The Markets October 19, 2017

DCIO Assets Up 12% in the Past 12 Months

By year-end, Sway Research projects that DCIO assets will rise 13% to top $3.8 trillion.
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Helped by a strong market and improving sales, defined contribution investment only (DCIO) managers have seen their assets grow 12% in the 12 months ended June 30, 2017, according to Sway Research’s report, “The State of DCIO Distribution: 2018—Key Benchmarks, Developing Trends, Winners and Outlook.”

While target-date fund and passive investments have been putting a damper on DCIO sales, DCIO managers have been successfully selling other vehicles, according to Sway. By year-end 2017, the research firm expects DCIO assets will rise 13% to top $3.8 billion in assets. This will give DCIO managers a 49% share of DC assets. By 2022, Sway expects DCIO firms will top $5.5 trillion in assets and command a 54% market share of DC assets.

DCIO sales leaders who responded to Sway’s survey said they had an average of $393 million of net sales in the first half of this year and $1.32 billion in 2016. Given the fact that in 2016, over half of DCIO managers had net outflows averaging $21 million, Sway says, the DCIO market is in a better place in 2017, with only 40% of manager experiencing net outflows this year.

“The DCIO market has undergone substantial changes in recent years, and managers have had to adapt both in terms of product, i.e. institutional pricing, more satellite less core for active managers; and sales and marketing, i.e. increased coverage of analyst teams and greater expertise around adviser practice management.”

Sway also found that many DCIO managers have discovered they can increase sales by focusing on third-party fiduciaries, such as Morningstar, Mesirow and Leafhouse Financial. They are also targeting large advisory practices with many affiliates, such as CAPTRUST Financial Advisors, Global Retirement Partners and SageView Advisory Group, “as they are typically staffed with elite plan advisers and advisory teams,” Sway says.

DCIO sales have been difficult to track, Sway notes, as the average manager can only track 54% of their sales to their source. However, through the use of data aggregation services, this is up from 46% in 2016, Sway says. Knowing which advisers are selling their products should help DCIO managers improve their sales going forward.

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Compliance October 19, 2017

2018 Contribution and Benefit Limits Announced

The contribution limit to defined contribution (DC) plans has been increased by $500.
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The Internal Revenue Service (IRS) has issued Notice 2017-64 announcing cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2018.

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,000 to $18,500. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.

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Effective January 1, 2018, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $215,000 to $220,000. For a participant who separated from service before January 1, 2018, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2017, by 1.0196. The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2018 from $54,000 to $55,000.

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $18,000 to $18,500.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan remains unchanged at $175,000. The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $120,000.

The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600. The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $12,500.

NEXT: Other contribution/benefit limits

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $63,000 for married couples filing jointly, up from $62,000; $47,250 for heads of household, up from $46,500; and $31,500 for singles and married individuals filing separately, up from $31,000.

The limit on annual contributions to an IRA remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $270,000 to $275,000.

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a five year distribution period is increased from $1,080,000 to $1,105,000, while the dollar amount used to determine the lengthening of the five year distribution period is increased from $215,000 to $220,000.

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $400,000 to $405,000.

The limitation under Section 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan is increased from $45,000 to $50,000.

The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation is increased from $105,000 to $110,000. The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $215,000 to $220,000.

The dollar limitation on premiums paid with respect to a qualifying longevity annuity contract under Section 1.401(a)(9)-6, A-17(b)(2)(i) of the Income Tax Regulations is increased from $125,000 to $130,000.

The Code provides that the $1,000,000,000 threshold used to determine whether a multiemployer plan is a systemically important plan under Section 432(e)(9)(H)(v)(III)(aa) is adjusted using the cost-of-living adjustment provided under Section 432(e)(9)(H)(v)(III)(bb). After taking the applicable rounding rule into account, the threshold used to determine whether a multiemployer plan is a systemically important plan under Section 432(e)(9)(H)(v)(III)(aa) is increased for 2018 from $1,012,000,000 to $1,087,000,000.

More limits may be found here.

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