Upload
ssieger
View
437
Download
1
Tags:
Embed Size (px)
Citation preview
Small Business Retirement Plans
Updated 07/29/2008
Why Start a Retirement Program?
RETIREMENT
TAX- SAVINGS
CANNOT PREDICT FUTURE, ONLY PREPARE
ATTRACT BETTER QUALITY EMPLOYEES
RETAIN CURRENT EMPLOYEES
How much will I get from Social Security?
Read the following excerpt from the Social Security Administration’s website:
“Social Security was never meant to be the sole source of income in retirement.”
A comfortable retirement is based on a “three-legged” stool of Social Security, company-sponsored retirement plans and personal savings.
Tax Savings
There are two forms of tax savings:
ANNUAL ONGOING UNTIL RETIREMENT
Annually, the typical Paychex owner will save 30%-40% on every dollar put into a retirement plan. While this is important, the true POWER of a 401k plan is the Tax-Deferred (or Tax-Free through Roth Provision) growth the tax law allows.
Outside of Post-Tax Annuities, no other vehicle allows your savings to grow without being taxed on a yearly basis.
This power allows retirement dollars to grow at an incredible rate with time.
Pre-Tax Growth vs Post-Tax Growth
Number of Years that Money is Invested
Saving $500 per month PRE-TAX*
Saving $500 per month POST-TAX*
10 Years $103,276 $89,993
20 Years $382,848 $281,473
30 Years $1,139,663 $689,419
*Assuming 25% tax rate, 10% rate of return, compounded only monthly
So you don’t want to take advantage of I.R.S. section 401?
Number of Years that Money is Invested
Saving $500 per month PRE-TAX* in a 401(k) account
Saving $500 per month POST-TAX in a Money Market Account
earning 4%
10 Years $103,276 $70,898
20 Years $382,848 $169,280
30 Years $1,139,663 $305,800
*Assuming 25% tax rate, 10% rate of return, compounded only monthly
Questions to consider if you don’t want a forced savings plan:
• Will You have the discipline to save EVERY month?
• Will You take the time to make good investment decisions?
• Will Your investment returns even keep pace with inflation?
Cannot Predict Future, can only Prepare for it
ItemCost in
1985Cost in
2005
1 lb. Ground Beef $1.28 $2.30
1 Dozen Eggs $.74 $1.35
1 lb. Fresh Tomatoes $.70 $1.84
1 Gallon of Milk $1.14 $3.24
In addition to the battle against inflation as you can see in the chart on the right, retirees are living longer and longer.
Recent studies have shown that a typical retiree can expect to live 20+ years. Therefore, one must acquire a large nest egg.
Cannot Predict Future, can only Prepare for it
Amount you will need to
have saved up
To withdraw
4%
To withdraw
5%
$500,000 $20,000 $25,000
$1,000,000 $40,000 $50,000
$1,500,000 $60,000 $75,000
$2,000,000 $80,000 $100,000
$2,500,000 $100,000 $125,000
$3,000,000 $120,000 $150,000
How Big of a Nest Egg?
According to current life-expectancy figures, you could live 20 to 30 years after you retire at 65. To make sure your savings last as long as you do, experts say, you can’t afford to withdraw more than 4% to 5% from your nest egg each year, adjusted annually for the rise in the cost of living. (Of course, you’ll also receive some income from Social Security.) Here’s how big a personal nest egg you’ll need at retirement, depending on the annual withdrawals you plan to take.
Attract Top Employees
Studies show that without benefits, outside of acquaintance or luck, a business owner cannot attract the best quality EMPLOYEES.
Research shows small businesses need retirement benefits*While some research shows that small business retirement plans are too expensive for their potential customers, a new survey underscores the fact that employers might want to reconsider that notion.
By Editorial Staff While some research shows that owners think small business retirement plans are too expensive, a new survey underscores the fact that employers might want to reconsider that notion.
Fidelity finds that 49% of workers with a retirement plan say the would not take a job with a company that doesn't offer one. 68% percent of employees said that a retirement plan is critical or very important. Just 36% of employers said it was critical or very important to their staff recruitment and retention efforts.
*© 2007 Employee Benefit News and SourceMedia, Inc.
Retention of Current Employees
If you’re not offering a retirement plan to your employees, don’t be surprised to lose them to a competitor that does!
Misconceptions about 401(k)s could cost Small Business OwnersBy Lynn Gresham
Forty percent of workers in small companies say they would leave their job for one that provided a 401(k) plan, according to a survey conducted by Harris Interactive and sponsored by ShareBuilder 401(k), a subsidiary of ING Direct. . . .
Retention of Current Employees
Only 3 ways an owner can retain their employees:
1) $$$$ - Pay so much money that an employee cannot afford to leave.
2) ENVIRONMENT - Make the environment so great that employee doesn’t want to leave even though they can make more money elsewhere.
3) LOW-COST BENEFITS - For the cost of one half (1/2) of a person for health insurance, you can offer a retirement plan to your whole company.
OK, so I think I need a Plan
Questions we will now answer:
1. How do I get money in a plan?
2. How much can I get in?
3. What are the 3 things I need to know to start a plan today?
4. How much is this going to cost me?
5. Will the government help pay for my plan?
How Do You Get Money In?
1. Salary Deferrals
2. Company Match
3. Profit Sharing
Matching0% to 4%
Profit Sharing0% to 25%
Automatic Per Pay Period Contribution $16,500 Salary Deferral
(1%-96% of Pay)
+ $5,500 Catch up Contribution for those Age 50 and over
CombinedAnnual Maximum
up to$$ 49,000 $$
New Comparability,Age Weighted
How Can You Maximize Your 401(k)?
EmployeeFunded
Optional Employer
Contributions
Your 401(k) plan, easy as 1-2-3
3 Simple Decision to Start a Plan Today
Optional Company MatchVesting schedule Multiple Investment Options
Non-Broker Investment Options
Each offer multiple investment choices No front-end or back-end sales charges 100% of deferral gets invested No charge for initial “Enrollment Meeting”
FA Overseas
FA Dividend Growth
FA Equity Growth
FA Growth Opportunities
FA Mid Cap II
FA Small Cap
FA Balanced
FA Government Income
FA Intermediate Bond
FA Strategic Income
FA Money Market – Prime Fund
Columbia Acorn International
Quant Foreign Value
SSgA International Stock
Quant Emerging Markets
Vanguard Small Cap Value Index
Keeley Small Cap Value
Columbia Mid Cap Value
Delaware American Services
Yacktman
Columbia Marsico 21st Century
Janus Contrarian
Schwab Instl Select S&P
500
Pioneer Global High Yield
Delaware Corporate Bond
Vanguard Inflation-
Protected Secs
American Century Target
Maturity 2025
Federated Automated Cash
Management Trust
FA Freedom Funds 2010
FA Freedom Funds 2015
FA Freedom Funds 2020
FA Freedom Funds 2025
FA Freedom Funds 2030
FA Freedom Funds 2035
FA Freedom Funds 2040
FA Freedom Funds 2045
FA Freedom Funds 2050
$125 per month $180 per month
Employer Matching and Vesting Options
Matching Options
Employer Matching
Contribution
Not to exceed this percentage
of salary
Employer’s maximum Matching
Percentage
SAFE HARBOR
100% of first 3%50% of next 2%
5% 4%
2 0% 0% 0%
3 25% 4% 1%
4 50% 4% 2%
5 50% 6% 3%
6 100% 3% 3%
Years of Vesting
from Date of Hire
Vesting Percentage
Option 1 Option 2 SAFE HARBOR
1 0% 0% 100%
2 20% 0% 100%
3 40% 100% 100%
4 60% 100% 100%
5 80% 100% 100%
6 100% 100% 100%
IRS/DOL
Money Manager
Participants
Employer
Payroll Bank
Record Keeper
Non-Paychex 401(k) Paradigm
The Paychex Advantage:A Seamless Flow of Contributions
Client Paychex
InvestmentProvider
Power of Paychex Integrated 401(k)
What Paychex Does For You
Required Legal Documents Adoption Agreement Plan document Summary Plan Description
Quarterly management reports Quarterly participant statements Nondiscrimination reports Roth contributions Daily account balance updates Loan Provision Toll-free employee telephone access Participant Website via the Internet Electronic recordkeeping and fund transfer Preparation of Form 5500 Preparation of Forms 1099-R and 945
$1,500 Tax Credit for a New 401(k) Plan
The Details• By starting a new retirement
plan this year, your company will receive a tax credit equal to 50% of the first $1,000 in administrative expenses. You will receive this credit for three years, beginning in 2009 when filing your company returns for tax year 2008. This credit is available to employers who have less than 100 employees earning at least $5,000 in the preceding year.
$0
$250
$500
$750
2008 2009 2010
Tax Year
Small Business Tax Credit
Paychex is the #1 Provider of 401(k) Plans in America*
*As independently ranked by PlanSponsor Magazine, July 2008.
Partner Investment Options
Fixed/Target Managed Actively Managed