Diversions February 5, 2015

Wild Swings in Boomer Spending Habits

A recent Gallup analysis of Boomers’ personal spending patterns suggests these patterns vary more than stereotypes suggest.
Reported by

Daily spending among Americans ages 50 to 64, based on their own reporting, reached a low of $55 in March 2009. By last December, this group’s daily spending rebounded to a five-year high of $105 per day.

What are they spending more money on? Research revealed that while 45% of U.S. consumers spend more than they did a year ago, the increased spending was on household essentials—groceries, gasoline, utilities and health care—rather than on discretionary purchases such as travel, dining out, leisure, consumer electronics and clothing.

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About two in five Baby Boomers (44%) in that same study reported they were spending more than a year ago, and their increased spending followed the same pattern.

According to demographers, Boomers fall into one of two groups: leading-edge Boomers (born between 1946 and 1955), and trailing-edge Boomers (born between 1956 and 1964). In general, a higher proportion of leading-edge Boomers spend more today than a year ago. Slightly more trailing-edge Boomers are spending less.

Among other findings:

  • They’re preparing for retirement. Comparing each group’s spending levels from a year earlier, more than twice as many trailing-edge Boomers spend more today on retirement investments than do leading-age Boomers.
  • They’re exhibiting thrifty behavior. Discretionary spending categories—leisure activities, consumer electronics and travel—all show negative net spending changes. Non-discretionary categories all show positive net spending changes. The exception: gas or fuel, which has seen unprecedented declines in prices over the last few months due to plummeting oil prices.
  • Older Boomers lighten their expenses. Often, since they’re no longer burdened with such significant financial responsibilities as tuition, mortgages, children’s expenses and long-term investments, leading-edge Boomers spent more than their younger counterparts in the past year in all categories except investments.
Compliance February 4, 2015

IRS Shares Tips for Avoiding Form 5500 Scrutiny

The IRS revealed Form 5500 errors it found during various compliance projects, which could cause a plan to be selected for a compliance check.
Reported by

The Internal Revenue Service (IRS) says in many of its Employee Plans Compliance Unit (EPCU) projects, it finds plan sponsors enter incorrect information on their Form 5500 series returns or information reports.

The agency says it uses information on Form 5500 returns and reports to select cases for compliance checks, and entering incorrect information on the return or report, or leaving a field blank field when there should be an entry, increases the likelihood that a plan will be selected for an EPCU compliance check.

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Examples of the types of errors found during recent projects include:

  • Plan Participants Project – The IRS found sponsors incorrectly entered 0 for the number of participants or left that line item blank.
  • Termination Project – Plan sponsors incorrectly marked their 5500 return to show they i) adopted a resolution to terminate the plan when they had not; ii) distributed all plan assets but did not mark the return as the final return; iii) claimed to have terminated the plan when it was not fully terminated; or iv) distributed all plan assets but did not mark zero assets at the end of the plan year. 
  • Fraud Project – Plan sponsors incorrectly entered the fidelity bond amount or gave inaccurate/incomplete answers on questions about loss caused by fraud or dishonesty.
  • Hacienda Project – Plan sponsors incorrectly entered the Puerto Rico-related pension feature code 3J on their 5500 return when they should have entered 3C.
  • Frozen Plans Project – Plan sponsors entered pension feature code 1l, frozen defined benefit plan, on their 5500 return when their plan was not a defined benefit plan or frozen.

The IRS also found, during its Excess Deferral Project, that 403(b), 457 or non-qualified plan elective deferrals were frequently and incorrectly coded as 401(k) elective deferrals (box 12, code D) on W-2, Wage and Tax Statements. During its Simplified Employee Pension (SEP) Plans project, the IRS found incorrect reporting of rollover contributions as SEP contributions on Form 5498, IRA Contribution Information, in box 8 instead of box 2.

The IRS says plan sponsors that prepare the Form 5500 return or information report themselves should look at each line item and related instructions with fresh eyes. It warns plan sponsors not to copy line item entries from year to year without reviewing them carefully to ensure that they did not make an entry on the wrong line item, put an entry in a wrong box, leave a line blank that needs an entry, or use an incorrect code.

When a third party prepares the Form 5500 return, plan sponsors should take time to review it and match answers to the form’s questions. The IRS recommends making sure providers have administrative procedures in place to prevent mistakes on the 5500 return and information reports. If a plan sponsor finds errors on a return or information report, it should fix them promptly by amending the return or filing a corrected information report.

More information is here.

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