1. What to Consider When Making Your RCAB Pension Plan Choice
Presented by:
The PFE Group is a leading provider of personal financial education programs. The PFE Group sells no investments or other financial products. Presenters are certified, seasoned financial educators whose primary mission is to motivate people to make informed financial decision with confidence.
Copyright © 2011 The PFE Group. All rights reserved.

2. What Are My Sources of Retirement Income?
Employer Retirement Plan
Social Security
Social Security replaces ~ 30% to 40% of income … at Normal Retirement Age
Social Security is an annuity stream
2/3 of retired Americans rely upon Social Security for over 50% of income
Compare these sources with information on how much income you will require in retirement.
Personal Savings

3. Lump Sum or In-Service Annuity?
Factors to consider . . .
1. Married or single?
2. Life expectancy?
3. Want to be able to designate someone other than a spouse as a beneficiary?
4. Have other sources of retirement income (i.e., spouse’s retirement plans other employer plan, etc.)?
5. Have stable expenses in the near term?
6. Have stable expenses in the long term?
7. Own a home?
Can’t tell you what the right decision is – how to arrive at best decision for you
First decision – make a decision as Lump Sum or In-Service annuity
Things to think about….
Married or Single -
If select Annuity
…and Single – No benefit if die before benefit begins, no benefit after death
…and Married – 50% Joint and Survivor (can be waived by spouse) reduced benefit then further reduced upon death
IRA – Freedom to name any beneficiary
Own a home – equity – how far into owning out right - asset to be considered

4. Lump Sum or In-Service Annuity?
Factors to consider . . .
8. How many years until planned retirement?
9. Would have difficulty managing expenses without a regular monthly check?
10. Have adequate insurance to protect assets and income in the event of death or disability?
11. Have an investment vehicle that will earn an appropriate rate of return for your lifestyle? Ex – annuities, mutual funds, other investment accounts?
12. Have the ability to treat a lump sum distribution as retirement savings, not a source for impulse spending?

5. Money Management Factors To Consider
Do You…
Yes No
1. Maintain a budget and live within it? 
2. Review your tax status on a regular basis and minimize tax consequences where possible?
3. Have enough money available to handle emergencies?
4. Have the discipline to reduce and eliminate debt?
Be honest with yourself as to how you manage money!
No emergency fund? Lump sum might be better 4

6. Which Is Best For You? In-Service Annuity Lump Sum
Need a steady stream of income – now or in retirement
Need money now OR
Will allow money to grow tax-deferred for retirement in:
RCAB 401(k) Plan; or
IRA; or
Other qualified plan

7. If Electing An In-Service Annuity…
Monthly in-service payment beginning January 2012
Payment amount is fixed at time of election
If under age 65, reduced for age and Plan funded percentage
Payments are considered taxable income (Federal and State) – 1099-R issued every year
No 10% penalty if under age 59 ½ - life annuity exemption
Joint & Survivor or Single Life Annuity
Tax withholding is not mandatory, but suggested
Funded Status as of 6/30/11: 86.3% (Was 78.4% as of 6/30/10, then 83% as of December 31, Will fluctuate with market volatility)
You do not have to have taxes withheld, but “should have at least 10% to 15%” so you don’t underpay

8. For Those Electing A Lump Sum…
Direct Transfer
Distribution or
RCAB 401(k) Plan, IRA or other Qualified Plan
Tax Deferred
No Penalty
Payable to the Individual
Federal Tax (mandatory 20% withholding)
State Tax
10% Penalty if Under 59½*
RCAB 401(k) Plan, IRA or Other Qualified Plan
Protected from creditors
Distribution
60 days to roll to IRA or Employer Plan
[the text below is too much in the weeds – please do not spend time on all of this]
*Exemptions to 10% penalty – death, disability, QDRO
Assume a lump sum payment of $2,000 is due.
First, you need to estimate your marginal income tax bracket:
If single – Taxable Income (not gross income)
$8,375 – 34,000 – 15%
$34,001 - $82,400 – 25%
Married Filing Jointly – Taxable Income (not gross income)
                $16,750 - $68, %
                $68,000 - $137,300 – 25%
Example, assume MFJ marginal tax bracket of 15% and MA state income tax of 5.3%
$2,000 will have total taxes due of:
                Federal - $300 (15% of $2,000)
                Federal Under 59 ½ penalty - $200 (10% of $2,000)
                MA Tax - $106 (5.3% of $2,000)
Total tax liability of $606.
When lump comes out, mandatory 20% withholding for Federal taxes = $400
Actual Federal tax total (tax and penalty) = $500
Participant will owe the balance of $100 at tax time when they file
Also, they will owe $106 at tax time for MA state income tax.
The 20% mandatory withholding is for federal only and is simply a pre-payment of the tax liability
Note:
No way to beat the income tax liability but the 10% penalty can be avoided by the following:
Age 59 ½ or older at withdrawal
Death
Disability (Social Security definition)
Used to pay deductible medical expenses (> than 7.5% of AGI)
Active Reservists
* Exemptions to the penalty apply

9. Rollovers to RCAB 401(k) vs. IRA vs. Another Qualified Plan
Rollover IRA
Tax Deferred
Not Available
Any time
Wide variety
RCAB 401(k) Plan
Tax Deferred
Available
“Pay yourself back”
Any time
See Initial Investment Option List
Other Qualified Plan*
Tax Deferred
May be available
Depends on plan design
Depends on plan selection
Tax Status
Loans
Withdrawal of rollover money
Taxes
and Penalties may apply
Investments
* Plan rules vary

10. RCAB 401(k) No maximum limit on rollover amount
Does not affect annual contribution limit for 2012: $16,500 ($22,000 if over age 50)
Can also roll over vested balances from other qualified plans
Investment options selected by independent fiduciary to the Plan; options monitored and changed based on performance to benchmarks
Can make choices among investment options, which can be changed over time
One-on-one financial counseling sessions will be available with TIAA-CREF
TIAA CREF is recordkeeper
Morgan Stanley/Graystone Consulting - Danvers – Independent Investment Advisor – Fiduciary to Plan and resource for Educating Employees

11. Rollover IRA No maximum limit on rollover amount
Does not affect regular IRA contribution limit for 2011: $5,000 ($6,000 if over age 50)
Okay to co-mingle with other rollover money from qualified plans including:
Pensions / 401(k) Plans / 403(b) or (TSAs)
Full investment options; some investment expenses may be higher than in employer-sponsored 401(k) or 403(b) plans
Investment education usually not included in IRA fees

12. Where To Open An IRA IRAs
Brokerage Account (full, discount, and web-based service)
Mutual Fund Account
(Investment Company)
Bank, Credit Union or Insurance Company
Mutual Funds
Stocks
Bonds
Other
CDs
Mutual Funds
Annuities
No Load
Mutual Funds
Commissioned Mutual Funds
Set up IRA first – name of custodian and acct number – to receive IRA contribution

13. Balancing Investments with Needs and Goals
Needs/Goals
Investment Type
Immediate
Cash
Short Term
Mix of Cash and Bonds
Intermediate
Balanced mix of Cash, Bonds and Stocks
Long Term
Mix of Cash, Bonds and Stocks based on risk tolerance
Note: for employees eligible for the RCAB 401(k) Plan, education sessions on retirement planning and investment options will be held October-November Dates and locations TBA soon.

14. Questions?