Compliance October 27, 2016

IRS Announces 2017 Limitations for Retirement Plans

The deferral limit for defined contribution plan participants remains unchanged at $18,000.
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The Internal Revenue Service (IRS) announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2017 in Notice 2016-62. 

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $18,000. In addition, the catch-up contribution limit for employees age 50 and older 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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Other limits also remain unchanged. The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $120,000, and 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 remains unchanged at $125,000.

The limit on annual contributions to an individual retirement account (IRA) remains unchanged at $5,500.  The additional catch-up contribution limit for individuals age 50 and older is not subject to an annual cost-of-living adjustment and remains at $1,000.

However, some limits have changed. Effective January 1, 2017, the limitation on the annual benefit under a defined benefit (DB) plan under Section 415(b)(1)(A) is increased from $210,000 to $215,000.  For a participant who separated from service before January 1, 2017, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2016, by 1.0112. The limitation for defined contribution (DC) plans under Section 415(c)(1)(A) is increased in 2017 from $53,000 to $54,000.

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $265,000 to $270,000.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $170,000 to $175,000.

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan (ESOP) subject to a five-year distribution period is increased from $1,070,000 to $1,080,000, while the dollar amount used to determine the lengthening of the five-year distribution period is increased from $210,000 to $215,000.

NEXT: Other limitations

Other limitations announced include:

  • 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 $395,000 to $400,000.
  • 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.
  • The limitation under Section 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan remains unchanged at $45,000.
  • 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 remains unchanged at $105,000. The compensation amount under Section 1.61 21(f)(5)(iii) remains unchanged at $215,000.
  • 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) remains unchanged for 2017 at $1,012,000,000.
  • The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return remains unchanged at $37,000; the limitation under Section 25B(b)(1)(B) remains unchanged at $40,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $61,500 to $62,000.
  • The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household remains unchanged at $27,750; the limitation under Section 25B(b)(1)(B) remains unchanged at $30,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $46,125 to $46,500.
  • The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers remains unchanged at $18,500; the limitation under Section 25B(b)(1)(B) remains unchanged at $20,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $30,750 to $31,000.
  • The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at $5,500.
  • The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) increased from $98,000 to $99,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers who are active participants (other than married taxpayers filing separate returns) increased from $61,000 to $62,000. If an individual or the individual’s spouse is an active participant, the applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $184,000 to $186,000.
  • The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $184,000 to $186,000. The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $117,000 to $118,000. The applicable dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.
  • The dollar amount under Section 430(c)(7)(D)(i)(II) used to determine excess employee compensation with respect to a single-employer defined benefit pension plan for which the special election under Section 430(c)(2)(D) has been made is increased from $1,106,000 to $1,115,000.
Products October 27, 2016

Investment Products and Services

John Hancock introduces TDF analyzer tool; Charles Schwab enhances Institutional Intelligence Portfolios; Millennium Trust expands Fund Custody Solution; and more.
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Vanare and FinMason Help Advisers Educate Investors About Risk 

Vanare, the wealth management technology platform with a white-labeled roboadviser, and FinMason, a financial education firm focused on investment risk, have partnered to help advisers educate investors about the importance of risk while demonstrating the merits of a professionally managed portfolio.

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The integration gives advisers rigorous institutional capabilities to easily analyze risk across a multitude of investment types, delivered in a modern, web experience by advisers to clients, the firms say.

The integration will further enhance the data aggregation offering Vanare recently launched with advisers, which allows clients to see the value of all their assets and liabilities within a roboadviser or client portal offering.

“Platforms with such high-level analytical data have typically been reserved exclusively for institutional investors, are often prohibitively expensive and are rarely accessible to advisers and their clients. Our partnership with Vanare changes that fundamentally,” says Mark Hollingsworth, FinMason’s head of Advisor Solutions. “From the other side, recent mobile apps and user-friendly websites allow individual users to access a variety of financial assets, but they fail to provide meaningful analytical measures of investments with our level of rigor.”

“Advisers tell us how important it is for them to quickly communicate their value proposition to all types of investors,” says Vanare CEO, Rich Cancro. “Together with FinMason, we are offering the tools needed to demonstrate complex portfolio analytics at any level of sophistication in real-time. From an operations and compliance point of view, we also help firms incorporate ongoing risk assessment across an entire business to ensure proper portfolio alignment for each client; which is essential as the new Department of Labor fiduciary rule is implemented in 2017.”

NEXT: John Hancock Introduces TDF Analyzer Tool

John Hancock Introduces TDF Analyzer Tool 

John Hancock Retirement Plan Services introduced JH Target Date PathFinder—a tool designed to assist advisers servicing the 401(k) market to compare and analyze the target-date fund (TDF) suites offered on the JH Signature platform.

"The challenge associated with selecting a target-date suite has increased significantly in recent years, as the number of products, and the differences between them, have grown. Today, John Hancock offers nine suites from a range of investment managers including John Hancock, American Funds, T. Rowe Price, Vanguard, BlackRock, American Century and JP Morgan. John Hancock recordkeeping costs are completely independent of the investments selected, ensuring that the selection of a particular suite is driven by how well its design and risk/return characteristics align with the needs of plan participants. We wanted to provide advisers with an interactive tool to assist with this analysis, particularly in light of the recent expansion of our target-date lineup," says Patrick Murphy, president, John Hancock Retirement Plan Services.

JH Target Date PathFinder was designed to support both those who would like assistance navigating through the investment options with the inclusion of interactive questions, and those who quickly want to delve into the data.

The new website combines interactive glide path functionality with quantitative data and a customized summary report that documents the evaluation process. The report which was developed to align closely with the Department of Labor's "Target Date Fund – Tips for ERISA Plan Fiduciaries" can then be shared with the plan sponsor to support them with their fiduciary duties.

JH Target Date PathFinder is accessible to all advisers registered through www.jh401kadvisor.com.

NEXT: Charles Schwab Enhances Institutional Intelligence Portfolios

Charles Schwab Enhances Institutional Intelligence Portfolios 

Charles Schwab announced a number of new features and enhancements to Institutional Intelligent Portfolios—the automated investment management platform designed specifically for independent advisers and sponsored by Schwab Wealth Investment Advisory, Inc.

The primary update is enhanced portfolio customization, which launches next month and will provide advisers greater flexibility to design portfolios based on their investment philosophies. Other enhancements include new account funding options, and ways for firms to manage multiple Institutional Intelligent Portfolios programs. In early 2017, Schwab will also roll out an updated client-user app for smartphones and tablets that will enhance navigation and deliver a more intuitive user experience.

“Automated investment management continues to be an important and evolving trend in our industry. Our research shows that advisers are optimistic that this technology can help scale their businesses and allow them to stay competitive in the marketplace,” says Jessica Heffron, vice president, client experience, Schwab Advisor Services. “Most advisers tell us that the biggest opportunity for automated investing tools is to more efficiently serve smaller accounts or reach clients that their firms have been unable to serve before.”

Features of Institutional Intelligent Portfolios include:

  • Enhanced portfolio customization. Schwab now offers more than 950 exchange-traded funds (ETFs) on the Institutional Intelligent Portfolios platform—more than double the number of ETFs that were available at launch last year. Starting next month, all advisers will be able to create up to 45 adviser-defined asset classes in each portfolio and offer multiple ETFs in each asset class.
  • Multiple-program. Firms can now offer separate programs at the adviser level or establish programs to target specific client segments.
  • New account funding options. Advisers now have more account funding options, in addition to cash, and can journal transfer of asset positions.
  • Easier account open for clients. Enhancements to the account opening process make account open faster and more flexible.
  • Client interface enhancements. In early 2017, Schwab will roll out a new Institutional Intelligent Portfolios app for both smart phones and tablets. The app will continue to be adviser-branded and will now include streamlined navigation and an improved client interface.
NEXT: SSGA Launches New ESG Strategies

SSGA Launches New ESG Strategies 

State Street Global Advisors (SSGA), the asset management business of State Street Corporation, announced that the SPDR MSCI EAFE Fossil Fuel Reserves Free ETF (EFAX) and the SPDR MSCI Emerging Markets Fossil Fuel Reserves Free ETF (EEMX) began trading on the NYSE Arca.

Developed to address growing client demand for environmental, social and governance (ESG) strategies and help investors divest from companies owning fossil fuel reserves while maintaining the benefits of core exposures to key benchmarks, the newest additions to SSGA’s ESG line-up are the first MSCI EAFE and Emerging Markets ex Fossil Fuel Reserves Free ETFs, the firm contends.

The SPDR MSCI EAFE Fossil Fuel Reserves Free ETF (EFAX) seeks to track the MSCI EAFE ex Fossil Fuels Index. The Index is designed to measure the performance of companies in the MSCI EAFE Index that do not own fossil fuel reserves. Fossil fuel reserves are defined as economically and technically recoverable sources of crude oil, natural gas and thermal coal but do not include metallurgical or coking coal, which are used in connection with steel production.

The SPDR MSCI Emerging Markets Fossil Fuel Reserves Free ETF (EEMX) seeks to track the MSCI Emerging Markets ex Fossil Fuels Index. The Index is designed to measure the performance of companies in the MSCI Emerging Markets Index that do not own fossil fuel reserves, as defined above.  The MSCI Emerging Markets Index captures large and mid-capitalization representation across 23 emerging market countries.

The gross expense ratio for EFAX is 0.30% and the net expense ratio is 0.20%. The gross and net expense ratio for EEMX is 0.30%.

“With governments across the world committed to addressing climate change, investors have been increasingly looking to minimize the potential negative impact that exposure to companies owning fossil fuel reserves could have on their portfolios as traditional market-cap based passive strategies that do not screen out certain industries or business practices may not account for this risk,” says Christopher McKnett, managing director and head of ESG at State Street Global Advisors. “SSGA has managed ESG portfolios for 30 years and with client demand for these strategies higher than it’s ever been, this suite of SPDR funds is designed to provide investors with passively managed tools to divest from companies owning fossil fuel reserves while maintaining exposure to core US, international and emerging markets benchmarks.” 

NEXT: Millennium Trust Expands Fund Custody Solution

Millennium Trust Expands Fund Custody Solution 

Millennium Trust Company, a provider of custody solutions for institutions, advisers, and individuals, has expanded the offering of its Fund Custody Solution to include custody for registered investment companies ('40 Act Funds) as well as verification services.

"Millennium's Fund Custody solution was created in late 2010 to address advisers' need to comply with the SEC Custody Rule 206(4)-2, and to create much-needed transparency for the end investor," says Gary Anetsberger, CEO of Millennium Trust. "The services quickly attracted adviser-controlled funds investing in alternative assets such as marketplace loans, private equity, hedge funds as well as traditional assets.”

Millennium's Fund Custody expanded its services to support funds leveraging their loan portfolios by providing verification and certification services required by the funds' credit facilities. "This new service offers the ease of having custody and verification services with one service provider," notes Meg Zwick, Millennium Trust's director of Alternative Custody Services. In addition, Millennium expanded its services to include providing custody for '40 Act Funds. Assets under custody within the fund custody division surpassed $10.8 billion as of September 30.

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