3. AGENDA  Social Security as a Supplement  Personal Savings  Women and Retirement  Retirement Planning  EBISA & ERISA  PBGC  Defined Benefit v. Defined Contribution  Qualified v. Non-Qualified  Retirement Planning & Savings  Types & Characteristics About Various Contribution Plans  Defined Benefit Plans  Relationship To The Benefits Wheel  Annuity  Pensions  Summary

4. YOUR RETIREMENT MOST PEOPLE DON’T PLAN TO FAIL…. THEY JUST FAIL TO PLAN!

5.  Social Security has been around for more than 65 years Offers a secure retirement plan for its workers and their families (supposedly)  Social Security system is now confronting huge financial problems Social Security as a Supplement

6.  Most financial advisors suggest you'll need approximately 70 percent of your pre-retirement earnings to maintain your pre-retirement standard of living If you have an average income, then:  Your Social Security retirement benefits will replace only about 40 percent Social Security as a Supplement Supplement other 30% or more with: Pension Plans Savings Plans Investments

7.  Presently there is an estimated 36 million Americans age 65 or older who are eligible for Social Security retirement benefits It is estimated in 15 years that Social Security will be paying more benefits than it is taking in through taxes  Americans 65 and older will more than double  Taxes will only cover 73 cents for each dollar of scheduled benefits  Insolvent by 2042 Social Security as a Supplement More reasons to use Social Security as a Supplement:

8.  Estimated cash flow for Social Security Social Security as a Supplement

9. Personal Savings  In 1946 the United States started for the first time to gather personal savings data so it could be used for economic research Personal savings: Our income after we pay taxes, mortgage, car payments, living expense, etc. U.S. personal savings rate as a percentage of disposable income.

10. Personal Savings  Positive savings rate until last three months of 1998 Low to negative savings, mostly overlooked because of the strength of the overall economy. As of 2004-02-01 1.9%

11. Last 50 Years Last 10 Years

12. Personal Savings  Why is personal savings important? Two economic views  High Savings: Capital Formation  Low Savings: Consumption demand to grow beyond the increase in income  And many more arguments for the either views.

13. Personal Savings  How do we compare to other nations? 4 developed countries

14. Personal Savings  A further comparison to other nations (In 1996) Personal savings as percentage of GDP

15. Personal Savings  Is the current method to determine PSR (Personal Savings Rate) accurate? Some Problems:  Government method leaves out important factors

16. Personal Savings  Revised method The Bureau of Economic Analysis decided to recalculate the PSR  Instead of putting government workers retirement plans into the category of government savings, they put it into personal savings

17. Personal Savings  New Results for the PSR:

18. Personal Savings  Economic results for a low personal savings rate (U.S.) Undeterminable Retirement implications Critical 60 % to 80 % of your current income each year is needed for your retirement requirements

19. Women’s Participation in Retirement Plans  On average women earn less than men  It is estimated they earn 73 cents to every dollar a man earns  Life expectancy of women is greater than men  Women live approximately 81.2 years compared to men at 75 years.

20.  Comparison by age and gender of wages: Women’s Participation in Retirement Plans

21.  Comparison of life expectancy by gender: Women’s Participation in Retirement Plans Andorra Andorra Female 86.58 years (2003 est.) Andorra Andorra Male 80.58 years (2003 est.)

22.  The most widely used retirement program by women is Social Security  Women represent 58 percent of all Social Security beneficiaries age 62 and older and approximately 71 percent of all beneficiaries age 85 and older.  They can receive benefits as a spouse or ex-wife given they were married for ten years  They can also choose to receive their own Social Security benefits or they can choose to receive it as a spouse but can’t collect both at the same time  Special circumstances to receive Social Security Women’s Participation in Retirement Plans

23.  Problems with Social Security & Pensions in regards to women  Elderly women are less likely than elderly men to have significant income from pensions other than Social Security  In 2002, a women’s average monthly retirement benefit averaged $774, while men’s benefits averaged $1,008  In 2000 there was only 18 percent of women aged 65 or older were receiving their own pensions (either as a retired worker or widow), compared to the 31 percent of men. Women’s Participation in Retirement Plans

24.  Good News and Recommendations In 2001, 47 percent of all participants in a pension plan were women and 53 percent were men  But, women generally receive lower pension benefits, compared to men, due to their relatively lower earnings Women’s Participation in Retirement Plans Pension Plans Defined contribution plans & defined benefit plan Save and invest Save a portion of your income every month Reduce your credit card debt

25. Employee Benefits Security Administration (EBSA)  Regulatory arm, under DOL, for enforcing the fiduciary reporting and disclosure provisions of Title I of the Employee Retirement Income Security Act of 1974 (ERISA).

26. Employee Benefits Security Administration (EBSA) The Employee Benefits Security Administration protects the integrity of pensions, health plans, and other employee benefits for more than 150 million people. Assist workers in getting the information they need to protect their benefit rights Assist plan officials to understand the requirements of the relevant statutes in order to meet their legal responsibilities Develop policies and laws that encourage the growth of employment- based benefits Deter and correct violations of the relevant statutes

27. What is ERISA?  Employee Retirement Income Security Act of 1974  Federal law that sets minimum standards for pension plans in private industry

28. ERISA ERISA does the following:  Requires plans to provide participants with information  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  Guarantees payment of certain benefits if a defined plan is terminated under PBGC

29. Pension Benefit Guarantee Corp.

30. Pension Benefit Guaranty Corp. (PBGC)  PBGC is a federally chartered corporation established by Title IV of ERISA Act 1974  PURPOSE: Continuation and maintenance of defined benefit pension plans Uninterrupted pension benefits to participants in plans covered by PBGC Keep pension insurance premiums at lowest level necessary to carry out objectives

31. Pension Benefit Guarantee Corporation  The PBGC protects the retirement incomes of nearly 44.3 million American workers in more than 31,000 private defined benefit pension plans

32. PBGC  PBGC issued its first pension check for $140.75 on February 28, 1975, to a participant in the International City Bank of New Orleans Employees Retirement Plan

33. WHAT PBGC GUARANTEES  PBGC guarantees the basic benefits before termination date of the plan which include the following: Pension benefits at normal retirement age. Most all early retirement benefits. Disability benefits from disabilities which occurred before the plan terminated. Certain benefits for survivors of plan participants.

34.  For example, in 2004, a single- employer plan adjusted annually for Social Security and based on the date the plan terminates is guaranteed $44,386.32 annually ($3,698.86 monthly) for a single life annuity beginning at age 65.

35. Year Plan Terminated Monthly Guarantee Limit at Age 65 Monthly Guarantee Limit at Age 62 Monthly Guarantee Limit at Age 60 Monthly Guarantee Limit at Age 55 2004 $3,698.86$2,922.10$2,404.26$1,664.49 2003 $3,664.77$2,895.17$2,382.10$1,649.15 2002 $3,579.55$2,827.84$2,326.71$1,610.80

36. External Factors Affecting Performance  What key external factors may affect performance of pension plans? General economic health and interest rates (lower interest rates often translate to higher pension plan underfunding). The state of pension systems in general, and of defined benefit plans in particular. Financial health of particular companies with underfunded pension plans. New legislation affecting participation in defined benefit pension plans.

37. Recent Trends  Overall decrease in defined benefit plans  Peaked in 1985 with 114,000  Declined to 31 million in 2003  Participants in these plans increased from 38 million to 43.9 million

38. QUALIFIED vs. NONQUALIFIED  The main difference between the two plans is the tax treatment  Disclosure  Coverage  Participation  Vesting.

39. FINANCIAL HEALTH PBGC  2003 Net Loss $7.600 billion  2002 Net Loss $11.370 billon  2001 Net Loss $1.972 billion  “Future losses remain unpredictable as the PBGC’s loss experience is highly sensitive to losses from large claims.”

40. Benefits of Qualified Plans  Employers Employer may receive a tax-deduction for plan contributions Employers are able to attract and retain high-quality employees. Employers may be able to claim a tax credit for starting plan.  Employees Employees are provided with some guarantee that their retirement years will be financially secure. salary-deferral featuresSome plans allow employees to borrow from the plan.

41. Define Contribution Plans  What are they  Investment choices  Fees associated with investing  Employer benefits

42. 401K  Current and future contribution limits  Employer Matching  Loan Provisions  Vesting  Portability

43. 401K Contributions Employee's Contribution=7% of pay Employee's Salary=$20,000 Company Match=50% of employee contribution Company's Maximum Percentage=6% Employee's Annual Contribution is: $20,000 x 7% =$1,400 Employer's Annual Contribution is: $20,000 x (6% x 50%) =$600 Total Annual Contribution=$1,400 + $600 = $2,000

44. 457  Eligibility  Contribution limits  Employer matching  Loan provisions

45. 403B  Eligibility  Contribution limits  Employer matching  Loan Provisions

46. SEP IRA  Eligibility  Employer Contributions  Compensation limits  Portability  Vesting

47. SIMPLE IRA  Eligibility  Maximum # of employees  Contributions  Portability  Vesting

48. Benefit Wheel

49. Web Sites http://www.youthspectacular.org/con tributintable.html http://www.irs.ustreas.gov/pub/irs- pdf/p560.pdf

50. Retirement Planner Website: http://www.ssa.gov/retire2/index. Retirement planner

51. Retirement Plans Questions?