Compliance April 29, 2011

GAO: Retirement Shift Creates Disproportionate Benefits

The Government Accountability Office contends that the shift away from defined benefit retirement plans to more defined contribution plans has resulted in disproportionate benefits for American workers.
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According to the GAO report, about 92% of newly formed plans in the period between 2003 and the end of 2007 were defined contribution (DC) plans, with the rest being defined benefit (DB) plans. Regarding the small percentage of new DB plans, professional groups such as doctors, lawyers, and dentists sponsored about 43% of new small DB plans, and more than 55% of new DB plan sponsors also sponsored DC plans. The GAO said the benefits of new DB plans disproportionately benefit workers at a few types of professional firms.  

In addition, most individuals who contributed at or above the 2007 statutory limits for DC contributions tended to have earnings that were at the 90th percentile ($126,000) or above for all DC participants, according to the GAO’s analysis of the 2007 Survey of Consumer Finance (SCF). Similarly, the GAO said, high-income workers have benefited the most from increases in the limits between 2001 and 2007. The agency found that men were about three times as likely as women to make so-called catch-up contributions when DC participants age 50 and older were allowed to contribute an extra $5,000 to their plans. 

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The report said several modifications to the Saver’s Credit—a tax credit for low-income workers who make contributions to a DC plan—could provide a sizeable increase in retirement income for some low wage workers, although this group is small. For example, under the GAO’s most generous scenario, Saver’s Credit recipients who fell in the lowest earnings quartile experienced a 14% increase in annual retirement income from DC savings, on average.  

The GAO concluded that the potential troubling consequences of the recent financial crisis may be obscuring concerns over the ability of the employer-provided pension system in helping moderate and low-income workers, including those with access to a plan, save enough for retirement.  

The GAO report is here.
Compliance April 29, 2011

ASPPA Recommends Streamlining Communications

The American Society of Pension Professionals & Actuaries (ASPPA) has recommended that the Treasury Department simplify the required employee communication items for retirement plans.
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Specifically, ASPPA said the Department should combine and integrate required notices where possible, coordinate timing requirements so that participants do not receive multiple notices on various topics throughout the year, and coordinate with the U.S. Department of Labor to eliminate duplicate disclosures.  

In a letter responding to the U.S. Department of Treasury request for information on how it can streamline or improve the agency’s existing regulations, Craig P. Hoffman, General Counsel and Director of Regulatory Affairs of ASPPA, also recommended that the Treasury work with the DoL to create a unified approach for electronic disclosures for retirement plans.  

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Other recommendations included; 

  • that mid-year changes to a safe harbor 401(k) plan be permitted (and updated notices provided), to the extent that the changes would not be expected to significantly impact a participant’s deferral decision; 
  • that all elections that affect the funding for a plan year be formalized in an attachment to the Schedule SB for the year and that elections regarding credit balances be permitted in all instances to specify a determinable formula in lieu of stating a specific dollar amount. ASPPA and the ASPPA College of Pension Actuaries (ACOPA) also recommend that the ability to make standing elections be expanded, so employers are not required to make the same election each and every plan year and that standing elections be permitted to be written in a manner so as to remain in force as long as the employer continues the business relationship with the individual or company named on the election, even in the event of a change in the individual actuary who prepares the Schedule SB for that plan; and 
  • that the interim amendments only be required once every three years. 
The comment letter is here.

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