3 ways to help employees with retirement planning
by Marlene Satter
Lack of confidence, lack of knowledge and lack of money all plague workers trying to save for retirement, leaving them working longer than they planned and saving considerably less than they need.
But a series of surveys from TIAA has identified three ways that plan sponsors can help to improve retirement outcomes for their employees.
Employees want income for life, for instance, with 49 percent saying that their retirement plan’s top goal should be providing guaranteed monthly income in retirement.
And although it’s something they badly want, 41 percent are unsure if their current plan has that as an option.
1. Employees need help figuring how much retirement income they'll need and how to translate savings into income - Plan sponsors can help with this, said the data, by helping employees be realistic about how much income they’ll need in retirement—something few have figured out.
While 63 percent of Americans who are not retired estimate that they’ll need less than 75 percent of their current income to live comfortably, most experts recommend replacing 70–100 percent of current income in retirement.
Compounding the situation is the fact that 53 percent of employees haven’t even figured out how to translate their savings into income—while 41 percent of people who haven’t yet retired are saving less (many considerably less) than the 10–15 percent of income experts recommend.
Lifetime income options such as annuities are one way to guarantee income replacement during retirement, but most people are unaware of them or of how they work. Just 10 percent of Americans have annuities, so for the other 90 percent, they’re not an option.
2. Employees are interested in receiving financial advice - Sponsors can also offer financial advice as part of a benefits package.
While 61 percent of those who have received advice feel confident about their financial situation, just 37 percent of people who haven’t feel that way.
But the cost—or perceived cost—of seeking advice is putting them off, as is distrust of advisors in general.
Although 71 percent of Americans say they’re interested in receiving advice, more than half haven’t.
For instance, 35 percent of Americans who have not worked with a professional financial advisor say they don’t think they have enough money to justify a meeting; 51 percent say they don’t have enough money to invest (49 percent believe they need more than $50,000 in savings to get an advisor to talk with them), while 45 percent have concerns about cost and affordability.
And 34 percent don’t know whom they can trust.
3. Employees can use tools and resources early and in all stages of retirement planning - Last but not least, the study found that getting involved early in the planning process can make a difference.
Sponsors who introduce resources for all stages of the financial planning process, with customizable planning tools and tailored support based on employees’ life stages, can help employees consider what they need to do to prepare for retirement, even if that day is years away.
Such tools can make it easier for employees to evaluate their personal risk tolerance, asset allocation and the current status of Social Security and Medicare to help them better envision their future retirement and the steps they can take to make sure that their retirement is successful
See the original article Here.
Source:
Satter M.(2016 December 8). 3 ways to help employees with retirement planning[Web blog post]. Retrieved from address https://www.benefitspro.com/2016/12/08/3-ways-to-help-employees-with-retirement-planning?ref=hp-news
Family caregivers pay hefty price to care for loved ones
An exciting article about family caregivers from Benefits Pro by Marlene Y. Satter
It’s not just the late hours, the extra work or the emotional strain. Family caregivers are paying a big price to take care of loved ones who can’t adequately care for themselves, and part of the cost could be their retirement.
According to a new report from AARP, 78 percent of caregivers are incurring out-of-pocket costs as a result of caregiving. The 2016 report “Family Caregivers Cost Survey: What They Spend and What They Sacrifice” estimates that on average, family caregivers are spending roughly $7,000 per year ($6,954) on out-of-pocket costs related to caregiving in 2016.
If that statistic isn’t depressing enough, the report’s financial strain measure, consisting of annual caregiver expense divided by their annual income, shows that caregivers are spending, on average, nearly 20 percent of their income on caregiving activities.
Considering that, it should come as no surprise that many family caregivers have to cut back on other spending, “which can undermine the family caregiver’s future financial security,” the study said.
Sixteen percent have reduced contributions to their retirement savings, and approximately half have cut back on leisure spending (45 percent said they’ve cut down on eating out or vacations because of caregiving expenses).
So where and how are they spending this money?
Household expenses account for the lion’s share of family caregivers’ out-of-pocket spending, eating up 41 percent of it.
This can encompass everything from rent/mortgage payments to home modifications and other household expenses.
Medical expenses make up the second largest chunk, eating up 25 percent of caregivers’ spending on such items as assisted living or skilled nursing facilities, insurance costs and other medical expenses.
And while long-distance caregivers (defined as family caregivers living more than one hour from the care recipient) paid the highest out-of-pocket costs ($11,923), it was no bargain for caregivers living with their care recipient, who also incurred high costs ($8,616).
And if the recipient is older (more than 50 years old) or has dementia, their caregiver will be paying more, too: costs of $7,064 for a recipient older than 50, compared with $5,721 for one younger than the half-century mark, and costs of $10,697 for a recipient with dementia, compared with costs of $5,758 for adults who do not have dementia.
See the original article Here.
Source:
Satter, M. (2016 November 14). Family caregivers pay hefty price to care for loved ones [Web blog post]. Retrieved from address https://www.benefitspro.com/2016/11/14/family-caregivers-pay-hefty-price-to-care-for-love?ref=hp-top-stories
5 ways to salvage retirement
It’s a scary season, what with Halloween just around the corner, and some of the fears looming large in people’s minds focus on retirement. So it’s probably pretty appropriate that we tackle some of those fears head on, so to speak.
The Huffington Post addressed just that topic, pointing out five things people who are not yet retired can do to ward off at least some of the effects of what experts predict: that people’s standard of living will fall during retirement, thanks to low savings levels and poor planning for the last stages of life.
We scouted around the web to find some additional data on why, and how, retirement is expected to fall so short of people’s anticipation, and what they might be able to do to forestall that drop in expectations. Here’s what we found:
5. Figure out where you’ll live
A person’s home might be his castle, but whether it will be a fortress surrounded by a moat or a gracious palace can depend a lot on that old real estate saw, location, location, location.
The cost of your retirement home, how much you’ll pay in property taxes, the cost of living in the area and many other factors determine whether that retirement Shangri-La will be a cozy cottage for two in a university town, a bungalow on the beach or a penthouse apartment overlooking sparkling city lights, with museums, restaurants and theaters within an easy stroll — maybe even in another country altogether.
But there are other intangibles to consider, too — such as whether you’ll be so forlorn at leaving family behind that you’ll either be miserable in situ or spend half your retirement budget traveling back to see the grandkids. And how good the health care facilities are in your new location — that can make a big difference not just in your budget, but maybe even in how long you survive to enjoy those golden years. Not to mention the crime rate and whether you’ll have a social support system in place.
Check out any prospective homes thoroughly before you make the big move, and make sure they have what you need to help you thrive during retirement.
4. Start saving more
While economizing might not be — or feel — glamorous, watching that 401(k) or IRA balance climb can certainly make you feel like a million bucks. Keep that in mind as you’re browsing for a new set of golf clubs or that perfect dress for a special evening out — especially if you don’t plan on playing golf in retirement or dining out on the town, because spending now could cost you big-time later on.
According to AARP data, 3 out of 5 — that’s more than half, folks — of the households headed by someone 65 years old or older have zero money in retirement accounts. That’s zero, as in zip, nada, nothing. How far into retirement will that get you? Into a job, most likely, working during the time that’s supposed to be your well-earned rest after a lifetime of supporting yourself and your family — if you can get one, that is.
Look for ways to cut your spending so that you can turn that money right around and put it to work for you in retirement. Whether it’s making coffee and lunches at home to bring to work or switching nights out with friends at a restaurant to entertaining at home, find ways to sock more away for the future — your future — when you’ll be glad you did.
3. Learn to live on a budget
You may already be doing this, but if you’re not, it’s probably time to start. While you may be planning to work in retirement, the job market may have other ideas — and if you’re dependent on a combination of Social Security and 401(k) or IRA money, that will limit your options. For one thing, seniors have to deal with a job market that’s prejudiced against them — and that’s stacked against them in other ways, too.
Not only that, but depending on who wins the election, your Social Security benefit may not be as predictable as you’d counted on — and then there’s the question of cost-of-living increases. After no increase at all for 2016, seniors will see a paltry average increase of $3.92, according to CNN. That’s a skinny 0.3 percent increase — hardly enough to notice.
And considering how health care costs are rising, women in particular need to be wary of stepping outside of a budget’s constraints; a Nationwide Retirement Institute study found that women could end up spending 70 percent of their Social Security benefits just paying for health care. Considering that women not only overwhelmingly (80 percent!) claim Social Security benefits early, thus locking in a lower benefit rate for their lifetimes, they depend on it to pay for 56 percent of their expenses in retirement.
That said, get used to living on less — you’re going to be doing so for a long, long time.
2. Prepare your home for the long run
If you’re planning on staying put in the house you’re currently living in, make sure it’s prepared for potential changes in your health and/or mobility — particularly if you don’t have coverage for nursing home care. While many people believe that Medicare will pay for a nursing home, should they become disabled, that’s not the case unless their assets are pretty much exhausted. Of course, that won’t take long when paying for the cost of care at a nursing facility.
In addition to stairs, reachable cabinets and accessible bathrooms, there’s the question of how affordable your home is. Can you refinance your mortgage at a cheaper rate? Rent out a room? Pay the property taxes? Maybe you should consider downsizing to a more affordable house, perhaps in the same neighborhood, if your network of friends and family is local. That can save you not just on taxes, but on heating and cooling bills.
It may not be what you had in mind, so it's smart to start setting realistic expectations of what your future retirement might look like.
1. Lower your expectations
Do you somehow expect that when you retire you’ll be traveling the world, dining at fine restaurants and going to the theater for every new production? Unless you have Warren Buffett’s budget, get real.
Most seniors have to cut back substantially when they leave the workforce. You will likely be no different. It’s easier to deal with that reality if you prepare for it mentally in advance, and realize that you’ll have to plan your excursions carefully and budget for them in advance.
The market was brutal to retirement plans during the Great Recession, and unless you were uncommonly fortunate, the money you saved for retirement throughout your career has not regained all lost ground. That said, depending on what you plan to do during your retirement years, you may still find it’s the most rewarding time of your life — particularly if those plans don’t depend on money.
See the original article Here.
Source:
Satter, M. Y. (2016 October 24). 5 ways to salvage retirement. [Web blog post]. Retrieved from address https://www.benefitspro.com/2016/10/24/5-ways-to-salvage-retirement?kw=5+ways+to+salvage+retirement&et=editorial&bu=BenefitsPRO&cn=20161025&src=EMC-Email_editorial&pt=Daily&page_all=1
10 Resources to Help Your Employees Prepare for Retirement
Very helpful tips for retirement from the Society for Human Resource Management (SHRM), by Irene Saccoccio.
Social Security wants to help you prepare your employees for a secure, comfortable retirement. Security is the Social Security Administration’s middle name and we want everyone to enjoy the fruits of a lifetime of labor.
We mentioned before that being prepared when you retire can open new avenues of possibilities. Our website has tools and information to help you secure today and tomorrow. When it comes to retirement, we’ve got you covered with 10 tools to help you plan for your retirement, apply for, and then manage your benefits as you go along.
1. Our Retirement Estimator provides estimates based on your actual Social Security earnings record. Plug in different numbers, retirement dates, and scenarios to help you decide the best time for you to retire.
2. Using our Retirement Planner: Plan for Your Retirement can help you find your ideal retirement age, estimate your life expectancy and the amount of your benefits when you retire. You can test future retirement ages and various earning amounts.
3. Read Retirement Planner: Getting Benefits While Working to learn the rules and regulations about work after retirement, how it affects you, and what you should consider.
4. Retirement Benefits provides you with a broad overview of our retirement program. It covers how you earn coverage, how to apply, how benefits are figured, and how to decide when to retire.
5. When to Start Receiving Retirement Benefits takes a look at some factors that can help you make an informed decision about the best time to retire.
6. Your Retirement Benefit: How It Is Figured explains the formula Social Security uses to calculate your benefit amount, describes what factors can affect it, and offers a worksheet to help you estimate your retirement benefits.
7. The Medicare section of our website provides information about the Medicare program and answers general questions on Medicare.
8. Medicare Premiums: Rules for Higher-Income Beneficiaries explains the rules about people with higher incomes. If you have higher income, find out why you will pay an additional premium amount for Medicare Part B and Medicare prescription drug coverage.
9. Your personal my Social Security account is one of the most powerful tools available to secure your retirement. And lucky for you it’s at your fingertips. With a personal my Social Security account, your employees can get their Social Security Statement that shows estimates of their future retirement, disability, and survivors benefits. They can check their earnings to verify the yearly amounts that we posted are correct. They can also get estimates of Social Security and Medicare taxes they’ve paid.
10. Our online retirement application is an easy, convenient, and secure way to trail-blaze your way to retirement. You can complete it in as little as 15 minutes and, just like that, you can start the retirement of your dreams.
With these 10 resources, your employees can stay informed about their retirement options. Information is the first step toward achievement. When you retire one journey ends while another begins. Be ready for your next adventure!
Irene Saccoccio is the National Public Affairs Specialist for the U.S. Social Security Administration.
See the original article Here.
Source:
Saccoccio, I. (2016 September 15). 10 Resources to help your employees prepare for retirement. [Web blog post]. Retrieved from address https://blog.shrm.org/blog/10-resources-to-help-your-employees-prepare-for-retirement
Automation making huge retirement plan impact
Paula Aven Gladych gives great insight on how automated retirement contributions are helping increase participation. See the full article from BenefitNews.com below.
Retirement plan participation has increased 19% in the past five years because of design features that make it simple and quick for employees to participate in their workplace retirement plans.
Wells Fargo Institutional Retirement and Trust examined the savings behaviors of 4 million defined contribution plan participants from 5,000 companies and found that features such as automatic defaults into diversified investments, target-date funds and automatic escalation have had a huge effect on employee savings rates.
The company’s Plan Health Index is a retirement plan health measure that includes a plan’s participation and savings rates and its diversification as a measure of employee retirement readiness.
Employees “have to join the plan, be saving at an adequate rate and be adequately diversified for their time horizon. If they are doing all three of those things well, they have a good chance for a good outcome, assuming they started saving early enough,” says Joe Ready, executive vice president and director of institutional retirement and trust at Wells Fargo.
To score well on the Wells Fargo Plan Health Index, employees need to participate in their workplace plan, save at 10% or higher, including the employer matching contribution, and have their retirement savings in diverse investments.
“Plan health across our book of business increased 37% from five years ago,” Ready says.
Participation increased 19%, contributions were up 7.3% from five years ago and diversification improved 26%, according to Wells Fargo research.
Generationally, millennials are reaping the biggest benefit from this industry shift toward automatic features. They have essentially grown up with these options, Ready says, and they have the highest increase in participation in the last five years. They also are the most diversified generation, taking advantage of target-date funds and other managed account options.
Millennials are also taking advantage of Roth 401(k) features at a higher rate than other generations. Wells Fargo found that 16% of millennials are taking advantage of a Roth option, compared to 12% of other participants.
“They are engaged,” Ready says. “They are thinking about their future taxes and tax diversification. That’s pretty good.”
The key drivers of plan participation are income, automatic features, tenure and age, Ready says. Wells Fargo analyzed tenure and found that once a company’s employees are hired and with the company for two years, their attrition rates tend to drop off dramatically.Ready encourages employers to design their retirement plans so that loyal employees, those who have stayed longer than two years, are eligible for the employer matching contribution. It’s a balance between helping employees achieve their retirement goals and wanting to invest in those who are invested in their company, he said.
Ready encourages employers to design their retirement plans so that loyal employees, those who have stayed longer than two years, are eligible for the employer matching contribution. It’s a balance between helping employees achieve their retirement goals and wanting to invest in those who are invested in their company, he said.
The way the matching contribution is designed can also have a major impact on how much employees save for retirement. If a company switches from contributing 50 cents on the first 3% to 25% on the first 6%, it automatically gets employees saving an additional 3% they wouldn’t save otherwise. Automatic increase is another feature that is underutilized, according to Ready.
Many companies set their automatic increase at 1% per year with an opt-out option. Ready says that whether the auto increase is 1% or 2%, the opt-out percentage is the same, so why not make the auto escalation 2% per year, bringing employees closer to that 10% savings rate sooner?
“It makes a material difference, especially at a younger age, to get to a higher savings rate quicker. It makes a big difference in outcome,” Ready says.
Two-thirds of Wells Fargo’s clients use an auto increase program, but “less than 30% of those plans implemented it on an opt-out basis,” the research found.
Having an opt-out option — meaning employees have to make the effort to opt out of the increase – takes advantage of participant inertia, Wells Fargo reported. Even with an opt-out option, 79% of plan participants stayed with the automatic increase on their retirement savings accounts.
Millennials tend to be more diversified in their retirement investments than older generations, due in large part to by the increase of automatic features in plans. Because of that, Wells Fargo found that 78% of millennials are on track to replace 80% of their pay in retirement, compared to 62% for Generation X and 50% for baby boomers.
“Some of that has to do with the fact that millennials are getting into the plan at an early age, saving early and diversifying appropriately with managed products,” Ready says.
That said, only 28.6% of millennials are contributing to their retirement account at the 10% level, compared to 35.2% for Generation X and 44.5% for the boomers.
“I’m very bullish on millennials, the way they are participating and the way they are engaging in the Roth
and leveraging diversification products in their plans,” Ready says. “If they keep increasing their savings rate, they have the power of time.”
Ready says he expects the trend toward automatic features in retirement plans to continue. He also sees a future rise in technology with a purpose. Wells Fargo has a mobile app that gives employees a one-click option to sign up for their company retirement plan. The company will send a text to all new employees with a link to the retirement plan sign-up page. It might say, “You are eligible to join our 401(k) plan.” When the participant clicks on the link, it takes her to a pre-filled screen that tells her what the default saving rate is and the default investments. If the employee is happy with the defaults, all she has to do is click the enroll button.
“We have seen a material increase in the number of people enrolling because of that,” Ready says.
See Original Post from BenefitNews.com Here.
Source:
Gladych, P.A. (2016, July 21). Automation making huge retirement plan impact [Web log post]. Retrieved from https://www.benefitnews.com/news/automation-making-huge-retirement-plan-impact
Adopting a coaching mindset to help employees plan for retirement
Are your employees prepared for retirement? See how Cath McCabe gives tips and tricks on coaching your employee for retirement.
America may be becoming the land of the free and the home of the grey as more adults are living longer lives.
According to the Administration on Aging, the number of centenarians more than doubled between 1980 and 2013. But lifespans aren’t the only thing increasing – so are the expenses that many older Americans face.
Retiree health care costs have surged exponentially – the Employee Benefits Research Institute (EBRI) estimates that the average healthy 65-year-old man will need $124,000 to handle future medical expenses. For a healthy woman of the same age, the expected amount is $140,000.
Many of these extra years – or decades – will be spent in retirement, so it’s crucial that Americans plan to have the income they need not only to retire, but to last throughout a potentially long retirement.
Since many adults use employer-sponsored retirement plans as a source of retirement funding, plan sponsors are in a key position to act as retirement “coaches” by encouraging employees to plan ahead and help them plan for their financial security in retirement.
Engage employees early and often
We have found that employers are a trusted source of financial information for employees. Plan sponsors can leverage this trust to engage employees with a variety of programs and tools that help them understand their future retirement income needs.
A plan sponsor’s role as coach begins when employees begin their careers by providing financial education. Education can help new employees recognize the importance of contributing to a retirement plan and the benefits of saving early, as well as help to optimize employee participation in retirement programs. Education designed for mid-career employees, and those nearing retirement, can cover more complex topics as they encounter life events that require a change to their road map for retirement.
And if employees can get started earlier in their careers, there is an increased likelihood that employees will have a positive retirement experience. A recent survey among current TIAA retirees found that those who began retirement planning before age 30 are more likely to retire before the age of 60, and 75 percent say they are very satisfied with their retirement.
Coach employees through education and advice to create a retirement road map
Many Americans need help in setting and achieving their retirement goals – a recent survey found that 29 percent of Americans are saving nothing at all for retirement. It’s important to develop a retirement coaching strategy that can help put participants in the right frame of mind and offers the resources they need to establish clear retirement goals and a road map for achieving those goals.
Many people think about their retirement savings in terms of accumulation – how much of a “nest egg” they’re able to build to fund their retirement. But employers should help their employees think about their retirement savings in terms of the amount of income they will have each month to cover their living expenses. Having a source of guaranteed lifetime income can help employees mitigate the risk of outliving their retirement savings.
As a rule of thumb, most employees will need between 70 percent and 100 percent of their pre-retirement income. If employees find they are not on track to meet this ratio, plan sponsors can help identify the necessary actions to increase the chance of success. For example, employees may need to increase their savings rate. Plan sponsors can help by encouraging employees to save enough of their own dollars to get the full employer match. If employees already are saving enough to get the full match, they then should aim to increase their contributions each year until they are saving the maximum amount allowed. Many employees older than 50 also can take advantage of catch-up provisions to save additional funds.
Perhaps the most important function of education is to drive employees to receive personalized advice from a licensed financial consultant supporting the employer’s retirement plan. This is where the road map is created, with the advisor providing turn-by-turn guidance. For most employees, an annual meeting can help keep them on track.
Why is it important to “coach” employees to create the road map? Simply put, it can improve both plan outcomes and the employees’ retirement outcomes. Advice is proven to positively correlate with positive action – enrolling, saving or increasing saving or optimizing allocations. (See this Retirement Readiness research for more information). Individuals who have discussed retirement with an advisor are much more likely to “run the numbers” and calculate how much income they’ll need in retirement – 79 percent versus only 32 percent who have not met with an advisor.
Helping employees along the road to retirement is a win-win for employees and plan sponsors, even beyond the fiduciary requirements. A 2015 EBRI report found that 54 percent of employees who are extremely satisfied with their benefits, such as their retirement plan and health insurance, also are extremely satisfied with their current job. Similarly, a 2013-2014 Towers Watson study revealed that nearly half (45 percent) of American workers agree that their retirement plan is an important reason why they choose to stay with their current employer. Establishing strong connections between employees and their retirement plans may aid employers’ retention efforts.
Supporting employees on their retirement readiness journey
Once employees have a better sense of the actions they need to take, plan sponsors can provide additional support by highlighting the investment choices that may help employees achieve their desired level of income. Many employees may understand how to save, but they are far less familiar with how and when to withdraw and use their savings after they have stopped working. Offering access to lifetime income options, such as low-cost annuities, through the plan’s investment menu can help employees create a monthly retirement “paycheck” that they can’t outlive.
The peace of mind that these solutions offer can last a lifetime, too. A survey among TIAA retirees found that those who have incorporated lifetime income solutions into their retirement have been satisfied with that decision. Among the retirees with a fixed or variable annuity, 92 percent are satisfied with their decision to annuitize.
Employers also should set a benchmark for regularly evaluating employees’ progress toward their retirement goals. This will allow employees to monitor their retirement outlook and identify opportunities to adjust their savings strategy so they don’t veer off their retirement road map.
Remember the emotional aspect of retirement
In addition to the financial aspects of retirement planning, it’s important to factor in emotional considerations. Offering a mentoring program, one-on-one advice and guidance sessions, or workshops and seminars to guide people on how to navigate this major milestone could be helpful for new retirees.
For some employees, going from working full time to not working at all may be a too abrupt change. Employers may want to consider offering a phased approach to retirement that gives employees the opportunity to work part time or consult to help ease the transition. An alumni program that offers occasional reunions or other programming can help retirees still feel connected to their organization for many years after they stop working.
Employers are uniquely positioned to guide employees through the retirement planning process, from early in their careers to their last day in the office – and beyond. It’s not enough to simply get employees to retirement: Plan sponsors need to help them get through retirement as well. Establishing a coaching mindset can be an effective way to actively engage employees in retirement planning and help them see that the end of their working careers can be the beginning of a wonderful new stage of life.
See the Original Post from BenefitsPro.com Here.
Source:
McCabe, C. (2016, August 04). Adopting a coaching mindset to help employees plan for retirement [Web log post]. Retrieved from https://www.benefitspro.com/2016/08/04/adopting-a-coaching-mindset-to-help-employees-plan?slreturn=1472491323&page_all=1
IRS: Skip Form 5500’s Optional Compliance Questions
Original post shrm.org
The Internal Revenue Service (IRS) recently added new questions to the 2015 Form 5500 and 5500-SF (short form) annual retirement plan returns. The Form 5500 series of returns are used by retirement plans to report the financial condition, investments and operations of the plans to the Department of Labor (DOL) and IRS.
When the new IRS compliance questions were originally introduced, the IRS described the questions as optional for plan year 2015. However, in its most recent instructions, the IRS has specifically advised plan sponsors not to complete these questions for the 2015 plan year.
The IRS decision to delay completion is due to privacy and misreporting concerns raised by retirement plan administrators and advisors.
The new compliance questions are intended to aid the IRS in determining whether a retirement plan, such as a 401(k) plan, is in compliance with applicable law—in particular, how the plan is satisfying discrimination testing and making timely plan amendments. The new questions also ask whether the plan trust incurred unrelated business taxable income and if the plan made in-service distributions, such as hardships. Specifically, the following new lines were added:
Form 5500 Annual Return (Report of Employee Benefit Plan)
• Provide preparer information including name, address and telephone number.
Schedules H (Financial Informaiton) and Schedule I (Small Plan Financial Information)
• Did the plan trust incur unrelated business taxable income?
• Were in-service distributions made during the plan year?
• Provide trust information including trust name, EIN, and name and telephone number of trustee or custodian.
Schedule R (Retirement Plan Information) – New Part VII: IRS Compliance Questions
• Is the plan a 401(k) plan?
• How does the 401(k) plan satisfy the nondiscrimination requirements for employee deferrals and employer matching contributions?
• If the Average Deferral Percentage (ADP) test or Average Contribution Percentage (ACP) test is used, did the plan perform testing using the “current year testing method” for non-highly compensated employees?
• Did the plan use the ratio percentage test or the average benefit test to satisfy the coverage requirements under Section 410(b)?
• Does the plan satisfy the coverage and nondiscrimination tests by combining this plan with any other plans under the permissive aggregation rules?
• Has the plan been timely amended for all required tax law changes?
• Provide the date of the last plan amendment/restatement for the required tax law changes.
• If the plan sponsor is an adopter of a pre-approved master and prototype or volume submitter plan that is subject to a favorable IRS opinion or advisory letter, provide the date and serial number of that letter.
• If the plan is an individually-designed plan and received a favorable determination letter from the IRS, provide the date of the plan’s last favorable determination letter.
• Is the plan maintained in a U.S. territory?
Form 5500-SF Annual Return (Report of Small Employee Benefit Plan)
• Asks for all the information added to the Forms and Schedules above.
• Were required minimum distributions made to 5 percent owners who have attained age 70½?
When plan sponsors and plan administrators are eventually required to respond to these new questions, their responses could highlight plan compliance issues of which the plan sponsor or the IRS may not have been aware, and could lead to follow-up investigations from the IRS. The new questions are helpful guidance for plan sponsors to make certain that their 401(k) and 403(b) plans are in compliance.
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.
5 things to know about the DOL fiduciary rule
Original post benefitspro.com
Tomorrow marks the last day the White House’s Office of Management and Budget will accept meetings with industry stakeholders hoping to influence the finalization of the Department of Labor’s fiduciary rule.
1. When will the DOL fiduciary rule be finalized?
That means a final rule could emerge as early as next week, but more likely by the end of the month, according to Brad Campbell, an ERISA attorney with Drinker Biddle.
Campbell and Fred Reish, who chairs Drinker Biddle’s ERISA team, addressed a conference call on the DOL rule’s potential impact.
Nearly 1,000 stakeholders participated, testament to the wide-ranging impact the rule is expected to have on advisors and service providers to workplace retirement plans and individual retirement accounts.
2. Will the DOL rule be stopped?
Several legislative efforts that would delay or defund the rule’s implementation, as well as strategies to address the rule through the appropriations process or the Congressional Review Act, are “real and substantive,” said Campbell, but stand little chance of blocking implementation of the rule.
“The likelihood that Congress can stop DOL is low,” said Campbell.
He expects more Democrats to find the rule to be problematic once it is finalized, but not enough to create the two-thirds majority needed to override a veto from President Obama, which would be all but guaranteed of any legislation Congress passes.
3. When would compliance be expected?
Campbell also said he expects the Obama Administration to waste little time making industry comply with the new rule. An end-of-year compliance date should be expected, he said.
“Obama is going to want to have a deadline in place before he leaves. That will make it much harder for the next administration to undue” the rule, said Bradford.
4. Will others try to block the rule?
While Congressional efforts to block the rule will likely prove impotent, Campbell said private lawsuits seeking to block the rule’s implementation are “a very real possibility.”
“DOL has done some things I think they lack the authority to do,” explained Campbell, who referenced a recent majority report from the Senate Committee on Homeland Security and Governmental Affairs.
That report alleged the Obama Administration was “predetermined to regulate the industry” and sought economic evidence to “justify its preferred action” in directing the DOL to write a rule that would expand the definition of fiduciary to include nearly all advisors to 401(k) plans and IRAs.
The report also claims DOL willfully ignored recommendations from the Securities and Exchange Commission, the Treasury Department and the OMB as it crafted its proposed rule.
Campbell called those arguments and others enumerated in the Committee’s report “legitimate.”
If lawsuits from stakeholders do emerge, courts may delay implementation of the rule as claims are litigated, but Campbell seemed to dissuade stakeholders from holding out too much hope for that possibility.
“No one can predict where the courts will go,” he said.
5. What will the fiduciary rule’s impact be?
Fully preparing for the rule’s impact is of course impossible before it is finalized.
Nonetheless, Campbell and Reish itemized the ways a final rule is likely to impact industry. They are hoping regulators address several vague areas of the proposal in the final weeks of the rulemaking process.
Still unknown is whether the rule will provide a grandfather provision for tens of millions of IRA accounts already in existence.
Also at question is the proposal’s education carve-out, which could greatly impact how service providers’ call centers interact with plan participants, and whether including specific funds in asset allocation models would rise to the level of fiduciary advice.
Campbell said he expects the DOL to finalize an education carve-out that is a bit more forgiving than what was initially proposed. He expects a final rule will allow specific investments to be mentioned, so long as a range of comparable options are offered as well.
There also is the question of whether or not 401(k) and IRA platform providers will be allowed to offer access to 3(21) and 3(38) fiduciaries, and whether or not doing so would be a fiduciary action.
But the biggest questions impacting a final rule’s ultimate impact relates to the proposal’s Best Interest Contract Exemption, said both Campbell and Reish.
How those exemptions are ultimately finalized will shape the IRA market and how providers and advisors recommend rollovers from 401(k) plans.
The attorneys said they expect a final rule to consider rollover recommendations a fiduciary act.
One concern for advisors will be when they need an exemption to advise on a rollover.
If general education on rollovers is offered, without advice, one natural consequence is that investors will ask advisors what they should do, said the attorneys.
“Is no advice better than so-called conflicted advice?” asked Reish rhetorically. “Prudent advice can still be prohibited” under the rule’s proposal, he said.
That fundamental question is likely to make whatever rule that emerges “extraordinarily disruptive” to the IRA market, the attorneys said.
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.