Ask the Experts September 16, 2014

(b)lines Ask the Experts – When to Expect Contribution Limit Information

September 16, 2014 (PLANSPONSOR (b)lines) – “Already attempting to plan for 2015. Do we know when the new retirement plan contribution limits will be announced?”
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Michael A. Webb, vice president, Cammack Retirement Group, answers:

Kudos for you for already planning for next year! As for the timing of the announcement of the limits, the Internal Revenue Service (IRS) has to wait until the release of inflation figures measured through the third quarter of the current year (3rd quarter 2014, in this case) in order to calculate the limit for the following year (2015 in this case). Since the third quarter closes on September 30, the limits are typically announced during the month of October. Unfortunately, it is not announced on the same day each year, so it can be difficult for planning purposes to rely on specific notification timing in order to interface with payroll, alert employees, etc.

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Over the last five years, the new limits have been announced on the following dates:

2014: October 31, 2013

2013: October 18, 2012

2012: October 20, 2011

2011: October 28, 2010

2010: October 15, 2009

Based on this pattern, it is a fairly safe bet that the IRS will release the 2015 limits sometime during the second half of October. Note that some individuals/entities provide ESTIMATES of what the new limits will be prior to that time, but nothing is official until the IRS actually releases the limits.

If you wish to be among the first to receive news of the new limits, you can check the IRS website (http://www.irs.gov) each day during the second half of October, or subscribe to the various IRS newsletters by clicking on the Subscriptions tab at the top of the web page. Also, the PLANSPONSOR website (http://www.plansponsor.com)  typically releases the limits shortly after the IRS announcement.

For more details as to how the limit increases are calculated, see “Ask the Experts:How Are Contribution Limits Set?” 

Thank you for your question!

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
Administration September 15, 2014

Municipal Pensions’ Funding Up in FY 2013

September 15, 2014 (PLANSPONSOR.com) - Wilshire Consulting estimates that the ratio of pension assets to liabilities, or funding ratio, for the city and county pension plans it studied was 73% in 2013, up 4 percentage points from 2012.
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The “Wilshire 2014 Report on City and County Retirement Systems: Funding Levels and Asset Allocation” is based upon data gathered by Wilshire from the most recent financial and actuarial reports available and includes 109 city and county retirement systems. Of these, 105 systems reported actuarial values on or after June 30, 2013, and the remaining four systems last reported before June 30, 2013.

“Of the 105 city and county retirement systems which reported actuarial data for 2013, 90% have market value of assets less than pension liabilities or are underfunded,” says Russ Walker, vice president, Wilshire Associates, and an author of the report.

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For the 105 city and county retirement systems that reported actuarial data on or after June 30, 2013, pension assets increased 11%, or $42.3 billion, from $386.9 billion in 2012 to $428.9 billion in fiscal year 2013, while liabilities grew 5%, or $26.2 billion, from $563.5 billion to $589.7 billion. These 105 plans saw their aggregate shortfall decrease $16.1 billion over fiscal year 2013, from -$176.9 billion to -$160.7 billion.

“City and county pension portfolios have a 62.4% average allocation to equities, including real estate and private equity, and a 37.6% allocation to debt and other assets,” Walker notes. “The 62.4% equity allocation is lower than the 63.8% equity allocation five years prior in 2008. Asset allocation varies widely by city and county retirement system. Thirty-four of the 109 retirement systems have total allocations to equity that equal or exceed 70%, and fourteen systems have equity allocations below 50%. The 25th and 75th percentile range for equity allocation is 55% to 72%.”

Wilshire forecasts a long-term median return on city and county pension assets equal to 6.6% per annum. This 6.6% estimate, based on beta-only asset class assumptions and excluding active-management alpha, is below the median actuarial interest-rate assumption of 7.75%. One should note that Wilshire’s assumptions range over a conservative 10-year or longer time horizon, while pension plan interest-rate assumptions typically project over 20 to 30 years.

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