11 1 The Endeavor Group at Morgan Stanley Smith Barn ey Financial Education for ACEP Members Bret Sinak and Ron Portell Financial Advisors The Endeavor

11

1

The Endeavor Groupat Morgan Stanley Smith Barney

Financial Education for ACEP Members

Bret Sinak and Ron PortellFinancial AdvisorsThe Endeavor Group at Morgan Stanley Smith Barney

(800) 966-4407

[email protected] [email protected]

http://fa.morganstanleyindividual.com/theendeavorgroup/

© 2012 Morgan Stanley Smith Barney LLC. Member SIPC.

mailto:[email protected]

22

Biographies of Key Professionals

2

Ronald Portell, Financial Advisor, First Vice President, Senior Portfolio ManagerAs a Financial Advisor Ron advises individual and institutional clients on asset allocation and fixed income portfolio construction. Ron has extensive experience in discretionary portfolio management and has developed a successful practice by building long-term relationships with both institutional and individual clients. Ron’s approach is to assist each client in developing a customized strategy that reflects their portfolio objectives, risk tolerance, needs and timeframe.

Ron has been in the financial services industry since 1992. Ron has a Bachelor of Science in Business Administration from Missouri Valley College in Marshall, MO. Ron also played football while at Missouri Valley College.

Ron is married to his wife Pamela and has two children Michael and Sarah. Ron enjoys horses, golf, fine wine and travelling with his family.

Bret Sinak, CRPC®, Financial Advisor, Vice President, Portfolio Manager

As a Financial Advisor Bret advises individual and institutional clients on asset allocation, portfolio construction and risk management. Bret has experience in discretionary portfolio management and this approach assists clients in synchronizing their investment strategies with their liabilities, goals, financial objectives, risk tolerance and time horizon.

Bret has a B.S. in Business Administration from Drake University with a double major in Finance and Insurance. He also holds a M.B.A. from Washington University in St. Louis where he completed a program in International Finance and Economics at the London City University. Prior to his time in the financial services industry Bret spent 15 years at Fortune 500 companies in the areas of Corporate Treasury, Corporate Risk Management, Field Sales, Marketing, Strategic Analysis and Operations with companies such as Monsanto and Ingersoll Rand. Bret attended St. Louis University High School.

Bret is married to his wife Kathy and they have two children Blaine and Ashton. Bret is active in the community serving as a Parish Council President, Chair of numerous Capital Campaigns, ICD Finance Committee and involved in charitable organizations such as Our Lady’s Inn, St. Louis FoodBank, St. Vincent DePaul Society and others. Bret loves coaching and coaches various youth sports such as baseball, softball, soccer and middle school golf. His hobbies are golf, softball and travelling with his family.

Erin O’Rourke, Senior Registered Client Service Associate

Erin O’Rourke is the Senior Registered Client Service Associate for The Endeavor Group at Morgan Stanley Smith Barney. Erin is committed to providing clients with exceptional service. Erin has worked in the financial services industry since 1999 serving as a compliance officer with Huntleigh Financial Services and has worked with Ron Portell and Bret Sinak as a client associate since 2001.

Erin has a BA in Economics and Management and a major in Sociology from Beloit College in Beloit, Wisconsin. Erin and her husband Dan have two children, Caitlin and Aidan.


33

Planned Topics

Types of Retirement Plans

What’s My Number – Retirement Readiness

How to Reduce Taxes and Save More for Retirement with a Cash Balance Plan

How to Protect My Retirement

Investments/Markets

Social Security Strategies

How to Maximize Your Charitable Contributions

Topics You Want to Hear About


44

4

Financial Education for Emergency Physicians

“Choosing a Retirement Plan”

July 23, 2012

Bret Sinak and Ron PortellFinancial AdvisorsThe Endeavor Group at Morgan Stanley Smith Barney

© 2012 Morgan Stanley Smith Barney LLC. Member SIPC.


55

Why a Retirement Plan?

Longer life expectancy Women – 1 in 4 age 94; Men – 1 in 4 age 92

1 in 4 – a spouse of a 65 year old couple reaches age 97

Social Security In 2012 projected Social Security will run a deficit

Inflation 45% of retirees fail to factor inflation into retirement planning

92% of workers are concerned cost of Medicare premiums

will rise faster than inflation

• 152% - overall average increase in prices from 1981 to 2011

Tax advantages Employee pretax contributions and earnings are not taxed until distributed to the employee.

Employer contributions can be deductible from employer’s income


66

The Power of Compounding – Benefits of Starting Early

Saves $1000 each month

earning 6% from age 25 until

age 65

Steve

Postpones retirement saving

until age 35 and then saves

$1000 each month earning 6%

until age 65

Diana

Hypothetical Illustration


77

40 Years vs. 30 Years of Savings

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

25 35 45 55 65

The illustration does not take into account taxes due when assets are withdrawn from the tax-deferred account. The hypothetical returns are for illustrative purposes only and are not intended to represent any specific investment offered or made available by Morgan Stanley Smith Barney. Returns on investments are not guaranteed and principal is not insured by the FDIC or any other federal agency.

Amount Accumulated ($)

Steve $1,991,490 Diana $1,004,510


Age


88

40 Years vs. 30 Years of Savings – Another Way to Look at it

The illustration does not take into account taxes due when assets are withdrawn from the tax-deferred account. The hypothetical returns are for illustrative purposes only and are not intended to represent any specific investment offered or made available by Morgan Stanley Smith Barney. Returns on investments are not guaranteed and principal is not insured by the FDIC or any other federal agency.


Monthly Investment

Amount at Age 65

Total Investment

Steve $1,000 for 40 years

$1,991,490 $480,000

Donna $2,099 for 30 years

$1,991,490 $755,640

In other words Donna’s decision to wait will require her to invest an additional $275,640 over her 30 years to achieve the same amount as Steve at age 65


99

Power of Tax Deferred Growth

163,870

462,040

1,004,510

1,991,490

132,230322,740

607,820

1,034,390

10 Years 20 Years 30 Years 40 Years

For the purposes of this scenario, all earnings are taxed at 25%, regardless of the source of the earnings. The hypothetical returns are for illustrative purposes only and are not intended to represent any specific investment offered or made available by Morgan Stanley Smith Barney. Returns on investments are not guaranteed and principal is not insured by the FDIC or any other federal agency. Amount has not been reduced for taxes or penalties that may be applicable upon distribution.

($)$1000 a month at 6% in 25% Tax Bracket (Andy)

$1000 a Month at 6% Tax Deferred (Pam)


Taxable vs. Tax Deferred


1010

Choosing a Retirement Plan for Your Business

Consider which factors are important to you

– Maximizing contributions

– Minimizing cost

– Source(s) of plan funding

– Employee eligibility requirements

– Administrative requirements

Other factors may be important; consult your tax and legal advisors


1111

Retirement Plan Limitations - 2012

Defined Benefit $200,000

Defined Contribution $50,000

Compensation Limit $250,000

Social Security Taxable Wage $110,100

401(k), 403(b) and 457(b) Elective Deferral Limit

$17,000

401(k), 403(b) Catch-Up Contribution Limit $5,500

SIMPLE Deferral Limit $11,500

SIMPLE Catch-Up Contribution Limit $2,500

IRA Maximum Contribution $5,000

IRA Catch-Up Limit $1,000


Defined Benefit Plans – promise a specific benefit at retirement, for example, $1,000 a month, or a percentage of pay, such as 60% of average compensation. Employer contributions must be sufficient to fund promised benefits. Employees generally do not contribute to defined benefit plans.Defined Contribution Plans – do not promise a specific benefit at retirement. Instead, employees or employers, or both, contribute to accounts maintainedUnder the plan, sometimes at a set rate, but usually at a discretionary rate. At retirement, an employee receives the accumulated contributions plus earnings (or minus losses).

1212

Profit Sharing Plan

401(k) Plan

Safe Harbor 401(k) Plan

SEP

SIMPLE IRA

SIMPLE 401(k)

Defined Benefit Plan

Retirement Plans


1313

Retirement Plan Choices

Situation Plans to ConsiderNew Company

- No Employees SEP, Profit Sharing Plan, 401(k) plan, Roth 401(k) plan

- With Employees SEP, SIMPLE, Profit Sharing Plan, Age-Weighted Profit Sharing Plan, Safe-Harbor 401(k) Plan, Roth 401(k) Plan

Established Company

- No Employees SEP, Profit Sharing Plan, 401(k) plan, Roth 401(k) plan, Defined Benefit Plan, Combination Defined Benefit Plan/Defined Contribution Plan

- With Employees SEP, SIMPLE, Profit Sharing Plan, Age-Weighted Profit Sharing Plan, Safe-Harbor 401(k) Plan, Roth 401(k) Plan, Defined Benefit Plan, Combination Defined Benefit Plan/Defined Contribution Plan

Employee Funded Only 401(k)Plan, Roth 401(k) Plan

Contributions Weighted Toward Older Employees and Owners

Defined Benefit Plan, Combination Defined Benefit Plan/Defined Contribution Plan


1414

Do not promise a specific amount of benefits at retirement

Benefits are based on accumulated contributions plus earnings (or minus losses)

Employer contributes to accounts maintained under the plan, sometimes at a set rate, but often at a discretionary rate declared annually by the employer

Employees may have a pre-tax salary deferral option and/or an after-tax contribution option

Defined Contribution Plans


1515


Promises a benefit at retirement, determined by plan formula

Annual contributions determined by a variety of factors, including– Compensation– Investment performance– Years until retirement– Life expectancy

Allowable compensation used to calculate benefits is $250,000 in 2012

Maximum Benefit: Lifetime annual income at retirement of $200,000 (for 2012) or highest three year average compensation, whichever is less

Vesting schedule differs from defined contribution plans– 5 year cliff vesting– 3-to-7 year graded vesting

Certain plans may incorporate a salary deferral option


1616


Advantages:

High contribution limits

Favors older, more highly-paid employees

Amounts forfeited by terminated employees may be automatically applied to reduce future contribution requirements

Disadvantages:

Usually fully funded by employer

Requires sufficient cash flow each year to meet minimum funding requirements

Plan’s actual investment experience may affect the level of future contributions


1717

Plans for Owner-Only Businesses

SEP

Easy to administer

Contributions up to 25% of compensation (or 20% of net self-employment income) not to exceed $50,000 (for 2012)

Funds can be distributed at any time (may be subject to 10% penalty)

No loans available


1818


Profit Sharing Plan

Same contributions as SEP

Loans available

Ability to exclude employees working less than 1,000 hours per year

Must have triggering event to distribute assets

Form 5500 filing required if plan assets exceed $250,000 (determined including all plans you sponsor), and upon plan termination (regardless of asset level)


1919


“One Person” 401(k)

May allow for higher contributions than SEP and Profit Sharing plans

25% of compensation (20% for unincorporated businesses)

Salary deferral of $17,000 ($22,500 if age 50 or older) in 2012

Maximum contribution cannot exceed $50,000 ($55,500 if age 50 or older)

Roth 401(k) option available

Loans available

Form 5500 required if plan assets exceed $250,000 (determined including all plans you sponsor), and upon plan termination (regardless of asset level)

Must have triggering event to distribute assets


2020



Older business owners closer to retirement

Wish to contribute more than 25% of compensation

Need to “catch-up” for not having saved enough

Are able and willing to make ongoing annual required contributions

Annual 5500 filings if plan assets exceed $250,000 (determined including all plans you sponsor), and upon plan termination (regardless of asset level)

Actuarial certifications may be required, as well as additional costs

Distribution only upon triggering event


2121

Choosing a Retirement Plan for Your Business

Employer Contributions Employee Contributions

Requirements Type Permitted Type1

Profit Sharing Discretionary % of compensation No N/A

Money Purchase Mandatory % of compensation No N/A

401(k) Discretionary% of compensation

or matchYes Pre-tax or Roth

Safe Harbor 401(k) MandatoryNon-elective


SEP Discretionary % of compensation No N/A

SIMPLE IRA MandatoryNon-elective

or matchYes Pre-tax

SIMPLE 401(k) MandatoryNon-elective


Defined Benefit MandatoryActuarially

DeterminedNo2 N/A

1 Certain plans may allow for other types of voluntary after-tax contributions.2 New rules under PPA allow salary deferrals under certain circumstances.


2222

Getting Started

Our relationship begins with learningmore about you and your practice.Here are possible next steps:

Give us a call or send an email to set up a time for us to learn more about your situation, goals, needs, etc.

We’ll discuss your unique needs

We will help you select the plan that is right for you and your practice


PHONE – (800) 966-4407 (ask for Bret Sinak, Ron Portell or Erin O’Rourke)EMAIL – [email protected] [email protected] [email protected] – http://fa.morganstanleyindividual.com/theendeavorgroup/




2323

Financial Education for Emergency Physicians

To review this or any future webinars or download the slides:

www.acep.org/fiscalrx


2424

Appendix

What follows is more information on the specifics on Defined Contribution Plans regarding Eligibility, Vesting, Distributions, Loans, Filing Requirements and Plan Fiduciaries.

There are also more specifics on various plan types that includes requirements, limitations, advantages and disadvantages of the following plans: 401(k) plan, Safe Harbor 401(k) plan, Roth 401(k), Profit Sharing plan, Simplified Employee Pension Plan (SEP), Simplified Incentive Match Plan for Employees (SIMPLE), SIMPLE IRA and SIMPLE 401(k).


2525

Let’s review some basic features of qualified defined contributionretirement plans:

Eligibility

Vesting

Distributions

Loans

Filing requirements

Plan fiduciaries

Qualified Defined Contribution Plan Features


2626

Eligibility

Can exclude employees:

Under age 21

With less than one year of service

– Defined as 1,000 hours (or less) during a specified 12 month period

– May have a two years of service requirement with immediate vesting

Covered under a collective bargaining agreement, if a separate retirement arrangement was a specific subject of negotiation under the CBA

Who are non-resident aliens with no U.S. source income


2727

Vesting

Vesting determines the percentage of a plan participant’s account the participant actually “owns” and can take when he or she leaves the employer

Employee contributions must always be 100% vested

Most types of employer-funded defined contribution plan contributions are eligible for either

– Three-year cliff vesting

– Two-to-six year graded vesting (at least 20% each year starting with two years of service); or

– Any vesting schedule that is faster

Forfeitures occur when employees separate from service and are not fully vested. These amounts can be used by the employer to reduce future contributions, pay plan expenses, or they can simply be reallocated to other plan participants


2828

Distributions

Must have a triggering event:– Death– Disability– Separation from service– Plan termination– Meet requirements for in-service withdrawal

Ordinary income tax and an early distribution penalty may apply (10%)– Age 55 exception to 10% penalty (not available in IRAs)

20% withholding unless directly rolled over or transferred into an IRA or another qualified plan

RMDs generally required by April 1st of the year following the year in which the participant attains age 70½ – Qualified plans may allow postponement until April 1st of the year

following the year of retirement


2929

Loans

Participant loans may be permitted under the terms of the plan document

Loans are generally limited to the greater of

– 50% of the participant’s vested balance, up to a maximum loan amount of $50,000; or

– 100% of the participant’s vested balance up to $10,000

– These loan limits may be reduced based on outstanding loans during the previous year

Loan terms (repayment period, interest rate, etc.) are arranged in a separate loan agreement

Loan repayment period cannot exceed 5 years (except if the loan is for certain home purchases)


3030

Filing Requirements

Form 5500 required annually by the Department of Labor

1099-R tax reporting is required to report distributions to participants

5500 filing usually handled by a Third-Party Administrator; 1099-Rs may be as well


3131

Plan Fiduciaries

Generally, those individuals or entities who manage an employee benefit plan and its assets

Plan fiduciaries may be

– Plan sponsor

– Trustees

– Investment advisors

– Other individuals exercising discretion in the investment and/or administration of the plan

Status is based on the functions performed by the individual


3232

What Is a 401(k) Plan?

A salary reduction plan that permits employees to save for retirement on a pre-tax basis

Employee contributions can include–Pre-tax employee contributions–Roth 401(k) contributions–Catch-up contributions for employees age 50 and older

Employer contributions can include–Matching contributions–Profit sharing contributions

Maximum contributions–Pre-tax and Roth contributions cannot exceed $17,000 in 2012, or $22,500

for employees age 50 or older –Total contributions (including matching, profit sharing, and employee)

Lesser of $50,000 (or $55,500 if age 50 or older) or 100% of compensation in 2012


3333

401(k) Plan

Employer Advantages:

Means of attracting and retaining valuable employees

Tax-deductible contributions

Flexible plan design features


3434

401(k) Plan

Employer Disadvantages:

Filing requirements

ACP and ADP testing requirements

– Consider automatic enrollment feature or Safe Harbor 401(k)


3535

401(k) Plan

Employee Advantages:

Pre-tax savings

Tax-deferred growth

Easy payroll deductions

Flexibility and control

Contribution limits


3636

401(k) Plan Candidates

Any Business that Wants to:

Replace a costly traditional pension plan

Offer a “big company” retirement program

Attract and retain valuable employees

Take advantage of tax-saving opportunities

Receive a tax deduction for contributions


3737

What Is a Safe Harbor 401(k) Plan?

A salary reduction plan that permits employees to save for retirement on a pre-tax basis

Employer matching or non-elective contributions required for Safe Harbor

Allows for

– Employee contributions

– Catch-up contributions for employees age 50 and older

– Employer discretionary contributions


3838

Safe Harbor Employer Contribution Requirements

A dollar-for-dollar match on salary deferrals up to 3% of compensation and 50 cents on the dollar for salary deferrals between 3% - 5% of employee compensation for all eligible non-highly compensated employees

Non-elective contributions of 3% of compensation for all non highly compensated employees, regardless of whether or not they makeelective deferrals

Employer matching and non-elective contributions used to satisfy safe harbor are always 100% vested

or


3939

Roth 401(k) Contribution Feature

Available to all participants regardless of income

Must be maintained in separate plan accounts

Subject to 401(k) ADP discrimination testing

Contributions are taxed when deferred from salary

Earnings are tax-exempt if distributed at least five years after beginning Roth contributions and a qualifying event has occurred


4040

Profit Sharing Plan

Flexible annual contributions

– Up to 25% of eligible compensation

– Self-employed individuals limited to 20%

– Compensation not to exceed $250,000 for 2012

Individual limit is lesser of 100% of compensation or $50,000 per eligible employee for 2012


4141

Profit Sharing Plan

Advantages


Discretionary contributions

Allocation formulas (e.g., Social Security Integration)

Disadvantages

Fully funded by employer

Filing requirements


4242

Profit Sharing Plan Candidates

Any Business That:

Has variable profit patterns

Has seasonal employees


4343

Simplified Employee Pension Plan (SEP)

Definition and Eligibility

Employer-funded IRA

Flexible annual contributions

Contribution formula equal for eligible employees or can be integrated with Social Security

Employee eligibility requirements


4444

SEP

Discretionary contributions

Allocation formulas (e.g., Social Security Integration)


Tax-deferred growth

Easy to establish and maintain

Immediate 100% vesting

Employer contributions only

No loan provision

Advantages Disadvantages


4545

SEP Candidates

Any Business That:

Is incorporated or is owned by an individual (self-employed)

Has few employees

Wants a simplified alternative to a profit sharing plan


4646

Savings Incentive Match Plan for Employees (SIMPLE)

Eligibility

100 or fewer employees with compensation of at least $5,000

No other employer-sponsored plan(except if for collectively bargained employees)


4747

SIMPLE IRA

Requirements

Cover All Eligible Employees

– Earned at least $5,000 in two prior years

– Are expected to earn $5,000 in current year

Mandatory Employer Contributions

– Dollar-for-dollar match up to 3% of compensation to each eligible participant (can be reduced to as low as 1% in two of five years)

– 2% non-elective contribution to all participants (compensation limited to $250,000 in 2012)

or


4848

SIMPLE IRA



Simplified administrative requirements


4949

SIMPLE IRA


Pre-tax employee contributions up to $11,500 for 2012

“Catch-up” contributions for employees age 50 and older up to $2,500for 2012

Immediate vesting

Easy, convenient payroll deductions

Tax-deferred growth


5050

SIMPLE IRA

Disadvantages:

Mandatory employer contributions


No participant loans

25% penalty tax on distributions within first two years

Cannot be maintained if employer maintains another qualified plan, 403(b) Plan or SEP


5151

SIMPLE IRA Candidates

Any Business That:

Has 100 or fewer employees

No other employer-sponsored plan

Is interested in establishing a salary reduction plan


5252

SIMPLE 401(k)

Eligibility

100 or fewer employees with compensation of at least $5,000

No other employer-sponsored plan (except if for collectively bargained employees)


5353

SIMPLE 401(k)

Requirements

Cover all eligible employees

– Complete one year of service

– At least age 21

Mandatory employer contributions

– Dollar-for-dollar match up to 3% of compensation to each eligible employee (cannot be reduced)

– OR 2% non-elective contribution to all eligible employees


5454

SIMPLE 401(k)


Retirement plan alternative for small businesses

Attractive to employees


Plan testing not required


5555

SIMPLE 401(k)


Elective employee pre-tax contributions

Catch up contributions for employees age 50 and older


Easy, convenient payroll deductions

Tax-deferred growth

Loans permitted


5656

SIMPLE 401(k)

Disadvantages:

Cost

– Mandatory employer contributions

– Filing of Form 5500

– Administration


Employee contribution maximum less than a traditional 401(k)


5757

SIMPLE 401(k) Candidates

Any Business That:

Has 100 or fewer eligible employees

Is interested in establishing a plan with a salary deferral feature

Wants a loan provision


Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Smith Barney Financial Advisors do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise agreed to in writing by Morgan Stanley Smith Barney. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are urged to consult their tax or legal advisors before establishing a retirement plan and to understand the tax, ERISA and related consequences of any investments made under such plan.

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Documents

11 1 The Endeavor Group at Morgan Stanley Smith Barn ey Financial Education for ACEP Members Bret Sinak and Ron Portell Financial Advisors The Endeavor