2015-10-29 457 plan misconceptions clarified

Thrive. Grow. Achieve.

457 Plan Misconceptions

Clarified

Dennis Gogarty, CFP ®, AIF ®

Chase Deters, CFP®, ChFC®

Copyright Raffa Wealth Management, LLC All Rights Reserved

Foundation Investments and Best Practices / Page

INTRODUCTION

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Raffa Wealth Management, LLC • Independent Registered Investment Advisor

• An aggressive advocate for Foundations, Associations, and Charities

• $566,616,024 in assets under management (as of 12/31/14)

• Ranked 19th in CNBC's Top 100 Fee-Only Wealth Management Firms

• Principals with over 25 years of experience in retirement plan consulting

• Affiliated with Raffa, PC and Raffa Financial Services, Inc.


AGENDA

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457(b) Planning – Practical Considerations

•Recordkeeping Options

•3(38) vs. 3(21) Fiduciaries

•Participant Tax Planning


RECORDKEEPING OPTIONS

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Vender Choices • Fully bundled with your 401(k)/403(b)

– Pro's

• Convenient and easy to administer

– Con's

• More expensive than other options

• Potentially limited investment choices

• Standalone brokerage account – Pro's

• Typically the least expensive option

• Flexibile, participant driven expenses

– Con's

• Investment flexibility may not be desirable

• Additional vender/relationship to manage


INVESTMENT FIDUCIARY

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Difference in Fiduciary Status

None 3(21)

Fiduciary 3(38)

Fiduciary Description Level of Fiduciary Responsibility

Duty of loyalty to serve the exclusive best interests of the plan participants and beneficiaries

Duty of care to exercise the skill, diligence, and prudence of a professional Shall have reasonable grounds for believing recommendations are suitable Description Level of Fiduciary Authority

Makes recommendations to plan sponsor Maintains discretion to make decisions and implement changes


TAX CONSIDERATIONS

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Tax Planning

• Understand Tax Implications

– Ordinary income tax due upon "economic reciept"

– Tax deferral benefits cease once distribution is allowed

• Timing of Distributions

– Stagger distribution payments to avoid having more of the distribution taxed at higher rates

– Undistributed balance still subject to "risk of forfeiture"


DISCLOSURE

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This presentation summarizes the results of an informal, non-scientific study compiled by analyzing the results of surveys completed by nonprofit finance executives.

This presentation is for information purposes only. Participant responses have not been verified. Data analysis was performed by Raffa Wealth Management.

When stating “nonprofit” responses it should be noted that all responses are limited to the nonprofits that participated in the survey. No broader implications should be assumed.

This information was gathered from reliable sources but we cannot guarantee accuracy. Any performance related information is based on participant responses and have not been verified. Past performance is not an indication of future results and any investment can lose value.

Performance results have been compared to balanced benchmark portfolios comprised of broad market indexes. The benchmarks were selected because we feel they are the broadest market benchmark available in each broad category. They may or may not be suitable benchmarks for comparison to any particular investor’s portfolio or for the average results reflected in this study. You should consult with your investment professional to determine suitable benchmarks for your portfolio.

Indexes do not reflect the fees associated with actual investments and such fees would reduce the performance illustrated.

DEFERRED COMPENSATION FOR TAX EXEMPT EMPLOYERS PLAN DESIGN, ADMINISTRATION AND LEGAL ISSUES UNDER SECTIONS 457 AND 409A OF THE INTERNAL REVENUE CODE

KURT LAWSON

[email protected]

OCTOBER 29, 2015

SECTION 457 – OVERVIEW

IMPORTANT GUIDANCE

• Final Regulations

• Proposed Regulations

• Model Language

• Other Significant Guidance

PLANS TO WHICH IT APPLIES

• Meaning of “Plan”

• Meaning of “Deferred Compensation”

• Meaning of “Eligible Employer”

• Coverage of Non-Employees

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SECTION 457(B) USES, REQUIREMENTS AND

TRAPS FOR THE UNWARY

USES OF SECTION 457(B) PLANS

WRITTEN PLAN REQUIREMENT

REQUIREMENTS FOR SALARY REDUCTION ELECTIONS

COVERAGE AND NONDISCRIMINATION REQUIREMENTS

EFFECT OF VESTING SCHEDULES AND REQUIREMENTS

PERMITTED AND REQUIRED FUNDING VEHICLES

PLAN-LEVEL LIMITS ON DEFERRALS

INDIVIDUAL-LEVEL LIMITS ON DEFERRALS

RULES REGARDING TIMING OF DISTRIBUTIONS

TIMING OF TAXATION BASED ON RECEIPT

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SECTION 457(F) USES, REQUIREMENTS AND

TRAPS FOR THE UNWARY

USES OF SECTION 457(F) PLANS

NO WRITTEN PLAN REQUIREMENT

NO COVERAGE OR NONDISCRIMINATION REQUIREMENTS

EFFECT OF VESTING SCHEDULES AND REQUIREMENTS

SALARY REDUCTION ELECTIONS CAN BE PROBLEMATIC

PERMITTED FUNDING VEHICLES

NO LIMITS ON DEFERRALS

NO RULES REGARDING TIMING OF DISTRIBUTIONS

TIMING OF TAXATION BASED ON VESTING

MEANING OF “SUBSTANTIAL RISK OF FORFEITURE”

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SECTION 409A – OVERVIEW

PLANS TO WHICH IT APPLIES

• In General

• Meaning of “Plan”

• Meaning of “Deferred Compensation”

• Coverage of Non-Employees

• Impact on Section 457 Plans

REQUIREMENTS AND TRAPS FOR THE UNWARY

• Nature of the Requirements

• Significant Consequences of Failure

• Restrictions on Payment Events

• Requirements for Payment Elections

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ADMINISTRATIVE ISSUES

EMPLOYMENT TAXES

• Income Tax Withholding

• FICA Taxation

• Information Reporting

ANNUAL REPORTING

• Form 990

• Form 5500

IRS REVIEW OF SECTION 457 PLANS

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2015-10-29 457 plan misconceptions clarified

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