Data & Research August 9, 2013

Retirement Income View Brighter for Couples

Pension plan participation is much higher among couples when they are viewed as a unit, rather than measured separately as married men and married women.
Reported by

According to an analysis by the Social Security Administration (SSA), participation rates in employer-provided pension plans were relatively constant in the time frame covered by the most recent analysis, between 1998 and 2009. Among all full-time workers, about two-thirds participated in a pension plan in both years.

Nonmarried workers, both men and women, were less likely to participate in a pension plan than were their married counterparts. About 72% of married men (with spouse present) working full-time participated in a retirement plan in 1998 and 2009. Similarly, 72% of married women (with spouse present) working full-time participated in a pension plan in 2009, an increase of about 5 percentage points from the 1998 participation level.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

However, the plan participation rate was found to be higher when looking at couples as a unit of analysis instead of just looking at married workers. Both in 1998 and 2009, about 80% of couples had at least one of the spouses participating in a pension plan, an increase of about 10 percentage points compared with looking at married men and married women separately.

What this suggests, said the SSA, is that previous studies have focused on married workers without considering coverage of their spouses. The SSA concluded that therefore these studies are likely to have underestimated the participation rate in pension or retirement plans from which the couples are expectedly going to draw their retirement income.

The analysis also found:

  • While about 30% of married men with a spouse present did not participate in a plan both in 1998 and 2009, when their spouses’ participation was factored in, only in 20% of couples did neither spouse participate in a pension plan;
  • In about 10% of couples in 2009, the wife was the only one participating in a pension plan compared with about 37% of couples where the husband was the only one participating;
  • 60% of couples in 2009 had at least one of the spouses contributing to a defined contribution (DC) plan. In half of those couples, the husband was the only one contributing; and
  • Among couples where both spouses contributed to a plan, the wife’s contribution comprised around 42% of the total family contribution both in 1998 and 2009.

The SSA analysis used Survey of Income and Program Participation (SIPP) data from the Census Bureau, matched with Social Security administrative records, to examine participation in employer-provided retirement plans by plan type among couples where both spouses are present and the husband is a full-time wage and salary worker ages 25 to 60. The analysis focused on measuring participation by specific plan type for married couples, rather than married workers separately, because couples were found to share their retirement income, regardless of whether those contributions are through the husband or the wife.

More information on the analysis can be found here.

Compliance August 9, 2013

IRS Announces New Self Audit Tool

Having good internal controls can help retirement plan sponsors eliminate or reduce errors in plan operation.
Reported by

During a phone forum, Monika Templeton, director of Employee Plans Examinations at the Internal Revenue Service (IRS) in Washington, D.C., said good internal controls allows plan sponsors to quickly identify errors to correct via the agency’s Self-Correction Program (SCP) with minimal cost. Good internal controls also impact Audit Closing Agreement Program (Audit CAP) sanction negotiations.

Templeton noted that having practices and procedures in place to promote or facilitate compliance is a prerequisite for entering into the SCP. Having a plan document alone does not imply established procedures. During examinations, agents often find no internal controls in place or internal controls that are not consistently followed, she said.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

Templeton explained that the Employee Plans (EP) agent will evaluate the effectiveness of the plan’s internal controls to determine whether to perform a focused audit (just look at three to five issues) or to expand the scope of the examination. Good internal controls are a key factor in keeping an audit “focused.”

The internal control interview helps the examiner determine whether the plan is well-run or there are serious compliance risks that would give rise to expanding the scope of the audit.

“The EP agent will make every effort to ensure your internal control systems are running smoothly when the audit concludes,” Templeton said. As a side note, she added that if a self-correction action is more than 65% complete, even if the error is significant, it can be self-corrected during the audit.

Janice Gore, EP area manager for the Great Lakes, shared some examples of insufficient internal controls found during EP audits:

  • Third-party reports frequently have inaccurate data, such as dates of hire and termination, employee age and service and compensation;
  • Decentralized payroll systems without internal controls – If each subsidiary determines eligibility, highly compensated employee (HCE) status, or what constitutes plan “compensation,” it can result in incorrect coverage and allocations; and
  • Data used for Form 5500 fails to conform to actual records (i.e., payroll data).

 

Templeton said a yearly checkup needs to confirm there are good internal controls in place, and there needs to be good communication between the company and its different locations or subsidiaries.

During the phone forum, it was announced that the IRS has repackaged the 401(k) Questionnaire (see “29% Chose Deferral Higher than Default”) as the QSAT (Questionnaire Self Audit Tool), scheduled to be released in 2013. The QSAT will help plan sponsors find, fix and avoid costly mistakes. According to Gore, it asks questions an EP examiner will ask.

Gore and Templeton shared examples of commonly found errors, questions the QSAT will ask to help plan sponsors avoid or find those errors, and suggested tips for good internal controls.

For example, nondiscrimination testing errors can occur due to not properly identifying HCEs, excluding those who elect not to defer salary from the test, not using the correct “compensation” definition, and not using the testing method defined by the plan document (current or prior year).

The QSAT asks the following internal control questions related to nondiscrimination testing:

  • Who verifies that correct data was used to complete the annual testing?;
  • Who determines which participants are highly compensated employees?;
  • Who verifies deferrals allocated to participants' accounts are correct?;
  • Who determines whether participants compensation for deferral purposes are correct?;
  • How are matching and nonelective contribution amounts determined?; and
  • Who ensures that each participant receives the correct matching and/or nonelective contribution?

 

Internal control tips to help avoid nondiscrimination testing errors include establish/amend the plan to be a safe harbor plan; eliminate communication gaps between the employer and plan vendor; and verify the accuracy of employee classifications, family aggregation and definition of compensation.

Until the QSAT is released, the IRS has other tools plan sponsors can use at www.irs.gov/Retirement-Plans.

«

 

To continue in incognito, please login. Or... 

 Subscribe to a free PW Newsletter! 

…subscribing gets you free access to PW’s online content!

 SUBSCRIBE & GET FREE ACCESS! 

If you’re a subscriber, please login.