Data & Research April 2, 2019

Financial Literacy Leads to Better Retirement Planning

A large majority of those who answer questions on a financial quiz correctly are more likely to save for retirement.

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Those with greater financial literacy are more likely to save and plan for retirement, according to TIAA and the Global Financial Literacy Excellence Center at the George Washington University School of Business.

Eighty-eight percent of those who answered between 76% and 100% of the questions on the Personal Finance Index (P-Fin Index) correctly save for retirement on a regular basis. By comparison, only 37% of those who answered less than 26% of the questions correctly regularly save for retirement.

Eighty-six percent of those in the first group have additional savings outside of their retirement plan, compared to 34% of the second group, and 63% of the first group usually track their spending, compared to 54% of the second group.

Furthermore, those with greater financial literacy are less likely to be financially fragile; 85% of the first group could come up with $2,000 if an unexpected need arose in the next month, compared to 25% of the second group.

Borrowing and debt management are the areas where knowledge is the highest, but comprehending risk is where it is the lowest.


“The P-Fin Index is the preeminent annual barometer of Americans’ personal finance knowledge,” says Stephanie Bell-Rose, head of the TIAA Institute. “Understanding the connection between financial literacy and financial wellness was a particular focus this year, to help us create a better roadmap for improving the financial well-being of Americans.”

On average, U.S. adults answered only 51% of the P-Fin Index questions correctly. The survey asked a total of 28 questions on the following topics: earnings, consuming, saving, investing, borrowing and managing debt, insuring, risk and where to find financial advice.

The full report can be downloaded here.

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Compliance April 2, 2019

Updated Operational Compliance List Includes Hardship Withdrawal Changes

The list identifies matters that may involve either mandatory or discretionary plan amendments depending on the particular plan, and may reference other significant guidance that affects daily plan operations.

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The IRS has updated its Operational Compliance List (OC List) as provided per Revenue Procedure 2016-37, Section 10, to help plan sponsors and practitioners achieve operational compliance by identifying changes in qualification requirements effective during a calendar year.

Revenue Procedure 2016-37 changed the IRS’ determination letter program for tax-qualified individually designed plans, and changed the requirements for when plan amendments must be adopted under Internal Revenue Code (IRC) Section 401(b). It also ended the remedial amendment cycle system and replaced it with a new approach to the remedial amendment period.

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The OC List identifies matters that may involve either mandatory or discretionary plan amendments depending on the particular plan, and may reference other significant guidance that affects daily plan operations.

The IRS notes that in order to be qualified, a plan must comply operationally with each relevant qualification requirement, even if the requirement is not included on the OC List. A plan must be operated in compliance with a change in qualification requirements from the effective date of the change. The updated OC List includes items effective in years 2016 through 2019.

Changes effective in 2019 discussed in the document include Bipartisan Budget Act of 2018, Sections 41113 and 41114, which provide that a distribution will not fail to be treated as made on account of hardship merely because the employee does not take any available loan from the plan, and expand the types of contributions and earnings a plan may make available for hardship distributions. In addition, this legislation directs the IRS and Treasury Department to eliminate the safe harbor requirement to suspend participant contributions for six months in order for the distribution to be deemed necessary to satisfy an immediate and heavy financial need.

Also in the OC List for 2019, are the proposed regulations regarding hardship withdrawals, which would revise the 401(k) regulations to reflect legislation regarding hardship distributions. The proposed regulations would prohibit a plan from suspending a participant’s contributions as a condition of obtaining a hardship distribution. In addition, the proposed regulations would revise the safe harbor list of expenses deemed to constitute an immediate and heavy financial need, including modifications regarding casualty losses and disaster-related expenses.

The IRS says taxpayers may rely on the proposed regulations until the date of publication of final regulations in the Federal Register.

The IRS and Treasury Department also extended the retirement plan relief provided under Announcement 2017–15 to similarly situated victims of Hurricanes Florence and Michael, except that the “Incident Dates” (as defined in that announcement) are as specified by FEMA for these 2018 hurricanes. Relief is provided through March 15, 2019, and any necessary amendments must be made no later than the deadline for amending a disqualifying provision, as set forth in Rev. Proc. 2016–37.

In addition, IRS Notice 2018-69 extended temporary nondiscrimination relief for closed defined benefit (DB) plans.

The full OC List may be viewed at https://www.irs.gov/retirement-plans/operational-compliance-list.

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