Alliance Benefit Group Now Offers Dave Ramsey s Financial Wellness Program

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1 Founded in 1992 Administration of Over 17,000 Plans and 1.1 Million Plan Participants Over $56 Billion in Assets Under Management Plans in All 50 states PG 1 Alliance 2 Updated 3 Tax 4 The 5 Tax 7 Did WINTER 2015 Inside This Issue TITLE Benefit Group Now Offers Dave Ramsey s Financial Wellness Program DOL Guidance On Missing Participants Accounts Talk Retirement Savings Gap Widens Reform And Its Potential Impact On Qualified Plans You Know? Alliance Benefit Group Now Offers Dave Ramsey s Financial Wellness Program Alliance Benefit Group (ABG) is committed to providing programs that can help plan sponsors provide their employees with access to financial wellness tools and encourage greater participation in their retirement plans. With this in mind, we are pleased to introduce SmartDollar, an exciting new resource available through ABG. SmartDollar is a holistic approach to retirement education from Dave Ramsey. Dave Ramsey is considered one of America s most trusted experts on money and business. He has authored five New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover, EntreLeadership and Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 8 million listeners each week on more than 540 radio stations. The SmartDollar program s goal is to teach retirement plan participants Dave Ramsey, host of The Dave Ramsey Show sound financial principles so that they can more effectively manage their finances and plan for a comfortable retirement. SmartDollar is available to 401(k) plan participants through their retirement plan and can be accessed online through the plan s participant website. The financial health of employees is the fastest rising issue on an employer s worry list these days, said Don Mackanos, President of Alliance Benefit Group, LLC. Giving our clients the opportunity to help their employees through SmartDollar will combat those worries and get them on the right track financially. How SmartDollar Helps Participants The goal of SmartDollar is to enable employees to proactively tackle the issues that may be preventing them from saving more for retirement. The SmartDollar program is comprised of 17 video lessons that address a number of important financial topics including: Budgeting Eliminating debt Saving for emergencies (continued on page 6)

2 UPDATED DOL GUIDANCE ON MISSING PARTICIPANTS ACCOUNTS The internet s search capabilities have made many things possible, including a more comprehensive search for missing retirement plan participants and their beneficiaries. In light of these technological advances, the Department of Labor (DOL) has issued updated guidance for dealing with the accounts of missing participants of terminated defined contribution plans. Missing participants are defined by the DOL as those who are lost, missing or unresponsive. The updated DOL guidance, Field Assistance Bulletin , reflects that previously recommended methods for locating missing participants, including the use of the letter-forwarding services of the IRS or the Social Security Administration, have been discontinued as the use of the internet s search capabilities has grown. How this DOL Guidance Impacts Plan Fiduciaries Plan termination requires timely distribution of all plan assets. Plan fiduciaries need to ensure that all participants are given ample opportunity to consent to and receive distributions to which they are entitled. This new DOL guidance impacts the requirements for how plan fiduciaries may discharge their fiduciary duties as well as guidelines for plan sponsors that are terminating ERISA-governed defined contribution retirement plans. A summary of these provisions is found below: Four Search Methodologies Now Specified by the DOL For plan participants who cannot be located upon the termination and distribution of a plan, a thorough search, including internetbased resources should be performed. The four search methodologies specified by the DOL that must be used for locating missing participants, before an unproductive search will be considered to satisfy all fiduciary responsibilities, include: 1. Certified Mail send a letter to the missing participant using certified mail. The DOL has provided a model notice that can be used for these mailings, but other notices can be sufficient. 2. Check Related Plan and Employer Records potentially, the employer s records or those of another employer-maintained benefits plan (such as a group health plan) may contain more current contact information for a participant than the terminating plan. The fiduciary of the terminated plan must ask the employer and the administrator of the other plan to check their records for a more up-to-date address for the missing participant. If there are privacy concerns, the fiduciary of the terminated plan can ask the other party to contact or forward a letter to the missing participant or ask the participant to contact the fiduciary of the terminated plan. 3. Check with Designated Plan Beneficiary similarly, the plan may have more accurate records concerning the participant s designated beneficiary than it does for the participant. Accordingly, the DOL directs that the plan fiduciary try to identify and contact any individual that the missing participant has designated as a beneficiary (such as a spouse or children) to attempt to find updated contact information for the participant. If there are privacy concerns, the fiduciary can request that the designated beneficiary contact or forward a letter to the missing participant. 4. Use Free Electronic Search Tools. The plan fiduciary must make reasonable use of internet search tools that do not charge a fee to search for a missing participant. Examples include internet search engines, public record databases, obituaries and social media. Additional Searches May Be Required. While use of the above search methodologies may be sufficient to discharge a fiduciary s duty in many cases, a plan fiduciary should consider factors such as the size of a participant s account balance and the cost of further search efforts to determine if additional steps are required. Where appropriate, a plan fiduciary may be obligated to take such further actions as using internet search tools, commercial locator services, credit reporting agencies, information brokers, investigation databases and other services that may involve charges which can be passed onto the participant, if located. Plan Distribution Requirements For Missing Participants If the missing participant cannot be located by any of these methods, the plan fiduciary should prudently select an IRA provider to receive distribution of the missing participant s account balance. The DOL has previously published safe harbor rules for selecting an IRA to receive mandatory plan distributions. Following these safe harbor rules will ensure that the plan fiduciary has properly discharged its duties in the distribution of benefits, the selection of the IRA provider, and the investment of the distributed funds. As a last resort, the plan fiduciary can distribute the account balance to an interest bearing federally insured bank account in the participant s name or to a state unclaimed property fund. As this method results in current taxation to the participant (including a 10% early distribution 2 ALLIANCE BENEFIT GROUP (continued on page 6)

3 TAX TALK In this issue of Tax Talk, we include an update on the IRS requirement for electronic filing of certain forms as well as the latest IRS guidance on the allocation of qualified plan distributions when multiple destinations are involved. IRS Requires Electronic Filing of Certain Forms The IRS posted an updated Retirement Plan Reporting and Disclosure Requirements document in early September 2014, which stated that certain 2014 Form 8955-SSA and 2015 Form 5500-EZ filings are required to be filed electronically. Following that IRA update, the Treasury and IRS have issued final regulations for employee benefit plan returns that are required to be filed electronically. Electronic Filing Requirements The IRS requires electronic filing of returns when 250 or more returns are filed by the same person or firm. The regulations count all federal filings of the person toward the 250 threshold. This rule now applies to all filers of Form 8955-SSA, Form 5500-EZ, and the actuarial Schedules MB/SB in determining which reports must be filed electronically. If a filer that is required to file electronically fails to do so, they are considered to have failed to file. To avoid having to determine whether the 250 threshold has been met, a practitioner may decide to file all of these forms electronically. The plan administrator is responsible for filing Form 8955-SSA and any Schedules MB/SB within the following parameters: If the plan sponsor is the plan administrator, all federal returns filed by either entity will be included in the 250 threshold. Where a committee or individual is specifically named as plan administrator, the 250 filing threshold is separate from that of the plan sponsor. Form 5500-EZ filings are the responsibility of both the plan sponsor and the plan administrator; therefore, all federal filings of both entities count toward the threshold. The new electronic filing requirement applies to any Form 8955-SSA for a plan year that begins on or after January 1, 2014, for which the filing is due (not taking into account extensions) on or after July 31, Filing of Form 5500-EZ Form 5500-EZ is not required to be filed electronically until plan years that begin on or after January 1, 2015, for which the filing is due (not taking into account extensions) on or after December 31, The draft 2014 Form 5500-EZ and its instructions, for the first time, permit foreign plans and those one-participant plans that cover more than 100 participants to file Form 5500-SF electronically through EFAST2 as an alternative to submitting a paper Form 5500-EZ. Filings submitted electronically to EFAST2 under this requirement will not be posted on the DOL s electronic public disclosure website, as long as the one-participant or foreign plan boxes are properly checked on the Form 5500-SF. The IRS regulations now require that actuarial schedules must be filed electronically for plan years that begin on or after January 1, 2015, for filings with a due date (not taking into account extensions) after December 31, An exception permits one-participant retirement plans and foreign plans to collect and retain such information, but does not require the actuarial schedules to be part of their Form 5500 filing. New regulations continue to relieve one-participant plan and foreign plan filers of attaching the actuarial schedule to their Form 5500 series filing. An Update On The Treatment of Qualified Plan Distributions to Multiple Destinations When a participant takes a distribution from a qualified plan, the distribution is treated as taxable to the extent that the plan account consists of pre-tax funds. Under prior IRS rules, if the participant directed the distribution to multiple destinations, the amount (continued on page 7) ALLIANCE BENEFIT GROUP 3

4 THE RETIREMENT SAVINGS GAP WIDENS In 2013, the typical household headed by a 55- to 64-year-old had just $111,000 saved in their 401(k) and IRA accounts, which would translate into only $500 a month in retirement income, according to a report from Boston College s Center for Retirement Research based on recent Federal Reserve data. In addition, their research showed that: Households earning less than $39,000 a year had a median savings balance of $13,000 Those earning $138,000 or more a year had a median savings balance of $452,000 The data clearly shows that the retirement savings gap between lower and higher income earners has continued to widen significantly over the past decade. While America s wealthiest households saw the value of their median retirement savings grow by 24% between 2004 and 2013, low-income households savings shrunk by nearly 20%, according to the Federal Reserve s inflation-adjusted data. In addition, a growing number of low and middle-income households have no retirement savings at all. Only 9% of the country s lowest income households and approximately 50% of middle-class families have a retirement savings account, compared to more than 90% of the country s wealthiest households, according to the Federal Reserve data. The National Retirement Risk Index Reveals Disparity in Retirement Readiness With the exception of Social Security, income in retirement is largely a result of the savings an individual is able to save while working. Relatively few workers still receive pensions from their employers. Large disparities in retirement income between lower and higher income groups can be, to some extent, attributed to those with higher incomes saving more for a longer period of time. We expect these savers to have greater overall prosperity in terms of retirement income, but there are also other factors at play. Lower savings rates for lower-income families, the challenges of an economy still recovering from the Great Recession and high consumer debt has compounded this disparity in retirement readiness. The National Retirement Risk Index (NRRI) shows that half of today s working families are at risk of not being able to maintain their standard of living once they retire. Starting Earlier and Working Longer Pays Off The Boston College s Center for Retirement Research study looked at the savings rate required for a medium earner to attain a 70% income replacement rate during retirement. The study took into account the age at which saving started, the potential retirement age and using a conservative real rate of return of 4%, presented the following findings: Savings Rate Required For A Medium Earner To Attain A 70% Replacement Rate Start Saving At Age: Retire At Age: % 24% 44% 65 10% 15% 27% 67 7% 12% 20% 70 4% 6% 10% These calculations assume a real rate of return of 4% The takeaway is that the earlier workers start to save for retirement and the longer they work, the more manageable an annual savings rate they can implement and the more likely they are able to attain a 70% income replacement rate upon retirement. For example, an annual savings rate of 10%, started at age 25 and assuming a conservative real rate of return of 4%, as the Boston College study did, would be sufficient to achieve a 70% income replacement at age 65. (continued on page 6) 4 ALLIANCE BENEFIT GROUP

5 TAX REFORM AND ITS POTENTIAL IMPACT ON QUALIFIED PLANS Earlier this year, the House Ways and Means Committee Chairman, Dave Camp, released a nearly 1,000 page bill, Discussion Draft, the Tax Reform Act of 2014, proposing a variety of changes to America s tax code. Although many believe that the Tax Reform Act is unlikely to be passed in the immediate future, the issues impacting retirement plans merit careful consideration. Below is a summary of some of these proposed changes and their impact on qualified plans. Contribution Proposals Reduce by half the existing limits on employee pre-tax contributions to 401(k), 403(b) and 457 plans with the remaining 50% eligible to be contributed on an after-tax basis to a Roth account. Employers with more than 100 employees would be required to offer Roth accounts in their plans. Establish uniform contribution limits. All defined contribution plans including 403(b) and 457 plans would be subject to the annual contribution limits currently applicable to 401(k) plans. Eliminate special catch-up contribution rules under 403(b) and governmental 457 plans and make the limits for those plans identical to the new limits on 401(k) plans Eliminate Simplified Employee Pension Plans (SEP) and SIMPLE 401(k) plans Distribution Proposals Repeal of the exception to the 10% penalty on early withdrawals from retirement plans for education expenses and for first-time home purchases, and application of this tax to distributions from governmental 457 plans Permit defined benefit plans to make in-service distributions starting at age 59-½ Eliminate the required suspension of contributions following a hardship distribution Employees whose plan terminates or who separate from employment while they have plan loans outstanding would have until the due date for filing their current year tax return to invest their outstanding loan balance in an IRA in order to avoid the loan being taxed as a distribution Individual Tax Rate Proposal Consolidate the current seven individual income tax brackets into three brackets: 10%, 25%, and 35% with the new 35% bracket starting at the same income levels as the current 39.6% bracket $400,000 for single filers and $450,000 for joint filers Starting in tax year 2015, these income levels would be indexed for chained CPI instead of CPI, a slightly different measure of inflation. Certain tax preferences could only be taken against the 25% bracket, but not the 35% bracket including the extent employer contributions to defined contribution retirement can be excluded from gross income Inflation adjustments for the maximum combined contribution by an employer and employee to a defined contribution plan, the maximum elective deferrals with respect to each type of SEP, SIMPLE IRA, and defined contribution plan, and catch-up contributions would be suspended until 2024, at which time inflation indexing would resume Industry Perspective The American Society of Pension Professionals & Actuaries (ASPPA) and the ERISA Industry Committee (ERIC) has expressed concern with this tax reform proposal. ASPPA noted that it would subject individuals in the new 35% tax bracket to a 10% surtax on all contributions made to a qualified retirement plan. Also they note that this proposal would tax contributions to qualified retirement plans twice. Plan participants would pay the 10% surtax when contributions are made to the plan and then pay again at the full ordinary income tax rate when the money is distributed from the plan during retirement. ASPPA CEO and Executive Director, Brian Graff also expressed concern about the freeze on contribution limits until 2023 in an ASPPA press release. The cost of living in retirement is not going to be frozen, Graff said. On top of the double taxation, this is a real blow to employer-sponsored retirement plans, and to American workers retirement security. Please contact an ABG representative with any questions about tax reform and these proposals. Sources: means_section_by_section_summary_final_ pdf ASPPA press release, February 27, ALLIANCE BENEFIT GROUP 5

6 ALLIANCE BENEFIT GROUP NOW OFFERS DAVE RAMSEY S FINANCIAL WELLNESS PROGRAM (continued from page 1) Spending wisely Saving for retirement SmartDollar also includes a variety of financial tools including budgeting, quizzes, and reporting that allow participants to track their progress towards their goals. A unique Ask Dave feature provides participants with the ability to get answers to questions they may have via prerecorded responses to over 3,000 questions Dave Ramsey has received over the years on his popular financial wellness radio show. Brian Hamilton, Vice President of Financial Wellness for Dave Ramsey said, With 70% of Americans living paycheck to paycheck, it s no wonder most employees aren t on track for retirement. Through this program, retirement readiness will be attainable for millions of employees and their families as they walk through a proven plan that teaches them how to change bad habits, get control of their money, and start investing for the future. Easy To Implement For Plan Sponsors From a plan sponsor s perspective, implementing SmartDollar is designed to be easy. Comprehensive marketing and enrollment tools are provided to plan sponsors and the program can be customized to meet specific company needs and personalized for employees. Below is a link to the SmartDollar Video that is available to participants. How To Get Started Helping participants change their behavior towards money and in turn, use their largest wealth-building tool, their income, to save and invest instead of paying consumer debt can ultimately increase retirement plan participation and enhance retirement readiness over the long-term. For more information on SmartDollar and the benefits to your company and its employees, contact your ABG representative. UPDATED DOL GUIDANCE ON MISSING PARTICIPANTS ACCOUNTS (continued from page 2) penalty if the participant is younger than 59½ and current taxation of earnings on the distributed amounts as they accrue), it is not viewed favorably by the DOL. In addition the fiduciary should not treat the full amount of the participant s account balance as having been withheld for income tax purposes. Need help interpreting these new guidelines? Contact your ABG representative with any questions you may have. Source: DOL Field Assistance Bulletin ebsa/regs/fab html THE RETIREMENT SAVINGS GAP WIDENS (continued from page 4) Boosting Retirement Readiness There are a number of ways to help workers boost their retirement savings in qualified plans. They include: Automatic enrollments in employer-sponsored savings plans Automatically increasing contribution amounts annually Financial education, particularly for younger employees, that continues to focus on the importance of starting early and saving regularly over a long period of time Older workers should look to maximize their contributions and take advantage of any catch-up contribution provisions if they are over 50 years of age. Ask your ABG representative about ways to help boost your employees retirement readiness. Source: Boston College s Center for Retirement Research, How Much Should People Save By Alicia H. Munnell, Anthony Webb, and Wenliang Hou* 6 ALLIANCE BENEFIT GROUP

7 TAX TALK (continued from page 3) distributed to each destination was further prorated in order to determine the taxable amount of each portion of the distribution. However now, with IRS Notice , which became effective on January 1, 2015, distributions to multiple destinations will now be treated as a single distribution. This simplifies the process by which qualified plan participants who wish to direct their plan distributions to multiple destinations can allocate among the taxable and nontaxable portion of those distributions. The recipient can generally direct which distributions are taxable and nontaxable, provided he or she follows three guidelines set forth in the Notice as summarized in the table at the right. Please contact your ABG representative if you have any questions about IRS filing requirements or qualified plan distributions to multiple destinations. Three Guidelines For The Tax Treatment Of Distributions Distribution Details Treatment of Distribution The pre-tax amount of the aggregate distribution is less than the total amount of the distribution that is directly rolled over. The pre-tax amount of the aggregate distribution is equal to or more than the amount of the distribution that is directly rolled over to another plan. The pre-tax amount left over after allocation among direct and 60-day rollovers. The entire pre-tax amount is treated as having been rolled over. If these pre-tax amounts are rolled over to multiple destinations, the participant can assign the pre-tax amounts to the various plans to which the rollovers are made. The amount in excess of the amount directly rolled over is treated as the rollover of amounts paid to the participant and then directed to another plan within 60 days, with the participant designating how the pre-tax amount is to be assigned between multiple 60-day rollovers (if applicable). This amount is included in the recipient s taxable income. DID YOU KNOW? In the year 2000, an average 65-year old American male had a life expectancy of 19.6 years. Today, an average 65-year old American male has a life expectancy of 21.6 years, an increase of 2.0 years or 24 months. In the year 2000, an average 65-year old American female had a life expectancy of 21.4 years. Today, an average 65-year old American female has a life expectancy of 23.8 years, an increase of 2.4 years or 29 months. (source: Society of Actuaries) Only 39% of Americans have a 3-month rainy day fund set aside in the event of a financial emergency. (source: Federal Reserve) More than 2 out of every 5 workers (41%) under age 40 that are changing jobs do not roll over their existing 401(k) but rather cash out the pre-tax plan, paying taxes and penalties in the process. (source: Fidelity) More than 1 in 3 American seniors (35%) aged 65 and up have no other source of retirement income other than Social Security. The maximum benefit paid by Social Security to a worker retiring at full retirement age in 2014 is $2,642 per month or $31,704 per year. (source: US Census Bureau) ALLIANCE BENEFIT GROUP 7