chandler
HR10
5/19/2014
3:00 PM - 4:00 PM
The handouts and presentations attached are copyright and trademark
protected and provided for individual use only.
2014
Administering Your Firm's Retirement Plan
Best Practices
Ginger Brennan – registered representative of ING Financial Advisers, LLC
National Director of Sales
Becki Chandler
Client Relationship Manager
www.abaretirement.comwww.abaretirement.com
CN0328-16534-0416
Please read the Program Disclosure Document carefully before investing. The Program
Disclosure Document contains important information about the Program and units of the
collective investment funds that serve as investment options under the Program. For email
inquiries contact: joinus@abaretirement.com.
Securities offered through ING Financial Advisers, LLC (Member SIPC).
The ABA Retirement Funds, ING Financial Advisers, LLC, The Northern Trust Company and
Northern Trust Investments, Inc., and TD Ameritrade, Inc., are all separate, unaffiliated
companies and not responsible for one another’s products and services.
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Introduction
Benefits
Responsibilities
 Pre-tax income directed to
a long-term savings
vehicle on a tax-deferred
basis
 Selection of plan type &
features
 Attract and retain talented
employees
 Selection of providers
 Do a good thing for your
employees
 Employer tax deduction
Workplace
Retirement
Plan
 Fiduciary role
 Administration and
Maintenance
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Tax-deferred, long-term savings
Benefits
Meet Jane and John. Jane has a 401(k) with no employer match. John uses a regular taxable
brokerage account for his retirement savings. Both are in the 25% tax bracket. This year, Jane and
John can each afford to save $10,000 in take-home pay. For simplicity’s sake, poor Jane and John
never make another contribution, but their money compounds at 5% per year for 30 years
Meanwhile, John pays his tax and
puts $10,000 into his brokerage
account.
Jane can put $13,333 in her 401(k),
because she doesn’t have to pay the
25% income tax on that money
before contributing it.
Compound
growth at 5% per
year for 30 years
Match?
25% tax
rate
$57,626
$43,219
If invested in stock,
assuming 15% tax
on capital gains
Compound
growth at 5%,
taxed, per year
for 30 years
$38,236
$30,175
$13,333
2014
$10,000
2044
2044
2014
2044
2044
This example was designed for educational purposes only and is not intended for specific legal, accounting, investment, income tax or other professional advice.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no
assurance that the future performance of any specific investment, investment strategy, or product, or any non-investment related content, made reference to directly
or indirectly in the presented material(s) will be profitable, be suitable for your portfolio or individual situation, or prove successful.
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Attract and retain talented employees
Benefits
When asked to rank the importance of 11
factors relating to job opportunities, survey
respondents placed salary, benefits (including
health insurance and 401(k) programs) and
opportunities for professional growth and
advancement at the top of the list.1
1
2
Companies that emphasize
better benefits and use them to
attract and retain high caliber
staff add 7.3 percent in
additional profit to their
bottom line.2
Generation Y. What millennial workers want:: How to attract and retain Gen Y Employees; Robert Half International and Yahoo! Hotjobs.com, 2008
The Human Capital Edge: 21 People Management Practices Your Company Must Implement (or Avoid) to Maximize Shareholder Value; by Bruce N. Pfau Phd,
Ira T. Kay Phd, Watson Wyatt Worldwide, 2001
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Doing good for your employees
Pensions have been cut
In 1985, 90% of
companies offered
traditional pensions
plans. By 2012,
that number fell to
just 11%1
In 1998, only 10%
of companies
offered only a DC
plan. This number
is now 70%1
1
2
3
Benefits
In the legal community
9 out of 10 lawyers are
in firms with fewer than
ten attorneys2
Only 17.3% of
Companies with fewer
than ten employees
sponsor a retirement
plan3
“Retirement Plan Types of Fortune 100 Companies in 2012”, Towers Watson, Insider October 2012
The Lawyer Statistical Report, American Bar Foundation, 2012 edition
Employee Benefit Research Institute estimates from the 2011 March Current Population Survey
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Employer tax deduction
Employer contributions are deductible on
the employer’s federal income tax return to
the extent that the contributions do not
exceed the limitations described in section
404 of the Internal Revenue Code.
Refer to Publication 560, Retirement Plans for
Small Business (SEP, SIMPLE, and Qualified
Plans), for more information about deduction
limitations.
Benefits
You may be able to claim a tax
credit for part of the ordinary and
necessary costs of starting a
SEP, SIMPLE, or qualified plan.
The credit equals 50% of the cost to
set up and administer the plan and
educate employees about the plan, up
to a maximum of $500 per year for
each of the first 3 years of the plan.
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Plan Types
What type of
plan is right
for your firm?
Plan Strategies
What plan
strategy
meets your
objectives?
Plan Features
Selection of plan type & features
What plan
features will
make your
plan unique?
Defined
Benefit
Responsibility
Cash
Balance
Plan
Money
Purchase
Safe Harbor
Profit
Sharing /
401(k)
Social Sec. Integration
Maximize contributions
while reducing
limitations associated
with testing
SEP IRA
SIMPLE
Cross-tested
Different employee
Formula awards highergroups defined and
paid employees with a
separate contributions
larger percentage of
to each group are made
their compensation
If your strategy is to maximize tax
contributions, look into adding a
TIP deferred
Cash Balance plan to your 401(k)
Eligibility & Vesting
Match &
Match Structure
Automatic Features &
QDIA
Investment Options &
Trading Restrictions
Distribution & Rollover
Options
Self-Directed
Brokerage Service
TIP
This example was designed for educational purposes only and is not intended for specific
legal, accounting, investment, income tax or other professional advice. Please note that other
plan types, strategies, and features may exist.
Does your plan include an
advice offering?
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Selection of providers
Responsibility
Recordkeeper
Maintains the participant records; trades the shares when contributions are deposited and when
participants reallocate their portfolios; provides the web site and call center for the participants
and plan sponsors; and generates and mails the participant statements.
Third Party
Administrator
Drafts the plan document; performs the compliance testing; and prepares the annual IRS Forms
5500. These tasks are sometimes part of a bundled service provided by a recordkeeper.
Trust Company
A Bank or Trust Company acts as Custodian; initially accepts the contributions, processes loanand distribution checks; and prepares tax reporting.
Investment
Advisor
Provides advice and guidance on investment selection and allocation to the trustees; may also
serve as directed or discretionary trustee; and on rare occasions can take on investment
fiduciary role.
Consultants
Consultant can be used in the request for proposal (“RFP”) process and retained to evaluate the
plan’s merits from time to time.
Advisory Firm
Provides advice and guidance on investment options to employees participating in the plan; may
take on professional asset management role for a fee; may take on fiduciary responsibility for
participant in-plan investments.
ERISA Attorney
Payroll Company
Can advise on plan types, plan features, and plan documents. May also help resolve plan
qualification issues or disputes.
While payroll companies offer services unrelated to retirement plans, the link between payroll
and participant contributions to qualified plans does require consideration when picking a
payroll vendor.
This example was designed for educational purposes only and is not intended for specific legal, accounting, investment, income tax or other professional advice.
Please note that other types of providers may exist.
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Fiduciary role
Responsibility
DIRECTED
TRUSTEE
TYPICAL PLAN
TRUSTEE
Fiduciary Liability to Your Firm
No Outside
Fiduciary
FIDUCIARY ACTS AND DECISIONS
Section 3(21)
Fiduciary
DISCRETIONARY
TRUSTEE
Section 3(38)
Fiduciary
RESPONSIBLE FIDUCIARY
Adoption and continued use of the Program
Your Firm
Your Firm
Your Firm
Selection and periodic monitoring of trustee,
investment manager, and recordkeeper
Your Firm
Your Firm
Your Firm
Selection and monitoring of investment
advice service provider to participants
Your Firm
Your Firm
Your Firm
Develop and maintain Plan/Program
Investment Policy1
Your Firm
Your Firm
Your Firm
Selection, termination, and monitoring of all fund
managers, and investment options consistent
with the Plan/Program Investment Policy1
Your Firm
Your Firm
Investment
Manager
Monitoring of all investment advisor
purchase/sale activity for compliance with
prospectus and investment guidelines
Your Firm
Your Firm /
Investment
Manager
Investment
Manager
Determining applicability and compliance of
fund investment line-up for certain ERISA
requirements
Your Firm
Your Firm /
Investment
Manager
Investment
Manager
TIP
1 Subject to acceptance by ABA Retirement Funds
ABA Retirement
Funds Program
Your Firm
Ask yourself:
How much fiduciary responsibility
do I really want?
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Administration and Maintenance
Responsibility
Eligibility and Data Changes
Follow plan document
eligibility rules
1
Employer determines eligibility
2
TIP
Employee elects to
participate in plan
3
Employee completes
enrollment process
4
Some law firms appreciate
the opportunity to verify
enrollments in the plan
TIP
Make sure you
have enough
enrollment kits
on hand
Make sure you are
meeting your
participant
communication
responsibilities
Employer verifies
enrollment (optional)
5
Recordkeeper processes
enrollment and beneficiary
6
Recordkeeper establishes
account access and password
7
Recordkeeper sends
enrollment notice(s)
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Administration and Maintenance
Responsibility
Contributions
Some plan types allow participants to make their own contributions to their accounts,
while other plan types only allow the employer — the firm — to contribute.
To make it easier to understand and track the
contribution limits imposed by the IRS, it may be
helpful to think of the limits in terms of layers.
For example:
TIP
Layer 1 — the limit imposed on
the employer.
Layer 2 — the limit imposed on
the participant (known as the
"annual additions limit").
For profit sharing plans, the total
employer contributions cannot
exceed 25% of aggregate
eligible compensation of all
eligible employees (401(k)
elective salary deferral
contributions are not included in
employer contributions for this
limit).
For all contributions to all
employer plans in which the
individual participates,
contributions cannot exceed the
lesser of 100% of the
participant's eligible
compensation and a prescribed
indexed dollar amount. For 2014,
prescribed indexed dollar
amount is $52,000.
TIP
For the plan types that allow employer
contributions, the formula the plan uses
to allocate employer contributions to its
participants is described in its plan
documents.
Layer 3 — the dollar limit for
elective contributions (including
pre-tax elective contributions and
Roth 401(k) contributions).
This dollar limit is indexed each
year. The limit is $17,500 for
2014. The catch-up contribution
limit for 2014 for a participant
who attains age 50 before yearend is $5,500.
Timely Deposit Rules
Remember, participant contributions must
be forwarded to your recordkeeper as
soon as they can be segregated from the
employer's assets.
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Administration and Maintenance
Responsibility
Investment Election Changes and Transfers
Typically, your participants have several options to make investment
election changes and transfers
Things to keep in mind:
TIP
Does your provider offer service
level guarantees?
1
Make sure your participants are familiar with any trading or transfer restrictions
within your plan’s fund lineup
2
If your plan includes a self-directed brokerage window, investment election
changes and restrictions may be different from those of funds in the plan
3
Beware of cut off times for processing of investment election changes as this is
often a source of complaint by participants
4
Find out if your current provider offers automatic investment reallocation to keep
participant accounts on track
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Administration and Maintenance
Responsibility
Accessing Funds
There are a few different ways participants typically access funds
from their plan accounts
1
3
2
Assuming loans are
allowed under your plan,
a participant may request
a loan from the vested
portion of his or her
account.
5
4
Typically for the employee
who has met the age- or
service-based criteria for
withdrawal and is still
employed.
When a participant dies, you are
responsible for checking the
participant’s records to determine
the named beneficiary and the
type of death benefit, if any,
the beneficiary should receive.
Distribution resulting from
termination occurs when a
participant quits, retires,
or is fired.
Only specific financial
conditions qualify for
hardship withdrawals.
TIP
When a participant leaves your firm, an account distribution is not
required. In fact, a participant with a vested account balance of more
than $5,000 can maintain the account with your firm’s plan (subject to
required minimum distributions at age 701/2).
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Administration and Maintenance
Responsibility
QDROs
Qualified Domestic Relations Order (QDRO) is a legal document that acknowledges the
right of an alternate payee (e.g., spouse, former spouse, child) to receive all or a portion
of the benefits payable to a plan participant
9 BASIC REQUIREMENTS OF QDROS
1.
There must be a judgment, decree, or order
that is made pursuant to state domestic
relations law.
5.
The order must include the number of
payments or time period to which it
applies.
2.
The order must relate to providing either child
support, alimony, or marital property rights to
a spouse, former spouse, child or other
dependent of the individual participating in
the plan.
6.
The order must specifically identify each
plan to which it applies.
7.
The order cannot require the retirement
plan to provide any type of benefit or
payment option that is not otherwise
provided by the plan.
8.
The order cannot increase benefits
based on actuarial value.
9.
The order cannot require the payment of
benefits that have previously been
assigned by a prior QDRO to a different
spouse, former spouse, or child.
3.
4.
The order must include the name and last
known mailing address of both the person
covered by the plan and the spouse, former
spouse, or child who is to receive the
benefits.
The order must include the amount or
percentage of the benefits to be paid to each
spouse, former spouse, or child, or a manner
to determine the amount or percentage.
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Administration and Maintenance
Responsibility
Compliance and Communications
As Plan Administrator, you will need to determine the requirements that apply to your
plan based on the number of participants in your plan and your plan type
1
3
2
Participant communication
requirements
Plan testing requirements
Reporting requirements
The Department of Labor
(“DOL”) mandates that
certain communications to
plan participants be
conducted, and may
include:
Testing is done each year to
monitor whether the plan is
in compliance with certain
IRS and DOL requirements,
and includes:
1.
Annual additions
1.
Enrollment kit for
eligible employees
2.
Top-heavy
Form 5500 is the annual
return for your retirement
plan that must be filed. It is
required to ensure
employee benefit plans are
operated and managed
correctly.
2.
Summary plan
description
3.
ADP and ACP
nondiscrimination
testing
3.
Summary of material
modifications
4.
4.
Summary annual report
410(b)
Coverage
testing
5.
Participant disclosure
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Administration and Maintenance
Responsibility
Plan Termination
Although employers establish retirement plans with every intention of having a long-term
retirement vehicle, there are occasions when the decision is made to terminate it
When Must You Terminate the Plan?
Some, but not all, examples of occasions when the plan must be terminated
are as follows:
• Firm has dissolved and is no longer doing business,
• Sole proprietor has passed away and a successor employer will not be
continuing the plan, or
• Sole proprietor has retired and a successor employer will not be
continuing the plan.
TIP
A partial termination of the plan may be triggered if a significant portion of the firm's
employees have severed employment due to firm-initiated employee dismissal such as a
layoff. The IRS presumes that a partial termination has occurred if the plan's turnover rate
is at least 20% of the active employees. When a partial termination of the plan occurs,
affected participants (e.g., those who are no longer participants due to the event) must
become 100% vested. There is no requirement that the plan must be terminated or that
other participants be vested or receive distributions.
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Administration and Maintenance
Forms, Tools, and Resources
Responsibility
http://www.dol.gov/ebsa/pu
blications/401kplans.html
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Program Overview
Responsibility
ABA Retirement Funds
(Program Sponsor; Not-for-Profit Corporation)
PROGRAM OVERSIGHT RESPONSIBILITY
Board of Directors comprised of 9 attorneys
Full-time staff: Executive Director, Associate Executive Director and Staff
ABA Retirement Funds Program
Nearly 3,700 law firms retirement plans1
More than $5 billion in assets1
50 years of service to the legal community
Investment Fiduciary, Trustee,
and Custodian
Recordkeeping, Client
Service and Sales
Self-Directed Brokerage
Account4
Leading Global Asset Manager
A leading provider of financial
products and services in the U.S.
Offers over 13,000 domestic,
international, and global mutual
funds
$5.58 Trillion under
custody1
$885 Billion under management1
Services 74% of Top 100
Corporate Plans2
1.
2.
3.
4.
5.
One of the largest Defined
Contribution Recordkeepers with
over 49,000 plans3
Ranked #1 out of 17 online brokers
evaluated in the StockBrokers.com
Online Broker Review 20135
As of December 31, 2013.
Based on pension assets. Source: Pensions and Investments, February 4, 2013.
As published by Pensions and Investments Special Report of Top DC Recordkeepers as of March 4, 2013 (based on September, 2012 data).
Brokerage services provided by TD Ameritrade, Inc., member FINRA/SIPC/NFA, and TD Ameritrade Clearing, Inc., member FINRA/SIPC. TD
Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. Used with permission.
Read Full Article: http://www.stockbrokers.com/2013-online-broker-review.html
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2014
Questions?
www.abaretirement.comwww.abaretirement.com