Data & Research September 15, 2015

Consistency Is King When It Comes to 401(k) Contributions

Retirement plan participants who consistently contribute show greater balances.
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Every year, the Investment Company Institute (ICI) and the Employee Benefit Research Institute (EBRI) update their study on the impact of consistent participation in a 401(k) plan.

The previous update, “What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Account Balances, 2007–2012,” found that defined contribution (DC) accounts at the end of 2012 were rebounding from the financial crisis, and that participants who held steady on contributions ended the period with an average account balance that was 67% higher than the average among all participants in the database.

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The financial crisis of 2008, which substantially ate into 401(k) balances with an average 25.8% plunge, was followed by a gradual rise from 2009 through the end of 2013. Overall, the average balance rose at a compound annual average growth rate of 10.9% from 2007 to 2013, to $148,399 at year-end 2013.

This year’s results, which cover the period 2007 through 2013, saw a median balance among those consistent 401(k) contributors that was more than four times that of all participants at the end of 2013. Between 2012 and 2013, the average 401(k) account balance increased substantially, according to the latest data from EBRI and ICI.

Consistent contributors saw an even greater rate of growth. The median 401(k) account balance for these participants increased at a compound annual average growth rate of 15.8% over the period, to $75,359 at year-end 2013. Several factors—including employer and worker contributions, investment returns, withdrawals, and loans—were responsible for the increase.

Account balances tended to increase with age as well as tenure among the consistent group of participants, the same way as with the rest of the database. The younger the participant or the shorter amount of time in a job, the smaller the account balance tended to be.

NEXT: Account balances rise with age, time on job

Within the group of consistent contributors, 401(k) participants with 10 to 20 years of tenure at year-end 2013 who were older tended to have higher balances than younger ones. Those in their 30s with 10 to 20 years of tenure had an average account balance of $88,298, compared with an average of $141,981 for participants in their 60s with 10 to 20 years of tenure. Among consistent participants in their sixties at year-end 2013, those with five to 10 years of tenure had a lower average 401(k) balance ($92,112) than those with more than 30 years of tenure ($295,747).

Consistent participants in 401(k) plans, on average, held two-thirds of their 401(k) assets in equities, through equity funds, the equity portion of target date and non-target date balanced funds, or company stock. That is similar to the asset allocation of the 26.4 million participants in the entire database.

The research found the following about consistent 401(k) participants:

 

  • More than two in five plan participants in the consistent group had more than $100,000 in their 401(k) accounts at their current employers.
  • Nearly a quarter showed balances greater than $200,000.
  • Of the broader EBRI/ICI 401(k) database, only about one in five 401(k) savers had accounts with more than $100,000. Only 1 in 10 had a balance of more than $200,000. 

 

The study looks at the accounts of about 4.2 million consistent participants—those who remained active in the same 401(k) plan for the six-year period covering year-end 2007 to year-end 2013, out of the 26.4 million participant accounts in the entire EBRI/ICI 401(k) database at year-end 2013.

While the separate, annual update report on the EBRI/ICI 401(k) database is based on large cross sections of 401(k) plan participants with a wide range of tenure and participation experience, focusing on accounts that remain in the database for an extended period allows for a more meaningful analysis of the potential for 401(k) participants to accumulate retirement assets over time. 

“What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Account Balances, 2007–2013” can be accessed from ICI’s website.

 

Compliance September 15, 2015

IRS Clarifies Rules for Hardship-Related eFiling Waivers

The IRS published procedures for plan sponsors to request a waiver of the electronic filing requirements for Form 8955-SSA and Form 5500-EZ.
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The Internal Revenue Service (IRS) has set forth Revenue Procedure 2015-47, which supplies guidance for administrators of qualified retirement plans seeking an exemption from requirements to file electronically certain annual forms. The new guidance helps clarify how plans can properly request a waiver of the electronic filing requirement due to economic hardship.

The forms impacted by the revenue procedure are Form 8955-SSA, “Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits,” and Form 5500-EZ, “Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan.” Under the terms of Revenue Procedure 2015-47, certain plan sponsors will be able to continue to file paper versions of these forms, despite other recent rulemaking requiring electronic filing. 

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But because the Department of the Treasury and the IRS believe that electronic filing will not impose significant burdens on the taxpayers covered by the regulations, the IRS Commissioner “anticipates granting waivers of the electronic filing requirement only in exceptional cases.”

By way of background, Section 6011(e) of the Internal Revenue Code (IRC) authorizes the IRS to issue regulations that require an entity to file returns on “magnetic media,” so long as the entity is required to file at least 250 returns during the calendar year. The term magnetic media includes electronic filing via the Internet, as well as other forms specifically permitted under applicable regulations, revenue procedures, publications, forms, instructions, or other guidance from the IRS. 

During September 2014, the Department of the Treasury and the IRS issued final regulations to require certain plan administrators to file electronically Form 8955-SSA registration statements and Form 5500 series returns. Form 5500 series returns include Form 5500, Annual Return/Report of Employee Benefit Plan, Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan, and Form 5500-EZ. Under the electronic filing regulations, a Form 8955-SSA registration statement must be filed electronically if the plan administrator is required to file at least 250 returns during the calendar year that includes the first day of the plan year.

Under a related section of the electronic filing regulations, a Form 5500 series return must be filed electronically if the plan administrator and the employer maintaining the plan are, in the aggregate, required to file at least 250 returns during the calendar year that includes the first day of the plan year. These electronic filing regulations provide that if a filer is required to file electronically a Form 8955-SSA registration statement or a Form 5500 series return and fails to do so, the filer is deemed to have failed to file the registration statement or the return, respectively.

The electronic filing regulations further provide that the Commissioner of the IRS may waive the electronic filing requirement for a given plan in cases of undue economic hardship. According to the IRS, the principal factor in determining economic hardship will be the amount, if any, by which the cost of filing the registration statement or return electronically exceeds the cost of filing the registration statement or return on paper or other media.

NEXT: Other background requirements 

The earlier regulations also provide that a request for a waiver must be made in accordance with published guidance, and that the waiver will specify the type of filing and the period to which it applies. The waiver is also subject to any terms and conditions regarding the method of filing that may be prescribed by the IRS Commissioner.

The electronic filing requirement under § 301.6057-3 of the electronic filing regulations applies to Form 8955-SSA registration statements required to be filed for plan years that begin on or after January 1, 2014, but only for filings with a filing deadline (not taking into account extensions) on or after July 31, 2015. Filers of Form 8955-SSA registration statements due on July 31, 2015, would be eligible for an automatic extension until October 15, 2015, if they filed Form 5558, Application for Extension of Time to File Certain Employee Plan Returns. The electronic filing requirement under § 301.6058-2 of the electronic filing regulations applies to Form 5500 series returns required to be filed for plan years that begin on or after January 1, 2015, but only for filings with a filing deadline (not taking into account extensions) after December 31, 2015.

Form 8955-SSA registration statements that are filed electronically are filed using the Filing Information Returns Electronically (FIRE) system. Form 5500 series returns that are required to be filed electronically are generally filed under the Department of Labor’s ERISA Filing Acceptance System (EFAST2). However, because Form 5500-EZ returns are paper-only returns that are filed with the IRS, filers of Form 5500-EZ returns that are required to file electronically must file Form 5500-SF returns using EFAST2 in lieu of the Form 5500-EZ.

NEXT: Waivers have limited scope

The IRS stresses that the new guidance under Revenue Procedure 2015-47 does not provide hardship waiver procedures for any electronic filing requirement for a form that a filer is already required to file electronically, such as Form 5500 and Form 5500-SF (which are required to be filed electronically through EFAST2 under a Department of Labor rule).

Accordingly, the waiver procedures provided for in the new revenue procedure apply only to Form 8955-SSA and Form 5500-EZ filings. Also, as previously announced in the preamble to the electronic filing regulations, the IRS anticipates adding items on the Form 5500 and Form 5500-SF relating solely to Code requirements and intends to provide an optional paper-only form containing those Code-related items for use by filers that file fewer than 250 returns during the calendar year.

Filers that are required to electronically file Form 5500 series returns using EFAST2 and that file at least 250 returns during the calendar year would be required to answer these IRS-only questions electronically using EFAST2 (even though the Department of Labor rule requiring electronic filing does not apply to these IRS-only questions). The Department of the Treasury and the IRS do not believe that answering five these IRS-only questions electronically would impose any significant burdens because these filers are already required to electronically file a Form 5500 or Form 5500-SF return using EFAST2. Accordingly, a waiver of the electronic filing requirement will not be granted with respect to these questions.

With these limitations in mind, the IRS will approve or deny a request for a waiver of the electronic filing requirement for Form 8955-SSA or Form 5500-EZ based on each filer’s particular facts and circumstances. In the case of a waiver request relating to Form 8955-SSA, the filer must be the plan administrator required to file Form 8955-SSA under § 6057(a). In the case of a waiver request relating to Form 5500-EZ, the filer must be either the plan administrator or the employer that maintains the plan as provided in § 6058(a).

In determining whether to approve or deny a request, the IRS will consider the filer’s ability to file timely the registration statement or return electronically without incurring an undue economic hardship. The specific criteria are described at length in the text of Revenue Procedure 2015-47.

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