Ask the Experts September 20, 2016

(b)lines Ask the Experts – Will Deferral Limits Rise for 2017?

“I’ve already read some estimates that the current 402(g) limit on retirement plan elective deferrals will rise $500 in 2017, to $18,500, while the age-50 catch-up will remain unchanged at $6,000. Is this accurate?”
Reported by

Michael A. Webb, vice president, Cammack Retirement Group, and David Levine, with Groom Law Group answer:  

Any estimates as to what the 402(g) elective deferral limit at this point are just that—estimates. The actual deferral limits for 2017 are not released until late October (last year the Internal Revenue Service (IRS) announced the limits on October 21). The reason the IRS cannot announce the limits sooner is that the indexing of such limits is based on the change in a price index (the Consumer Price Index for All Urban Consumers, or CPI-U.) from the beginning of the fourth quarter of the prior year through the end of the third quarter of the current year, and that third quarter figure is not released until October.

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However, there are entities that can and do make estimates based on the current unrounded 402(g) limits and the increase in the CPI-U from the fourth quarter of 2015 until now. These estimates are based on methodologies described in detail in a previous Ask the Experts column.   

Based on those methodologies, however, the Experts are not tremendously optimistic regarding limit increases in 2017. The reason for this is that price inflation remains relatively flat; the CPI-U actually DECREASED in July (the latest month for which figures are available as of this writing) and the figure has increased only a little more than 1% since the beginning of the fourth quarter of last year. Currently the 402(g) unrounded index figure is $18,158. It would need to increase at least $342, or nearly 2%, in order to exceed the $18,500 figure necessary for the 402(g) elective deferral limit to be increased to $18,500. Though certainly not impossible that the CPI-U will increase year-over-year by the necessary 2% that would result in an $18,500 elective deferral limit in 2017 (we still have August and September to factor into the equation) it appears to become less likely with each passing month.

One thing that is fairly certain at this point is that, barring a spike in consumer prices, the maximum amount of the age-50 catch-up is unlikely to increase from its current figure of $6,000 in 2007. The reason for this is that the unrounded limit is $6,053; it would need to increase $447, or more than 7% for the index to increase to $6,500. It is almost certain that there would not be such a large increase in the CPI-U that would be sufficient to increase this limit.

So don’t be disappointed if 2017 is another year where the elective deferral limits do not increase. However, it is important to emphasize that nothing is official regarding the 2017 deferral limits until such limits are actually released by the IRS in late October.

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.  

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to rmoore@assetinternational.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.
Data and Research September 20, 2016

Americans Embrace Employer Help to Improve Retirement Savings

They are also more willing to take investment risk, a survey finds.
Reported by

Americans have growing concerns about how they’ll build their retirement nest egg, according to new research by Hearts & Wallets.

Less than one-third of accumulators feel their retirement savings are on track, a drop of seven percentage points from two years ago. The decline was across all life stages with the largest decrease among those nearing the traditional age of retirement, Late Careers (ages 53 to 64), falling five percentage points in one year. One-third (31%) saving for retirement are unsure how they will fund their retirement, especially households with less than $100,000 in investable assets.

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As consumers struggle to identify retirement income, they are becoming more open to using the resources offered by their employer-sponsored retirement savings plans. Mid-Career (ages 40 to 52) are now as receptive as younger consumers, with 45% agreeing they would “use retirement planning resources provided through my employer, or would if they were offered.”

National anxiety levels and concern about the future declined in 2016, falling from 17% in 2012 to 12% in 2016. Older consumers feel better than younger people. More than one-third of younger Americans (35%) now express high or moderate anxiety, up from 27% in 2014. Almost all Americans wish they were saving more. Those who strongly agree that they wished they saved more increased to 34% up from 28% in 2010, with agreement being very high among the young.

More consumers (27%) are comfortable accepting volatility in the hope of getting higher returns, up from 22% in 2015. Consumers are dealing with the new barrier to retirement asset growth, the first since 2008, as retirement assets had grown steadily the last seven years. Likewise, aggregate investable assets were flat in contrast to a big gain among the wealthy in 2014. A bright spot was the 700,000 households with $50,000 to less than $250,000 that built their assets through increased savings.

The survey also found building an emergency fund has become even more important in a year when total household investable assets and retirement asset growth were flat. In addition, savings allocation is a largely unmet need for an investor segment that is 41.1 million households with $5.2 trillion in investable assets who say they find it difficult or extremely difficult to decide where to put savings, such as to make an extra mortgage payment or contribute to an IRA.

“Plan sponsors and advisers should understand the mindset of this segment of investors and the importance of financial information to help them sort through savings priorities. Hearts & Wallets research finds that simply saying invest in your 401(k) will ring hollow when investors have many competing priorities. Marketing and messaging should be phrased to recognize and engage investors,” the company says.

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