Author Topic: Can Someone Explain This To Me? Trying to take advantage of Company Retirement  (Read 3182 times)

FIreSurfer

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Hi!
I need help from someone better versed in parsing corporate retirement planspeak to tell me what the below document is actually saying.....
I was reading about 401ks and "mega IRA rollovers" etc. on here the other day as I took a new job and I'm now able to contribute to a matched 401k.  I'm maxxing out the 401k, and have been putting the excess directly from paycheck into a new Vanguard RothIRA and a taxable Vanguard Admiral account, but if I can be doing wiser things with that $$$ pretax I'd rather! 
I was looking to see if my 401k (Milliman is the company) had anything on their website about rollovers to IRAs and couldn't find anything, but there was this:
Full disclosure-I'm salaried and (finally!) hit this salary mark - does anyone understand this?????
Thanks!!!
O.

Supplemental Savings Plan
 
Our Supplemental Savings Plan is a non-qualified defined contribution plan that was designed to work in conjunction with the AIP for Salaried Associates to provide key management employees and certain “highly compensated employees” (under the Internal Revenue Code) sufficient pre-tax retirement savings opportunities. The plan is available to associates with a minimum base salary of $150,000 who are eligible for and participate in the AIP for Salaried Associates, including our Named Executive Officers.
 
Contributions by a participating associate are based on their elected deferral rate up to 25% of base pay.  Deferrals are directed first to their AIP account up to the maximum amount of eligible pay available under the law.  Contributions not allowed under the AIP are made instead to the Supplemental Savings Plan.  Eligible pay under the SSP includes all categories of pay eligible under the AIP, as well as payouts under our Performance Incentive Bonus Plan.  A participant may also elect to defer up to 25% of bonus compensation into their SSP account.  The 25% maximum rate went into effect on January 1, 2007 and, therefore, was applied for the first time to bonuses paid in 2008.
 
For the SSP and prior to January 1, 2008 for the AIP, we contributed an amount equal to 100% of the first 2% of total compensation contributed by an employee and an amount equal to 25% of the next 4% of total compensation contributed by such employee.  On January 1, 2008 we adjusted our contributions to the AIP to equal 100% of the first 1% of total compensation contributed by an employee and an amount equal to 50% of the next 5% of total compensation contributed by such employee.
 
The Supplemental Savings Plan is an unfunded plan.  Participant contributions and our matching contributions are not invested in actual securities or maintained in an independent trust for the exclusive benefit of plan participants.  Instead, for technical and tax reasons, contributions to the SSP are retained as part of our general assets, a common corporate practice.  Therefore, benefits are dependent on our ability to pay them when they become due.
 
Participant contributions, as well as our matching contributions, are measured against the 10-year Treasury bill.  These contributions accrue interest based on the rate of return for 10-year Treasury bills, as established on January 1 of each calendar year.  Several of the Named Executive Officers have current “grandfathered” balances measured against our Common Stock.  Although such balances are not invested in actual Common Stock, the balances are adjusted daily to the fair market value of a share of our Common Stock.
 
A participant’s before-tax contributions in our Supplemental Savings Plan are immediately fully vested.  Our matching contributions vest ratably over the first five years of employment or, if earlier, when the participant reaches age 65, dies, or becomes totally and permanently disabled.

Financial.Velociraptor

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... but if I can be doing wiser things with that $$$ pretax I'd rather! 

I don't speak plan but saw the above quoted phrase.  Do you have a medical savings account such as an HSA yet?  Save on taxes for a nearly for sure future expense.

MDM

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Our Supplemental Savings Plan is a non-qualified defined contribution plan....
These plans are often abbreviated NQDC plans.

See https://www.google.com/search?sitesearch=bogleheads.org&q=nqdc and https://www.google.com/search?q=nqdc+site%3Aforum.mrmoneymustache.com%2F&ie=utf-8&oe=utf-8 for much discussion.

The major risk is that if the company goes bankrupt you probably lose all contributions.

The potential reward is much more tax-deferred space than the $18K allowed for a 401k. 

Your particular plan seems to have only one "investment" option: an interest rate equal to the 10-year treasury note.

Anyway, read up and let us know if you have further questions.

pbkmaine

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I would never let a company keep my money knowing there was a chance I'd never get it back.

MrSpendy

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With the giant disclaimer that I don't know a ton about this....

I read this as a way for employees to defer a lot of tax AND the company to borrow at a risk free rate.

I read it that you would effectively be lending to your company at the same rate as the full faith and credit of the U.S. of A. That's a really tough sell for me without a better understanding of the plan and the company. I work for a non-profit where the 457 plan has the risk of the organization, but we have a VERY solid balance sheet. If you can get at all comfortable with the credit risk and are already in a good place financially, and you're not going to work there for too long (don't want to have a huge % / amount of money tied up in treasury bond upside with company credit risk) perhaps it's worth the tax deferral / match (do i read it correctly that they give you a little more money if you participate?)

That's more questions than answers...sorry.

Car Jack

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Therefore, benefits are dependent on our ability to pay them when they become due.
 
Participant contributions, as well as our matching contributions, are measured against the 10-year Treasury bill.

There's the risk and the method they pay.  They take your money and see what a 10 year T Bill pays out.  They don't invest in ANYTHING.  You put money in and there is no money there. 

I would imagine that this is a method to reduce the salary reported as taxable.  The immediate benefit is that you're not paying tax on 25% of your salary.  The added future potential benefit is the matching and gain that would match a T bill.  While this is likely a traditional way that people are given the opportunity to reduce taxes and get some gain, it's not without risk, including risk that all of that money goes "poof" and is gone.  Say a huge lawsuit puts the firm into bankruptcy.  I'd expect all of this money to go "poof". 

At $150k, if married with no other income, you clearly still can contribute to a Roth.  Otherwise, if your AGI is under the limit, you might be able to as well (this plan may help bring you under the limit, but maybe not).  The alternative is to contribute instead to a traditional IRA with post tax money and do a backdoor rollover to a roth.

FIreSurfer

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Thanks everybody for chiming in, I think I understand it better now - BUT based on what Car Jack is saying:



I would imagine that this is a method to reduce the salary reported as taxable.  The immediate benefit is that you're not paying tax on 25% of your salary.  The added future potential benefit is the matching and gain that would match a T bill.  While this is likely a traditional way that people are given the opportunity to reduce taxes and get some gain, it's not without risk, including risk that all of that money goes "poof" and is gone.  Say a huge lawsuit puts the firm into bankruptcy.  I'd expect all of this money to go "poof". 

At $150k, if married with no other income, you clearly still can contribute to a Roth.  Otherwise, if your AGI is under the limit, you might be able to as well (this plan may help bring you under the limit, but maybe not).  The alternative is to contribute instead to a traditional IRA with post tax money and do a backdoor rollover to a roth.

I've just about maxxed out the Roth for the year.  I couldn't find any info on the 401K people's site about doing a mega rollover, I guess I have to call them?

As to the company Supplemental Savings Plan - the company is a gigantic multi-billion dollar publicly traded clothing company, so the chance of going belly up is pretty slim.  If they don't go belly up or let me go, I plan to stay for max 5 years to get my pension option and then FIRE, so I'm not looking to put 20 years of savings into the company coffers and trust them, but it would be a big chunk of my 'stache......

This may sound naive, but would the tax savings of the SSP be better than the probable market gains of just putting everything post tax into Vanguard Total Stock Market? What does a Treasury bill generally return? I don't know much about that----

After 401K, I've been putting about 6k per month after tax into Vanguard if that helps to give a ball park figure....

Thanks!

O.

MDM

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This may sound naive, but would the tax savings of the SSP be better than the probable market gains of just putting everything post tax into Vanguard Total Stock Market?
The biggest influence will be your marginal rate now vs. your marginal rate when you take payment from the SSP.  If, for example, you drop from the 25% bracket now to the 15% bracket when you receive payments, it will likely be a good deal.  See the '401k vs Taxable' tab in the case study spreadsheet.

If you do use the SSP, count that as part of your bond holding in your overall asset allocation.

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What does a Treasury bill generally return?
See http://quotes.wsj.com/bond/BX/TMUBMUSD10Y.

See also http://www.investopedia.com/ask/answers/033115/what-are-differences-between-treasury-bond-and-treasury-note-and-treasury-bill-tbill.asp - the SSP language is a bit mixed up, but I'd assume "10 year" is what they mean.

 

Wow, a phone plan for fifteen bucks!