Compliance February 14, 2024

IRS Updates FAQ for Premium Tax Credit

The tax credit is designed to make health insurance purchased through the marketplace more affordable.

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The IRS updated its frequently asked questions document addressing the Premium Tax Credit on February 9. The update supersedes an earlier update from February 2022 and clarifies items on eligibility and affordability.

The premium tax credit is a refundable credit to help lower-income households afford health care purchased through the Health Insurance Marketplace.

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Eligibility

Question 5 was updated to reflect that an individual or couple is eligible for the credit if their income is between 100% and 400% of the federal poverty line or they were eligible for unemployment compensation in 2021. They must also not file separately, and the claimant cannot be claimed as a dependent on other returns.

The release added in Question 45 clarified that if the only person that claimed unemployment in 2021 in a household is being claimed as a dependent, then one may not claim the tax credit.

Affordability

The IRS also updated the maximum percent that an employee can pay on annual premiums for self-only coverage in order to satisfy the minimum value requirement. For 2023, that is 8.39%, a decline from 9.61% in 2022. This was updated by Question 11.

Question 15 added that a sponsored plan “provides minimum value if the plan covers at least 60 percent of the expected total allowed costs for covered services.”

Employees who have coverage offers from more than one employer “are generally considered to have an offer of affordable coverage if at least one of the offers of coverage is affordable,” per Question 13.

Data and Research February 14, 2024

Target-Date Assets Reach Record High $3.5 Trillion in 2023

Fees continued to fall, performance rallied and assets grew, according to Sway Research.

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Target-date assets rebounded in 2023, gaining 22% to end the year holding $3.47 trillion, new Sway Research shows.

“Most of it was market-driven,” says Chris J. Brown, founder of and principal in Sway Research. “The soaring stock market definitely helped pull these things up.”

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The top-ranked providers of TDs were Vanguard, with $1.287.9 billion; Fidelity Investments, with $498 billion; and BlackRock, with $427 billion, across all structures, products and investment types, the research found.

In 2023, the asset-weighted return of passive mutual fund target-date series was 17.3%, compared with 16.9% for active series and 16.6% for hybrid series, according to “The State of the Target-Date Market: 2024, Examining Asset Trends Across Providers, Products, Vehicles, Management Styles, and Glide Path Structures.”

While collective investment trusts had been thought likely to surpass mutual funds in 2023, mutual fund target-dates started 2024 holding slightly more assets—$1.76 trillion, compared with $1.71 trillion in CITs. Assets in CIT-based target-dates expanded by 26% in 2023, compared to mutual fund products, which grew 19%.

In 2023, Capital Group’s American Funds target-date retirement mutual funds surpassed BlackRock’s LifePath Index CIT to become the third-largest target-date series by investment product.

Capital Group’s CIT trailed the mutual fund and CIT versions of Vanguard Group target retirement funds, which held $668 billion and $620 billion, at year end.

Among mutual fund TDF providers, BlackRock LifePath TDFs had an AUM of $427 billion; T. Rowe Price managed $350 billion; and American Funds ended 2023 with $272 million in AUM, according to the report.

When advisers and plan sponsors are looking for actively managed TDFs, Brown says Capital Group and T. Rowe Price are often their choices.

“A lot of advisers, I think, and some plan sponsors, still prefer to have an active option in their plan,” Brown says. “If they’re going with an active product, it’s usually American Funds or T Rowe Price.”

American Funds continues to win flows because the investments carry low expense ratios for active products, Brown explains.

Since 2019, Capital Group’s American Funds target-date assets expanded to 8.2% from 5.9% of the target-date market, excluding assets in custom target-date strategies. In the same time period, market leader Vanguard grew its asset share by one-half of a percentage point.

While the publicly available version of the report did not disclose by what corresponding percentage Vanguard grew its share of target-date market assets, the passive manager’s target-date assets totaled $1.29 trillion at the end of 2023, 37.1% of the market.

Although mutual fund series still hold more assets, CITs, which generally charge lower fees due to lower operational costs, are proliferating. As of 2019, there were 62 mutual fund series controlling 62% of target-date assets. But five years later, there are now 49 mutual fund series remaining, and their asset share has fallen to 51%, according to Sway data.  

The asset share of CITs has increased to 49% from 38% in 2019, 85 CIT-based target-date series are currently available to investors, up from 61 in 2018.  

Sway’s study of the target-date market is based on a proprietary database of mutual fund and collective investment trust target-date portfolio and asset data, which included 135 target-date solutions, with assets as of year-end 2023, spread across more than 6,200 mutual fund share classes and CITs.

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