Client Service June 24, 2015

Couples Not on the Same Page When it Comes to Finances

The majority of couples believe they communicate effectively when it comes to finances, but a new study shows otherwise.
Reported by

While nearly three-quarters (72%) of couples believe they communicate very well with their partner when it comes to finances, 43% could not correctly identify how much their partner makes, according to Fidelity Investments 2015 Couples Retirement Study, and of those, 10% were off the mark by $25,000 or more.

In addition, nearly one in four (38%) disagreed on the amount of their household’s investable assets. When asked how much they would need to maintain their current lifestyle in retirement, 48% said they have no idea, and among the other couples who have given it some thought, 47% are in disagreement about the amount needed. Sixty percent of couples have no idea how much their Social Security benefit might be.

Couples are also very worried about how well they will fare in retirement, with 74% anxious about unexpected health care costs, up from 70% in 2013. Just over half (51%) are concerned about outliving their savings, up from 42% in 2013.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

Despite these concerns, only 21% have developed a retirement plan, and 36% haven’t even thought about doing so, up from 28% in 2013. Thirty-seven percent haven’t considered the impact of potential health care costs on their retirement savings, up from 30% in 2013.

NEXT: A Retirement Plan’s Impact

Those who have taken the time to establish a retirement plan have a much better outlook on their future. Forty-two percent believe they will have a very comfortable retirement, compared with 18% of those without a retirement plan. Sixty-seven percent are confident they could assume full financial responsibility for retirement, if needed, compared with 42% of those without a plan.

“When couples work with an adviser, we see a marked difference between those who have a plan and those who do not,” John Sweeney, executive vice president of retirement and investing strategies at Fidelity, tells PLANADVISER. Advisers need to start their discussions with couples by getting both parties involved and ensuring that they are transparent with one another, he says. Start by asking them about what kind of lifestyle they want for their retirement. “You need to make sure the couple is aligned before you can get into how to pay for that retirement,” he says.

Fidelity has three additional tips for advisers working with couples to ensure that they are more aware of each other’s financial outlook, starting with prompting the couple to ask each other about their next big goals, such as buying a new home, saving for a child’s college education or having enough to retire.

Advisers should also recommend that couples should also set aside money for an emergency fund. Fidelity suggests that the fund be adequate to cover three to six months’ worth of living expenses. Advisers should also ensure that partners should prepare for the unexpected by naming beneficiaries for investment accounts and insurance policies, and discuss estate planning, health care proxies and eldercare arrangements.

“We know couples don’t always agree when it comes to money, but we were surprised how many missed the mark on the question of their partner’s salary,” Sweeney says. “If gaps exist around basic questions like salary, couples might have other opportunities for improvement on the financial front, such as sorting through and tackling important issues together around the next big milestones in their lives, how and where to spend retirement and later-in-life issues involving eldercare and estate planning. By taking the time to engage in conversation and plan, your chances of creating a strong foundation and achieving your goals are greatly enhanced.”

Fidelity’s Couples Retirement Study is based on a survey of 1,051 couples.

Fidelity has developed a Couples Quiz that can help advisers “break the ice” when approaching a couple. One spouse can take the quiz and email the results to their partner to get the conversation started. Advisers can suggest that a couple take the quiz and then come in to their office to discuss a plan, Sweeney says. Advisers can share Fidelity’s Couples Quiz with their clients by going here.

Compliance June 24, 2015

IRS Publishes NQDC Plan Audit Guide

The guide for examinations agents serves as a reminder of NQDC plan rules.
Reported by

The Internal Revenue Service (IRS) has published the Nonqualified Deferred Compensation Audit Techniques Guide (June 2015).

Good for plan rules through its June 9 publication date, the guide serves as an alert for plan sponsors about what auditors will examine and as a reminder of nonqualified deferred compensation (NQDC) plan rules.              

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

For example, examiners are told to look at when deferred amounts are includible in an employee’s gross income. Under the constructive receipt doctrine, for unfunded plans, income although not actually in the taxpayer’s possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given.

Under the economic benefit doctrine, for funded plans, if an individual receives any economic or financial benefit or property as compensation for services, the value of the benefit or property is currently includible in the individual’s gross income. More specifically, the doctrine requires an employee to include in current gross income the value of assets that have been unconditionally and irrevocably transferred as compensation into a fund for the employee’s sole benefit, if the employee has a non-forfeitable interest in the fund.

In general, compensation amounts are deductible by the employer when the amount is includible in the employee’s income.

NEXT: Specific items to be examined.

Among the specific items they are told to review, IRS agents will look to see if the employer's compensation deduction matches the employee’s inclusion of the compensation in income. The employer must be able to show that the amount of deducted deferred compensation matches the amount reported on the Forms W-2 that were furnished and filed for the year.

In addition, agents will review the ledger accounts/account statements for each plan participant, noting current year deferrals, distributions, and loans, and compare the distributions to amounts reported on the employee's Form W-2 for deferred compensation distributions. The agents will determine the reason for each distribution, and check account statements for any unexplained reduction in account balances. “Any distributions other than those for death, disability, or termination of employment need to be explored in-depth, and counsel may need to be contacted,” the IRS says.

The agency notes that a NQDC plan that references the employer's 401(k) plan may contain a provision that could cause disqualification of the 401(k) plan. Regulations provide that a 401(k) plan may not condition any other benefit (including participation in a NQDC) upon the employee's participation or nonparticipation in the 401(k) plan. Examiners will look for NQDC plan provisions that limit the total amount that can be deferred between the NQDC plan and the 401(k) plan, as well as any which state that participation is limited to employees who elect not to participate in the 401(k) plan.

The NQDC audit guide is here.

«