Retirement Plans Newsletter

April 11, 2019

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Retirement Security in 2050

"Although GenX and Early Millennial retirees are expected to be better off than current retirees on absolute measures of income, they are expected to be worse off than current retirees on relative measures of inequality, poverty, and replacement rates. Retirement outcomes are projected to significantly worsen for future retirees without college educations and those with weak lifetime employment and earnings, but improve for Hispanics."
Urban Institute

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The U.K. Doubled Participation in Retirement Savings Plans -- Can the U.S. Do the Same?

"The U.K. is the first country to implement nationwide legislation requiring private-sector employers to enroll their workers in a retirement plan.... [T]he national retirement savings participation rate more than doubled to 67 percent in 2017 from 32 percent in 2012.... The U.K. findings echo early numbers suggesting auto-IRAs in the U.S. are helping workers save for the future. In Oregon ... workers saved nearly $5 million during the first year. Two-thirds of eligible employees joined OregonSaves, and they contributed an average of 5 percent of their paycheck."
Arnold Ventures

How to Set Up a 401(k) for a Small Business

"Get clear on why you're offering a small business 401(k) ... Find the right partners for your small business retirement plan ... Make sure your payroll system integrates with your recordkeeper ... Make sure your payroll integration scales with your business ... Be prepared for the large plan audit ... Learn how to pass nondiscrimination testing."
ForUsAll

Partial Bundling Overtakes Full Bundling for Retirement Plan Services

"[F]ewer than one in ten (9.1%) mega plans, defined as those with assets greater than $1 billion, had a fully bundled structure at the end of last year. Conversely, 56.1% of mega plans were unbundled.... [N]early two-thirds (65.0%) of mid-sized plans ($100 million to $500 million in assets) reported using a partially bundled structure and 15.0% indicated they utilized a fully bundled structure, down from 21.9% last year."
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2007-2018 Performance of Aggressive vs, Conservative Target Date Funds (PDF)

"Given the disproportionate history of gains over losses you'd expect aggressive TDFs to outperform less aggressive offerings, and this is certainly true for long-dated versus short-dated funds. 2050 funds have outperformed 2010 funds by a lot.... Have aggressive 2010 funds outperformed conservative 2010 funds? Have aggressive 2050 funds outperformed conservative 2050 funds? You'd think the answer to these questions would be 'Yes' but the results might surprise you."
Target Date Solutions

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CIGNA Cash Balance Participants Say Company Is Not Following Court Orders

"Plaintiffs in the long-standing Amara v. CIGNA case say the company is using alternative methods than what a court ordered to calculate cash balance plan benefits that would take away 'hundreds of millions of dollars in the relief provided to remedy CIGNA's disclosure violations.' "
planadviser

Building Your Floor Portfolio with Lifetime Guarantee Investments

"While there are a number of investments that can lessen investment risk, there are just few types of investments that can also lessen longevity risk by guaranteeing payment for life.... These strategies/investments ... include: [1] Delaying commencement of Social Security; [2] Buying an immediate life annuity (Single Premium Immediate Annuity or SPIA); [3] Buying a deferred life annuity (or Qualified Longevity Annuity Contract (QLAC)); [4] Electing the life annuity option under defined benefit pension plan."
Ken Steiner, FSA Retired

Estimates of the Financial Effects on the Social Security Program Assuming Enactment of the 'Protecting and Preserving Social Security Act' (PDF)

21 pages. "Under the proposal, the OASDI program would be able to pay 100 percent of scheduled benefits through 2052, and 91 percent in 2053 after combined trust fund reserve depletion, with the percentage payable declining to 86 percent in 2092. Enactment of the three provisions of this proposal would reduce the long-range OASDI actuarial deficit of 2.84 percent of taxable payroll under current law to 1.08 percent of payroll under the proposal."
Office of the Chief Actuary, U.S. Social Security Administration [SSA]

Retiree Lump Sums: How Do They Change the Journey? (PDF)

29 presentation slides. "Offering lump sum cash-outs to retirees achieves many of the same objectives as annuity purchases for retirees and lump sum cash-outs for terminated vested participants -- Interest rate, investment, and longevity risks are reduced and future liability carrying costs are also reduced ... There are issues plan sponsors should consider before determining if a retiree lump sum transaction is suitable for them, including participant benefit security and the potential for negative press."
Mercer

Selected Discussions
on the BenefitsLink Message Boards

Maximum Contribution for Self-Employed 401(k) Plan Participants

A 401(k) plan has several partners and rank-and-file employees. For the 2018 Plan Year, I calculated a maximum contribution (employee deferrals, safe harbor 3% nonelective contribution, and profit sharing) for a particular partner as $55,000. The accountant is telling me that the partner's maximum contribution is limited to 20% of reduced K-1 income, which is approximately $50,000. Is that right?
BenefitsLink Message Boards

Is VCP Processing Grinding to a Halt?

We submitted one last August. As of today it's not even assigned yet. Anyone else seeing this?
BenefitsLink Message Boards

Refunds to Partners for Correction of ADP Failure

Just received financial statements for a partnership with 2 partners. Based on the income of the company and the split to the partners, the 401(k) plan fails ADP testing (no match), and both partners will need to receive substantial refunds for their 2018 contributions. Are the refunds subject to the Form 5330 tax for failing to make the refunds before March 15?
BenefitsLink Message Boards

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Lois Baker, J.D., President  loisbaker@benefitslink.com
David Rhett Baker, J.D., Editor and Publisher  davebaker@benefitslink.com
Holly Horton, Business Manager  hollyhorton@benefitslink.com

BenefitsLink Retirement Plans Newsletter, ISSN no. 1536-9587. Copyright 2019 BenefitsLink.com, Inc. All materials contained in this newsletter are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of BenefitsLink.com, Inc., or in the case of third party materials, the owner of those materials. You may not alter or remove any trademark, copyright or other notices from copies of the content.

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