Benefits January 18, 2017

myRA a Savings Opportunity for Low-Income Employees

With low start-up and ongoing contribution amounts, myRA could be an option to kickstart savings for low-income workers.
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As the 2016 tax season gets underway, the U.S. Department of the Treasury is encouraging Americans to consider using their federal tax refunds to boost retirement savings—including through the myRA savings initiative launched by the outgoing Obama Administration.

According to materials shared by the Treasury Department, during 2017, individuals can set up automatic direct deposit contributions to a myRA account through their employers; fund a myRA account directly by setting up recurring or one-time contributions from a checking or savings account; and at tax time, they can direct all or a portion of a federal tax refund to a myRA.

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When individuals save with a myRA, they may also qualifyfor the Saver’s Tax Credit, which can lower the tax bill or increase the refund for low- and middle-income workers, the department explains. Eligible individuals can take the Saver’s Tax Credit by filing Form 8880 or working with a tax preparer.

Individuals who contribute to a myRA or a Roth IRA with modified adjusted gross income below certain levels (for 2015, $61,000 if married filing jointly, $45,750 if head of household, $30,500 if single) may be eligible to claim a Saver’s Tax Credit for their contributions, according to the Treasury Department. The amount of the Saver’s Tax Credit can be 50%, 20%, or 10% of retirement contributions, up to $2,000, depending on income and filing status.

For its part, the myRA program requires an initial contribution of at least $25 and automatic ongoing contributions of $5 or more every pay period, and accounts are available to any individual with an annual income of less than $129,000 or a couple with annual income of less than $191,000. So far few employers or employees nationally have signed on, but officials remain optimistic that the myRA will catch on. 

Outgoing U.S. Treasury Secretary Jacob J. Lew recently commented on the progress of the myRA program, which opened to the public around the beginning of 2016, administered by the Dallas-based bank/financial services provider Comerica. While the myRA remains lightly utilized and will likely not be a mainstay of anyone’s retirement income plan, Secretary Lew says it represent a “simple, safe and affordable retirement account.” He urges Americans who have not started saving to “jumpstart” their financial future by putting some of their tax refund into a myRA—or any type of savings account.

According to the Internal Revenue Service, eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2016 tax returns. Individuals have until the due date for filing their 2016 return (April 18, 2017), to set up a new individual retirement arrangement or add money to an existing IRA for 2016. This includes the Treasury Department’s myRA.

Administration January 18, 2017

Public Pensions Working to Improve Plans

Lowering costs, reducing return assumptions and experiencing healthy returns is putting a positive spin on public retirement plans’ future.
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Public retirement systems are improving cost-efficiency, increasing funding ratios, and fine-tuning benefits to strengthen their capacity to serve retired public servants for years to come, according to an annual study by the National Conference on Public Employee Retirement Systems.

During 2016, pension funds squeezed down the cost of administering funds and paying investment managers to 56 basis points, or 56 cents per $100 invested, versus 60 basis points in 2015. This is well below the average fee of 68 basis points for stock mutual funds and 77 basis points average for hybrid mutual funds, which include stocks and bonds. “By controlling fees, pension funds continue to demonstrate that they can provide a higher level of benefits to members than most mutual funds do,” says Hank H. Kim, executive director and chief counsel of NCPERS.

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Average funding levels—the value of the assets in the pension plan divided by an actuarial measure of the pension obligation—climbed for the third year in a row. Funding levels reached 76.2% in 2016, up from 74.1% in 2015 and 71.5% in 2014. Even as interest rates began to climb, funds continued to tighten assumptions.  Nearly 40% of responding funds said they have reduced their actuarial assumed rate of return, and nearly 30% more said they are considering doing so in the future.

Funds also continued to put pressure on benefits. More than 30% of respondents said they have increased employee contributions and raised benefit age or service requirements.

Funds experienced healthy three-year, five-year and 20-year returns during 2016, close to or exceeding 8%.  Aggregated 10-year returns came in at 6.2%, while one-year returns averaged 1.7%. (The one-year figure ticked up to 2.4% for plans with fiscal years ending in December.)  “All signs point toward continued improvement in increasing public retirement systems’ funded status,” Kim says.

The 2016 NCPERS Public Retirement Systems Study draws on responses from 159 state, local and provincial government pension funds with more than 10 million active and retired memberships and assets exceeding $1.5 trillion. The majority (77%) were local pension funds, while 23% were state pension funds.

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