The Excel 401(k) conference took place in Las Vegas in October, bringing together some of the best and brightest retirement focused advisors across the country. SRP had a strong presence again this year at the conference.
Jeff Cullen, SRP’s Managing Partner conducted a session called, “Is your retirement practice designed to double in size?” where he discussed how achieving exponential growth in a consulting practice requires the proper allocation of resources in the form of human capital, intellectual capital, and time to the four pillars of a retirement practice: consulting, sales and marketing, technology, and operations. This session examined the allocation of these precious resources and insights into the four pillars of a successful practice.
Then Jeff Cullen, Jamie Worrell – Managing Director, Northeast, and Phil Senderowitz – Managing Director, Central Florida were part of a panel discussion called, “Why Advisors Need Their Own Investment Committee.” This session explored the trend with elite advisors that have established their own Investment Committee Charter as a competitive edge. Issues addressed during the session covered a proper investment selection and monitoring process, why the appointment of indexes for comparative purposes is critical, how the process should align with ERISA’s due diligence obligations, how judicial decisions impact the investment process, and what role technology plays in the delivery of better recommendations.
In August, the Internal Revenue Service issued a private letter ruling (PLR) clarifying that employer contributions to retirement plans may be tied to student loan payments.
Since the great recession of 2008-09, student loan debt in the U.S. has significantly increased. It is estimated that Americans now hold approximately $1.5 trillion in student loans. As a result, many employers are looking for ways to assist their employees in paying off this debt.
Studies show, not surprisingly, that the burden of student loan debt hampers the ability to save for retirement. A recent study indicates that by age 30, employees with student loans have saved 50 percent less, on average, through their employer’s retirement plan, as compared to employees who do not have student loans.
Employers may make additional contributions to retirement plans for virtually any reason so long as these contributions do not favor highly compensated employees. The PLR clarifies that this includes profit sharing contributions that may be tied to student loan payments made outside of the retirement plan.
The plan sponsor requesting the ruling proposed making profit sharing contributions to its retirement plan based on student loan payments. In other words, an employee making loan payments, rather than electing to defer into the retirement plan, would receive a profit sharing contribution which would be the equivalent of a matching contribution if they had instead deferred into the retirement plan.
It should be noted that only the taxpayer who receives a letter ruling may explicitly rely on it. However, letter rulings simply reflect black letter law and are a good indicator of the IRS’s thinking with regard to the matter addressed.
President Trump signed into law the Bipartisan Budget Act of 2018 (“Budget Act”) on February 9th of 2018. The Budget Act includes several provisions affecting hardship withdrawals that become effective for plan years beginning on or after January 1, 2019:
Elimination of Six-Month Contribution Suspension. Under current Internal Revenue Service (IRS) regulations, a plan participant is permitted to take a hardship distribution only if the distribution is necessary to satisfy an immediate and heavy financial need. The regulations include a “safe harbor” under which a distribution will automatically be treated as meeting this requirement if, among other things, the participant’s right to contribute to the plan is suspended for at least six months after the hardship withdrawal. The Budget Act directs the Secretary of the Treasury to modify the regulation to delete the six-month contribution prohibition from the safe harbor.
Expansion of Hardship Withdrawal Sources. The Budget Act expands the sources of contributions under a 401(k) plan that may be accessed for hardship withdrawals. The sources now include earnings on elective deferrals, safe harbor contributions, “qualified non-elective contributions” and “qualified matching contributions” (i.e., contributions plan sponsors can make to remedy a plan’s failure to pass nondiscrimination testing) and earnings on such contributions.
Elimination of Requirement to Take Loans. The Budget Act eliminates the requirement that a participant take all available loans under the plan as a condition to receiving a hardship distribution. Further guidance from the IRS is needed interpreting the Budget Act provisions and implementing the directive to remove the suspension provision from the safe harbor definition. There are several unanswered questions relating to the implementation of the revised regulations, not the least of which is what may apply to participants who are suspended when the new regulations take effect.
In the meantime, service providers are developing solutions to accommodate the revised regulations while awaiting further guidance and will notify our clients when such guidance is issued.
2019 Retirement Plan Limits
As published in IRS News Release IR-2018-211, November 1, 2018
Highlights of Changes for 2019
The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,500 to $19,000.
The catch-up contribution limit for individuals age 50 or older remains at $6,000.
The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $64,000 for married couples filing jointly, up from $63,000; $48,000 for heads of household, up from $47,250; and $32,000 for singles and married individuals filing separately, up from $31,500.