FRANCISCAN UNIVERSITY OF STEUBENVILLE 403(B) PLAN Your Retirement Matters Now. IT’S YOUR RETIREMENT. DEFINE IT. IT’S YOUR BENEFIT. GET IT. YOUR MONEY, YOUR CHOICE. INVESTMENT BASICS FEATURES AND HIGHLIGHTS Please keep in mind that investing involves market risk, including possible loss of principal, and there is no guarantee that investment objectives will be achieved. Also, assets withdrawn from a qualified plan may be subject to a 10% penalty tax if withdrawn prior to age 59 ½ distribution and all may be subject to income tax. It’s Your Retirement. Define It. IDENTIFY YOUR RETIREMENT DREAMS. WILL SOCIAL SECURITY BE ENOUGH? Ask the Social Security Administration … Q Should I count on Social Security for all my retirement income? A No. Social Security was never meant to be the sole source of income in retirement. It is often said that a comfortable retirement is based on a "three-legged stool" of Social Security, pensions and savings. American workers should be saving for their retirement on a personal basis and through employer-sponsored or other retirement plans. Source: Frequently Asked Questions, http://www.ssa.gov/qa.htm: 2008 EMPLOYER-SPONSORED RETIREMENT PLAN How does it work? • • • • A convenient way to contribute Potentially reduces current income taxes Potential growth without current taxation Or consider Roth 403(b) contributions Now you understand … 1. Retirement means different things 2. Social Security was not designed to completely fund retirement 3. How your retirement plan works It’s Your Benefit. Get It. REDUCE CURRENT INCOME TAXES Biweekly pay Annual You reduced income tax contribute You invest pay savings 3% $29 $22 $188 6% $58 $43 $375 9% $87 $65 $563 12% $115 $87 $750 Example of pretax savings for someone making $25,000 a year Results rounded to the nearest dollar assuming a 25% marginal federal tax rate and biweekly pay periods. GROWTH POTENTIAL WITHOUT CURRENT TAXATION $200,000 Taxable Investment Tax-deferred Investment $150,000 $100,000 $57,581 $50,000 $46,960 $14,356 $15,822 $0 10 years 20 years Totals shown reflect a $100 monthly investment with an 8% annual return, 4% annual wage inflation and a 25% federal tax rate. From the taxable investments, taxes are taken each month from deposits and $158,981 annually upon gains. Taxes are taken on the tax-deferred investment’s end balance. This is a hypothetical compounding example and $115,555 is not intended to predict or project investment results of any specific investment. Investment return is not guaranteed and will vary depending upon your investments and market experience. If fees were reflected, the return would be less. Assets withdrawn from a qualified plan may be subject to a 10% penalty tax if withdrawn prior to age 59 ½ distribution, and all may 30 years be subject to income tax. OR CONSIDER ROTH CONTRIBUTIONS — Roth provides an option to pay taxes on contributions now These examples are hypothetical in nature and assume a 25% tax bracket at distribution. They also assume that the retirement plan’s value earns an average annual total return of 8%. Investment return is not guaranteed and will vary depending upon the investments and market experience. A single contribution of $10,000 will be worth the same amount in 20 years (discounting the impact of inflation) if the tax bracket remains the same. However, if the future tax rate is greater, the amount distributed from the Roth account will be greater than the post-tax amount distributed from the traditional 401(k) account. PROTECTION AND PORTABILITY Now you understand … 1. Pretax contributions 2. Growth potential without current taxation Your Money, Your Choice. FINDING MONEY TO INVEST. Possible additional annual investment Spendable annual pay has been reduced by Social Security taxes at an assumed rate of 7.65%. Now you understand … You should consider contributing as much as you can Investment Basics Please keep in mind that any investment involves risk and there is no assurance that the investment objective of any fund will be achieved CASH EQUIVALENTS, BONDS AND STOCKS. Stocks Bonds Cash WHAT IS A MUTUAL FUND? Benefits • Professional management • Lower cost than individual stocks and bonds • Multiple types to build portfolio Potential downside of market timing Hypothetical growth of $10,000 invested in the S&P 500 from January 1980–December 2006 $291,897 $170,471 $79,834 $42,378 Stayed in market whole time Missed 10 best days Missed 30 best days Missed 50 best days The hypothetical example assumes an investment that tracks the returns of the S&P 500 Index and includes dividend reinvestment. There is volatility in the market and a sale at any point in time could result in a gain or loss. Your own investment experience will differ, including the possibility of losing money. You cannot invest directly in the S&P. Stock values are more volatile than those of other securities. Source: FMR LLC, as of 12/31/06. Features and Highlights Eligibility – Elective Deferrals • All employees of the University except students and adjunct faculty Eligibility – Employer Contribution • All employees except student employees, employees working less than 1,000 hours, and adjunct faculty Employer Contribution Service Institution Employee 0-1 year 0% 5% (optional) 1-2 year 2.5% 5% 2-3 year 5% 5% 3-4 year 10% 5% Vesting Schedule Years of Service Vested Percentage Less than 2 0% Greater than 2 but less than 3 20% Greater than 3 but less than 4 40% Greater than 4 but less than 5 70% Greater than 5 100% New Roth Contributions • • Elective Roth Contributions to the Plan would be made by an employee on an after tax basis and qualified withdrawals from the plan will not be taxed. Making a Roth Contribution is entirely elective and is subject to the annual 403(b) limits. 2009 Contribution Limits • Elective Deferrals - $16,500 • Over 50 Catch Up - $5,500 • Qualified Institutional Catch Up - $3,000 for maximum of 5 years Hardship Withdrawals • Under “immediate and heavy” financial need an individual may make a hardship withdrawal from the plan to satisfy the need where the individual lacks other available resources. The IRS defines immediate and heavy financial need as: • – – – – – Expenses incurred or necessary for medical care; Purchase (excluding mortgage payments) of your principal residence; Payment of tuition and related educational fees for dependents; Need to prevent eviction or foreclosure; Expenses for the repair of your principal residence that would qualify for the casualty deduction. Summary Plan Description • A full SPD is available in the Human Resource office for your review Any Questions?