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Boyce Thompson Institute
Retirement Plan
2
Background BTI currently sponsors a combination of two retirement
income plans: Defined Benefit Plan 403(b) Plan
In the fall of 2005, BTI engaged BPA-Harbridge to: Examine the structure of benefits provided by its current
retirement income program Survey other employers who are competitors for the pool
of talent upon which BTI draws Survey its employees regarding the appreciation and
understanding of its benefits program Guide the process regarding any potential redesign of the
retirement program What would the program be if starting from scratch? How do we get there from here?
3
Background Number of defined benefit plans peaked in 1985 at
114,000…at end of 2005 there were approximately 30,000
Most colleges and universities transitioned to a defined contribution plan only model (e.g. 403(b) plan) years ago
In the past two years many large corporations have frozen the benefits of their defined benefit plans
IBM Sprint Nextel GM Delta Hewlett-Packard Verizon Lockheed Martin Motorola
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Summary of Current Retirement Plans Defined Benefit Pension Plan
Benefit is larger of two amounts Annuity payable at age 65 equal to 2% of high 36
month average compensation multiplied by years of service, capped at 33 years
Annuity that is actuarially equivalent to cash balance account balance
Account balance is credited with service credits (i.e. 7% of compensation) and interest credits (i.e. yield on 10-year Treasuries)
Benefits generally paid in the form of a life-time annuity If the lump sum equivalent of the benefit is $50,000 or less
it could be paid out as one-time lump sum Lump sums can be rolled over to another qualified
retirement plan or Individual Retirement Account or Annuity (IRA)
Vesting is 100% after three years of service
5
Summary of Current Retirement Plans 403(b) Plan
Employees can make contributions through pre-tax salary deferrals (In 2006, maximum is $15,000 plus $5,000 catch up contributions if over 50)
BTI matches contributions dollar for dollar up to 3% of compensation
Vesting on employer contributions is immediate
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The Process Current Retirement Program is very competitive when
compared to other employers The 403(b) plan is well understood and appreciated by
employees The Defined Benefit Plan is not understood as well BTI management and the Board concluded that if
starting “from scratch” a 403(b)-only approach would likely be the design
That said, many current employees are in the middle of their careers and moving to 403(b)-only, at this juncture, was not considered appropriate
Management considered options, made recommendations to the Board which they subsequently discussed and approved
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New Retirement ProgramEffective January 1, 2007 Combination of Cash Balance Plan and 403(b)
Plan Employees employed on September 30, 2006
will have a choice of being covered by current plan or new retirement program For those deciding to stay under the current
program, it’s as if nothing happened with the exception of the investment choices for new 403(b) contributions
BTI reserves the right to make changes to the current plan at any time in the future
All those hired on or after October 1, 2006 will be covered by the new program
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New Retirement ProgramEffective January 1, 2007 Cash Balance Plan
Combination of benefit accrued as of December 31, 2006 plus cash balance account for 2007 and beyond
Cash balance plan benefit for 2007 and beyond will equal an account balance that is credited with service credits and interest credits
Service credits equal to 3% of compensation Those with more than 33 years will still receive a service
credit Interest credits will equal yield on 10 year Treasuries
At termination of employment or retirement employee will have option of an annuity or a lump sum
Lump sum will equal the (1) actuarial equivalent of the benefit accrued at December 31, 2006 plus (2) the cash balance account balance
Lump sum will be offered regardless of the size New death benefit available will be a one-time lump sum in lieu
of an annuity
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New Retirement ProgramEffective January 1, 2007 403(b) Plan
Current matching contribution (100% of first 3% deferred) is unchanged
New employer contribution, regardless of how much the employee defers
This will be subject to a 3 year cliff vesting schedule
Investment direction by the employee More details regarding the 403(b) plan will be
provided in a presentation specific to that plan No maximum service to receive the
employer contribution
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Contribution Rates for those employed by BTI at Transition Split annual employer credits between Cash
Balance Plan and 403(b) Plan:Total
Years of CB 403(b) Employer Credits/Service Plan Plan Contributions
less than 5 3% 4% 7% 5-9 3% 6% 9% 10-14 3% 9% 12% 15-19 3% 11% 14% 20-24 3% 13% 16% 25-29 3% 15% 18% 30 or more 3% 17% 20%
In addition, the 3% match in the 403(b) plan will be maintained
Employer contribution to the 403(b) plan will be based on the service of the employee as of December 31 of the year the contribution is credited
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Contribution Rates for those hired after Transition Split annual employer credits between Cash
Balance Plan and 403(b) Plan:Total
Years of CB 403(b) Employer Credits/Service Plan Plan Contributions
less than 5 3% 4% 7% 5-9 3% 6% 9%10 or more 3% 9% 12%
In addition, the 3% match in the 403(b) plan will be maintained
Employer contribution to the 403(b) plan will be based on the service of the employee as of December 31 of the year the contribution is credited
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“Choice” The “choice” is a one-time election made by the
employee to either continue to be covered by the current DB formula and 403(b) match or be covered under new DB formula and 403(b) contributions
Each employee will be given projections of benefits at various dates in the future (5 and 10 years out) as well as at various retirement ages (age 55, 62, and 65)
BTI wants all employees to complete an election form Those not completing an election form will be covered by
the new plan In other words….if you want to continue to be covered by
the current plan you must complete an election form
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Comparison of Current vs. New Plan Current Plan
Most of the retirement benefits are provided through a defined benefit plan
The defined benefit plan pays most benefits in the form of a lifetime annuity
Only those with benefits worth less than $50,000 have the option of a lump sum
Death benefits are also generally paid as an annuity for retiree and spouse
New Plan Most of the benefits accruing in the future will be provided in the
403(b) plan All benefits will be able to be paid as a lump sum at termination of
employment, retirement or to a beneficiary as a death benefit if you die before leaving BTI
Employee still retains ability to take benefits in the form of a lifetime annuity
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Sample Benefit IllustrationBasic Information:
Date of Birth: 10/8/1974 Years of Benefit Service as of 1/1/07: 6.333Date of Hire: 9/18/2000 Vesting Percentage: 100%Normal Retirement Date (NRD): (age 65) 11/1/2039 Earliest Retirement Date (ERD): (age 55) 11/1/2029
CurrentPlan
A
Cash Balance
PlanB
403(b)Plan
CTotal
D=B+C
PercentChange(D-A)/A
CurrentPlan
Cash Balance
Plan403(b)Plan Total
Accrued Benefit as of 1/1/2007: 9,690 9,690 0 9,690 0% 14,058 14,058 0 14,058
Estimated Projected Benefits:
As of 1/1/2010: 13,901 11,619 4,259 15,878 14% 24,064 20,114 6,806 26,920
As of 1/1/2012: 16,457 12,795 8,319 21,114 28% 32,054 24,922 14,962 39,884
As of 1/1/2017: 22,034 15,384 18,716 34,100 55% N/A 40,265 45,274 85,539
Payable at age 55 (ERD): 20,569 8,699 19,000 27,699 35% N/A 114,385 261,862 376,247
Payable at age 62: 47,238 16,324 40,739 57,063 21% N/A 189,474 506,259 695,733
Payable at age 65 (NRD): 63,253 21,376 51,949 73,325 16% N/A 232,275 610,579 842,854
Estimated Projected Pre-RetirementDeath Benefits Payable to Beneficiary:
At age 55: 17,889 7,968 18,546 26,514 48% N/A 114,385 261,862 376,247
At age 62: 39,183 14,554 39,438 53,992 38% N/A 189,474 506,259 695,733
At age 65: 51,310 18,801 50,115 68,916 34% N/A 232,275 610,579 842,854
Annual Benefit Amount Lump Sum Value, if applicable
ProposedProposed
(payable at age 65) (payable immediately)
including frozen accrued benefit including present value of frozen benefit
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Next Steps Discuss 403(b) plan in more detail Provide employees with Benefit Comparison Statements We strongly suggest employees consult with a financial
planner to discuss their “choice” Employees elect whether to continue to be covered by
current plan or to be covered by new plan
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Contact Information
Vince Spina, ASA, MAAA President, Harbridge Consulting
Group
(315) 703-8999 [email protected]
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Burke Group – Richard Burke
Alesco Advisors – Tim Tindall
Custodian – Fidelity Investments
Paying Agent – First Niagara Bank
Boyce Thompson InstituteNew 403(b) Plan – Partners
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Boyce Thompson InstituteNew 403(b) Plan All ongoing employee and employer contributions will
go exclusively to this Plan.
Employee deferrals and employer contributions will cease going to other 403(b) plans (Fidelity, TIAA-CREF, and T. Rowe Price).
Balances in other plans can remain, or can be transferred, at any time, into the new 403(b) Plan at the employee’s discretion.
Immediate eligibility for new 403(b) Plan
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Boyce Thompson InstituteNew 403(b) Plan Pre-tax deferral ($15,000 / $5,000 catch up)
Employer matching contributions (100% on first 3%)
New employer discretionary contribution
100% vesting
Withdrawals for retirement, termination, and hardship
Daily account access and updates
Changes within your account at any time
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Boyce Thompson InstituteNew 403(b) Plan Employer Discretionary Contributions
Hire date prior to 10/1/2006
Hire date on or after 10/1/2006
Years of Service
< 5 yrs 5-9 yrs 10-14 yrs 15-19 yrs 20-24 yrs 25-29 yrs 30+ yrs
4% 6% 9% 11% 13% 15% 17%
% of Annual Compensation
Years of Service
< 5 yrs 5 – 9 yrs 10+ yrs
4% 6% 9%
% of Annual Compensation
21
Account Access
On-line access, updated daily On-line enrollment (after 1/1/07) Toll-free Call Center, M-F, 8 am – 5 pm, EST Quarterly statements
Personalized Retirement Planning and Counseling On-site, one-on-one meetings Bring other 403(b) plan information On-line interactive web tools
Demo Website Go to www.worksitecommerce.com Company Code: 287 User ID: 111111111 PIN Number: 1111
Boyce Thompson InstituteNew 403(b) Plan
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Financial Self-Assessment / Model Asset Allocations
Optional: Meet with Financial Advisor
Complete Election Form (new or old plan) by November 8
Complete Enrollment Form (deferral and elections) and submit to Lucy by December 1
Complete Beneficiary Form
Optional: Complete Rollover Form to transfer from another 403(b) Plan
Boyce Thompson InstituteNew 403(b) Plan – Next Steps
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Boyce Thompson InstituteNew 403(b) Plan Advisor
Tim Tindall, Alesco Advisors - Rochester Independent, fee-based, SEC registered investment
advisor Founded in January 2000 $750 million under management/advisement 120 clients: institutional and individuals Institutional accounts include: endowments, foundations
and retirement plans
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Boyce Thompson InstituteNew 403(b) Plan Advisor
Investment philosophy Broad use of index investment strategies
designed to match the returns of the capital markets
Benefits of Indexing1. Strong historical performance relative to peer groups2. Transparency & style purity3. Low costs4. Ability to build a well-diversified
retirement portfolio
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Boyce Thompson InstituteNew 403(b) Plan Investment Options
Value Blend Growth International
Large-CapDFA Large-Cap
Value Vanguard Index 500 Vanguard Growth Index Vanguard Total Int'l Stock
Mid-Cap Dreyfus Mid-Cap Index
Small-CapDFA Small-Cap
Value DFA Small-Cap Fund Vanguard Small-Cap
Growth
Vanguard Total Bond Market Index
Vanguard Target Retirement 2015
Vanguard Target Retirement 2005
Vanguard Target Retirement Income
Federated Capital Preservation
Target Date Funds Vanguard Target Retirement 2045
Vanguard Target Retirement 2035
Vanguard Target Retirement 2025
Fixed Income/Stable Value
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Boyce Thompson InstituteNew 403(b) Plan
Investing for Retirement Long-term – Don’t focus on daily movements
Risk and Return Higher returns = More risk (volatility)
Diversification Spread out risk by owning different investments
across a wide range of asset classes
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Boyce Thompson InstituteNew 403(b) Plan Investment Options
Model Asset Allocations Self-managed
Allocation guidelines available Automatic – Target Date Funds
Use Target Date fund that most closely matches your retirement date
Mix of stocks, bonds and cash - routinely rebalanced to become more conservative over time
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Boyce Thompson InstituteNew 403(b) Plan
BTI Retirement Plan Benefits Meet Return Expectations Lower Expenses – keep more of your return Increased Diversification Reduced Volatility
Eliminate “Manager Risk”