In Practice January 13, 2011

Mercer Suggests 2011 New Year’s Resolutions

Mercer released its list of suggested New Year’s Resolutions for defined contribution sponsors; something a plan adviser may want to pass forward. 
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The resolutions include: 

  • Participant Fee Disclosure. New rules are coming in 2012. Determine what’s required, who’s responsible and how to integrate the new requirements with other plan communications.
  • Fee Oversight. Establish a policy for ongoing fee benchmarking. Receive all required disclosures. Document your oversight in a fee policy statement.
  • Stable Value Wrap Contracts. A joint study by Federal regulatory agencies (to be completed by October 2011) will determine whether stable value wrap contracts are exempt from the swap restrictions of Title VII of the Wall Street Reform and Consumer Protection Act .
  • Inflation Hedge Option. Consider adding a diversified inflation hedge option to your lineup. Evaluate a diversified option versus a Treasury Inflation-Protected Securities (TIPS) option.
  • Retirement Income Solutions. New retirement income products and modeling tools continue to hit the market. Plan sponsors should understand the available solutions to determine if one or more are appropriate for their demographics.
  • Participants Nearing Retirement. Investment performance is critical for near-retirees. Do their investment strategies match expected spend-down needs? Would retirement planning seminars and other assistance reduce financial anxiety (and its drag on productivity)?
  • Roth 401(k) Contributions. In tough economic times, consider a low-cost plan enhancement, such as a Roth, that expands financial opportunities for participants.
  • Managed Accounts and/or Investment Advice. Should you offer participants advice or managed accounts (or both)? Should you take advantage of improved access to custom target date funds, which allow tailored glide paths based on your core options?
  • Auto Features. “Set it and forget it” doesn’t work for plan sponsors! For example, should auto-enrollment contribution rates be increased? Are vesting and withdrawal provisions still appropriate for your organization?
  • Plan Operations. The Internal Revenue Service and Department of Labor are focusing on defined contribution plan compliance and recommend periodic review of plan operations both against the terms of the plan and against governmental requirements.
Data & Research January 13, 2011

Few Workers Know about Saver’s Credit

The Internal Revenue Service’s “Saver’s Credit” is available to low-to-middle income workers who are saving for retirement, yet very few workers who may be eligible know it exists.
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Only 12% of full-time American workers with annual household incomes of less than $50,000 are aware of the credit, according to the 11th annual Transamerica Retirement Survey.  

“The Saver’s Credit is a meaningful incentive for low-to-middle income individuals and households to save for retirement. Unfortunately, few are aware that it’s available,” said Catherine Collinson, president of the Transamerica Center for Retirement Studies, in a press release. “It’s important that we work to raise awareness of this wonderful tax credit and opportunity to save for retirement so that more workers may take advantage of it and improve their chances of financial security down the road.”   

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The Saver’s Credit may be applied to the first $2,000 of voluntary contributions an eligible worker makes to a 401(k) or similar employer-sponsored retirement plan, or an IRA. Credits of up to $1,000 for single-filers, and $2,000 for married couples, are available.   

The press release notes that the credit is available to workers aged 18 years or older who have contributed to a company-sponsored retirement plan or IRA in the past year and meet the Adjusted Gross Income requirements. Single filers with an adjusted income of up to $27,750 in 2010 or $28,250 in 2011 are eligible. For the head of a household, the adjusted income limit is $41,625 in 2010 and $42,375 in 2011. For those who are married and file a joint return, the adjusted income limit is $55,500 in 2010 or $56,500 in 2011. Additionally, the filer cannot be a full-time student or be claimed as a dependent on another person’s tax return.   

The credit is not available with Form 1040EZ; however the IRS has included instructions with the EZ form directing taxpayers to a different form if they choose to claim the credit.   

Taxpayers preparing their returns manually should complete Form 8880, the Credit for Qualified Retirement Savings Contributions, to determine the exact credit rate and amount.

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