Compliance September 5, 2024

IRS and Treasury Request Comments on Saver’s Match Contributions

The regulators are seeking input by November 4 on the federal program scheduled to begin in 2027.

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The Internal Revenue Service and Treasury Department Thursday put out a request for comments on issues related to the SECURE Act 2.0 provision that creates a federal Saver’s Match, under which the federal government would contribute up to $2,000 annually to an individual’s defined contribution plan or individual retirement account.

The Saver’s Match, scheduled to begin in 2027, would replace the Saver’s Credit, a nonrefundable tax credit. It is intended to increase retirement savings for low-to-moderate income Americans. The match would be paid by Treasury to a retirement plan or non-Roth IRA designated by an individual claiming the contribution, according to the regulators’ notice.

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The amount of an individual’s Saver’s Match contribution will depend on the individual’s income or joint income level. “For example, for a married individual filing jointly, the Saver’s Match contribution phases out completely at a joint income of $71,000, and, for a single filer, the Saver’s Match contribution phases out completely at an income of $35,500,” the notice states.

The $2,000 maximum amount of qualified retirement savings contributions under ,the Saver’s Match is not indexed for inflation, however, the modified adjusted gross income levels in the phaseout range are indexed. The tax code sets eligibility for a Saver’s Match contribution as a person who is 18 in the taxable year in question, except for full-time students, anyone who is claimed as a dependent on another taxpayer’s return for that taxable year or is a nonresident alien meeting certain conditions.

The federal government is seeking specific comments on a series of topics regarding the Saver’s Match contributions including:

Eligibility, claiming, reporting, disclosure, how the receiving account would be designated or identified, the process for completing contributions, and how the federal government would recover taxes on certain specified early distributions of contributions.

They are also asking for comment on how Treasury and the IRS could ensure that individuals in underserved communities know how to participate and receive the full benefits of Saver’s Match contributions.

The notice asks prospective commenters to address a series of 29 questions on different aspects of the program and its operation.

SECURE 2.0 requires the Treasury Department to take steps to increase public awareness of Saver’s Match contributions, and to provide a report to Congress no later than July 1, 2026, summarizing the anticipated promotional efforts.

Comments are requested by November 4, either at www.regulations.gov or by mailing the comments to Internal Revenue Service, CC:PA:01:PR (Notice 2024-65), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

Data and Research September 5, 2024

PRT Market Closes at $26B in First Half of 2024

Verizon, Shell and 3M completed the year’s three largest pension risk transfers so far.

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Driven by an increased number of plan sponsors looking to terminate their traditional defined benefit pension plans, the U.S. pension risk transfer market closed at $26 billion in the first half of 2024, according to new data released by Legal & General Retirement America, an increase of about 15% from the first half of 2023 ($22.5 billion).

The increase in market volume can largely be attributed to transactions that exceed $1 billion, of which there have been five so far this year—totaling approximately $16 billion. Over the last three years, large transactions have made up around 50% of the market, according to LGRA.

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LIMRA also announced Thursday that in the year’s second quarter, total PRT premiums fell 31% year-over-year to $11.3 billion.

“Although second quarter 2024 premium results fell short of last year, historically these results are strong,” said Keith Golembiewski, LIMRA’s assistant vice president of annuity research, in a statement. “In addition, the number of contracts sold increased 10% year over year, indicating broad plan sponsor interest continues. LIMRA is forecasting strong PRT sales in the second half of 2024.”

The three largest publicly announced U.S. transactions so far this year have been Verizon Communications Inc. ($5.9 billion), Shell USA Inc. ($4.9 billion) and 3M Co. ($2.5 billion).

Prudential Insurance Co. of America also recently completed the industry’s first PRT involving a multiemployer plan. The $221 million transaction will provide pension benefits for 87,000 retirees and beneficiaries at Sound Retirement Trust, a multiemployer plan based in Seattle.

LGRA found that slightly more plan sponsors are looking to terminate their pension plans this year, as 66% of the transactions that occurred in the first half of this year were plan terminations, compared with 54% in 2023. High corporate pension funding ratios also likely play a role in the growth, as plan sponsors with fully funded or overfunded plans are in a good position to conduct a PRT.

The average U.S. pension funding ratio continued to soar: 109.5% in July, according to LGRA’s Pension Solutions Monitor.

However, with the Federal Reserve planning to cut rates this month and a poor market performance in the beginning of August, experts say companies considering a PRT should do so sooner rather than later.

In addition, the increased number of insurers participating in PRTs has heightened competitiveness and expanded capacity in the market, with 21 insurers currently involved and more entrants expected.

Meanwhile, employers continue to face lawsuits attacking their completion of PRTs with Athene Annuity and Life Co. The most recent lawsuit targeted Bristol-Myers Squibb Co. and its independent fiduciary, State Street Global Advisors Trust Co.

Looking ahead, LGRA reported that it expects at least two more transactions worth more than $1 billion to close by the end of the year.

LGRA also noted increased activity from midsized pension plans compared with previous years. For example, LGRA found approximately 20% more transactions valued between $50 million and $500 million when compared with the last five years.

“We anticipate the full year market volume to exceed $50 billion, surpassing 2023’s volume of $46 billion and nearing the record-setting volume in 2022 of $51.9 billion,” the report stated.

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