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The American Dental Association Members Retirement Plan
The American Dental Association MEMBERS RETIREMENT PLAN The Council on Insurance decided in March 1967, to recommend adoption of a tax-qualified retire ment program under the Keogh Law. There were three things which motivated the Council to act. First, the Keogh Act has been amended, effective January 1, 1968, to liberalize the deduction for tax purposes. Up to this date the doctor was en titled to deduct only one half of his contribution and this was one o f the major disappointments with the Keogh Law. The amended law permits a deduction of the full amount. The second impor tant factor was the culmination of some four years of effort by the Council on Insurance. The Coun cil studied the Keogh Law and reviewed a num ber of possible programs. The result is the Ameri can Dental Association Members Retirement Plan which the Council on Insurance now recommends to the membership for its careful consideration. The third relevant factor was that the Council found a mechanism able to provide the desired retirement plan. The Council had considered a number of meth ods for funding and administering the retirement program and decided that what was needed was flexibility for the membership. The Council was especially looking for a program that would per mit the doctor to chpose how much of his retire ment benefits would be funded through fixed-income type of investments and how much through equity type investments. The terminology prob ably needs some clarification. Fixed-income in vestments refer mainly to bonds and mortgages. Equity investments refer to investments that are primarily in common stocks. The members of the Council on Insurance were in general agreement that the program which would be suitable for the membership of the Association would have to per mit a member to have part or all of his retirement
benefits funded through common stock or equity type investments, if he chose. There were several ways to do this but the flex ible program provided by the Equitable Life As surance Society of the United States appealed to the Council the most. This is a relatively new pro gram offered by life insurance companies, which permits funds to be invested primarily in common stocks. It is only within the last few years that the life insurance companies have been able to pro vide for common stock investments to this degree. The life insurance company creates what has be come known as “separate accounts.” One of the main advantages, in the Council’s view, o f the insurance company approach was the fact that it permitted the whole program to be come a simple two-party relationship— the dental profession and one insurance company. The Council on Insurance selected the Equit able for this and for other reasons which will be discussed in this report. A sample of how one doctot would participate in this program gives a good review of the Keogh Law and a good idea of how the ADA Members Retirement Plan works. Let’s call him Doctor Moore. The law permits Doctor Moore, who is selfemployed with no employees, to put aside the lesser of $2,500 or 10% of his earned income each year into his retirement program. In the first year, if Doctor Moore puts in $ 1,000 for example, he would have $975 credited to his account. That is because there is an initial enrollment fee of $25 per participant. He pays this only once, so for the first year he has $975 but in subsequent years he will have the whole $1,000. Doctor Moore can then designate how much of his money will be placed in the fixed-income account and how much 495
in the equity or common stock account. This is his individual decision. Let us assume that he puts $275 in the fixed-income account and $700 in the equity account. At the end of the year, his fixedincome account will be credited with the actual rate of return that Equitable has been able to credit; but, until January 1, 1973, at least, it will not be less than 4% % annually. The value of the equity account will be changed daily to reflect the market activity, upward or downward for that day. Deducted from Doctor Moore’s accounts, for expenses, will be an annual total charge of only $12 plus one half of 1 % of the accounts. When Doctor Moore elects to receive his re tirement plan benefits, at any time between ages 59Vi and 70 Vi, he has a number o f options. He can elect to take cash and receive at that time the entire amount of money in his account or he can take an annuity. If he takes cash, for tax purposes he can average this cash benefit over five years. This helps to reduce the tax bite on cash because it is at this time he must pay the taxes which were postponed from those earlier years. The postponed tax is not expected to be as great as the earlier tax, because he will probably be in a lower tax bracket at retirement or when he takes these benefits. In any case, Doctor Moore’s contributions will have had a chance to accumulate, tax free over the years. If Doctor Moore elects an annuity, he will be taxed on income as he actually receives his an nuity payments. A variety of annuity forms are available to him. One of the interesting features of the plan is the variable annuity. Doctor Moore can elect the variable annuity which will give him monthly income for the rest of his life. The amount of his payments, instead of being the same every month, will fluctuate. Each monthly payment will depend on the investment performance of the separate account. That way he has a chance to par ticipate in common stock investments, if he wants, even after retirement. The ADA Members Retirement Plan is a trust eed plan, which means that the members of the 496
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ADA Council on Insurance are the trustees under the Plan. The trustees do not intend to make in vestment decisions, but they will be the doctor’s representatives to protect his interests at all times and will have the right to change the method of funding or of administering the plan. The Equitable’s current Prospectus describing the Plan has been mailed to each eligible member of the American Dental Association. Members can expect continued mailings describing the re tirement plan in the same general manner in which they receive mailings for the other two ADA-spon sored insurance programs. The ADA Members Retirement Plan became available January 1, 1968, which coincides with the amendment to the Keogh Law. Contributions to the Plan can be made at any time in 1968, but the earlier the contributions are made the sooner they will commence to earn interest. Additional information about the Plan or an enrollment kit is available by writing to the Coun cil on Insurance or to: American Dental Association Members Retirement Plan Box 2470 GPO New York 10001
A 15-minute color-sound (16 mm) film that highlights the American Dental Association Members Retirement Plan has been pro duced and is available for showing at con stituent and component society meetings. The film may be ordered from the Bureau of Audiovisual Service, American Dental As sociation, 211 E Chicago Ave, Chicago, 6061 1. Retirement plan consultants from Equit able Life Assurance Society of the United States— the group which administers the plan— are available to attend the meetings when the film is shown.
benefits funded through common stock or equity type investments, if he chose. There were several ways to do this but the flex ible program provided by the Equitable Life As surance Society of the United States appealed to the Council the most. This is a relatively new pro gram offered by life insurance companies, which permits funds to be invested primarily in common stocks. It is only within the last few years that the life insurance companies have been able to pro vide for common stock investments to this degree. The life insurance company creates what has be come known as “separate accounts.” One of the main advantages, in the Council’s view, o f the insurance company approach was the fact that it permitted the whole program to be come a simple two-party relationship— the dental profession and one insurance company. The Council on Insurance selected the Equit able for this and for other reasons which will be discussed in this report. A sample of how one doctot would participate in this program gives a good review of the Keogh Law and a good idea of how the ADA Members Retirement Plan works. Let’s call him Doctor Moore. The law permits Doctor Moore, who is selfemployed with no employees, to put aside the lesser of $2,500 or 10% of his earned income each year into his retirement program. In the first year, if Doctor Moore puts in $ 1,000 for example, he would have $975 credited to his account. That is because there is an initial enrollment fee of $25 per participant. He pays this only once, so for the first year he has $975 but in subsequent years he will have the whole $1,000. Doctor Moore can then designate how much of his money will be placed in the fixed-income account and how much 495
in the equity or common stock account. This is his individual decision. Let us assume that he puts $275 in the fixed-income account and $700 in the equity account. At the end of the year, his fixedincome account will be credited with the actual rate of return that Equitable has been able to credit; but, until January 1, 1973, at least, it will not be less than 4% % annually. The value of the equity account will be changed daily to reflect the market activity, upward or downward for that day. Deducted from Doctor Moore’s accounts, for expenses, will be an annual total charge of only $12 plus one half of 1 % of the accounts. When Doctor Moore elects to receive his re tirement plan benefits, at any time between ages 59Vi and 70 Vi, he has a number o f options. He can elect to take cash and receive at that time the entire amount of money in his account or he can take an annuity. If he takes cash, for tax purposes he can average this cash benefit over five years. This helps to reduce the tax bite on cash because it is at this time he must pay the taxes which were postponed from those earlier years. The postponed tax is not expected to be as great as the earlier tax, because he will probably be in a lower tax bracket at retirement or when he takes these benefits. In any case, Doctor Moore’s contributions will have had a chance to accumulate, tax free over the years. If Doctor Moore elects an annuity, he will be taxed on income as he actually receives his an nuity payments. A variety of annuity forms are available to him. One of the interesting features of the plan is the variable annuity. Doctor Moore can elect the variable annuity which will give him monthly income for the rest of his life. The amount of his payments, instead of being the same every month, will fluctuate. Each monthly payment will depend on the investment performance of the separate account. That way he has a chance to par ticipate in common stock investments, if he wants, even after retirement. The ADA Members Retirement Plan is a trust eed plan, which means that the members of the 496
h
JADA, Vol. 76, March 1968
ADA Council on Insurance are the trustees under the Plan. The trustees do not intend to make in vestment decisions, but they will be the doctor’s representatives to protect his interests at all times and will have the right to change the method of funding or of administering the plan. The Equitable’s current Prospectus describing the Plan has been mailed to each eligible member of the American Dental Association. Members can expect continued mailings describing the re tirement plan in the same general manner in which they receive mailings for the other two ADA-spon sored insurance programs. The ADA Members Retirement Plan became available January 1, 1968, which coincides with the amendment to the Keogh Law. Contributions to the Plan can be made at any time in 1968, but the earlier the contributions are made the sooner they will commence to earn interest. Additional information about the Plan or an enrollment kit is available by writing to the Coun cil on Insurance or to: American Dental Association Members Retirement Plan Box 2470 GPO New York 10001
A 15-minute color-sound (16 mm) film that highlights the American Dental Association Members Retirement Plan has been pro duced and is available for showing at con stituent and component society meetings. The film may be ordered from the Bureau of Audiovisual Service, American Dental As sociation, 211 E Chicago Ave, Chicago, 6061 1. Retirement plan consultants from Equit able Life Assurance Society of the United States— the group which administers the plan— are available to attend the meetings when the film is shown.