| Sargent & Lundy Savings Investment Plan |
| SIP NEWSLETTER - FALL 2000 |
| SIP NEWS
TABLE OF CONTENTS: *New Freedom Fund - 2040 *ABCs of IRAs *But I'm Too Young..... *How Do You Compare? *US Equity Index Commingled Pool *Spartan Extended Market Index *Spartan Total Market Index *Why After-Tax *After-Tax Withdrawals *Lump Sum Contributions *Over 55? *Changes *Working Retirees *Retirement Update *In Memoriam *NetBenefits *Portfolio Planner *Old Savings Bonds *Prescription Drug Program, by Don Belder
The Fidelity Freedom 2040 Fund opened on September 7, 2000 and will soon be added to the plan's Core Investments. The fund is designed to complement the existing five Freedom Funds (see SIP News Summer 2000). As the sixth life cycle fund, Freedom 2040 uses an aggressive asset allocation strategy to provide a simple and convenient investment option for participants retiring around the year 2040. Freedom Fund 2040, which seeks high total return, will be the most aggressive Freedom Fund. The new fund will have the same expense structure as the other Freedom Funds and will invest in the same underlying Fidelity mutual funds. Initially, Freedom 2040's target asset allocation will be: Stock Funds: 90% (Domestic Equity Funds:
75%; International Equity Funds: 15%) As explained in the SIP News Summer 2000, each Freedom Fund's asset allocation gradually adjusts to be more conservative as it approaches the target date. These funds do not expire upon reaching that date. Instead, the fund's equity position is gradually reduced to 20% exposure to equity funds. This is the same equity exposure as the Freedom Income Fund, which is designed for investors in their retirement years. ABCs of IRAs Many people are confused about the difference between a 401(k) plan and an individual retirement account (IRA). IRAs are only available through a financial institution and offer many tax advantages. One major advantage is penalty-free withdrawals to pay for college, a first home (up to a maximum of $10,000), or medical insurance is you are unemployed. The following information regarding the different types of IRAs is from an article in the September/October 2000 issue of Family Money magazine. Traditional IRA
Who qualifies: Individuals with an adjusted gross income (AGI) of less than $62,000 for married taxpayers filing jointly: $42,000 for singles. The tax-deductible portion of your contribution is gradually phased out if your AGI is between $52,000 and $62,000 for married taxpayers filing jointly; $32,000 to $42,000 for singles. Spousal IRA Who qualifies: Non-working spouses. The working spouse's AGI must be under $160,000. The tax-deductible portion of the contribution is phased out if the working spouse is enrolled in an employer-sponsored retirement plan and has an AGI between $150,000 and $160,000. You must file a joint tax return for the year you take the deduction. Nondeductible IRA Who qualifies: Everyone; there are no upper income limits. Roth IRA Who qualifies: Individuals with an AGI under $160,000 for married tax-payers filing jointly; $110,000 for singles. The amount of your eligible contribution is gradually phased out if your AGI is between $150,000 and $160,000 for married taxpayers filing jointly; $95,000 to $110,000 for singles. Rollover IRA BUT I'M TOO YOUNG..... Wrong! The fact is that you have to begin sometime, and by starting early you can put less away per paycheck than someone who procrastinates. Don't underestimate how a little bit of money can grow over time. Even if you start now and then stop later, thanks to to the miracle of compound interest. Here's an example (provided by Fidelity Investments) of the power of compound interest, assuming a hypothetical 8% annual rate of return compounded monthly. Katie began contributing to her 401(k) plan at the age of 21. She had $41.50 per pay period ($83 per month) deducted from her paycheck and deposited into the plan. She stopped contributing 10 years later at age 31. However, she left the money in the plan until she reached age 65. Matt did not begin contributing to his 401(k) plan until age 35. He also had $41.50 deducted each pay period ($83 per month) and deposited into his plan. He continued these contributions for 30 years until he retired at age 65. How do they compare? Katie Matt Even though Matt contributed for 20 years longer than Katie, her account was worth $105,000 more than Matt's because she started earlier. Katie's money had more time to benefit from the power of compounding. HOW DO YOU COMPARE? Think about the lifestyle of your retired parents or grandparents. Are they enjoying retirement? Are they watching eveyr penny to make ends meet? Are they living off Social Security only? Do they have hobbies that keep them active and busy? Does their health suffer unnecessarily because there isn't money to pay for medication or doctors' visits? If your parents or grandparents are happy and enjoying life after, what did they do to ensure a comfortable retirement? If they are struggling and can't afford many of the things they would enjoy, what could they have done differently? Someone once defined retirement as the time "when work becomes optional". How will your retirement compare? What can you do now, regardless of your age, to plan for a period in your life when work becomes optional? Will you have the money to visit your children and grandchildren who have moved away? What about hobbies, such as golf or traveling, that are not inexpensive? The answers to these questions could have a profound effect on the rest
of your life. On January 1, 2000, the assets in the Vanguard S&P 500 Fund were transferred into Fidelity's US Equity Index Commingled Pool. Since this is an institutional fund that is not generally available to individual investors, there is no ticker symbol. However, the fund's performance is similar to that of the Spartan 500 Index (FSMKX). Goal: To approximate the composition and total return of the Standard & Poor's 500 Index, which represents the performance of the 500 largest capitalization US stocks. Risk: The value of the fund's investments will vary from day to day in response to many factors. Expense ratio: 0.10%, compared to the Spartan 500 Index's expense ratio of 0.19%. Top Ten Holdings (as of June 30, 2000), representing 26% of total assets, were: General Electric Company Fund Inception: 12/3/91 SPARTAN EXTENDED MARKET INDEX (FSEMX) Objective: Seeks to provide investment results that correspond to the total return of stocks of mid- to small-capitalization United States companies. Strategy: Normally invests at least 80% of assets in common stocks included in the Wilshire 4500 Index, which represents the performance of stocks of mid- to small-capitalization US companies (the highest 4500 market capitalization stocks after the top 500). Risk: The value of the fund's investments will vary from day to day in response to many factors. The securities of small, less-known companies may be more volatile than those of larger companies. Short-term Trading Fee: 0.75% on shares held less than 90 days. Expense ratio: 0.27% Top Ten Holding (as of June 30, 2000), representing 10% of total assets, were: Berkshire Hathaway Inc Class A Fund Inception: 11/5/97 SPARTAN TOTAL MARKET INDEX (FSTMX) Objective: Seeks to provide investment results that correspond to the total return of a broad range of United States stocks. Strategy: Normally invests at least 80% of assets in common stocks included in the Wilshire 5000 Total Market Index (see Summer 2000 SIP News), which represents the performance of a broad range of US stocks. Risk: The value of the fund's investments will vary from day to day in response to many factors. The securities of small, less-known companies may be more volatile than those of larger companies. Short-term Trading Fee: 0.50% on shares held less than 90 days. Expense ratio: 0.26% Top Ten Holdings (as of June 30, 2000), representing 20% of total assets, were: General Electric Co Fund Inception: 11/5/97 WHY AFTER-TAX? The Savings Investment Plan is not just a 401(k) plan. You can also contribute on an after-tax basis, using money that has already been taxed. These contributions can be withdrawn at any time in the future, TAX FREE. You will not owe tax on the money you have contributed. Which means that the plan is an excellent place to invest money for college, your first home, a vacation or retirement home, or other future purchase. One major advantage of investing after-tax money in the Savings Investment Plan is that capital gains and dividends from mutual fund investments are tax-deferred instead of adding to your income for the year. For employees starting to seriously save for retirement, there is another incentive for contributing after-tax dollars: when you are ready to withdraw money to supplement your retirement income, two of the three payment options distribute your after-tax money first (see related article, Over 55?, on page 5). You may have one or both types of after-tax money in your account: SIP Pre-87 and/or SIP Ost-86. The dates refer to the Tax Reform Act (TRA) of 1986. Withdrawal calculations are based on when after-tax contributions were made into your account: after TRA-86 ("post-86") or before ("pre-87"). When discussing your withdrawal options with Fidelity, it is extremely important that you understand how the after-tax contributions are withdrawn from your account. Fidelity phone representatives will respond to your questions and instructions, but may not explain the option of rolling over the earnings on your contributions to keep those earnings tax deferred. AFTER-TAX WITHDRAWALS Any contributions deposited into your account prior to January 1, 1987 were "grandfathered". This means that those contributions can be withdrawn tax free, for any reason, without withdrawing the applicable earnings. Any contributions deposited into your account after January 1, 1987, cannot be withdrawn as "contribution only". The earnings must also be withdrawn, on a proportional basis. HOWEVER, this does not mean that you must add those earnings as income (with a possible 10% early withdrawal penalty). Instead, you may roll over the earnings into a rollover IRA. This defers any tax obligation on those earnings until you withdraw from the IRA. When you call Fidelity to discuss a withdrawal, be sure they explain that you can get the withdrawal paid to you in 2 checks: one payable to you for your tax-free contribution and one payable to a bank or financial institution for the rollover IRA. You don't need to have already opened the IRA before calling Fidelity, since both checks will be sent to your home. Before you contact Fidelity, call a bank or financial institution for a rollover application. It should arrive in time for you to return it to them with the rollover check from Fidelity. LUMP SUM CONTRIBUTIONS In addition to payroll deductions, you can add after-tax money to your account through one or more lump sum contributions. Currently, the maximum you are allowed to contribute to a tax-sheltered plan is the lesser of 25% of your total wages or $30,000. If you are interest in making a lump sum contribution, please call the SIP Office. Fidelity will only accept a certified or cashier's check, payable to FIIOC. DID YOU KNOW.... A private college tuition that costs $25,000 annually today is estimated
to cost $70,000 in 2015? OVER 55? In early July, a letter was sent to all plan participants who are age 50 and over, outlining the distribution options available to those who have reached age 55 and terminated full-time employment with S&L. NOT INCLUDED in the letter was the following information: * Money withdrawn in quarterly payments of a specific
dollar amount will be paid out from after-tax money first Based on the amount of after-tax money in your account, it could be several years before you start withdrawing taxable income. This is a major change from the previous method, in which payments were proportional between taxable (401(k), employer match & earnings) income and non-taxable (after-tax contributions) income. This proportional distribution method still applies to quarterly payments that are not a specific dollar amount. Previously, quarterly retirement distributions (which began in 1986) were paid out over a maximum of 15 years as a percentage of the total account balance. The payment amount was re-calculated each January. As the letter of July 3 explained, there are now 3 distribution options available: * Quarterly payments over a specific period of
time (quarters or years) If you would like more information on these distributions or need another copy of the original letter, please contact the SIP Office. CHANGES Effective September 2000, two new members were added to the SIP Committee: Joe DiCola - Supervisor, Project
Financial Services Division The other committee members are: Mike Helminski, Chairman - Commercial
Manager Another change is the availability of a second loan, effective November 1, 2000. However, the following restrictions still remain: * Outstanding principal (combined) in any 12-month
period cannot exceed $50,000 WORKING RETIREES More and more seniors are re-entering the work force. The trend will likely continue now that most can earn money without reducing their Social Security benefits. Retirement can be like winning the lottery: it can be the best time of your life if you are prepared for it. But if you are not, financial or psychological changes can send you back into the work force. Although life expectancies are increasing, not everyone has planned for a 30-year retirement. According to the 2000 Retirement Confidence Survey co-sponsored by the Employee Benefit Research Institute (EBRI), 67% of workers expect to work for pay after retiring. And 25% of retirees say they have worked since they retired. The survey cites several reasons retirees continue working: 75% - Enjoy working and want to stay involved
Continuing to work can give your existing retirement accounts a chance to continue growing before you need to start withdrawing. A $300,000 401(k) balance at age 65 would grow (assuming a 10% rate of return) to $483,153 in five years. If you are considering a return to the work force, the first thing you need to do is to evaluate your retirement resources. But working will not only boost your retirement account, it can also improve your retirement life. RETIREMENT UPDATE New research by the Employee Benefit Research Institute (EBRI) reveals that pensions and annuities comprised 20% of the elderly's income in 1998, up from 14% in 1974. The largest source of income for those over age 65 continued to be Social Security, which represented 40%. Median income for this age group was $12,780 in 1998. IN MEMORIAM Several former employees and retirees have passed away during recent months: De Paz, Antonio: passed away at age 46 on October 6, 2000. Mr. De Paz was working in the Transmission & Distribution Services Division. Means, Jeff: passed away at age 50 on May 31, 2000. Mr. Means left in 1996 from the Mechanical Design & Drafting Division. Reyes, Pio: passed away at age 60 on July 30, 2000. Mr. Reyes left in January 1988 from the Electrical Design & Drafting Division. Rydin, Carl: passed away at age 87 on August 13, 2000. Mr. Rydin retired in 1980 from the Mechanical Design & Drafting Division. Skypala, Vaclav: passed away at age 77 on August 20, 2000. Mr. Skypala retired in 1977 from the Mechanical Design & Drafting Division. We send our condolences to their families and friends. NETBENEFITS You can access your account through Fidelity's website, www.401k.com. On the right side of the screen, select "Access My Account". You will be prompted to enter your Social Security Number (no dashes) and PIN. If you have not yet established a PIN, please contact the SIP Office. When your account appears on the screen, either click on "Sargent & Lundy SIP" or the "Savings" tab. Your account balance will appear, indicating the amount in each investment option as of the previous business day. Several options will appear on the left side of the screen: * Balances (same as above) On the Balances screen, select "Source Balances" to view your account by money source (401(k), employer match, SIP, etc.). You can also chart this information. From the same Balances screen, select "Investment Option" to chart your assets by investment type or asset class. PORTFOLIO PLANNER Fidelity Portfolio Planner is a planning tool designed to help you meet your retirement goal by answering three important questions: * Will I have enough to retire? After setting your goal, you can track your progress over time, updating your profile as life situations change. The Portfolio Planner can be found at Fidelity's website, www.401k.com by accessing your account through NetBenefits. When you account appears on the screen, select the "Planning" tab. Then select Portfolio Planner from the listing on the left side of the screen. Follow the prompts to Portfolio Planner. The "Welcome to Fidelity Portfolio Planner" is a confidentiality statement. Accepting the privacy terms at the bottom of the page will take you to a Portfolio Planner Menu. There are three profiles available: * Savings Need - Will I have enough to retire?
The Savings Need section takes approximately 25 minutes to complete. It collects information about your income sources in retirement. By combining your SIP assets with savings you may have outside the plan, it will show you how close you might get to your retirement goal. By the end of this section you will have graphs depicting your potential for meeting your retirement goal, as well as an action plan with suggestions for managing your savings strategy. The Asset Allocation section takes approximately 15 minutes, answering questions that will be used ot learn what type of investor you are. Your answers will result in a Target Asset Mix (Conservative, Balanced, Growth or Aggressive Growth) that reflects your financial situation, risk tolerance and time horizon. A summary will detail changes you may want to consider to reach the Target Asset Mix. The Model Portfolio section will give you a recommended model portfolio using investments available through the Savings Investment Plan. The model is based on your Target Asset Mix and is a guide to help you reach your retirement goal. The Model Portfolio section will also provide alternative options to consider and give you a summary of changes you may want to consider. OLD SAVINGS BONDS Do you still have old savings bonds stashed away in a drawer? A free pamphlet, Tables of Redemption Values for Savings Bonds, is available from the US Treasury Department. It will tell you what old bonds are worth and whether they still earn interest. Call 304-480-6112 for information, or check the US Treasury's website at www.publicdebt.treas.gov. PRESCRIPTION DRUG PROGRAM In the S&L PPO prescription drug program, the cost of prescription drugs is expected to rise 22.5% for active employees and 23.4% for Medicare retirees over the next year. This will have a direct impact on our S&L PPO benefits. Many employers have been forced to change their plan design and increase contributions for employees and retirees. You are encouraged to take advantage of the cost savings measures already in place under our current benefit structure. Prescription drugs should be purchased two ways through the S&L PPO program: * BlueScript - available through Blue Cross/Blue Shield, is used when purchasing a drug at your local pharmacy. By showing your BC/BS ID card to the pharmacist, you become eligible for your drug's lowest cost on that day. You'll still need to purchase the drug on that visit, but your claim is automatically filed with BC/BS. If your deductible has already been met, you'll receive your insurance benefit check in the mail along with an Explanation of Benefits (EOB) in 7-10 days. A special peel-off sticker is available from the Insurance Section, to be placed on your ID card to ensure correct processing by your pharmacist. * Mail order - administered through Walgreens Healthcare Plus Sargent & Lundy has contracted with Walgreens to offer a low-cost drug prescription program. The mail order program is only available for maintenance drugs used to treat chronic or long-term health conditions (such as high blood pressure or diabetes). Plan benefits are: * 100% coverage for generic drugs It is strongly suggested that you use generic drugs when available, although Sargent & Lundy does not require such substitutions at this time. Mail order Registration & Prescription Order forms are available from the Insurance Section. The ever-increasing cost of prescription drugs is a continual concern to all employers. Health plans and participants cannot be expected to continue bearing the burden of annual 20%-25% cost increases. Many plans have implemented a three-tier co-pay system, which charges employees a low, middle and high fixed-dollar co-payment. The applicable level is determined by the drug purchased. For example, participants will be charged a $5-$10 co-payment for generic drugs, $15-$20 for preferred brand name drugs, or $25-$30 for non-preferred brand name drugs. This allows the cost-sharing between the employer and the participants to be more in line with plan design. For Medicare participants, the prescription drug benefit has become a major issue. S&L retirees and Medicare-eligible members will continue to be insured with a prescription drug benefit for 2001. Prescription drug proposals under discussion in Congress are: 1) a voluntary program, and 2) an entitlement program. The voluntary program promotes gross adverse selection. Only those who need prescription drugs will participate, creating ever-increasing premiums. The entitlement program could cause the federal government to become the largest purchaser of prescription drugs. Ideally, this will cause a decrease in prescription drug costs for those under Medicare. However, pharmaceutical companies may eliminate discount programs with employers to compensate for the loss in profits. This could, then, result in increased costs to plan participants. Why is the cost of prescription drugs increasing? Although the pharmaceutical companies are often considered to be the "bad guys," there are several reasons: * Drug therapy: management of chronic conditions
has produced new brand-name drugs There are no easy solutions to the rising cost of prescription drugs. |
This page updated on 12/19/2000