Posts by Darlene Finzer, CPA, QKA, CSA, Director of Benefit Plan Audit Services:
It’s difficult to paint a picture that adequately portrays the retirement readiness of the American people. How prepared the average person is for this phase of their life greatly depends on which report you are reading today. As a whole, however, credible sources indicate that as a population we are simply not prepared to take on the financial responsibility of supporting ourselves later in life, which is a problem that has received a lot of attention from our nation’s leaders.
Last year marked the introduction of myRA, a retirement account program that encourages individuals without access to an employer-sponsored retirement plan to save for their retirement. Developed by the United States Department of the Treasury, myRA seeks to offer a solution to those who “face barriers to saving for retirement.” But that’s not the only chatter heard on Capitol Hill these days, with regard to the retirement savings habits of Americans. Members of Congress have proposed other solutions that they hope will make the retirement picture a little bit brighter.
2016 Budget Proposal Addresses Retirement Savings
The U.S. government’s 2016 Budget Proposal includes provisions that target the promotion of retirement goals.
“Millions of working Americans lack access to a retirement savings plan at work. Fewer than 10 percent of those without plans at work save in a retirement account on their own. In 2015, retirement security will be one of the key topics of the White House Conference on Aging. The Budget would make it easy and automatic for workers to save for retirement through their employer – giving 30 million more workers access to a workplace savings opportunity. The Budget also ensures that long-term part-time employees can participate in their employers’ retirement plans and provides tax incentives to offset administrative expenses for small businesses that adopt retirement plans.”
What is important to note is that, in addition to retirement security, the Proposal focuses on generating government revenue, which would (in part) go toward the creation of new tax benefit programs. The impact, according to the Whitehouse, would result in savings for as many as 30 million American taxpayers.
Today, nearly 78 million working Americans are unable to save for retirement simply because they are not eligible to enroll or because their employer doesn’t offer the opportunity to save for retirement. This Proposal introduces a solution for those who would like to begin saving for their golden years.
For example, one possible scenario outlined within the budget calls for all part time workers (those who have worked for their current employer at least 3 consecutive years and who have worked at least 500 hours during each year of their employment), who are not currently contributing to a retirement plan, to be allowed to contribute to the company’s existing retirement plan without requiring the plan sponsor to add matching contributions for such individuals.
Another is for those who do not have access to an employer-based retirement plan, however, would be automatically enrolled in a separate IRA program, which would be funded by payroll withholdings. Of course, the taxpayer would have the option to opt out of the program.
What’s In It for the Employer?
The retirement savings provision outlined in the 2016 Budget Proposal not only provides individual Americans with an opportunity to save, it seeks to provide financial incentives to eligible companies that establish their own 401(k), auto-IRA or that offer another similar retirement plan to their employees by expanding the small business tax credit.
This provision would also include an additional credit for small businesses that currently offer retirement plans to include an automatic enrollment feature within their plans.
Employees who are still unable to save for retirement will have a third option available. The Budget Proposal calls for the allocation of $6.5 million to the Department of Labor, which would allow a limited number of states to implement state-based auto enroll IRAs or 401(K)-type programs.
Mind the Cap
President Barack Obama’s 2016 Budget Proposal, while ambitious in its initiative to strengthen Social Security and incentivize retirement savings programs for Americans, also includes a provision that had been proposed (and rejected) before. The additional provision seeks to cap (prohibit additional contributions) on IRAs and other tax-preferred retirement plans once they reach a balance of $3.4 million.
According to the president, this step ensures that the individual secures sufficient annual income in retirement while preventing the “overuse” of existing tax advantages by those who are able to contribute additional funds, creating higher balance accounts. The cap would also help the government generate additional revenue because the funds that exceed the $3.4 million cap would now be taxable under this provision.
As always, when it comes to the future of Social Security and the overall retirement readiness of the American people a lot can change in a short amount of time. The 2016 Budget Proposal still has a long way to go before any of the provisions outlined within become reality. It’s important for you to be aware of these provisions and how they could change our current retirement plan landscape.
In the meantime, don’t just wait for changes to happen. Take steps today that will maintain the flexibility of your existing benefit plan while optimizing your company’s current and future ROI. Email the Benefit Plan Audit team at Rea & Associates to learn more.
By Darlene Finzer, CPA, QKA, CSA (New Philadelphia office)
Traveling to exotic places. Spending hours on the links. Enjoying time with the grandkids. Supporting philanthropic efforts. While these all might be things you hope to do during retirement, do you have any idea the likelihood that you’ll actually get to do them? Sadly, more and more individuals are finding that they’re not adequately prepared for retirement. According to the Employee Benefit Research Institute’s (EBRI’s) March 2013 Retirement Confidence Survey, 49 percent of individuals surveyed are “not very confident” or “not at all confident” that they’ll have enough income when they hit retirement. That’s an astounding, yet insightful number. How would you answer the question, “How confident are you that you’re prepared for retirement?” If you find yourself in either of the categories mentioned above, all hope is not lost.
For many of you, retirement probably seems light years away. But there may be some of you who are fast approaching retirement age. Wherever you’re at on the retirement spectrum there are practices you can put in place now to move you toward your retirement goals.
Five Practical Tips for Retirement Readiness
- Look at your ability to save and cut corners where you can to save money. Even if your savings goal seems beyond reach or too distant in the future to be of concern now, re-evaluate where you can save and strive for it. Some individuals won’t begin to save if they see the goal as unattainable and set themselves up for failure before they even begin. Just as a tiny grain of sand can form into a pearl within an oyster over time, small steps in saving for retirement can lead you to your goals. Take responsibility to make it happen, and get financial advice if you need some help.
- Determine what you expect your retirement lifestyle to look like. If you dream or envision traveling to those exotic places I mentioned earlier, or perhaps you want to buy a motor home and travel the United States, it’s critical that you have the funds to do it. In theory it sounds like a great idea, but what many people realize upon retirement is that they don’t have enough funds to support these kinds of adventurous or carefree lifestyles. The EBRI survey cited above also showed that seven out of 10 individuals haven’t talked with a financial advisor about their financial situation nor have they put together a plan for retirement. If you want to have a retirement that’s close to what you dream of, put a realistic plan together for what you expect retirement to look like and go after it to make it happen.
- Evaluate your debt. Have you purchased a new car? Is your mortgage paid off? Are you (or are you planning on) paying for your kids’ college education? As you prepare for retirement, it’s important you evaluate your debt situation. Ideally, you don’t want to go into retirement with any debt. Work hard now to pay off debt you may have. It’ll pay off (literally and figuratively) later on down the road!
- Consider what monetary resources you have to pull from. There’s a whole slew of ways you can fund your retirement. Make certain you are taking advantage of any retirement plan your employer offers. Not only does this give you the ability to save for retirement, but many employers will also contribute money for you – do your best to take full advantage of the contribution your employer will make for you. Personal savings and other avenues, such as an Individual Retirement Account (IRA) or investment in property, could be considered. Social security benefits can also be factored in as part of your retirement benefits, but should not be viewed as the only or primary source of retirement income.
- Anticipate medical costs and needs. You may feel fit as a fiddle. But unfortunately for many of us, that feeling won’t last our entire lives. As we get older, our bodies age, and it’s important for us to prepare financially for any potential medical costs or needs we could encounter. Medical costs are one of the more commonly overlooked items when planning for retirement. Knowing your family’s medical history could be helpful when anticipating your future medical costs.
Retirement Planning Help
While these five tips won’t completely solve all of your retirement woes, they’ll help you get in better shape for retirement. Don’t wait until it’s too late. To celebrate National Employee Benefits Day, which is today, start preparing for the retirement of your dreams today. If you need guidance or additional insight on how to best plan for your retirement, contact Rea & Associates. Our team of Ohio tax professionals can help you put together a plan to ensure you’re on a good path to retirement.
Author: Darlene Finzer, CPA, QKA, CSA (New Philadelphia office)
Looking for more advice on retirement planning? Check out these posts:
Do you ever long for the carefree bliss of your childhood? No real responsibility. No bills to pay. No one depending on your performance. While it’s nice to daydream, it’s never going to happen, especially considering the fiduciary responsibility you have as a plan sponsor. Read the rest of this entry “
Your time is precious and you want to use it effectively. The last thing you want to face is multiple requests from auditors that make you feel like you’re running around without purpose. It doesn’t have to be this way. A little preparation on your end will help the process run smoother and give you fewer headaches. Read the rest of this entry “
Every fall, just as we can expect the leaves to change colors and the weather to turn colder and a little dreary, we can also anticipate changes we will see coming in the following year with respect to employee benefit plans. Read the rest of this entry “
The Department of Labor (DOL) has focused on the timely remittance of employee contributions to retirement plans for a few years. And recently, they stepped up efforts during agency-conducted audits, making this a key area of detailed review. The timeliness of your remittances will be under the microscope, and not only the frequency, but also the consistency. Read the rest of this entry “
The past few weeks have been full of high visibility news stories ranging from the tragic Boston Marathon bombing to the devastating plant explosion in West, Texas. Amidst these stories and others, there was one important story you may have missed that could affect you and your retirement in a very significant way. President Obama recently unveiled his 2014 budget proposal that resulted in varied opinions over the retirement-related provisions that could greatly impact the retirement industry. Read the rest of this entry “
How to Prepare For Changes to Your Retirement Plan
While the basics of double entry accounting haven’t changed in hundreds of years, the devil, as they say, is in the details. And, when it comes to accounting, the details are always changing. A new accounting standard update has been announced – and it could have a big impact on your pension plan’s 2012 audit.
For the last decade, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have been working toward accounting convergence; bringing U.S. accounting standards into harmony with international requirements. Through the Accounting Standard Updates (ASUs), FASB has been nudging U.S. standards closer to their international counterparts. Think of it as the accounting equivalent of finally getting America to convert to the metric measuring system. It’ll be great once we’re all on the same page, but the process of getting there… well, it’s a little complicated.
Every year, we receive questions regarding whether a filing requirement exists for a client’s welfare benefit plan. Clients want to ensure that their plans remain ERISA compliant without taking on the burden of any unnecessary paperwork. Here are answers to some of the most frequently asked questions about employee welfare benefit plans. Read the rest of this entry “
In the midst of the publicity surrounding the new ERISA fee disclosures requirements, it is important not to lose sight of the fact that other recently enacted legislation may impact your retirement plan. Changes to IRS regulations may require plan’s to adopt amendments before the end of the year. Read the rest of this entry “
When it comes to following the ERISA requirement of fidelity bonding, the devil, as they say is in the details.
The Employee Retirement Income Security Act of 1974 (ERISA) requires that fidelity bonding be obtained to cover each person who “handles” plan assets. The general rule is the bond amount be ten percent (minimum of $1,000) of plan assets as of the beginning of the plan year, not to exceed $500,000, or one million dollars if the plan holds employer securities.
While this requirement seems relatively straightforward, we find plan sponsors are sometimes unclear about their fidelity bond responsibilities when we are performing benefit plan audits. Following are some of the commonly asked questions. Read the rest of this entry “
You may have heard the retirement terminology “three-legged stool” used to describe the three most common sources of retirement income: Social Security, employer sponsored retirement plan and personal savings. Many factors affect the strength of each “leg,” so you must continually evaluate what changes you need to make to keep the stool strong and upright. Read the rest of this entry “
It’s Your Turn to Disclose Fees to Participants
Did you suffer from sticker shock when you received the recent fee disclosures from your service providers? If so, you weren’t the only plan fiduciary to be surprised, even though it’s your job to know the ins and outs of your pension plan.
Now, by August 30, you have to disclose that fee information to your plan participants. How do you think they will react? It is possible they aren’t going to like the news. Worse yet, they may be confused as to why they are suddenly paying new fees when the reality is they have always paid them. Being upfront about plan costs, and plan benefits, can help you make it through this new disclosure requirement. Read the rest of this entry “
Understanding Employee Benefit Plan Types
In 2001, a new retirement plan option was created. Although this option, known as a Roth 401(k), has been around for a few years now, there’s still some confusion about how it works and what makes it different from a traditional 401(k). As a plan sponsor, you need to understand the Roth 401 (k) and its benefits so that you can be sure that you’re offering the right retirement plan options to your employees. Read the rest of this entry “
408(b)(2) Regulations Help Meet Fiduciary Responsibilities
Are you wondering why there is so much buzz these days about ERISA Section 408(b)(2) fee disclosures? After all, your service provider tells you what you pay for the services provided, right? Maybe.
Service provider pricing and compensation can be structured many different ways, so it may prove difficult for you, a responsible plan fiduciary (RPF), to evaluate plan fees. The Department of Labor (DOL) recognizes this and, in 408(b)(2) regulations, is mandating what information is to be disclosed to help you assess the reasonableness of fees paid for by the plan. The regulations also aim to help identify conflicts of interest that may impact a service provider’s performance. Read the rest of this entry “