Data & Research December 12, 2013

Gen Y Most Attentive to Financial Advice

A majority of younger employees will change saving and spending habits after seeking financial advice, a survey finds.
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According to the Financial Advice Survey from TIAA-CREF, despite the competing pressures of student loan debt and underemployment, Generation Y or Millennial employees—those age 34 and younger—are most likely to monitor their savings more closely (71%) or change spending habits (66%) after getting financial advice, compared with their older counterparts.

The survey results show Gen Y employees are most interested in interacting with an adviser online (61%), as well as attending webinars (59%) and in-person seminars (58%), compared with Americans overall (at 45%, 47% and 46%, respectively). Gen Y employees also are most likely to want financial advice designed specifically for their needs (76%), with relevant tools and calculators that break down complex advice principals (72%).

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Despite this preference for receiving information electronically, 70% of Gen Y employees rely on friends and family for advice to make financial planning decisions. Their older counterparts from Generation X, however, rely more on financial service provider websites or online tools (55%) to make such decisions.

Amy Podzius, a financial consultant at TIAA-CREF, says an early start can significantly help employees save more over the long term. She points out that for every 10 years an employee delays saving, they will need to save three times as much later in order to catch up. Setting aside even small amounts now, she says, could generate large savings over time.

In addition to receiving financial advice, Podzius recommends Gen Y employees avoid or pay down debt, as well as take full advantage of employer-sponsored retirement plans. “There is a tendency to leave money on the table by not taking full advantage of retirement plan contribution matches offered by many employers.”

The survey was conducted by KRC Research, on behalf of TIAA-CREF, by phone, among a national random sample of 1,000 adults, age 18 years and older, between August 28 and September 2.

An executive summary of the survey results can be downloaded here.

Compliance December 12, 2013

IRS Clarifies Roth In-Plan Rollover Rules

The Internal Revenue Service (IRS) has issued more guidance about in-plan rollovers into Roth accounts.
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Notice 2013-74 says plan sponsors must amend their plans to include the conversions to Roth accounts no later than December 31, 2014. The American Taxpayer Relief Act of 2012 includes a provision allowing for in-plan Roth conversions of defined contribution retirement plan accounts otherwise not distributable, without any income limitations (see “Fiscal Cliff Deal Extends Roth Conversions”).

Previously, only amounts deemed distributable—such as upon attainment of age 59 ½ by a participant—could only be converted to Roth accounts. The provision was effective January 1, 2013.

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In the case of a § 403(b) plan that has a remedial amendment period pursuant to Rev. Proc. 2013-22, a plan amendment permitting in-plan Roth rollovers of otherwise nondistributable amounts is permitted to be adopted on or before the last day of that remedial amendment period or, if later, the last day of the first plan year in which the amendment is effective, provided the amendment is effective as of the date the plan first operates in accordance with the amendment.

In the guidance, the IRS says the following contributions (and earnings thereon) may now be rolled over to a designated Roth account in the same plan, without regard to whether the amounts satisfy the conditions for distribution: elective deferrals in § 401(k) plans and § 403(b) plans; matching contributions and nonelective contributions, including qualified matching contributions and qualified nonelective contributions; and annual deferrals made to governmental § 457(b) plans.

The amount rolled over and applicable earnings remain subject to the distribution restrictions that were applicable to the amount before the in-plan Roth rollover.

An in-plan Roth rollover of an otherwise nondistributable amount is treated as an eligible rollover, so no withholding applies. Also, because this amount is not distributable, no part of the rollover may be withheld for voluntary withholding. An employee making an in-plan Roth rollover may need to increase his or her withholding or make estimated tax payments to avoid an underpayment penalty.

The notice also includes guidance regarding all in-plan rollovers—whether or not they were made at the time of a distributable event.

Notice 2013-74 is here.

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