Compliance September 5, 2017

Closed DB Plan Nondiscrimination Relief Extended Further

The IRS and the Treasury Department expect that the final regulations regarding closed DB plans will not be published in time for plan sponsors to make plan design decisions based on the final regulations before expiration of previous relief provided.
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The Internal Revenue Service (IRS) has issued Notice 2017-45, which extends the temporary nondiscrimination relief for closed defined benefit (DB) plans that is provided in Notice 2014-5, by making that relief available for plan years beginning before 2019 if the conditions of Notice 2014-5 are satisfied.

The IRS and the Treasury Department expect that the final regulations regarding closed DB plans will include a number of significant changes in response to comments received from stakeholders. However, it is anticipated that the final regulations will not be published in time for plan sponsors to make plan design decisions based on the final regulations before expiration of the relief provided under Notice 2014-5 (further extended by Notice 2016-57). This is why the IRS and the Treasury Department have determined that it is appropriate to extend the relief for an additional year. 

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Notice 2014-5 permitted certain employers that sponsor closed DB plans and also sponsor a defined contribution (DC) plan to demonstrate the aggregated plans comply with the nondiscrimination requirements of Internal Revenue Code Section 401(a)(4) on the basis of equivalent benefits, even if the aggregated plans do not satisfy the current conditions for individual testing on that basis.

Lawmakers have introduced a bill to permanently amend the nondiscrimination rules that apply to DB plans that have been closed or frozen.

Client Service September 5, 2017

Consider New Strategies for Gen Z Retirement Savers

“Employers and their advisers stand to benefit from making it easy and convenient for these young adults to save and espouse constructive financial habits at a critical time in their lives,” EACH Enterprise says.
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Members of Generation Z (ages 16 to 23) are receptive to retirement plan communication and education and have exciting potential to be financially prepared for retirement by age 70, according to a June survey of 2,000 members of Generation Z conducted by EACH Enterprise.

Findings suggest standard defined contribution (DC) plan practices may create obstacles to the retirement success of workforce entrants.

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According to EACH Enterprise, employers should consider:

  • Immediate eligibility allows this group to save right away as they expect to;
  • No entry age requirement so they reap greater benefits of the time value of money;
  • Auto enrollment at a 15% or greater default contribution rate that many deem necessary;
  • Communicate that saving 20% to 25% of pay toward retirement may be adequate; and
  • Dialogue on social media with savers who receive all information on their Wi-Fi-connected mobile handheld devices.

The survey found on average, Gen Z members believe young workers should save 28% of income for future use. Eighty-three percent say it’s important to save, and 76% want to be more financially educated.

Since Generation Z is ready to save 20% to 28% of pay, Eric Henon, president of EACH Enterprise, suggests plan sponsors and advisers aim high—say 20% of pay and approach the communication from the top down. “You may not need to save as much as 25% of 28% unless you want to leave the workforce before age 70, but you need to save at least 15% or 20% of pay over a 30- to 40-year career to be able to retire by age 70,” he says.

Nearly half of Gen Z have heard of 401(k)s through family, friends, and the media, and are eager to learn more. Half 50% believe it’s right to save for retirement in a 401(k) when they have a job, and 12% of 22- and 23-year-olds are already enrolled in a retirement savings plan.

“Employers and their advisers stand to benefit from making it easy and convenient for these young adults to save and espouse constructive financial habits at a critical time in their lives,” EACH Enterprise says.

Results of the study “Generation Z on Track Toward Retirement Success” may be purchased at https://www.tinyurl.com/genzretires.

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