Compliance September 12, 2014

IRS Publishes Guidance for Using Pension Funding Relief

September 12, 2014 (PLANSPONSOR.com) – The Internal Revenue Service (IRS) has released guidance relating to the defined benefit (DB) plan funding relief provided in legislation signed into law by President Obama on August 8.
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The Highway and Transportation Funding Act (HATFA) extends relief provided in the Moving Ahead for Progress in the 21st Century Act (MAP-21)—passed in 2012—which allowed defined benefit plans to discount future benefit payments to a present value using a 25-year average of bond rates rather than a two-year average. MAP-21 created a “corridor” of rates on either side of a 25-year average that were also permissible for pension liability discounting purposes. If the two-year average falls outside this corridor (as is currently the case), a company can use the 25-year average that is closest to the two-year average in the corridor. Under MAP-21, the corridor started narrow and was to gradually expand until 2016. The new bill makes the corridor narrow again.

Under the modifications made by HATFA, for plan years beginning in 2012 through 2017, each segment rate is adjusted so that it is no less than 90% and no more than 110% of the corresponding 25-year average segment rate. For later plan years, this range is scheduled to gradually increase, so that the segment rates for plan years beginning after 2020 are no less than 70% and no more than 130% of the corresponding 25-year average segment rates.

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A plan sponsor can elect not to have the modifications to minimum funding requirements apply to any plan year beginning in 2013, either for all purposes or solely for purposes of determining the plan’s adjusted funding target attainment percentage (AFTAP) for that plan year.

IRS Notice 2014-53 sets forth the procedures for elections made under HATFA that relate to a plan year beginning in 2013; sets forth rules regarding elections and designations relating to the minimum funding requirements applicable to the plan for the plan year beginning in 2013; explains reporting requirements if the HATFA segment rates apply to the 2013 plan year; and provides guidance for the application of benefit restrictions and related rules for a plan year beginning after December 31, 2012, and before October 1, 2014.

Notice 2014-53 is here.

Benefits September 12, 2014

Youngest Workers Ripe for Financial Education

September 12, 2014 (PLANSPONSOR.com) - Biggest financial worries: unemployment, student loans, and whether Social Security will be adequate. Here comes Generation Z.
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TD Ameritrade’s third-annual survey finds Generation Z (ages 15 to 24) open to investing but lacking financial literacy amid growing credit card debt and waning confidence in Social Security. With average student loan debt of $29,000, those in Generation Z understand the importance of saving. The survey takes a closer look at what this generation is doing right and where there is room for improvement. The survey also polled Generation Y (ages 25 to 37) this year, to see how these two generations differ.

Whatever the future holds, most Gen Zers say they plan to start a job, buy a car, pay off student debt, get married, buy a home, then begin saving for retirement—in that order. On average, Gen Z believe the right age to start saving for retirement is 27. According to the survey, only one in five Generation Z respondents say they are currently saving for retirement.

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How does Gen Z plan to go about saving for retirement? Just 17% believe that the best way to plan for retirement is to invest in the stock market. While that’s up from 11% a year ago, many more (47%) believe that a savings account is the best way to prepare for retirement.

“While it’s promising to see that Gen Z is starting off with a good understanding of the importance of investing and saving, there is a tremendous opportunity to help educate them on all of the available options,” says Nicole Sherrod, managing director at TD Ameritrade. 

Members of Gen Z have some future concerns on their minds. An increased number of those in Gen Z—from 39% in 2013 to 44% this year—fear that Social Security and other similar government retirement programs will be depleted by the time they retire.

As the average cost of a four-year degree continues to rise, most (65%) high school-aged Gen Zers expect to pay tuition with assistance from scholarships and grants. The reality, however, may be a bit different: Only 54% of post-college Gen Zers and 50% of those in Gen Y actually benefited from scholarships and grants.

The survey found members of Gen Z increasingly feel saving is very important at this point in their lives (57% up from 50% in 2013). If handed $500, nine of 10 Gen Zers say they would save at least some of it.

Gen Z’s budgeting skills are improving, as 36% say they have a budget and follow it (up from 27% in 2013). However, there are some areas in which they could use a little guidance. The survey suggests credit card debt increases with age. The average debt for college-age Gen Z is $559, while for post-college-age Gen Z it is $975 and for Gen Y it is $1,946. Fewer members of Gen Z surveyed in 2014 (43%) say they pay off their credit card bills monthly, compared with 2013 (59%).

Video interviews and full survey findings can be found at TD Ameritrade’s site.

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