The big trends that will reshape retirement in 2017
Great article from Employee Benefits Advisor, by Bruce Shutan
Seven isn’t just a lucky number for rolling the dice in Vegas; it’s also a solid measure of key trends in retirement planning to watch in the coming year. Here’s what a handful of industry observers believe should be on the proverbial radar for HR and benefit professionals.
Between compliance with fee-disclosure requirements and a growing number of class-action lawsuits on 401(k) plan fees, many plan sponsors have sought more fiduciary partners to help them implement defined contribution plans. The observation comes from Josh Cohen, managing director, defined contribution at Russell Investments. In light of this litigation, he warns that choosing the lowest possible price may not necessarily be the best value or choice for helping improve retirement readiness.
Trisha Brambley, CEO of Retirement Playbook, says it’s critical to vet the team of prospective advisers and the intellectual capital they offer. Her firm offers employers a trademarked service that’s akin to a request for information that simplifies and speeds the competitive bidding process.
While the incoming Trump administration could delay, materially modify or altogether repeal the Department of Labor’s final fiduciary rule, it cannot reverse a “new awareness around the harm that’s created by conflicted advisers and brokers,” cautions David Ramirez, a co-founder of ForUsAll who heads the startup’s investment management. He expects plan sponsors who are managing at least $2 million in their 401(k) to continue asking sophisticated questions about the fiduciary roles his firm and other service providers assume and how they’re compensated. Ramirez points to a marketplace that’s demanding greater transparency, accountability and alignment of goals and incentives irrespective of what the DOL may require.
One way to improve the nation’s retirement readiness is by “fixing all of the broken 401(k) plans with between $2 million and $20 million in assets” that are paying too much in fees, doing too much administrative work or taking on too much liability, according to Ramirez. “In 2014, nearly three out of four companies failed their 401(k) audit and faced fines,” he notes, adding that last year the DOL flagged about four of 10 audits for having material deficiencies with the number being as high as two-thirds in some segments.
While litigation over high fees and the DOL’s fiduciary rule may not have a significant impact on small and mid-market plans, they’re spotlighting the need to make more careful decisions that are in the best interest of plan participants. That’s the sense of Fred Barstein, founder and executive director of the Retirement Adviser University, which is offered in collaboration with the UCLA Anderson School of Management Executive Education. He predicts there will be less revenue sharing in the institutional funds arena and better vetting of recordkeepers, money managers and plan advisers in terms of their fees and level of experience.
Default-driven plan design
Noting that it’s been 10 years since passage of the Pension Protection Act, Cohen says default-driven plan design continues to have a major impact on retirement planning. The trend is fueled by qualified default investment alternative options that encourage appropriate investment of employee assets in vehicles that will maximize long-term savings. He predicts “further customization” of off-the-shelf target date funds at the individual level based on each participant’s own unique situation and experiences. Moreover, he sees more use of a robo-adviser type framework built around managed accounts, while participants with a complex financial picture will seek a more tailored solution that fits their needs.
Financial wellness
Financial wellness cuts across virtually any demographic, Cohen notes. The point is to help balance household budgets with retirement-saving goals, “whether it involves millennials dealing with student debt or middle-aged parents dealing with college tuition, a mortgage or credit card debt,” he explains. He sees the use of more creative ideas, tools and support, such as encouraging young employees to pay off student loans by making a matching contribution to their 401(k).
For employers, a key to reaching millennials on financial wellness is through text messages over all other means of communication, suggests Ramirez, whose firm is able to get 18- to 24-year-olds saving 6.7% on average and 25 to 29-year-olds 7.3%. As part of that strategy, he says it’s important to set realistic goals, such as new entrants into the workforce deferring 6% of their salary before increasing that amount with rising earnings. The idea is to establish a culture that turns millennials into super savers.
“We’re seeing employers help their employees with just setting a basic budget,” says Rob Austin, director of retirement research for Aon Hewitt. “It can also move into things like saving for other life stages.”
Aon Hewitt recently released a report on financial wellness showing that 28% of all workers have student loans. While researchers noted that roughly half of millennials were saddled with this debt, the margin was cut in half for Gen Xers (about 25%) workers and halved again for baby boomers (about 12.5%). The employer response has been somewhat tepid, according to Austin. For example, just 3% of companies help employees pay for student loans, about 5% help consolidate those loans and 15% offer a 529 plan.
Financial wellness is being expanded and embedded into retirement programs to serve a growing need for more holistic information, observes Brambley. “A lot of people don’t even know how to manage a credit card, let alone figure out how to scrape up a few extra bucks to put in their 401(k) plan,” she says.
401(k) plan fees
Ted Benna, a thought leader in the retirement planning community commonly referred to as the “father of 401(k),” found earlier in the year “a very high level of indifference” among plan sponsors about the prices they pay for recordkeeping, investment management services and related costs. He says this was the case even at companies with “pretty outrageously high fees,” which proved to be a big shock for him.
The discovery coincided with the start of his latest advisory venture, which was designed to help shepherd sponsors through the 401(k) fee minefield with objective information to determine that the fees they were paying were reasonable and, thus, in the best interest of participants. But Benna didn’t see much demand for the service he envisioned, so he’s now in the throes of writing his fifth book, whose working title is “Escaping the Coming Retirement Crisis Revisited.”
Litigation over high fees has at least raised awareness among plan sponsors about the need for reasonable prices, along with sound investment offerings, as regulators step up their scrutiny of fiduciary duties, Austin says. While not necessarily related, he has noticed that nearly as many employers are now charging their administrative fees as a flat dollar amount vs. those that historically charge a percentage of one’s account balance. “If you have a $100,000 balance, and I have a $1,000 balance, you and I have access to the same tools and same funds,” he reasons. “So why would you pay 100 times what I’m paying just because your balance is higher?”
Greater automation
With increasing automation on the horizon, Ramirez notes that 401(k) plans are moving into cloud-based technology that will streamline core business processes and avoid careless errors.
For instance, that means no longer having to manually sync the 401(k) with payroll when employees change their deferral rate or download the payroll report to a 401(k) plan recordkeeper. “That’s 1990s technology,” he quips. “Signing up for the 401(k) can be as easy as posting a picture on Instagram or sending a tweet.”
Apart from vastly reducing the administrative burden, he says it also allows makes it easier for plan participants to enroll, increase deferrals, receive better advice based on algorithmic formulas and improve communications. The upshot is that when all these pieces of the puzzle are in place, ForUsAll has found that participants in the plans it manages save on average 8% of their pay across all industries and demographics.
Barstein believes there’s still going to be a lot of movement toward auto-enrollment and escalation, as well as the use of professionally managed investments like target-date funds, which he predicts will become more customized. “We’re starting to see where participants in one plan can choose a conservative, aggressive, or moderate version of a target date,” he says of efforts to improve an employee’s financial wellness.
Streamlined investments
Brambley sees a movement toward investment menu consolidation. She remembers how it was customary for employers to offer three to four distinctively different investment funds in the early years of 401(k) plans, which later gave way to about 20 such offerings on average. The push is now to weed out any duplication of so-called graveyard funds because she says “there’s some fiduciary risk to continue to offer them when they no longer meet the criteria on their investment policy statement.”
Cohen agrees that plan sponsors continue to see the benefit of streamlining the menu of options for a more manageable load. As part of that movement, he sees the adoption of “white labeling” of investment options that replaces opaque, retail-branded fund names with accurate generic descriptions. For example, they would reflect asset classes (i.e., the Bond Fund or the Stock Fund). The thinking is that this approach will generate more meaningful or practical value for participants whose knowledge of basic financial principles is limited.
Confining the selection of investments to a handful of funds in distinctly different asset classes will invariably make the process much easier for participants, Brambley suggests. This enables plan sponsors to wield “more negotiating power” on pricing because they have funds collecting under various asset-class headings, she explains.
Recordkeeper consolidation
Recordkeeper consolidation is going to continue, according to Barstein, who sees organizations that lack technology, scale and the support of their parent company will not survive marketplace change.
The most noteworthy activity will involve big-name mergers as opposed to scores of recordkeepers leaving or merging, he believes.
“If I was a plan sponsor, I’d be concerned because nobody really wants to go through a conversion,” Barstein says. “I’m sure JP Morgan forced a lot of their clients to either consider changing when they went through the acquisition by Empower.”
See the original article Here.
Source:
Shutan B.(2016 December 7). The big trends that will reshape retirement in 2017[Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/news/the-big-trends-that-will-reshape-retirement-in-2017
Wellness Study Touts CFPs
Original post benefitspro.com
Only 22 percent of employees tracked in Financial Finesse’s 2015 year in review report being on track for retirement.
The provider of workplace financial wellness programs says that is a slight improvement from 2014. Of those that are not prepared, 81 percent have never used a financial calculator to estimate their retirement preparedness.
While the number of retirement-ready workers remains bleak, those participants who have repeated engagements with planning tools, and financial planners, are showing marked improvement in retirement readiness.
Enhancements in retirement workplace plan design, like auto-enrollment and auto-escalation, and technology that addresses asset allocation are vital tools for addressing workers’ retirement preparedness.
But the Financial Finesse’s data suggests those tools alone are not enough.
A good portion of the review is committed to comparing retirement readiness of those savers who engage in live interactions with financial planners.
About half of participants that had five or more interactions with a certified financial planner report being on track for retirement.
Levels of confidence drop in lock step with the number of interactions with financial planners: 32 percent of those with three to four interactions say they are on track to retire with adequate savings; 31 percent with one to two interactions believe as much; and only 21 participants who only interact with online planning tools say they are on track to retire with enough savings.
Interacting with CFPs also translates to higher confidence with investments and how they are allocated, as 64 percent of participants with five or more interactions say they are invested appropriately, compared to only 42 percent who use an online planning tool but don’t seek live financial advice.
Overall, retirement readiness is lacking across generations. Last year, only 30 percent of baby boomers say they are on track to reach their retirement goal, which was unchanged from the previous year.
Only 22 percent of Gen Xers and 16 percent of millennials said they are on track to retire well.
Debt is a major obstacle for boomers’ retirement readiness, the report says, as 42 percent of financially distressed boomers have no plan in place to pay off their debt, and increase from the previous year.
Participation rates in workplace retirement plans was high across all age groups, as even 73 percent of workers under age 30 report being enrolled in a plan; 91 percent of pre-retirees participate in their workplace plan.
Despite high rates of enrollment, financial planners and participants sited insufficient retirement savings as the top financial vulnerability for all age groups.
4 retirement trends to watch in 2016
Original post benefitspro.com
The Institutional Retirement Income Council has announced the top four retirement industry trends to watch in 2016.
- Financial wellness plans.
According to IRIC, financial wellness will be a big one.
Employers are expected to significantly expand wellness programs that currently focus on physical wellbeing so that they also include features focusing on financial wellbeing.
With all the financial challenges faced by employees—including medical expenses, credit card debt, college expenses, and retirement planning—financial wellness programs have been growing increasingly popular, with that trend expected to continue in the year ahead.
A 2014 Society for Human Resource Management survey reported that 70 percent of HR professionals predicted that baby boomers would likely participate in a financial wellness program if their employer offered one.
Such programs will likely include not just ways to manage debt and better save for retirement, but also how to calculate a spend-down plan once in retirement and how to incorporate Social Security into one’s overall strategy.
- Out of plan or in plan?
Next is the trend that pits out-of-plan income solutions against in-plan solutions.
In their quest to be sure that retirement savings will provide a regular source of income throughout retirement, participants have been looking outside of their retirement plans to find ways to translate a lump sum into a monthly check.
However, the Department of Labor’s expected implementation of a fiduciary rule will have a major effect on out-of-plan advisors, as well as in-plan options.
The release of a Center for Retirement Research study that showed IRAs’ rate of return a poor substitute for that of defined benefit plans will, according to IRIC, “make it all the more difficult for advisors to recommend moving out of a defined contribution plan to those eligible to keep their assets in the plan.”
As a result, it expects that participants will be more likely to leave their assets in a retirement plan rather than rolling them over.
- In-plan retirement income solutions.
The move to keeping assets inside retirement plans, IRIC said, “should cause an increase in participant interest in investment vehicles that provide solutions to the draw-down, rather than accumulation, of retirement assets.”
As a result, revisiting in-plan retirement income solutions will become a major focus for plan sponsors in 2016.
IRIC said that plans that have not considered this will be under pressure from participants to “consider new solutions to address the risks of retirement income sustainability, longevity risk, market timing risk and in-plan distribution options.”
- In-plan distribution flexibility.
Plan sponsors will have to consider the question of which distribution options will be available to terminated participants.
If a plan only offers two options—complete lump-sum distribution or keeping the entire balance in the plan—it’s likely that sponsors will want to explore the possibility of offering periodic withdrawal opportunities, so that they can encourage terminated participants to keep their assets in the plan—which can provide benefits not only to the participants, but also to the plan itself in the form of reduced administration and fee costs.
401(k) plan participants saving more, taking out less
Original post by Paula Aven Gladych, ebn.benefitnews.com
The educational efforts of plan sponsors appear to be paying off. Participation rates in workplace retirement plans have stayed fairly constant since 2008 “due to concerted education efforts of plan sponsors and providers that set up to educate investors to stay the course through the market fluctuations,” says Hattie Greenan, director of research and communication for the Plan Sponsor Council of America.
In its 58th Annual Survey of Profit Sharing and 401(k) Plans, PSCA found that plan sponsor efforts in this arena really did keep people saving in their retirement plans.
“They may have decreased their savings rate due to economic conditions but we have seen a rebound to higher levels as people understand how plans work and realize they need to save more in their plans if they can,” she says.
In 2015, lower-paid plan participants contributed an average of 5.8 percent of their salary into their 401(k) plan, while higher-paid participants contributed an average of 6.9 percent of their salary to their workplace retirement plan.
Plan sponsors are also re-examining their 401(k) plan deferral rates. Three percent has been the standard deferral rate for years but many companies are now choosing a higher deferral percentage, in the range of 5 percent to 6 percent.
Many companies are actually pushing 10 percent to 15 percent, Greenan says. “We are shifting higher, which is good news. We may see it hit 6 percent or higher in the next couple of years.”
The survey also found that there has been a decreased usage of plan loans over the past year. A very low percentage, 0.7 percent of all assets, has been withdrawn from workplace plans and the bulk of those loans are being repaid, Greenan says.
“We’ve always been a proponent of plan loans as an incentive to participate in the plan. They know the money is available to them if they need it. It is their money and there in an emergency situation if they need it,” she says.
And while plan participants did take loans from their retirement plans during the downturn, that rate is going back down.
“The loans are functioning as intended: a safety net in emergency situations, and they are repaying those loans. They are not taking money out and abusing the system,” she says.
Another highlight of the survey was the increase in use by plan sponsors of mobile technology to communicate with a younger demographic of employees. Twenty-one percent of all plans and one-third of plans with more than 5,000 participants are using mobile technology to do everything from handle enrollments to making investment changes.
“I think it took a while for the industry to figure out how best to use the technology everyone is using,” says Greenan. “Now there are platforms for doing so, so we will see a pretty steep uptake in technology to reach plan participants in the next couple of years.”
As far as 401(k) plan design goes, more companies are offering Roth options and automatic features, such as auto enrollment and auto escalation. The increase in 2015 wasn’t quite as dramatic as in previous years, but those numbers are still increasing.
Paula Aven Gladych is a freelance writer based in Denver.
How Retirement Advisers Can Engage Millennials
Originally posted by Mike Nesper on June 16, 2015 on ebn.benefitnews.com.
Workforce demographics are changing as more millennials are entering and the baby boomers are retiring. That path to retirement is also changing — defined benefit plans are a solution of the past, leaving defined contribution plans as the major retirement vehicle.
The problem is millennials aren’t contributing enough to their 401(k) plans. “There is a crisis,” Tim Slavin, senior vice president of defined contribution at Broadridge, said recently between sessions at the SPARK Institute’s national conference in Washington, D.C. “Millennials better hurry up and get in a 401(k).”
So what’s the best way to make that happen?
Make it convenient. “We live in the concierge society,” said Debbie Brown, vice president of marketing at Broadridge.
A good way to disseminate retirement information to millennials is via electronic tools like Dropbox, Slavin said. This way, employees can view statements on their time. Sending alerts in emails doesn’t work well, he said, because if not opened immediately, most people forget about them. “It’s not come to us, but we’re gonna go to you,” he said.
Ensuring tools and communication are easy to understand is key, Brown said. “Keep it simple. Make it work everywhere,” she said.
Millennials want information upfront before having a face-to-face conversation about retirement, Slavin said. “They want to get engaged,” he said, and once they are, millennials commit.
Automatic enrollment is a good tool to increase participation among younger workers, Slavin said. “There’s significant traction there,” he said. “The biggest issue is apathy.” That’s why auto enrollment should be paired with auto escalation, Slavin said.
For millennials, saving for retirement can be difficult — DB plans are no longer supplementing DC plans, wage growth is stagnant and many have student loan debt. Still, achieving retirement goals can be accomplished, Slavin said, but employees need to start contributing to their plan as soon as they enter the workforce.
While younger workers might take some time to realize what’s needed to retire, Slavin is confident they’ll come around. “Millennials are smart,” he said. “They’ll catch on.”
Don't Eat the Marshmallow
Originally posted by Troy Hammond on April 14, 2015 on www.linkedin.com.
Having more self-control than a preschooler can lead to more rewards.
Fifty years ago, psychologists at Stanford University conducted an experiment on preschoolers. During this test, researchers placed youngsters in individual rooms and asked each child to sit down in front of a tray containing one marshmallow. The child was given a choice: He or she could eat this marshmallow immediately or wait a little while for the researchers to place a second marshmallow on the tray—an opportunity to enjoy two treats instead of just one.
What did the kids do, what would you do, and what does the ability to delay gratification mean for future retirement success?
While encouraging kids to eat more candy wasn’t the goal of this multi-year study, it eventually led to a powerful conclusion: Children who “passed” the marshmallow test had greater competence and success later on as adults.1 Kids who successfully waited for the second marshmallow showed self-restraint and understood that not all needs require immediate gratification. This example is directly applicable to behavioral finance: Controlling spending now may lead to significant benefits in the future.
Patience is not just a virtue—it may create its own success
There are a few steps you can take today that potentially could lead to greater retirement success tomorrow. They include:
- Enrolling in your 401(k). By setting aside money from each paycheck before you ever see it, you avoid unnecessary spending.
- Making a habit of saving and increasing your plan contributions. Some experts say you should save 15% of your pretax income each year for your retirement, including your 401(k) and IRA. If your plan offers any employer matching contributions, take advantage of these as well.
- Knowing when you may need professional advice. Those who lack confidence in their ability to manage their investments may be more prone to “cash out” at the worst time—at market lows—and wreck their retirement plan. Unless you are comfortable making your own investment decisions and making changes to your account as your retirement date nears, consider tapping professional advice that may be available to you within your employer’s retirement plan.
Self-control in retirement planning is key: By avoiding impulse spending and investing consistently over time to pursue rewards, you may move that much closer to securing your financial future.
1 Walter Mischel, The Marshmallow Test: Mastering Self-Control (New York: Little, Brown & Co., 2014).
Disclosure: This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. LPL Financial and its advisors are providing educational services only and are not able to provide participants with investment advice specific to their particular needs. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
Do You Know The Way To HSA?
Originally posted by Patty Kujawa on January 28, 2015 on www.workforce.com.
With the rapid growth in high-deductible health plans, health savings accounts provide an option to pay medical bills and save for the future.
Corey Barnett is an avid saver, but doesn't like the idea of stashing his retirement reserves in one place.
That's why when he left his steady job to create a digital marketing company in February 2014, the 25-year-old rolled his 401(k) into an individual retirement account and specifically looked for a high-deductible health plan so he could continue using his health savings account as a way to pay for current medical bills as well as save and invest money for retiree health costs.
Barnett likes the HSA because he finds it tax-savvy and flexible; money goes in, grows and goes out tax-free for medical bills: He can use the money today if he gets sick or he can save it for tomorrow's retiree health bills.
Read full article here.
Top five 401(k) plan trends for 2015
Source: EBA Benefit News
Benefit advisers and their employer clients hoping to help employees achieve retirement readiness should be paying attention to these top 401(k) plan trends for 2015, according to Robert Lawton of Lawton Retirement Plan Consultants.
Stretch that employer match
A virtually no-cost way for employers to incent participants to contribute more is to stretch their matching contribution formulas, says Lawton. For years 50% of the first 6% was the most common matching formula. Leading edge employers have stretched their matching contributions to 25% of the first 12%, for example.
Expect this trend to continue as employers look for low cost ways to improve their 401(k) plans, Lawton says, adding that all that is required to make this change is a plan amendment and communication materials.
Re-enroll everyone every year
Plans that use auto enrollment, auto escalation and annual re-enrollment into target date funds have plan participation rates in the 90% range, says Lawton, adding that not only does automation work, but annual re-enrollments into target date funds works too. Participants can opt out of a re-enrollment, but Lawton says the vast majority do not. Just as auto enrollment has become commonplace in large plans, Lawton says to expect annual re-enrollment to become the norm in the next few years.
Use outcome based, online employee education
With every plan participant having unique retirement goals, employee education has become more personalized, says Lawton. It’s a trend he says will continue and also expects to see personalized education migrate to predominately online venues. When participants can view 5 to 7 minute learning videos online at their homes with their spouses, outcomes improve, he says. Most employers embrace this type of learning since participants are not pulled away from their jobs and employee education costs are less.
Add Roth 401(k) features
Since it is now possible to convert pre-tax 401(k) accounts into Roth 401(k) after-tax accounts, expect many more employers to offer Roth 401(k) contribution ability and an in-plan conversion feature, says Lawton. The cost of this change is a plan amendment and communication materials, he adds.
Employees paying more fees
A surprising 58% of plan sponsors pass on the record-keeping costs of their 401(k) plans to participants, according to a 2014 Towers Watson survey. Only 23% of surveyed employers pay the entire record-keeping cost. As employer cost pressures continue, Lawton says, expect more employers to pass on all plan related costs to participants.
Top 10 401(k) compliance mistakes auditors catch
There are a number of emerging Department of Labor issues that employers should be aware of in order to ensure their benefit plans are compliant and being properly administered. Knowing the DOL is going to be vigilant in these areas means that now is a good time to review benefit plan documentation and administrative practices to ensure compliance.
Here are the top-10 mistakes auditors catch:
1. Late or erratic payment of employee deferrals. According to the DOL, contributions must be paid as soon as administratively feasible, but no later than the 15th business day of the following month (when deferrals are withheld). Employee contributions should be within this time frame, but also consistently remitted among all payrolls and pay periods.
2. Oversights in calculating employee contributions. 401(k) contributions should be determined in accordance with the plan document (which should include the definition of compensation) andin accordance with employees’ instructions.
3. Misunderstanding of the vesting period. Each plan defines when employees reach one year of service. HR and other departments may calculate it differently.
4. Disregard for break-in service rules. Usually, plans state that when employees leave and are rehired within a certain time frame, that they're automatically eligible to participate in a 401(k) plan. This rule is sometimes overlooked.
5. A growing number of forfeiture accounts. When employees leave and forfeit their 401(k) balances, those funds aren't always used as outlined in the plan, such as for paying employer-plan fees or in the time frame required by the Internal Revenue Service.
6. Incorrect tax witholdings when employees take distributions. People can take distributions from employer-sponsored plans prior to age 59½, but these early-withdrawals must be made in accordance with IRS rules in terms of penalties and any income taxes due.
7. Mistakes with profit-sharing contributions. Errors occur most often when annual calculations are performed manually vs. being automatically tallied through payroll software.
8. Mishandling employee requests. When employee requests, such as changes in deferral percentages, are handled manually, they are sometimes coded incorrectly or simply not entered at all.
9. Disconnect with service-provider contracts. Sometimes, there’s a disconnect between the company and its service provider. Responsibilities should be crystal clear, especially in the areas of hardship withdrawals and informing employees of eligibility.
10 Overlooking the plan's eligibility requirements. Some employees may be enrolled too early or too late ― or forgotten altogether, which can be the case with employees working at another corporate affiliate or division.
IRS Announces 2015 Retirement Plan Contribution Limits
Source: ThinkHR.com
On October 23, 2014 the Treasury Department announced cost-of-living adjustments affecting dollar limitations for pension plans and retirement accounts for tax year 2015. The following is a summary of the changes that impact employees:
401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plans
- The elective deferral (contribution) limit increased from $17,500 to $18,000.
- The catch-up contribution limit for employees aged 50 and over who participate in these plans increased from $5,500 to $6,000.
Individual Retirement Arrangements (IRAs)
- The limit on annual contributions 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.
Simplified Employee Pension (SEP) IRAs and Individual/Solo 401(k)s
- Elective deferrals increase from $52,000 in 2014 to $53,000 in 2015, based on an increased annual compensation limit of $265,000, up from $260,000 in 2014.
- The minimum compensation that may be required for participation in a SEP increases from $550 in 2014 to $600 in 2015.
SIMPLE (Savings Incentive Match Plan for Employees) IRAs
- The contribution limit on SIMPLE IRA retirement accounts for 2015 is $12,500, up from $12,000 in 2014.
- The SIMPLE catch-up limit is $3,000, up from $2,500 in 2014.
Defined Benefit Plans
- The basic limitation on the annual benefits under a defined benefit plan is unchanged at $210,000.
Other Changes
- Highly-compensated and key employee thresholds: The threshold for determining “highly compensated employees” increases from $115,000 to $120,000 in 2015; the threshold for officers who are “key employees” remains at $170,000 for 2015.
- Social Security Cost of Living Announcement: In a separate announcement, the Social Security Administration increased the Taxable Wage Base from $117,000 in 2014 to $118,500.
- The maximum “Old Age, Survivor and Disability Insurance” (OASDI) tax will be $7,347 for both employers and employees; and
- Hospitalization Insurance (Medicare) tax continues to apply to all wages.
The IRS pension plan limits announcement with more details is available here.
The Social Security Administration Fact Sheet outlining the 2015 changes can be found here.