Saturday, January 28, 2017

Your Money’s Worth

It’s time to put your money where your mouth is.

In just a few weeks, many of you will be at the NAPA 401(k) Summit in Las Vegas. This will be my third Summit since joining the organization, though I have been to, and spoken at, a good number of them over the years.

This year, as in years past, the steering committee, agenda team and NAPA leadership have been hard at work for months, developing the program, fleshing out the agenda, lining up speakers, and this year assigning session “owners” to make sure that you get maximum bang for your buck in terms of information and session quality.

We’ve taken your feedback on topics and format, expanded the peer-to-peer networking, and added a brand new component called “super” sessions. We’ve got some amazing keynote speakers, enhanced our plan sponsor panel, and, for the first time ever, incorporated a new networking opportunity called “Summit After Dark” which will include some incredible entertainment in world-class environs. Sure, you’ve been to the Summit, sure you’ve been to Vegas – you may even have been to Vegas for the 401(k) Summit. But I promise you this one will be different, “better” in terms of focus, depth of information, and interaction, and certainly bigger. While we try to remind folks that it is the only retirement plan advisor conference developed by plan advisors for plan advisors. The proof of that is, quite literally, in the program that has been developed for you.

What’s (Really) Different

Beyond all those important reasons, there are two other major considerations for you in attending this year’s NAPA 401(k) Summit. First is the issue of tax reform. This is something that we have been writing about on NAPA Net for months now, but with the 2016 election having given control of Congress and the White House to a single party, the odds for significant change – change on the order of the Tax Reform Act of 1986 – is significantly higher than we might have otherwise expected. Those consequences could be enormous on workplace retirement savings in the months to come – they certainly have been in the past. You will want – and need – to know what is afoot, and there is no better place for you to do that than the NAPA 401(k) Summit, particularly with the insights you’ll get from our “From the Hill to the Summit” keynote.

The other consideration is related, but it is not something we generally push. While the number of quality advisor events has certainly declined over the years, I know you still have several to choose between. For some, that choice is based on location, for others timing, and for still others cost. For some, of course, it can be all or more than one of the above – all
are valid considerations.

But among all the things that really set the NAPA 401(k) Summit apart – one thing stands out, this year more than most. Quite simply, it is that – and unlike every other advisor conference out there – your NAPA 401(k) Summit registration helps support the activities of NAPA – your advocacy, information and education organization – not the bottom line of some corporate media organization or some private equity firm.

That’s right – in addition to the insights, information, networking that you may get at some other events, your attendance at the NAPA 401(k) Summit is a unique investment in your future – and the future of your profession.

It is, quite simply, a great way – perhaps the best way – to put your money where your mouth is.

I hope to see you in Vegas! Register today (if you haven’t already) at www.napasummit.org.

- Nevin E. Adams, JD

Saturday, January 21, 2017

The ‘Free’ Retirement Money Many Overlook

People often talk about the significance of the “free” money associated with the company match in retirement savings – but there’s another source of “free” money that is often overlooked.

I’m talking about the so-called Saver’s Credit, more precisely the Retirement Savings Contributions Credit. It’s a credit, not a deduction – a dollar-for-dollar reduction of tax liability.

Income Limits

For those who qualify, in addition to the customary benefits of workplace retirement savings, it could mean a $1,000 break on their taxes — twice that if married and file a joint return. In fact, for a moderate income saver, it can offset 50%, 20% or 10% of retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on adjusted gross income.

Speaking of which, the Saver’s Credit can be claimed by:
  • married couples filing jointly with incomes up to $61,500 in 2016;
  • heads of households with incomes up to $46,125 in 2016;
  • married individuals filing separately; and
  • singles with incomes up to $30,750 in 2016.
Additionally, in order to claim the credit, individuals must be 18 years or older, must not be a full-time student, and cannot be claimed as a dependent on another person’s return.

5 Things You May Not Know

Here are five things you may not know about the Saver’s Credit:
  • It applies to a variety of retirement savings. The Saver’s Credit can be taken for contributions to a traditional or Roth IRA (including myRA), a 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) or governmental 457(b) plan, as well as voluntary after-tax employee contributions to qualified retirement and 403(b) plans.
  • There are two deadlines for contributions. To qualify for the Saver’s Credit, contributions must be made to 401(k)s, 403(b)s, 457s or the federal government’s Thrift Savings Plan by the end of the calendar year. However, taxpayers have until April 18, the due date for filing a 2016 tax return, to set up a new individual retirement arrangement or add money to an existing plan for 2016.
  • Rollover contributions aren’t eligible for the Saver’s Credit. Eligible contributions may be reduced by any recent distributions (for 2015, distributions received after 2012, and before the due date of the 2015 return, including extensions) from a retirement plan or IRA (a list of these distributions is available here.)
  • You have to file Form 1040, Form 1040A, or Form 1040NR to claim the credit. The Saver’s Credit is (still) not available via the 1040-EZ form (though there have been legislative attempts to remedy that situation). However, if you use tax software, such as TaxAct or TurboTax, it should calculate the credit for you if you report your retirement contributions. Look for a completed Form 8880 in the attachments that your tax software provides.
  • You only get the credit if you file for it. Just 24% of American workers with annual household incomes of less than $50,000 are aware of the credit, according to the 15th Annual Transamerica Retirement Survey.
However, it’s not too late to save and get “credit” for doing so – make sure the participants you work with, and plan sponsors you work for – are aware.

- Nevin E. Adams, JD

See also:

Saturday, January 14, 2017

"Things", Remembered

It is something of a tradition this time of year to look back, to reminisce about past events and lessons learned, and sometimes to look ahead. Here are some insights – nearly 80 – from columns past that should help lay the groundwork for a productive and prosperous 2017.

3 Things Retirement Savers Can Learn from Pokémon Go

Here are some things that will help you in Pokémon Go and saving for retirement.

4 Things You Should Know About Social Media

Whether you are fully engaged in social media, just thinking about how to get started, or somewhere in between, here are four things to keep in mind.

4 ‘Sure’ Things About Saving for Retirement That Aren’t

Sometimes life takes unexpected turns, upending even the most “certain” outcomes. These so-called “sure” things sometimes turn out to be anything but that – and those that have relied on those assumptions, these “conventional wisdoms” as “givens” can wind up being disappointed – and ill-prepared for financing retirement.

4 Things That the ‘Common Wisdom’ About Millennials Gets Wrong

To judge by the headlines, if there’s anybody in more trouble when it comes to retirement planning than Boomers, it’s Millennials. But are they really?

4 Things That Make Me Go ‘Huh?’

Ours is a business where surveys and trends often shape not only perceptions, but policy – though sometimes the conclusions drawn, and even the premise itself – make me go “huh?”

4 Things Plan Sponsors Are Scared of – and 3 More They Should Be

Halloween is the time of year when one’s thoughts turn to trick-or-treat, ghosts and goblins, and things that go bump in the night. But what are the things plan sponsors are scared about?

4 Things Plan Fiduciaries Have in Common With the Second Continental Congress

There are things that today’s investment/plan committee share with, and can learn from, the experience of those forefathers who crafted and signed the document declaring our nation’s independence.

Oliver’s ‘Twist’: 5 Takeaways

I’ve long enjoyed John Oliver’s take on the world. He has a gift for bringing humor to subjects that aren’t generally seen as funny, and in the process not only helps make complex topics more approachable, he gives voice to the frustration that millions surely feel at the world around us. That said, when he decides to weigh in with his style of biting commentary on your profession – well, let’s just say that you’re likely to be in for a bumpy ride.

5 Things the DOL Wants You to Know About TDFs – That You May Have Overlooked

Target-date funds continue to expand in usage and popularity – but there are some things the Labor Department wants you to know about TDFs that you may have overlooked.

5 Things That Retirement Calculator Won’t Tell You

Have you seen that commercial about the couple who will do just about anything to avoid doing a retirement needs calculation? Well, here are five things that individuals should know about sitting down and doing that retirement plan – that might overcome those fears.

6 Things People Who Need to Save for Retirement Need to Know About Saving for Retirement

When it comes to retirement, Americans seem to be a pretty insecure bunch. But then maybe it’s because they don’t know all the things they need to know.

6 Things You Should Know About Those Millennial Participants

During my recent vacation, I had the chance to check in with some “real” people about their retirement accounts.

6 Stocking Stuffers for Retirement Participants

In the spirit of the holiday season, here are some “presents” that I hope participants find in their retirement plan “stockings” during the coming year.

The 7 Highly Effective Habits of Highly Effective 401(k) Plans

Every so often someone puts out a list of what are said to be the “best” 401(k) plans, based on varied benefits and plan design structure criteria. But for my money, here’s what the best plans do.

10 Ways the Class of 2020’s Retirement Plans Will Be Different

Each year the good folks at Beloit College produce a “Mindset List” providing a look at the cultural touchstones that shape the lives of students about to enter college. So, in what ways will their retirement plans differ from those of their parents?

- Nevin E. Adams, JD

Saturday, January 07, 2017

Lamenters of the 401(k) Revolution

The 2017 media-bashing of the 401(k) is off to an early start.

The most recent is a Wall Street Journal article (subscription required) whose headline notes that “The Champions1 of the 401(k) Lament the Revolution They Started” (the third-most read article on the WSJ site as I write this).

It’s fair to say, I think, that their regrets aren’t so much about the 401(k) itself, but their sense that the existence of the 401(k) – which transformed the notion of retirement savings in so-called savings and thrift plans by allowing regular workers to defer paying taxes on money they set aside for retirement – led to the demise of the traditional defined benefit plan.

Well, maybe.

Trust me, I “get” the affection for the promise of a DB plan. Who wouldn’t like a plan that is funded (and paid for) by your employer, invested by your employer, and at retirement, produces regular, predictable distributions without you having to do anything except making sure they know where to send the check(s)?

That, of course, assumes that you had one. Even in their heyday, DB plans not only weren’t available to everyone, they weren’t even available to most workers in the private sector. The WSJ article acknowledges that just 38% of all private-sector workers had a traditional pension in 1979 (13% do today). Where were the headlines in 1979 about fewer than 4 in 10 workers being covered by a pension plan?

And that was just being “covered.” While coverage like that in the WSJ article tends to equate coverage with receiving benefits, that’s just not the way it was. To get that full benefit from that DB plan back in their heyday, you’d likely have had to work there at least 10 years, if not 15. And while we seem to think that 40 years ago Americans worked for a single employer their whole career, that wasn’t the case in the private sector, even in the DB’s heyday (and certainly today) didn’t.2

The data show that for the very most part we have long been a nation of relatively short-tenured workers. How short? Well, the median job tenure in the United States — how long workers stay at one job — has hovered around five years for the past three decades. Indeed, according to the nonpartisan Employee Benefit Research Institute (EBRI), in recent years it has ticked up, to about 5.5 years, but that’s because women are staying in their jobs longer; job tenure for men has actually been dropping.

What that means is that even workers who were “covered” by a pension plan in the private sector weren’t working with that employer long enough to get much – or any – of that promised pension benefit.

That doesn’t mean that those who were, and those who continue to be, covered by DB plans shouldn’t be grateful. But it’s time to stop lamenting the demise of DB plans – and it’s well past time to stop blaming the 401(k) as the culprit. Let’s be honest: It was changes in accounting rules, fueled by the occasional market turmoil, and exacerbated by artificially constrained interest rates over a prolonged period, done no good by the stricter (though well-intentioned) funding requirements in the ironically named Pension Protection Act of 2006. Not to mention, though some may dispute this, a workforce that, writ large, never seemed to fully understand or appreciate the value of these programs (perhaps because so many of them left before vesting).

As for those who want to blame the 401(k) for the nation’s retirement readiness – well, as has been said before, that’s a bit like blaming the well for the drought.

There is little question that the reality of the 401(k) struggles to live up to the myth of the defined benefit plan. No doubt that the voluntary design (even with auto-encouragements), sporadic availability among smaller employers, and the inherent complexity of individual savings and investment decisions provide challenges.

Regardless, and despite a plethora of media coverage and academic hand-wringing that suggests they are wasting their time, the American public has, through thick and thin, largely hung in there – when they are given the opportunity to do so.

The good news is that far many more American workers have that opportunity today than ever before. But not everyone.

And that really is lamentable.

- Nevin E. Adams, JD

Footnotes
  1. Who are these champions? The real surprise is the article’s framing of the New School’s Teresa Ghilarducci as a former champion of the 401(k) concept (she claims to have once told unions that people only needed to save 3%, assuming 7% returns. Her position may have changed, but her math doesn’t appear to have – see “Rescuing Retirement from the ‘Rescuers’.”
  2. A 2013 analysis by EBRI reveals that a defined benefit is not always “better,” at least not defined as providing financial resources in retirement. In fact, if historical rates of return are assumed, as well as annuity purchase prices reflecting average bond rates over the last 27 years, the median comparisons show a strong outcome advantage for voluntary enrollment 401(k) plans over both stylized, final average DB plan and cash balance plan designs.