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Nonqualified Deferred Compensation Plan The Executive Nonqualified Excess Plan SM.

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Presentation on theme: "Nonqualified Deferred Compensation Plan The Executive Nonqualified Excess Plan SM."— Presentation transcript:

1 Nonqualified Deferred Compensation Plan The Executive Nonqualified Excess Plan SM

2 What well cover today… Why has your employer invited you to participate in the plan? What is a nonqualified deferred compensation plan? Decisions youll need to make & information to help you make them. How can you use the plan to meet retirement & other savings goals? 2

3 For Financial Professional Use Only – Not for Distribution to the Public Why have you been invited to participate in the plan? 3

4 For Financial Professional Use Only – Not for Distribution to the Public Your employer values your contributions Only select employees eligible to participate Key employee benefit to help meet financial goals You are being recognized…. 4

5 The retirement gap Your retirement savings gap could be between 40% - 60% of your needs 5

6 For Financial Professional Use Only – Not for Distribution to the Public All other employees 3Q 2011 All other employees 3Q 2010 All other employees 3Q 2009 Key employees 3Q 2011 Key employees 3Q 2010 Key employees 3Q 2009 Being able to enjoy the same quality of life that I live now 35%45%41%52%48%54% Rising cost of inflation reducing purchasing power 28%30% 38%28%32% Different retirement concerns Source: The Principal Well Being Index, conducted by Harris Interactive, July/August 2011 results of 1,150 small and medium-sized employees and 301 highly compensated employees Question: In thinking ahead to your financial well-being in retirement, which of the following keeps you awake at night? 6

7 For Financial Professional Use Only – Not for Distribution to the Public What is a nonqualified deferred compensation plan? 7

8 Pre-tax deferral of compensation Tax-deferred earnings growth Personalized investment strategy Contributions in excess of qualified plan limits Flexible contribution & distribution options Accounts for retirement & other needs A nonqualified plan offers… 8

9 SimilaritiesDifferences Pre-tax contributions Earnings accumulate tax-deferred Multiple investment options* Distribution options set by plan Elections continue unless modified* Not subject to 401(k) plan deferral & compensation limits Greater distribution flexibility No tax penalty for distributions before age 59 ½ No required minimum distributions at age 70 ½ How a nonqualified plan compares to a 401(k) plan * Subject to plan provisions. 9

10 Nonqualified plan considerations Your employer is making a contractual promise to pay benefits shown in your account. Assets to informally finance plan owned by employer Assets to informally finance plan subject to creditors in the event of bankruptcy Nonqualified plan funding Deferral elections: made annually before calendar year and generally irrevocable Distribution elections: required at enrollment and changed only with restrictions Deferral & distribution elections Balances not available for loans/rollovers to another plan or an IRA Rollovers 10

11 How can you use the plan to meet retirement and other savings goals? 11

12 Nonqualified plan accounts *Subject to specific plan provisions Retirement account Save for retirement/net worth Payable upon separation from service Payable in lump sum or installments – you decide* In-service account(s) Save for specific event/purchase Save for college education Set aside funds with no tax penalties for distributions prior to age 59 ½. Payable at predetermined date in lump sum or installments – you decide* 12

13 Decisions youll need to make & information to help make them 13

14 Decisions you need to make Review your Plan Summary to understand plan-specific benefits offered by your employer. 1. How much should I defer? 2. How do I invest my contributions? 3. When & how do I want to receive my benefits? 14

15 Deferral amount Think about how much money you will need at retirement & for other personal financial goals. How much do I need to meet my retirement and other savings goals? How much can I currently afford to defer? 1. How much should I defer? 15

16 Online tools that can help Retirement Savings Worksheet Calculates percentage of current compensation savings needed to meet retirement goals Deferral Calculator Shows the differences between tax- deferred and after-tax investing Shows expected distribution amounts based on your assumptions 1. How much should I defer? 16

17 Investing contributions 2. How do I invest my contributions? Review your Plan Summary and investment options available to understand plan-specific options offered by your employer. What type of investor are you? What is your short-term & long-term investment philosophy? 17

18 Online tools that can help Investor Profile Quiz Answer questions to help determine your risk tolerance. Use risk tolerance results and time horizon to help choose an appropriate investor profile. Using profile, choose from available reference investments that best suit your needs. 2. How do I invest my contributions? 18

19 Online tools that can help Fund Fact Sheets Summary information on investment options: Long-term returns Comparison by benchmarks and peer groups Risk and return stats Morningstar category Operations information Portfolio manager *Sample sheet for illustrative purposes only. Specific investment options available will be determined by your employer. 2. How do I invest my contributions? 19

20 Receiving plan benefits Review your Plan Summary to understand plan- specific qualifying distribution events and distribution options offered by your employer. For what events will you receive distributions from the plan? What distribution options would be best for you in each event? 3. When & how do I want to receive my benefits? 20

21 Distribution scenarios to consider 3. When & how do I want to receive my benefits? When do you plan to retire? Will you have other funds available on your retirement date? Should you use nonqualified benefits to help bridge your retirement while you await availability of Social Security or qualified plan benefits? Do you have in-service savings needs such as college savings or savings for a major purchase? Do you want to receive benefits in a lump sum or in installments*? *Subject to specific plan provisions 21

22 Managing accounts & distributions Savings Objectives College needs for child Vacation home Build retirement savings Participant Base Salary $120,000 and Bonus $40,000 Participant elects to defer 10% of Base Salary and 50% of Bonus Annual Deferral Amounts Base = $12,000 (10% of $120,000) Bonus = $20,000 (50% of $40,000) Total = $32,000 Pay June 2016 Pay At Separation An example of a participant deferral decision 22

23 Managing accounts & distributions Asset Allocation Strategy/Timing Conservative/ Short-term Moderate/ Middle-term More aggressive/ Long-term 20% College20% Vacation home60% Retirement $6,400 August 2016 $6,400 April 2020 $19,200 Pay at separation 4 annual installments An example of allocating the deferral amounts Lump sum payment 7 annual installments Income taxes payable in year $ received 23

24 For Financial Professional Use Only Five items to do next: 1.Review enrollment & investment materials provided. 2.Assess your retirement & other savings needs. 3.Consult with your advisors. 4.Finalize decisions on deferral, distribution & investment elections. 5.Enroll in the plan. What are your next steps? 24

25 How to enroll Begin taking advantage of this unique benefit to meet your retirement goals! Access the Nonqualified Plan Enrollment Center at Follow the step-by-step instructions provided in your Online Enrollment Guide. If you need assistance, call

26 Congratulations! Thank you for joining us to learn about this important benefit! Your employer values your service and hopes youll take advantage of this opportunity. 26

27 While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal are rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Insurance issued and plan administrative services provided by Principal Life Insurance Company. Securities offered through Princor Financial Services Corporation, , member SIPC, and/or independent broker/dealers. Securities sold by a Princor Registered Representative are offered through Princor ®. Principal Life and Princor are members of the Principal Financial Group ®, Des Moines, Iowa No part of this presentation may be reproduced or used in any form or by any means, electronic or mechanical, including photocopying or recording, or by any information storage and retrieval system, without prior written permission from the Principal Financial Group. DC16-01 | 09/2012 | t e 27


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