Fall is the time for open enrollment, which allows you to take another look at your employee benefits. While you should be contributing to your retirement account throughout the year, now is a great time to double-check and make intentional adjustments to your plan to maximize your benefits come years end.
Today, it’s all about Ferguson’s 401(k) and retirement benefits.
At Ferguson, you have access to both a 401(k) and a Supplemental Executive Retirement Plan. In this article, we’ll explain what your Ferguson retirement benefits include, and how you can make the most of your benefit.
A deep dive into Ferguson’s 401k
Your Ferguson 401(k) plan enables you to contribute up to $19,500, plus an additional $6,500 if you are over 50, for 2020. Your contribution is limited to 50% of your total income, which includes bonuses, added wages, and salary.
Alongside your contributions, Ferguson will provide matching contributions according to the following schedule:
100% of your contribution is matched up to 2% of your pay
50% of your contribution is matched on amounts over the 2% pay limit
The matching contributions cap is 3.5% of pay
You become fully vested in the company match after 5 years of service
In addition to the matching contribution, you also receive a profit-sharing contribution.
Specific Ferguson 401(k) Rules
Your Ferguson 401(k) does not allow after-tax contributions beyond the annual salary deferral limit of $19,500.
The plan does permit you to make in-service distributions starting at age 59 ½, which gives you some flexibility to roll funds into an IRA or even start making partial-Roth conversions into a Roth IRA.
Keep in mind that you only have three options to choose from when withdrawing the money in retirement.
Roll the balance over into an IRA
Take a single lump-sum distribution
Take an annual withdrawal based on your life expectancy
It will take some planning to decide which option is best for you, but a rollover to an IRA will give you the most flexibility to your withdrawal rate. Paying close attention to which accounts you withdraw from and how much can make a big impact on the taxes you pay. If you take the lump-sum distribution, you will have to include the full amount in your taxable income, which could have significant tax impacts and jeopardize the fund’s time horizon.
Breaking down the FERP Plan
Key executives at Ferguson are also eligible for the Ferguson Executive Retirement Plan. This is a type of Supplemental Executive Retirement Plan, which provides you a means to defer up to 80% of your base salary and annual bonus.
Each January, Ferguson contributes to the plan on your behalf. The amount of this contribution is 3.5% of your compensation, regardless of how much you contribute or even if you contribute at all.
In addition to your deferral and Ferguson’s contribution, the FERP plan also provides you with a match of 50% of the amount you defer. This match is limited in total to 2.5% of your qualified compensation. Ferguson’s board of directors may decide on a discretionary basis to contribute an additional amount to your account in recognition of your service to Ferguson.
A word of caution for FERP participants. The plan is a non-qualified deferred compensation plan. This means that it has an added layer of risk versus the 401(k) because it is not creditor protected at the entity level! This means that if Ferguson encounters a financial hardship, your hard-earned retirement savings could be put at risk.
If you are a participant in the FERP plan, we recommend that you contact us on the best way to structure your payout and benefits.
Top strategies to maximize your Ferguson retirement benefits
Before 2019, key executives 401(k) contributions were limited to 7% of pay. However, that is no longer the case. This gives you additional opportunities to plan your retirement savings in a way you didn’t have before.
One planning strategy is to prioritize your retirement contributions. To maximize your total benefit, consider limiting your FERP contribution to 5% of your pay. Contributing 5% allows you to take full advantage of the 50% match since it is limited to 2.5% of your pay. Then, max out your 401(k). You’ll take full advantage of both plans matching contributions. Lastly, contribute any additional retirement savings to your FERP or consider using a taxable account.
If you use a taxable account, you need to manage the investments to avoid unnecessary tax liability, but it can be an incredibly effective tax diversification strategy when considered along with tax-deferred plans, especially when you start taking withdrawals.
Another strategy is to take your FERP distributions from the time you retire until you turn 70. Taking your distributions over this timeframe will allow you to bridge the gap between your retirement date and claiming Social Security at age 70.
By living off of your FERP distributions before turning 70 and in turn delaying your Social Security, you continue to earn delayed retirement credits for a larger benefit. At age 70, your Social Security benefit will be 8% higher for every year that you delay past your Full Retirement Age. Depending on your birthday, that could be up to 32% higher.
Then, once you turn 70, your retirement will consist of your increased Social Security benefit, 401(k) withdrawals, and any amount you have in taxable accounts.
Saving for retirement is a crucial component of your benefits package. By knowing what is offered, you can work with your financial advisor to create a game plan to build a retirement plan that works best for you. If you would like to take advantage of your Ferguson retirement benefits, give us a call today.
Mark Fonville, CFP®
Mark has over 18 years of experience helping individuals and families invest and plan for retirement. He is a CERTIFIED FINANCIAL PLANNER™ and President of Covenant Wealth Advisors, an award winning wealth management firm in Richmond and Williamsburg, VA.
Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Ferguson is not affiliated with Covenant Wealth Advisors. Ferguson plan features and benefits may change at any time.
The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.