AGENDA
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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
YOUR RETIREMENT
MOST PEOPLE DON’T
PLAN TO FAIL….
THEY JUST FAIL TO
PLAN!
Social Security as a Supplement

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

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:
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Your Social Security retirement benefits will
replace only about 40 percent
Supplement other 30% or more with:
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Pension Plans
Savings Plans
Investments
Social Security as a Supplement
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More reasons to use Social Security as a
Supplement:
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
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Estimated cash flow for Social Security
Personal Savings
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In 1946 the United States started
for the first time to gather personal
savings data so it could be used for
economic research
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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.
Personal Savings
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Positive savings rate until last three
months of 1998
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Low to negative savings, mostly
overlooked because of the strength of
the overall economy.
As of 2004-02-01 1.9%
Last 50 Years
Last 10 Years
Personal Savings
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Why is personal savings important?
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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.
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Personal Savings
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How do we compare to other nations?
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4 developed countries
Personal Savings
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A further comparison to other nations
(In 1996)
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Personal savings as percentage of GDP
Personal Savings
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Is the current method to determine PSR
(Personal Savings Rate) accurate?

Some Problems:
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Government method leaves out important
factors
Personal Savings
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Revised method

The Bureau of Economic Analysis decided to
recalculate the PSR
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Instead of putting government workers
retirement plans into the category of
government savings, they put it into personal
savings
Personal Savings
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New Results for the PSR:
Personal Savings
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Economic results for a low personal
savings rate (U.S.)
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Undeterminable
Retirement implications

Critical
 60 % to 80 % of your current income
each year is needed for your
retirement requirements
Women’s Participation in Retirement Plans
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On average women earn less than men

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It is estimated they earn 73 cents to every dollar a
man earns
Life expectancy of women is greater than men
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Women live approximately 81.2 years compared to
men at 75 years.
Women’s Participation in Retirement Plans
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Comparison by age and gender of wages:
Women’s Participation in Retirement Plans
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Comparison of life expectancy by gender:
Andorra
Female
86.58 years
(2003 est.)
Andorra
Male
80.58 years
(2003 est.)
Women’s Participation in Retirement Plans
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The most widely used retirement program by
women is Social Security
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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
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Problems with Social Security & Pensions in
regards to women
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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
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Good News and Recommendations

In 2001, 47 percent of all participants in a pension
plan were women and 53 percent were men
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Pension Plans
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But, women generally receive lower pension
benefits, compared to men, due to their relatively
lower earnings
Defined contribution plans & defined benefit plan
Save and invest
• Save a portion of your income every month
• Reduce your credit card debt
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).
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 employmentbased benefits
• Deter and correct violations of the relevant statutes
What is ERISA?

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Employee Retirement Income Security Act
of 1974
Federal law that sets minimum standards
for pension plans in private industry
ERISA
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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
Pension Benefit Guarantee Corp.
Pension Benefit Guaranty Corp.
(PBGC)
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PBGC is a federally chartered corporation
established by Title IV of ERISA Act 1974
PURPOSE:
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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
Pension Benefit Guarantee Corporation
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The PBGC protects the retirement incomes
of nearly 44.3 million American workers in
more than 31,000 private defined benefit
pension plans
PBGC
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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
WHAT PBGC GUARANTEES
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PBGC guarantees the basic benefits before
termination date of the plan which include
the following:
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Pension benefits at normal retirement age.
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Most all early retirement benefits.
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Disability benefits from disabilities which occurred before
the plan terminated.
Certain benefits for survivors of plan participants.
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For example, in 2004, a singleemployer 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.
Year Plan
Terminated
2004
2003
2002
Monthly
Guarantee
Limit at
Age 65
Monthly
Guarantee
Limit at
Age 62
Monthly
Guarantee
Limit at
Age 60
Monthly
Guarantee
Limit at
Age 55
$3,698.86
$2,922.10
$2,404.26
$1,664.49
$3,664.77
$2,895.17
$2,382.10
$1,649.15
$3,579.55
$2,827.84
$2,326.71
$1,610.80
External Factors Affecting Performance
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What key external factors may affect performance of
pension plans?
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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.
Recent Trends
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Overall decrease in defined benefit plans
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Peaked in 1985 with 114,000
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Declined to 31 million in 2003
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Participants in these plans increased from
38 million to 43.9 million
QUALIFIED vs. NONQUALIFIED
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The main difference between the two
plans is the tax treatment
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Disclosure
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Coverage
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Participation
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Vesting.
FINANCIAL HEALTH PBGC
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2003 Net Loss $7.600 billion
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2002 Net Loss $11.370 billon
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2001 Net Loss $1.972 billion
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“Future losses remain unpredictable as
the PBGC’s loss experience is highly
sensitive to losses from large claims.”
Benefits of Qualified Plans
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Employers
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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

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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.
Define Contribution Plans
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What are they
Investment choices
Fees associated with investing
Employer benefits
401K
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Current and future contribution
limits
Employer Matching
Loan Provisions
Vesting
Portability
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
457
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Eligibility
Contribution limits
Employer matching
Loan provisions
403B
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Eligibility
Contribution limits
Employer matching
Loan Provisions
SEP IRA
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Eligibility
Employer Contributions
Compensation limits
Portability
Vesting
SIMPLE IRA
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Eligibility
Maximum # of employees
Contributions
Portability
Vesting
Benefit Wheel
Web Sites
http://www.youthspectacular.org/cont
ributintable.html
http://www.irs.ustreas.gov/pub/irspdf/p560.pdf
Retirement Planner Website:
Retirement planner
http://www.ssa.gov/retire2/index.
Retirement Plans
Questions?