TRENDS, TOOLS, TRAPS, and TIPS:What Advisors Need to Know About Qualified

Retirement Plans to Add Value to Their Clients.. and Grow Their Practices

Presented to

Illinois CPA Society

Investment Advisory Services/

Personal Financial Planning Forum

By Jerry Kalish

President, National Benefit Services, Inc.

January 13, 2015

Retirement as Part of the Picture

What We’ll Cover

• Overview of ERISA

• Trends

• Tools

• Tips

• Traps

An Overview

What ERISA Covers

Guarantees payment of certain

benefits if a defined plan is

terminatedRequires plans to

provide participants with

information about the plan including about

plan features and funding

Sets minimum standards for participation,

vesting, benefit accrual and

funding

Requires accountability of plan fiduciaries

Gives participants the right to sue for

benefits and breaches of

fiduciary duty

Gives participants the right to sue for

benefits and breaches of

fiduciary duty

Other Laws Besides ERISA

• Age Discrimination in Employment Act (ADEA)

• Uniformed Service Employment and Reemployment Rights Act (USERRA)

• Federal securities law.

Note: While ERISA expressly preempts any state law with respect to retirement plans, certain state laws governing insurance, banking and securities may be applied to retirement plans.

1974

Passage of ERISA

1978

401(k) enacted into law

1981

IRS proposed regulations

2015

Amendment and Restatement for Pension Protection Act of 2006

The History of 401(k)

.

The Regulatory Agencies

Internal Revenue Service

Service

Tax Qualification

Department of Labor

Reporting, Disclosure, and

Fiduciary Requirements

Pension Benefit Guaranty

Corporation

Insures Terminated Underfunded

Defined Benefit Plan

Trends and Demographics Affecting Our Business

Overview of theRetirement Plan Market

• Changes in workforce demographics

• New plans waiting to be started

• Decline in service

• Change in the tax laws

• Just not listening

Just Not Listening

Employees

• Just do it for me process

• Little work; little time

• Minimize tough decisions

Employers

• Keep it simple

• Participant needs

• User friendly

• Personal service

The New Retirement Plan Focus

Accumulation

• Dollar cost averaging

• Asset allocation

• Rebalancing

• Cost of waiting

• Tax free compounding

• Tax-deferrals

Lifetime Income

• When to retire

• When to apply for Social Security benefits

• What to do, if anything, about housing

• What choices to make about insurance and health care

• How financial assets should be invested

• What distribution options to take

The Political Dichotomy

Retirement Savings

Income Inequality

The Affordable Care Act

TOOLS

Possible Benefit Reductions

• The Administration's Budget Proposals

• The 1982 TEFRA experience

• Grandfathered prior to effective dates beginning in 1983

Key 2015 Limits

401(k) Elective Deferrals $18,000

Catch-Up Contributions $6,000

Annual Defined Contribution Limit $53,000

Annual Defined Benefit Limit $210,000

Annual Compensation Limit $265,000

Highly Compensated Employee $120,000

Key Employee $170,000

SIMPLE Employee Deferral $12,500

SIMPLE Catch-Up $3,000

Maximum Annual Pension Benefit $215,000

Individual Retirement Plan $5,500

Individual Retirement Plan Catch-Up $1,000

The Interplay Between Allocations and Deductions

Individual Limits Employer Limits

Maximum Annual 401(k) Contribution

Lesser of 100% of compensation or $18,000 plus $6,000 catch-up if applicable

Maximum Annual Allocation Lesser of 100% of compensation or $53,000 exclusive of $6,000 catch-up

Maximum Tax DeductionFor DC Plan

Not to exceed 25% of compensation

Combined DC and DB Tax Deduction - Not subject to PBGC

DB: Maximum permittedcontribution PLUSDC: 6% of compensation

Combined DC and DB Tax Deduction - Subject to PGBC

DB: Maximum permittedcontribution PLUSDC: 25% of compensation

TRAPS

What the Regulators Look For

Asset Protection Issues

• Special requirements of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)

• One-person plans and creditors

• Special rules for IRAs

The Perils of Procrastination

• Compensation of S-corporation Owner-Employee

• Notice requirements for Safe-Harbor Plan

• Notice requirements for terminating SIMPLE

• Timing of 401(k) contributions

But pre-funding contributions can also cause problems.

Delinquent Form 5500-EZ

• One-person plan not Title I Plan - not eligible for Department of Labor Delinquent Filer Compliance Program

• Pilot Penalty Relief Program under IRS Revenue Procedure 2014-32

Expires June 2, 2015

The CFO as a Fiduciary

Thomas Perez, Plaintiff

vs.

Geopharma, Inc., et al., Defendants

United States District Court

Middle District Of Florida

Tampa Division

Case No. 8:14-cv-66-T-33TGW

TIPS

Compensation for Plan Purposes

Ownership Income Plan Compensation

Owner of C-Corporation W-2 Income W-2 Income

Owner/Employee ofS-Corporation

W-2 Income + K-1 Schedule W-2 Income Only

Sole Proprietor Schedule C (Net Profit) *Earned Income

Partner in Partnership K-1 Schedule (Net Profit) *Earned Income

Member of LLC Taxed as Partnership

K-1 Schedule (Net Profit) *Earned Income

*Earned Income = net profit minus 1/2 self employment tax minus plan contribution. Deductions for sole proprietors and partners are limited to net profit minus 1/2 self-employment tax.

Query: When must contributions be made?

Timing of ContributionsType Required Timing Vesting Schedule

Employee Pre-Tax 401(k) Within 7 business days from date of payroll deduction

Required 100% immediate

Employee After-Tax Roth Within 7 business days from date of payroll deduction

Required 100% immediate

Employer Safe Harbor No later than the time the employer’s tax return is due including extensions

Required 100% immediate

Employer Discretionary Profit Sharing

No later than the time the employer’s tax return is due including extensions

Graded vesting not to exceed 6 years

Employer DiscretionaryMatch

No later than the time the employer’s tax return is due including extensions

Graded vesting not to exceed 6 years

Query: What about Sole Proprietor, Partner, or Member of LLC?

Plan Design

• 3% Safe Harbor

• Safe Harbor Match (100% up to first 3% plus 50% on next 2% (4% maximum)

• New Comparability/Age Weighted

• Cash Balance Plans

• Spouse as employee

NATIONAL BENEFIT SERVICES, INC.

Helping you get your retirement plan from where it is now . . . to where it needs to be.

National Benefit Services, Inc.

300 West Adams, Suite 415

Chicago, IL 60606

Phone: 312-419-9080

Contact: Jerry Kalish, President

jerry@nationalbenefit.com

www.retirementplanblog.com

©2014, National Benefit Services, Inc.