Financial planning

Many profitable small-business owners would like to have a retirement plan that can provide more than $50,000 of deductible contributions to the owners and other key employees.A defined-benefit plan is perhaps the only tax-qualified retirement plan that can achieve this. However, in traditional DB plans, the worker benefit costs are too high to make them practical. A cash-balance plan is the solution (see box).

A worker's Social Security benefits are reduced for each month that the worker starts getting the benefit before reaching full Social Security retirement age. The reduction is five-ninths of 1 percent of the primary insurance amount of that worker for each of the first 36 months before full Social Security retirement age, and five-twelfths of 1 percent for each additional month.Thus, if a worker retires exactly 36 months before reaching full Social Security retirement age, his benefit will be reduced by 20 percent (36 x 5/9 of 1 percent) of the PIA. If a worker retires 48 months before reaching full retirement age, the benefit will be reduced by 25 percent (36 x 5/9 of 1 percent plus 12 x 5/12 of 1 percent).

NAPFA LAUNCHES PSA CAMPAIGN: The National Association of Personal Financial Advisors, a 1,300-member association of fee-only financial advisors, has launched a consumer-oriented public service campaign aimed at educating Americans about the need for financial professionals to hold themselves to a fiduciary standard. The campaign is titled "Focus on Fiduciary."NAPFA said that the strategy behind the campaign is to highlight the issues surrounding fiduciary standards in the financial industry while helping consumers ask the right questions of their financial advisors. To support the campaign, NAPFA has developed a number of resources available to the industry and consumers alike, including:

Some 50 percent of Baby Boomers ages 50 to 59, with anywhere from six to 15 years before retirement, indicated in a recent survey that they don't know how much money they'll need when they finally stop working.Furthering their financial dilemma, 60 percent of those polled said that they intend to save more than they do, but don't always get around to it.

Most people who work for a living, either as employees or as self-employed persons, are covered by Social Security's old age, survivors and disability insurance program.As a retirement program, Social Security pays a monthly cash benefit to workers who have the equivalent of at least 40 months of work under Social Security, and who are at least 62 years old. The amount of the benefit is based on the worker's primary insurance amount. The PIA depends on how long he worked under Social Security and the amount of his Social Security wages. Social Security benefits may also be paid to a retired worker's qualifying dependents, such as a spouse, a widow or widower, and certain children. The benefits of a worker's dependents also are based on the worker's PIA.

COURT TELLS SEC TO LEAVE HEDGE FUNDS ALONE: The U.S. Court of Appeals for the District of Columbia Circuit has dealt a blow to the Securities and Exchange Commission's plans to more closely regulate hedge funds. The court ruled unanimously in late June that the SEC had overstepped its authority in defining hedge fund investors as "clients" of a fund manager, and subsequently ordering any manager with 15 investors or more to register with the agency.SEC Chairman Christopher Cox said that he hasn't yet decided whether or not the decision will be appealed. In a statement, he said that he had already instructed SEC staff to evaluate the court's decision, as well as to provide a set of alternatives for the commission's consideration. "The SEC takes seriously its responsibility to make rules in accordance with our governing laws," Cox said. "The court's finding that, despite the commission's investor protection objective, its rule is arbitrary and in violation of law requires that going forward we re-evaluate the agency's approach to hedge fund activity."

In an effort to increase charitable giving across the U.S., the Fidelity Charitable Gift Fund, an independent public charity within the donor-advised fund program of financial services conglomerate Fidelity, has rolled out the Charitable Investment Advisor Program.Fidelity's new offering allows independent investment advisors to provide discretionary investment management to the Gift Fund for contributions made by the advisors' clients.

An individual who is an active participant in a qualified retirement plan cannot make deductible contributions to a traditional IRA unless her modified adjusted gross income is below certain specified levels.The level depends on the type of income tax return the individual files. For single taxpayers and heads of household, the otherwise allowable deduction is phased out ratably in 2006 and later years, when the taxpayer's MAGI is between $50,000 and $60,000.

* CCA OFFERS NEW DEFINED-BENEFIT PLAN: CCA Small Business Group LLC, a provider of retirement plans for sole proprietors and small businesses, has unveiled its new OurMax plan, a Web-enabled, high-deferral retirement plan for small business owners.The plan is a type of defined-benefit plan, which allows business owners to save up to $200,000 annually for retirement.

Nobody wants to be the bearer of bad news, but small business owners should be aware that the Internal Revenue Service is stepping up its examinations of companies' retirement plans this year, hoping to catch those that are cheating their workers or the government, or both, as well as to ensure that the plans meet federal regulations.Traditional pensions, 401(k) plans and profit-sharing plans are all on the agenda.

An individual who is planning to retire will often roll over the assets in her qualified plan into a traditional IRA, e.g., so that she will have more control over how the funds are invested.If the plan permits (and only if the plan permits), such an individual may also be able to roll over the assets in a traditional IRA to one of the following types of plans:

Testifying with blunt honesty before the Senate Banking Committee, Fannie Mae's top executives said that it will be years before the mortgage giant can recover from an accounting scandal.Fannie Mae's president and chief executive, Daniel Mudd, alongside chairman Stephen Ashley, testified that the Fannie Mae of today is nearly unrecognizable from before. In mid-June, Mudd volunteered to return some of his salary from the period that the accounting irregularities occured. He served as Fannie Mae's chief operating officer from 2000 through 2004.

The Financial Planning Association has unveiled the FPA Career Center, a tool designed to help those in the market for a new job and those looking to hire new employees.The site has more than 170 financial planning job openings from 139 firms throughout the country. It offers employers targeted access to financial planning professionals, and offers job seekers free and confidential resume posting.

Although many Americans hope to retire as millionaires, many are on a track that falls considerably short, according to a USAA survey conducted by Harris Interactive.According to the results, 51 percent of employed U.S. adults who are not retired say that they want to save $1 million or more for retirement, but 30 percent haven't set aside anything at all. In fact, only 26 percent have saved more than $50,000. To make up for the shortfall, 39 percent have asked their parents for money, while 13 percent have turned to a sibling and 11 percent have approached another family member.

STUDY SAYS FEE-ONLY ADVISORS BOOSTING CLIENT REVENUEFee-only financial advisors are increasing client numbers, revenue and profits at impressive rates, according to a new benchmarking study issued by the National Association of Personal Financial Advisors and produced by CPA and business advisory firm Moss Adams LLP.

Did you know that your clients could be held liable for their employees' missed investment opportunities? Through a number of recent class-action lawsuits over the mismanagement of pension plans, corporate fiduciary responsibility has been brought to center stage.The fallout from these cases has put employers across the nation at risk by exposing their fiduciary responsibility.

If a company's plan permits, pension annuity payments may be provided for a certain period of time - as long as it is not longer than the period under the Uniform Lifetime Table for the participant's age as of his birthday in the same year in which the annuity starting date occurs.The period does not change upon the death of the employee, even if the remaining period certain is longer or shorter than the beneficiary's single life expectancy. The same is true if the annuity also includes a life annuity or a joint and last survivor annuity.

Retirement planning has always been a challenging task, but it is even more so today.The coming generations of retirees face a complicated planning process, because funds need to last far longer than in the past. Medical advances and healthier lifestyles are giving retirees extra decades to enjoy life, but without employment income. Therefore, planning needs to begin much earlier to help ensure a secure and rewarding retirement for our clients.

The Internal Revenue Service has recently been auditing 412(i) defined-benefit pension plans.They are seeking substantial taxes and penalties from what they characterize as "abusive plans," but they do not regard all 412(i) plans as necessarily abusive. A properly structured and administered 412(i) plan can be an invaluable tax reduction tool for a business, but care must be taken.

WACHOVIA BUYS AMERIPRISE RECORD-KEEPING UNIT: Banking group Wachovia Corp. will acquire the defined-contribution record-keeping business of Ameriprise Financial Inc. Terms of the deal, which is subject to federal approval, were not disclosed.The Ameriprise unit provided record-keeping and plan administration services to 225 defined-contribution retirement plans at the end of March - covering nearly 700,000 participants and administering about $28 billion in assets.