Data and Research February 2, 2018

Americans Confident DC Plans Can Help Them Meet Their Goals

They like the tax advantages, investment opportunities and investor control that 401(k)s and other DC plans offer them, ICI finds.

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Seventy-seven percent of Americans are confident that their 401(k) and other defined contribution (DC) plans will help them meet their retirement goals, the Investment Company Institute (ICI) found in a survey.

This rose to 84% among households that actually own a DC account or individual retirement account (IRA); 63% of households that did not own such an account said they were confident that these accounts could help them meet their goals.

ICI also found that people like DC plans for their tax advantages, investment opportunities and investor control.

“The key features of 401(k)s, 403(b)s and other DC plans really drive their popularity among Americans,” says Sara Holden, senior director of retirement and investor research at ICI. “DC plan participants appreciate the convenience of payroll deduction and the incentive of the tax treatment of these plans to encourage savings. Further, most DC-account-owning households said that their employer-sponsored retirement accounts help them think about the long term, not just their current  needs.”

The survey found that 91% of plan participants say the accounts help them think about their long-term needs. Ninety-two percent said the payroll deduction makes it easier to save, and 82% said the tax treatment of their retirement plan gives them a big incentive to save. Nearly half of the people surveyed said that if it were not for their workplace retirement plan, they probably would not be saving for retirement.

Ninety-four percent said they think it is important to have control of their investments. Eighty-three percent said their plan offers them a good lineup of investment options, and 83% said knowing they are saving from every paycheck makes them less worried about the short-term performance of their investments.

The survey also found widespread support for maintaining the current contribution limits and preserving the tax treatment of DC plans. Ninety-one percent disagreed that the government should take away the tax advantages of DC accounts, and 91% said they did not want the government to reduce the amount that people can contribute to a DC plan. Even among households that do not own a DC account, 85% said they did not want the tax advantages to be removed.

More than nine out of 10 households agreed that retirees should be able to make their own investment decisions, and more than eight out of 10 disagreed that retirees should be required to trade a portion of their retirement accounts for a fair contract promising them income for life.

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GfK Group conducted the online survey for ICI last December among more than 2,000 U.S. adults. The full findings of the survey can be viewed in ICI’s report, American Views on Defined Contribution Plan Saving.
Compliance February 2, 2018

Tax Reform and Other Actions Affect Benefits

During a webcast sponsored by Mercer, implications of the AARP v. EEOC lawsuit ruling were discussed.

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In a recent Washington Update webcast, Mercer professionals focused on the influence of recent tax laws concerning health care, retirement plans, investments and executive rewards; new benefits reaping in the 2018 year; and what employers should know.

 

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Given the updated corporate tax rate cut from 35% to the new 21%, employers should expect pension funds to be costlier, says Mercer’s Cheryl Hughes, principal in Mercer’s Washington Resource Group. Due to the decrease, an increase after-tax cost of contributions should be expected, yet a grace period through September 15 is anticipated for most, according to Mercer.

 

Relating to employer-shared responsibility under the Affordable Care Act (ACA), employers’ priorities include completing 2017 reporting by the extended March. 2 deadline, along with filing 1094/1095 reports with the Internal Revenue Service (IRS) by February 28 through paper form, or April 2 electronically.

 

In light of the 2017 AARP v. EEOC ruling in which the 30% wellness inventive for physical exams or health screenings will be ejected as of January 1, 2019, Mercer suggests employers prepare accordingly for the upcoming year. Certain considerations Mercer says includes eliminating biometric screenings and health risk assessments; finding other solutions to incite engagement with biometric screenings and health reimbursement arrangements (HRAs); and utilizing additional programs with incentives. Additionally, Mercer alerts employers that the Equal Employment Opportunity Commission (EEOC) could issue new rules, or even appeal the court ruling.

 

All Employee Retirement Income Security Act (ERISA)-covered plans offering disability benefits and distributions, along with all claims filed after April. 1 will be subject to the Department of Labor’s (DOL) final disability rules. Those plans who rely on a third-party administrator (TPA), according to Hughes, will not be subject to these rules. To prepare, Hughes says employers should establish which plans are subject to the new rule; review compliance policies with careers and/or TPAs; review and update summary plan descriptions (SPDs) or summaries of material modifications (SMMs); and go over claims, appeal procedures and notices.

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