EMPLOYEE BENEFITS Ludwig H. Bach President, Spectrum Pension & Compensation, Inc. Managing Director, Summit Actuarial Services, LLC.
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EMPLOYEE BENEFITS Ludwig H. Bach President, Spectrum Pension & Compensation, Inc. Managing Director, Summit Actuarial Services, LLC
GROUP INSURANCE PROGRAMS Health Insurance Programs Term Life Insurance Dental Insurance Vision Plans Prescription Drugs AFLAC
Retirement Planning Government Programs. These programs provide the “floor of protection” on which other programs may be built. The primary government retirement program, covering 97% of the jobs in the country, is Social Security. (Most people use this term to refer to the Old Age, Survivors, and Disability Insurance, or OASDI, program.) Other government programs, especially those providing for medical care benefits, are generally not included in the term. Employer-Sponsored Pensions. About half of the employees in the US are covered by such plans, which usually are “integrated” with Social Security, directly or indirectly. Income from Personal Savings and Investments. Most workers are able to set aside some assets during their working years to provide supplementary retirement income. In addition, they may inherit some assets.
GOVERNMENT PROGRAMS The original Social Security Act (1935) and the current version of the Act, as amended, encompass several social welfare and social insurance programs. The larger and better known programs are: 1. Federal Old-Age, Survivors, and Disability Insurance 2. Unemployment Benefits 3. Temporary Assistance for Needy Families 4. Health Insurance for Aged and Disabled (Medicare) 5. Grants to States for Medical Assistance Programs (Medicaid) 6. State Children’s Health Insurance Program (SCHIP) 7. Supplemental Security Income (SSI)
Social Security Benefits paid for by a payroll tax (FICA) is 6.2% of employees gross wage up to the taxable wage base which, in 2009, is $106,800. The employer pays an additional 6.2%. Self employed pay both pieces, or 12.4%. Medicare, a program providing health insurance benefits for the aged and disabled, is paid for by a payroll tax of 1.45% of gross wages with no maximum. Employer pays an additional 1.45%. Self employed pay both pieces, or 2.9%.
EMPLOYER SPONSORED PLANS Defined Benefit Pension Plans Defined Contribution Pension Plans – includes 401(k), 403(b) and 457 Plans. Non Qualified Deferred Compensation
OTHER STATUTORY BENEFIT PROGRAMS FUTA – Federal Unemployment Tax Act NY Disability Workers Compensation
PERSONAL SAVINGS & INVESTMENTS If employer doesn’t offer a retirement plan, then an Individual Retirement Arrangement (IRA) or ROTH (IRA) may be an alternative. Saving Pre Tax versus After Tax
SAMPLE WEEKLY PAY Single Employee No Dependents Weekly Gross Pay1,000.00 FICA62.00 Medicare14.50 401(k)-0-50.00150.00 FWT160.00148.00123.00 SWT51.6548.2341.38 Take Home711.82677.27609.12
How Tax Deferral Works IRA contributions are the simplest to demonstrate. Let’s compare the difference between making $3,000 annual contributions to an IRA with saving the same amounts in a taxable savings account. We will assume that both accounts earn 6% annually. For the savings account, the values are after taxes of 30% in year 2, 29% in year 3 and 28% thereafter. YearTotal ContributionsIRA ValueSavings Account Value 1$3,000 2$6,000$6,180$6,126 3$9,000$9,551$9,387 4$12,000$13,124$12,792 5$15,000$16,911$16,345 6$18,000$20,926$20,051 7$21,000$25,182$23,917 8$24,000$29,692$27,951 9$27,000$34,474$32,158 10$30,000$39,542$36,547 15$45,000$69,828$61,507 20$60,000$110,357$92,344 30$90,000$237,175$177,514 Taxes Due-$41,209 Net After Tax$195,966$177,514