| SIPC |
| Simple IRA |
| Your Employer's Bankruptcy |
| What You Should Know: Your Retirement Plan |
| Glossary |
Securities Investor Protection Corporation (SIPC) is the first line of defense in the event a brokerage firm fails owing customers cash and securities that are missing from customer accounts. Although not every investor is protected by SIPC, no fewer than 99 percent of persons who are eligible get their investments back from SIPC. From its creation by Congress in 1970 through December 2005, SIPC advanced $585 million in order to make possible the recovery of $14.1 billion in assets for an estimated 624,000 investors.
When a brokerage is closed due to bankruptcy or other financial difficulties and customer assets are missing, SIPC steps in as quickly as possible and, within certain limits, works to return customers’ cash, stock and other securities. Without SIPC, investors at financially troubled brokerage firms might lose their securities or money forever…or wait for years while their assets are tied up in court. However, because not everyone, and not every loss, is protected by SIPC.
SIPC is not the FDIC. The Securities Investor Protection Corporation does not offer to investors the same blanket protection that the Federal Deposit Insurance Corporation provides to bank depositors.
How are SIPC and the FDIC different? When a member bank fails, the FDIC insures all depositors at that institution against loss up to a certain dollar limit. The FDIC’s no-questions-asked approach makes sense because the banking world is “risk averse.” Most savers put their money in FDIC-insured bank accounts because they can’t afford to lose their money.
That is precisely the opposite of how investors behave in the stock market, in which rewards are only possible with risk. Most market losses are a normal part of the ups and downs of the risk-oriented world of investing. That is why SIPC does not bail out investors when the value of their stocks, bonds and other investments falls for any reason. Instead, SIPC replaces missing stocks and other securities where it is possible to do so...even when investments have increased in value.
SIPC does not cover individuals who are sold worthless stocks and other securities. SIPC helps individuals whose money, stocks and other securities are stolen by a broker or put at risk when a brokerage fails for other reasons.
Source: Securities Investor Protection Corporation
Thinking About a Retirement Plan?
If it seems like the right thing for your business now,
here’s a SIMPLE one.
A SIMPLE (Savings Incentive Match Plan for Employees of Small Employers) IRA plan offers great advantages for businesses that meet two basic criteria. First, your business must have 100 or fewer employees (who earned $5,000 or more during the preceding calendar year). In addition, you cannot currently have another retirement plan. If you are among the thousands of business owners eligible for a SIMPLE IRA plan, read on to learn more.
A SIMPLE IRA provides employers and their employees with a simplified way to contribute toward retirement. It reduces taxes and, at the same time, attracts and retains quality employees. And compared to other types of retirement plans, SIMPLE IRA plans offer lower start-up and annual costs … they are just simpler to operate.
Other Advantages of a SIMPLE IRA Plan:
- SIMPLE IRA plans are easy to set up and run – your financial institution handles most of the details.
- Employees can contribute, on a tax-deferred basis, through convenient payroll deductions.
- You can choose either to match the employee contributions of those who decide to participate or to contribute a fixed percentage of all eligible employees’ pay.
- You may be eligible for a tax credit of up to $500 per year for each of the first 3 years for the cost of starting a SIMPLE IRA plan. (IRS Form 8881, Credit for Small Employer Pension Plan Startup Costs).
- Administrative costs are low
- You are not required to file annual financial reports.
- For more information, download the brochure "Simple IRA Plans for Small Businesses" or visit The U S. Department of Labor’s (DOL’s)
Employee Benefits Security Administration,
Source: U.S. Department of Labor
Your Employer's Bankruptcy
How Will It Affect Your Employee Benefits?
If an employer declares bankruptcy, it will generally take one of two forms: reorganization under Chapter 11 of the Bankruptcy Code, or liquidation under Chapter 7. A Chapter 11 (reorganization) usually means that the company continues in business under the court’s protection while attempting to reorganize its financial affairs. A Chapter 11 bankruptcy may or may not affect your pension or health plan. In some cases, plans continue to exist throughout the reorganization process. In a Chapter 7 bankruptcy, the company liquidates its assets to pay its creditors and ceases to exist. Therefore, it is likely your pension and health plans will be terminated.
When your employer files for bankruptcy you should contact the administrator of each plan or your union representative (if you are represented by a union) to request an explanation of the status of your plan or benefits. The summary plan description will tell how to get in touch with the plan administrator.
Questions that you may want to ask include:
Will the plan continue or will it be terminated?
Who will be acting as plan administrator of the plans during and after the bankruptcy, and who will be the trustee in charge of the pension plan?
If the pension plan is to be terminated, how will accrued benefits be paid?
Will COBRA continuation coverage be offered to terminated employees?
If the health plan is to be terminated, how will outstanding health claims be paid, and when will certificates of creditable coverage (showing, among other things, the dates of enrollment in your employer’s health plan) be issued?
Source: U.S. Department of Labor
What You Should Know About Your Retirement Plan
Your employer’s retirement savings plan is an essential part of your future financial security. It is important to understand how your plan works and what benefits you will receive. Just as you would keep track of money that you put in a bank or other financial institution, it is in your best interest to keep track of your retirement benefits.
Those responsible for the management and oversight of your retirement plan must follow certain rules for operating the plan, handling the plan’s money and overseeing the firms that manage the money. You should also understand and monitor your retirement plan and your benefits.
*Different types of retirement plans;
*What information you can get about your plan;
*When and how you can receive retirement benefits;
*What to do if you have a question or find a mistake;
*The responsibilities of those who manage the plan and its investments;
*Your responsibilities to understand and monitor your plan; and
*Specific circumstances such as how a divorce or change of employer ownership may affect your retirement benefit.
Source: U.S. Department of Labor
401(k) Plan – In this type of defined contribution plan, the employee can make contributions from his or her paycheck before taxes are taken out. The contributions go into a 401(k) account, with the employee often choosing the investments based on options provided under the plan. In some plans, the employer also makes contributions, matching the employee’s contributions up to a certain percentage. SIMPLE and Safe Harbor 401(k) plans have additional employer contribution and vesting requirements.
Benefit Accrual – The amount of benefits accumulated under the plan.
Cash Balance Plan – A type of defined benefit plan that includes some elements that are similar to a defined contribution plan because the benefit amount is computed based on a formula using contribution and earning credits, and each participant has a hypothetical account. Cash balance plans are more likely than traditional defined benefit plans to make lump-sum distributions. (For more information, see “Frequently Asked Questions about Cash Balance Pension Plans” on the Department of Labor’s Web site, at www.dol.gov/ebsa/faqs/.)
Defined Benefit Plan – This type of plan, also known as the traditional pension plan, promises the participant a specified monthly benefit at retirement. Often, the benefit is based on factors such as your salary, your age, and the number of years you worked for the employer.
Defined Contribution Plan – In a defined contribution plan, the employee and/or the employer contribute to the employee’s individual account under the plan. The employee often decides how their accounts are invested. The amount in the account at distribution includes the contributions and investment gains or losses, minus any investment and administrative fees. The contributions and earnings are not taxed until distribution. The value of the account will change based on the value and performance of the investments.
Employee Retirement Income Security Act of 1974 (ERISA) – A Federal law that sets standards of protection for individuals in most voluntarily established, private-sector retirement plans. ERISA requires plans to provide participants with plan information, including important facts about plan features and funding; sets minimum standards for participation, vesting, benefit accrual, and funding; provides fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a claims and appeals process for participants to get benefits from their plans; gives participants the right to sue for benefits and breaches of fiduciary duty; and, if a defined benefit plan is terminated, guarantees payment of certain benefits through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation (PBGC).
Employee Stock Ownership Plan (ESOP) – A type of defined contribution plan that is invested primarily in employer stock.
Individual Benefit Statement – An individual benefit statement provides information about a participant’s retirement benefits, such as the total plan benefits earned and vested benefits, on a periodic basis. Additional information may be included depending upon the type of plan, such as how a 401(k) plan account is invested.
Individual Retirement Account (IRA) – An individual account set up with a financial institution, such as a bank or a mutual fund company. Under Federal law, individuals may set aside personal savings up to a certain amount, and the investments grow, tax deferred. In addition, defined contribution plan participants can transfer money from an employer retirement plan to an IRA when leaving an employer. IRAs also can be part of an employer plan.
Money Purchase Plan – A money purchase plan requires set annual contributions from the employer to individual accounts and is subject to other rules.
Multiemployer Plan – A retirement plan sponsored by several employers under collective bargaining agreements that meets certain other requirements. A participant who changes jobs from one sponsoring employer to another stays within the same plan.
Plan Administrator – The person who is identified in the plan document as having responsibility for running the plan. It could be the employer, a committee of employees, a company executive, or someone hired for that purpose.
Plan Document – A written instrument under which the plan is established and operated.
Plan Fiduciary – Anyone who exercises discretionary authority or discretionary control over management or administration of the plan, exercises any authority or control over management or disposition of plan assets, or gives investment advice for a fee or other compensation with respect to assets of the plan.
Plan Trustee – Someone who has the exclusive authority and discretion to manage and control the assets of the plan. The trustee can be subject to the direction of a named fiduciary and the named fiduciary can appoint one or more investment managers for the plan’s assets
Plan Year – A 12-month period designated by a retirement plan for calculating vesting and distribution, among other things. The plan year can be the calendar year or an alternative period, e.g., July 1 to June 30.
Profit-Sharing Plan – A profit-sharing plan allows the employer each year to determine how much to contribute to the plan (out of profits or otherwise) in cash or employer stock. The plan contains a formula for allocating the annual contribution among the participants.
Individual Benefit Statement – An individual benefit statement provides information about a participant’s retirement benefits, such as the total plan benefits earned and vested benefits, on a periodic basis. Additional information may be included depending upon the type of plan, such as how a 401(k) plan account is invested.
Individual Retirement Account (IRA) – An individual account set up with a financial institution, such as a bank or a mutual fund company. Under Federal law, individuals may set aside personal savings up to a certain amount, and the investments grow, tax deferred. In addition, defined contribution plan participants can transfer money from an employer retirement plan to an IRA when leaving an employer. IRAs also can be part of an employer plan.
Money Purchase Plan – A money purchase plan requires set annual contributions from the employer to individual accounts and is subject to other rules.
Multiemployer Plan – A retirement plan sponsored by several employers under collective bargaining agreements that meets certain other requirements. A participant who changes jobs from one sponsoring employer to another stays within the same plan.
Plan Administrator – The person who is identified in the plan document as having responsibility for running the plan. It could be the employer, a committee of employees, a company executive, or someone hired for that purpose.
Plan Document – A written instrument under which the plan is established and operated.
Plan Fiduciary – Anyone who exercises discretionary authority or discretionary control over management or administration of the plan, exercises any authority or control over management or disposition of plan assets, or gives investment advice for a fee or other compensation with respect to assets of the plan.
Plan Trustee – Someone who has the exclusive authority and discretion to manage and control the assets of the plan. The trustee can be subject to the direction of a named fiduciary and the named fiduciary can appoint one or more investment managers for the plan’s assets.
Plan Year – A 12-month period designated by a retirement plan for calculating vesting and distribution, among other things. The plan year can be the calendar year or an alternative period, e.g., July 1 to June 30.
Profit-Sharing Plan – A profit-sharing plan allows the employer each year to determine how much to contribute to the plan (out of profits or otherwise) in cash or employer stock. The plan contains a formula for allocating the annual contribution among the participants.
Rollover – A rollover occurs when a participant leaves an employer and directs the defined contribution plan to transfer the money in his account to a new plan or individual retirement account. This preserves the benefits and does not trigger any tax consequences if done in a timely manner.
Safe Harbor 401(k) – A safe harbor 401(k) is similar to a traditional 401(k) plan, but the employer is required to make contributions for each employee. The employer contributions in Safe Harbor 401(k) plans are immediately 100 percent vested. The safe harbor 401(k) eases administrative burdens on employers by eliminating some of the complex tax rules ordinarily applied to traditional 401(k) plans.
Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) – A plan in which a small business with 100 or fewer employees can offer retirement benefits through employee salary reductions and matching contributions (similar to those found in a 401(k) plan). It can be either a SIMPLE IRA or a SIMPLE 401(k). SIMPLE IRA plans impose few administrative burdens on employers because IRAs are owned by the employees and the bank or financial institution receiving the funds does most of the paperwork. While each has some different features, including contribution limits and the availability of loans, required employer contributions are immediately 100 percent vested in both.
Simplified Employee Pension Plan (SEP) – A plan in which the employer makes contributions on a tax-favored basis to individual retirement accounts (IRAs) owned by the employees. If certain conditions are met, the employer is not subject to the reporting and disclosure requirements of most retirement plans. Under a SEP, an IRA is set up by or for an employee to accept the employer’s contributions.
Summary Plan Description – A document provided by the plan administrator that includes a plain language description of important features of the plan, e.g., when employees begin to participate in the plan, how service and benefits are calculated, when benefits become vested, when payment is received and in what form, and how to file a claim for benefits. Participants must be informed of material changes either through a revised Summary Plan Description or in a separate document called a Summary of Material Modifications.
Vested Benefits – Those benefits that the individual has earned a right to receive and that cannot be forfeited.
Years of Service – The time an individual has worked in a job covered by the plan. It is used to determine when an individual can participate and vest and how they can accrue benefits in the plan.
Source: U.S. Department of Labor, Employee Benefits Security Administration
Senior Investment Fraud News & Alerts
North American Securities Administrators Association, Inc.
Simple IRA Plans for Small Business
U.S. Dept of Labor
Your Employer's Bankruptcy: How Will It Affect Your Employee Benefits
U.S. Dept of Labor
What You Should Know About Retirement Plans
U.S. Dept of Labor
Search for Company Filings Using EDGAR
(Electronic Data Gathering, Analysis, and Retrieval-SEC)
U.S. Commodity Futures Trading Commission
Pension Benefit Guaranty Corporation (PBGC)
Financial Industry Regulatory Authority (FINRA)
National Association of Secretaries of State
Check Out Brokers and Advisers Before You Invest
How To Spot a Con Artist
North American Securities Administrators Association, Inc.
20% of People Don't Bother to Contribute Money to Their 401k Retirement Plan.
401k Council of America
Qualified Personal Residence Trust (QPRT), Allows Homeowners to Live in a Property for Many Years Before Passing it on to Their Heirs.
Broker Not Registered with State or SEC
Promises of Quick Profit
Pressure to Invest
Broker Has History of Trouble
Unsolicited Offers From Strangers or Unfamiliar Companies That Sound Too Good to be True
Requests to Send Money or Bank Account Information Before a Promised Product or Service is Delivered
1. Have a Plan
2. Diversify
3. Invest Long-Term
4. Stay Informed