For those eligible to participate in the Intel Sheltered Employee Retirement Plan Plus, more frequently referred to as SERPLUS, the annual enrollment window is now open. You must enroll in each year to participant in the plan, which for 2017 contributions must be done between Nov. 14th and Dec. 2, 2016.
Each year we get questions about how the plan works, how much to contribute and how the contributions should be invested. We coordinate the enrollment and advise our clients each year on how to make these decisions and how to best optimize the contributions given their personal situation. But, for those eligible for SERPLUS, but not yet working with Cordant, we still can provide some assistance during the enrollment period.
Previously, we’ve written a blog post on how the plan works and the benefits and risk of participating, but here we want to outline a framework for making the decision and then conclude with a resource that may prove helpful when trying to figure out how to invest the contributions.
The general, 4-step framework we follow when making this decision is:
- Should I contribute to SERPLUS?
- How much should I defer?
- When should I distribute the funds?
- And, how to invest my contributions?
And here’s a bit more information on each:
What, if anything, to contribute?
Are you close to retirement? If so, the tax deferral benefit is less valuable than it is for someone with more time to retirement.
What percent of your net worth is in the SERPLUS account? If you have a high percentage of your net worth inside the SERPLUS account, the fact that it’s an unfunded liability of Intel becomes meaningful. It ultimately comes down to a trade-off of the tax benefits vs. personal comfort, but being too concentrated here is definitely a risk to consider.
How much to defer?
If you decide to defer income you must decide how much to defer. And would you rather defer salary or your bonus?
Employees can defer 1-60% of salary or 25%, 50% or 75% of their bonus. This really comes down to personal preference, do you want to defer out of your monthly cash flow or once per year. It’s important to note the elections made in the current year (in this case Nov. 2016) are for income earned in the next year (2017 in this case).
When to distribute?
When making your election you also must decide when the income is distributed. And it’s important to note, this decision cannot be changed. You have two options when selecting a distribution schedule:
- First, elect either a specific year (at least 3 years out) or at separation to trigger distribution.
- Second, elect distribution schedule.
- Immediate lump sum (paid 60 days after separation)
- Lump sum in March of next year.
- 5yr installments beginning in March of next year.
- 10yr installments beginning in March of next year.
Also to note, SERPLUS balances are paid to your beneficiaries at your death.
Again, this decision comes down to the tradeoff between deferring taxes and the account being an unfunded liability of Intel. The sooner you elect a distribution the less tax-deferral you receive, but a longer distribution schedule means a greater time period the liability remains with Intel.
How to Invest Contributions?
The last step is actually deciding on the best way to invest contributions. Again, we recommend a four-step process to start. The four steps are:
- Select your target allocation
- The Active or Index decision
- Minimize fund expenses
- Analyze fund performance
To learn more about these four steps and find out how you can use them to make you SERPLUS investment decision we recommend reading our eBook titled “Navigating the Intel Retirement Plan: A 4-Step Guide To Making The Most Of Your Investment Options.”
Making the SERPLUS decision can be quite a chore, but hopefully with the proper framework in place it can be a bit easier this year. Or, if you’re interested in becoming a client and getting smart, specific advice regarding SERPLUS enrollment as well as holistic financial planning and investment management, give us a call at 503-621-9207 or contact us.