Retirement and Investment Solutions Newsletter

Insights

September 2009 Issue

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Letter From the Editor

Welcome to the September issue of Insights!

We are excited to be celebrating 401(k) Day on Friday, September 11th.  401(k) Day is an annual celebration spotlighting the importance of employer-sponsored profit sharing and 401(k) plans.

With this day in mind, we are sharing with you some new enhancements to Dream Machine, insights into participant behavior with our survey completed in the Spring of 2009, a new video created for participants in The Way Forward and other relevant topics.

If you would like to share Insights with your colleagues or clients please forward this newsletter. They can subscribe by emailing us at Retirement_Insights@JPMorgan.com.

If there is anything that we can do for you at J.P. Morgan, or you would like us to address a topic in future issues of Insights, please let us know.

David Embry

Managing Director and Head of Institutional Sales and Sponsor Services

J.P. Morgan Retirement Plan Services

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Disclosures


Investment Policy Statements

An important tool for any plan sponsor should be their Investment Policy Statement or IPS. The IPS is a document that spells out exactly what the retirement plan is invested in and how those investments will be selected, monitored, measured and if necessary, even replaced.

The IPS will describe what funds specifically are in the plan, along with what benchmarks and peer groups will be used in monitoring and measuring performance.  Language for placing funds on watch or for potential termination might also be included, as well as any other “trigger” events, such as a fund manager departure, or dramatic change in fund style.

While not a requirement under ERISA or 404(c), ERISA has indirectly imposed an IPS requirement by mandating that investment fiduciaries prudently select plan investments and monitor their performance.

DOL Interpretive Bulletin 94-2 states that “…compliance with the duty to monitor necessitates proper documentation of the activities that are subject to monitoring.”  The existence therefore of an IPS can provide evidence of a prudent decision-making process and serve as a defense against potential fiduciary liability.

In the process of a plan audit, the DOL will routinely ask for a copy of the plan’s IPS (even though it is not specifically required).  Investment committees that have not described the procedures required by ERISA in a written IPS and have not maintained documentation of their investment related decisions may render themselves vulnerable to legal action from either disgruntled plan participants or the DOL.

Given the benefits, as of September 1, 2009, approximately 66% of J.P. Morgan Retirement Plan Services clients currently have an IPS in place.

So why wouldn’t you have an IPS in place?  Some reasons we typically see are corporate inertia, thinking that a monitoring process is a substitute for a formal IPS, lack of an investment committee and even fear that by documenting specific criteria within an IPS and not following it, you would create more fiduciary liability than by not having one.

To learn more about creating or reviewing your IPS or for a complimentary copy of a sample Investment Policy Statement, please email Retirement_Insights@JPMorgan.com.

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Retirement Dream Machine 2.0 – Coming Mid-September 2009!

Many retirement calculators today provide an estimate of what individuals may need to retire; however, not many can tell them if it will last through retirement. Retirement Dream Machine is our powerful proprietary web-based tool that provides participants an idea of how much money may be available to them at retirement, but more importantly, if they will have enough money to live comfortably through retirement.

Dream Machine 2.0, launching in mid-September, will provide guidance to participants by showing how much money may be available at retirement, which sources they may draw upon and the expected duration of payments. Participants will be able to see an estimate of how long their retirement money may last in three sources:

  1. Social Security,
  2. retirement savings 401(k) and
  3. retirement income (i.e., defined benefit, annuities, etc.).

If there appears to be a spending shortfall based upon estimated expenses, the tool will point out the age at which the shortfall may occur. This can help participants make the important decision of whether, based on what-if scenarios that the participant completes, he or she has a good chance of living comfortably throughout retirement or if they may need to make some critical decisions in advance of retirement.

Key benefits of Dream Machine 2.0 include:

  • Simplicity – Dream Machine has always been popular due to its ease of use and this feature remains in this version. Key information is available on a participant’s homepage without having to pre-populate any information.
  • Wage replacement information – an estimate of how long a participant’s money may last in retirement is provided, taking into consideration expenses and outside accounts.
  • Customization – this tool is relevant to each individual because of the level of available customization. Participants can use the Take Action menu to change variables to fit their individual situations. Averages are derived from the Department of Labor.

Other features of Dream Machine include:

  • Calculations powered by Financial Engines®
  • Additional graphics illustrating savings and spending calculations
  • Outside account data is accommodated and stored for the participant’s future use

If you’d like to learn more about Dream Machine or see a demonstration, contact your J.P. Morgan representative or check it out on the Product Lab at Plan Sponsor Portal.

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Helping participants find The Way Forward

Want to help your participants discover how to be more proactive in planning for their retirement?  We’ve heard a lot of great feedback from you on our new, interactive Way Forward face to face education meetings. We’ve also heard a need to get this information out to participants who can’t attend the meetings. That’s why we have created a unique new video that reflects the spirit and the content of the face to face meetings. 

We understand that even though each of your employees has different factors to consider as they plan for retirement, they all have one thing in common – a need to be involved. Studies show that people that take a proactive approach tend to save five times* more than people who don’t. This video will help participants be better prepared for tomorrow by encouraging them to take a look at their current retirement planning decisions and see if they match their long-term goals.

View the video.

Topics discussed in the video include:     

  • keeping perspective in today's market
  • time-tested investment principles
  • making choices based on retirement age
  • where to get additional help

We suggest posting this video on your company’s intranet or possibly hosting a brown bag lunch session to talk about retirement with your participants. If you would like to incorporate these ideas or create your own, please contact your J.P. Morgan Communications Strategist.

If you would like more information on The Way Forward communication program please visit The Way Forward site.

*American Savings Education Council

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      New report to better understand how participants contributing to 401(k) plans have reacted to recent market conditions

J.P. Morgan Retirement Plan Services invites you to view a newly released research report based on a survey that was completed this past spring. The study was designed to better understand how individuals that are contributing to 401(k) plans have reacted to recent market conditions. The research was conducted online within the United States among 1,000 respondents.

The findings are organized into three sections. Section one provides an up-to-date picture of the current retirement savings landscape as seen through the eyes of those doing the saving. Section two examines the impact of a poor economy on participants’ financial priorities and how current conditions may impact their ability to meet retirement financial goals. The last section takes a closer look at how 401(k) participants chose to handle the recent decline in stock prices and where they stand with regard to long-term investing as they look ahead into their financial future.

Highlights from the study include:

  1. Participants embrace the responsibility of being in control of their retirement, without the confidence to succeed.
  2. Few participants believe they are on track to retire comfortably.
  3. With all of the scrutiny and urgency on disclosure and providing information, most participants admit they don’t read what they’re given.
  4. The majority of participants have a higher level of confidence in their own decision-making over those who trust their employer and the government.
  5. The majority of participants indicated the discontinuation of the match would not affect their own contributions.

To obtain a copy of the report, please email Retirement_Insights@JPMorgan.com.

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Form 5500 Schedule C changes for 2009

The time has arrived for significant reporting changes to Schedule C (Service Provider Information) of Form 5500.  Schedule C must be filed by retirement or welfare benefit plans and certain other arrangements that generally have 100 or more participants.  Even though these changes were published over a year and a half ago, some questions still remain on the details.  Due to the complexities involved, this article only attempts to provide a high level overview of the requirements.

Background

Fiduciaries have a duty to ensure that fees paid to service providers are reasonable in relation to the value of the services rendered to the plan.  Additionally, fiduciaries need to determine if any service provider arrangements could result in conflicts of interest that potentially influence recommendations made by the provider.  The new Schedule C is designed to highlight such fees and arrangements to help fiduciaries with their monitoring duties.

Schedule C reports fees (the form uses the term “compensation”) paid to service providers who receive compensation of $5,000 or more during a year in connection with services rendered to the plan or due to the person’s position with the plan.  Prior to 2009, Schedule C generally reported only direct fees paid by the plan.  But in today’s world, service providers may be getting paid in a variety of ways and from a variety of sources.  These arrangements may be difficult for a fiduciary to sort out.  The 2009 Schedule C is designed to capture not only direct compensation paid by the plan to service providers, but also indirect compensation that service providers receive from other parties.

Definitions

Schedule C reflects both direct and indirect compensation received by service providers. Here is a brief overview of what these terms mean:

Compensation – cash or anything else of value (e.g. gifts, entertainment, etc.).

Direct compensation – amounts paid directly out of the plan (e.g. from the forfeiture account, charged directly to participants’ accounts, paid from the trust or from fee recapture accounts, etc.)  [NOTE: Payments received by a service provider from the plan sponsor are not reported unless the plan sponsor is reimbursed by the plan.]

Indirect compensation – amounts received from sources other than directly from the plan or plan sponsor.

Eligible indirect compensation – fees or expense reimbursement payments charged to investment funds and reflected in the value of the investment or return on investment (e.g. finders’ fees, soft dollar revenue, float revenue, and/or brokerage commissions or other transaction-based fees that were not paid directly by the plan or plan sponsor).  As noted below, there is an alternative reporting option for this form of compensation.

The new reporting regime

Service providers who receive total aggregate direct and indirect compensation of $5,000 or more must be reported on Schedule C.  Direct and indirect compensation must be reported separately, with service codes to identify what the compensation relates to.  Indirect compensation can be reported as a dollar amount (or estimated amount), or if the service provider has disclosed a formula to the plan sponsor to enable the amount to be calculated, that fact can be indicated on Schedule C without disclosing the exact amount of indirect compensation.

If the only form of compensation received by the service provider is “eligible indirect compensation,” the only reporting required on Schedule C is the existence of such compensation and the identity of the person who provided the required written disclosures of such compensation to the plan sponsor.  These disclosures include the services provided for the compensation or the purpose of the payment, the amount (or estimate) of the compensation or a description of the formula used to calculate or determine the compensation (e.g. 5 basis points of the value of the assets), and the identity of the parties paying and receiving the compensation.

If certain fiduciaries or service providers cross the $5,000 threshold and receive indirect compensation (other than eligible indirect compensation) of $1,000 or more from a given source, the source of such compensation must be disclosed.  This applies to service providers who are fiduciaries, or who provide consulting, custodial, contract administration, investment advisory or investment management, broker or recordkeeping services.  This gets to the heart of any conflict of interest concerns.

What plan sponsors should do

For the 2009 plan year, it is important to identify all plan service providers, and collect required data for those who receive $5,000 or more in total direct and indirect compensation.  Many will likely provide the required information automatically, but you should be ready to contact those who do not.  If a service provider refuses to provide the information required to complete Schedule C, they are to be reported on the schedule as failing to provide such information.  You must give them final warning that they will be listed on the form if they do not respond.

The Department of Labor recognizes that service providers may need to modify information management systems in order to comply with these reporting requirements, and may not have sufficient time to do so for the 2009 plan year.  If the service provider makes a good-faith effort, but despite such efforts is unable to gather the information from its systems, a statement can be provided to the plan administrator to that effect, and doing so will avoid being reported as failing to provide the necessary information.

Conclusion

Since this is all new for the 2009 plan year, there will likely be some confusion when completing Schedule C.  Plan sponsors, plan auditors, and service providers will need to work together to make a good-faith effort to comply with Schedule C reporting requirements, especially for the 2009 plan year.

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       Managing assets through retirement – options to address retirement income needs for participants

“The fear of dying too soon made life insurance the largest financial services industry of the 19th century.  But providing financial protection against the new risk of not dying soon enough may well become the 21st century’s leading financial industry.”  - Peter Drucker

Over the last 20 years 401(k) plans have been a predominant planning tool for retirement savings.  Historically the 401(k) focus has been on savings or accumulation.  More recently, there is focus beyond accumulation and on retirement income.  Options for retirement income are becoming increasingly interesting for plan sponsors and their participants.

The chart below illustrates the accumulation to distribution cycle.  In the accumulation phase participants are saving and investing with the expectation that their investments will accumulate for retirement.  As participants near retirement age, they contemplate reliable retirement income.  The retirement industry has responded by moving towards risk sharing products which include investments like principal protected funds and variable annuities.

DC September Accumulation Chart

There are three types of retirement income market solutions available:  plan design features, out-of-plan distribution options and in-plan investments.

Plan design features generally need to be incorporated in the written plan document.  Options include guaranteed monthly annuity, partial distributions, in-plan installments and for plan sponsors with a defined benefit plan, the ability to rollover the defined contribution to the defined benefit plan.

Out-of-plan distributions include rollover annuity platforms, longevity insurance and monthly payout option investments. 

In-plan investments include fixed annuity, guaranteed minimum income benefit, guaranteed minimum withdrawal benefit and non-insurer based investment products.

Whatever your level of expertise, retirement income is a topic of growing interest.  J.P. Morgan Retirement Plan Services believes that any solution will have to meet the following criteria to be impactful to the marketplace:

  • Simplicity – the solution is easily understood, effective, easy to benchmark and administer 
  • Public policy – Congress and other governmental agencies encourage the solution
  • Reasonable cost – reasonable and transparent fees
  • Participant control – participants still control investment for a portion of their account

Contact your J.P. Morgan representative for additional information on retirement income options and solutions.

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Participant Snapshots for June -  August 2008 vs. 2009 periods

You'll notice the top five call drivers remained the same for the June through August 2008 and 2009 periods. In fact, the sixth and seventh drivers were the same too (contributions and in-service, respectively).

Most notable is the increase in total calls. Two points to note: In 2008 up until late August and early September, our volume was lower than expected but that changed with the September and October market volatility. We would expect our volume to be up compared to last year, but it’s even more than expected.      

 Top 5 Call Drivers Summer 2009 (June - August)

 Total Calls Received 410,883

 Percent of Total

Distribution  

94,836

23.08%

Loans  

72,023

17.53%

Password 

49,973

12.16%

Hardship 

40,780

9.92%

Personal Info 

21,899

5.33%

 

 Top 5 Call Drivers Summer 2008 (June - August)

Total Calls Received 391,496

 Percent of Total

Distribution

28,955

7.40%

Loans

19,557

5.00%

Hardship

11,730

3.00%

Password

10,718

2.74%

Personal Info

6,170

1.58%

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The following article is one in a series of case studies that will appear in Insights, which features our most successful communications programs developed for Plan Sponsors.

For a company that offers a 401(k) plan savings option as well as a profit sharing contribution for employees, there can be a struggle to educate employees on why it is important to take part of both savings opportunities.

The recent transition of one of the country’s largest check-production company’s plans to J.P. Morgan Retirement Plan Services offered an opportunity to educate and “nudge” a group of employees in just this type of situation.

The company offers two plans to their employees – a Defined Contribution Pension Plan and a combined 401(k) and Profit Sharing Plan. Because the company was making contributions on behalf of the employee into both plans, the employee participation rate was only 65%. This was a cause for concern for the plan sponsors because they also offered a generous match on all employee contributions and many employees weren’t even participating in the plans.

To capitalize on a recent plan sponsor brand redesign and establish continuity with the corporate look and feel, the conversion communication pieces were designed to closely compliment the new brand used for all other Human Resource communications.

The conversion communication pieces were straight-forward. They laid out exactly what was changing, and what was staying the same. At conversion, the sponsor introduced several automatic plan design features including auto-increase. Although employees were notified that they would be auto-increased after six months, they were also given instruction on how to increase their deferral rate immediately or opt-out of this plan feature.

The communication also stressed the potential benefits and convenience of the auto-increase feature. The benefits of the company match were also reinforced throughout the newsletter. The plan sponsor also introduced at conversion electronic statements, online beneficiary, new loan default provisions and monthly installment payments.

But there was more! They also merged a new group of employees into the plan during conversion. Those employees saw a new investment lineup including Target Date Retirement Funds, revised company match, immediate vesting, auto-enrollment, auto-increase, catch-up contributions as part or their regular payroll deduction elections, availability of loans, elimination of the hardship withdrawal option and introduction of in-service withdrawals and the availability of rollover funds for withdrawals.

The plans converted mid-December 2008. Afterwards, the participation rate for the plan increased 14.95% within the first 30 days on the J.P. Morgan platform. Average contribution rates also increased significantly, to 7.07% although the automatic-enrollment rate is just 5%. In addition, 60% of the target audience made a choice to auto-increase their contribution rate immediately, rather than wait for the plan to increase it for them in July 2009.

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Save the Date

  • Please join us for a retirement plan forum. Our client, Cadence Design Systems, Inc. is hosting a retirement plan forum featuring J.P. Morgan Retirement Plan Services Executives.
    • CEO, Pam Popp will share her perspectives on the new reality for plan sponsors and participants.
    • Head of Sales and Sponsor Services, David Embry will articulate how J.P. Morgan is responding to the new reality.
    • Head of Legislative Affairs, Bob Holcomb will provide his insight on recent activity on Capitol Hill.
    • Date:  Tuesday, September 29, 2009
    • Time:  9:30a.m. - 12p.m. Pacific time
    • Location: Cadence Design Systems, Inc., Building 10 Auditorium, 2655 Seely Ave., San Jose, CA 95134
    • RSVP by September 15th. Call Debbie Lampkin at 816-673-4909 or send an email to debbie.s.lampkin@jpmorgan.com.
  • Legislative update webcast.

As we head into the final months of the year, a number of bills have been introduced in Congress that may shape the future of pension reform.  Please join Bob Holcomb, Head of Legislative Affairs for J.P. Morgan Retirement Plan Services on Thursday, October 29th at 1p.m. Central time for an update.  More details to come!

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Legislative & Regulatory Updates

As reported in the March edition of Insights, final regulations on automatic enrollment arrangements were issued earlier this year. Automatic enrollment has gained momentum in 401(k) and similar plans over the last few years, especially since passage of the Pension Protection Act of 2006 (PPA) encouraged its use by adding special features to certain auto-enrollment programs:

Eligible automatic contribution arrangement (EACA) – provides for permissible withdrawals of automatic contributions within the first 90 days and allows refunds for failed nondiscrimination tests up to six months after the end of the plan year before the employer incurs an excise tax.

Qualified automatic contribution arrangement (QACA) – provides a nondiscrimination testing safe harbor provided minimum levels of default contribution rates are satisfied during the first four years of participation.

To help decipher the differences between the various arrangements, you can reference the following chart below to compare the primary features. The chart includes the two PPA arrangements described above and non-PPA automatic contribution arrangements (ACAs).

Plan Provisions

Automatic Contribution Arrangement(ACA)

Eligible Automatic Contribution Arrangement (EACA)

Qualified Automatic Contribution Arrangement (QACA)

When are the final regulations for automatic enrollment arrangements effective?

The final regulations issued in February, 2009, do not apply to plans that are not an EACA or a QACA - See Revenue Ruling 2000-8 for limited guidance on ACAs

Plan years beginning on or after January 1, 2010; proposed regulations may be applied for 2008 and 2009 plan years

Plan years beginning on or after January 1, 2008

When can the arrangement begin?

Any time during the plan year

Must start at the beginning of the plan year

Must start at the beginning of the plan year

Which employees must be automatically enrolled?

Plan may elect to apply to new hires only or retroactively to all employees without a previous affirmative deferral election

Plan may elect to apply to new hires only or retroactively to all employees without a previous affirmative deferral election [Note: must be applied to all eligible employees to take advantage of six-month testing deadline]

Plan must apply to those employees without a previous affirmative deferral election

What rate is required initially for employee deferrals, and to whom must it apply?

No required rate

No required rate [Note: EACA plans may have multiple EACAs within one plan, so long as the different groups may be disaggregated under IRC 410(b) coverage testing; e.g., collective bargaining units]

Mandatory provision 3% minimum deferral rate [Note: any participants previously auto enrolled at less than 3% must be increased to 3% if an affirmative deferral election has not been made]

How is automatic increase applied?

Optional provision

Optional provision

Mandatory provision –rate must increase for those auto enrolled by at least one percentage point each year, to at least 6%, but not to exceed 10% [Note:  following a hardship suspension, participant must contribute at the rate in effect had the hardship suspension not occurred]1

How does the arrangement affect ADP/ACP Testing?

Testing required - refunds for a failed test not made within two and a half months after the end of the plan year are subject to a 10% employer excise tax

Testing required - refunds for a failed test not made within six months after the end of the plan year are subject to a 10% employer excise tax [Note: if all eligible employees are not covered, the two and a half month rule applies]

Safe Harbor – testing not required unless there are after-tax contributions2

Is a Qualified Default Investment Alternative (QDIA) required?

Optional [Note: if used, notice requirements apply and may be combined with other required notices]

Optional [Note: if used, notice requirements apply and may be combined with other required notices]

Optional [Note: if used, notice requirements apply and may be combined with other required notices]

What are the initial notice timing requirements?

Generally, employees must have a “reasonable” period between the receipt of the notice and the first deferral to “opt-out” or elect another rate

Notice must be supplied at least 30 days before employee is eligible

Notice must be supplied within a “reasonable” period prior to eligibility; at least 30, but no more than 90, days and generally no later than the date the employee becomes eligible. If immediately eligible, notice may be provided by the first pay date for the payroll period that includes the initial eligibility date.

Notice must be supplied within a “reasonable” period prior to eligibility; at least 30, but no more than 90, days and generally no later than the date the employee becomes eligible. If immediately eligible, notice may be provided by the first pay date for the payroll period that includes the eligibility date.

What are the annual notice timing requirements?

Within a reasonable period of at least 30 days prior to the beginning of each plan year

At least 30, but no more than 90, days prior to the beginning of each plan year

At least 30, but no more than 90, days prior to the beginning of each plan year

Is the 90-day permissible withdrawal available?

Not allowed

Optional provision – if the plan allows, participants may request a withdrawal of default contributions made in the first 90 days (or as little as 30 days) after the first default contribution would have been included in pay [Note: refunds are taxable to participants in the year distributed; 10% penalty does not apply]

Not allowed, unless also an EACA

Are employer contributions required?

Optional

Optional

Mandatory Safe Harbor [Note: Safe Harbor notice rules apply]

What are the minimum Safe Harbor Employer Contribution requirements?[Note: enhanced formulas available if match rates do not increase as the deferral rates increase, and matched deferrals must be capped at 6%]

Safe Harbor is optional.Match of 100% on the first 3% plus 50% on the next 2% deferred; or a 3% nonelective contribution (QNEC) [Note: plan cannot require 1,000 hours of service in the plan year or last day of employment; catch-up contributions must be matched]

Safe Harbor is optional.Match of 100% on the first 3% plus 50% on the next 2% deferred; or a 3% nonelective contribution (QNEC) [Note: plan cannot require 1,000 hours of service in the plan year or last day of employment; catch-up contributions must be matched]

Safe Harbor is required.Match of 100% on the first 1% plus 50% on the next 5% deferred; or a 3% nonelective contribution [Note: plan cannot require 1,000 hours of service in the plan year or last day of employment; catch-up contributions must be matched]

What are the Safe Harbor vesting requirements?

100% immediate

100% immediate

100% after two years (may be more generous)

Are there in-service withdrawal restrictions on the employer safe harbor contributions?

May only be withdrawn at age 59½ (Cannot be withdrawn for hardships)

May only be withdrawn at age 59½ (Cannot be withdrawn for hardships)

May only be withdrawn at age 59½(Cannot be withdrawn for hardships)

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Market Pulse by Stu Schweitzer

Weekly Market Update, a weekly outlook on the markets and the global economy.

MacroMinute Weekly, a short two- to three-minute audio commentary summarizing insights and outlook on the global economy, financial markets and asset allocation. MacroMinute Weekly can be delivered to your voice mail box on Monday mornings before the start of the business day. To subscribe, e-mail Retirement_Insights@JPMorgan.com with “Subscribe to MacroMinute” in the message subject line, and include your name, firm name and phone number.

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In the News

Information about JPMorgan Chase & Co. in the news is available at www.jpmorganchase.com.

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Plan Sponsor Alert:  2010 Benefit Limits

Each year, various retirement plan limits set out in the Internal Revenue Code are indexed for inflation. Some of these limits include:

  • Elective deferrals ($16,500 for 2009)
  • Catch-up contributions ($5,500 for 2009)
  • Maximum compensation ($245,000 for 2009)
  • Definition of highly compensated employee ($110,000 for 2009, to be applied in 2010 testing)
  • Defined contribution maximum additions ($49,000 for 2009)
  • Defined benefit maximum benefit ($195,000 for 2009)

The indexation process is designed to help ensure that limits which were previously set by law keep pace with inflation. But what if deflation occurs? Can the benefit limits be reduced? That is a concern as we near the time for determination of the 2010 limits.

The annual adjustment to the limits is based on the Consumer Price Index for All Urban Consumers (CPI-U) for the third quarter of the year, compared to a 2001 base period. Although the applicable CPI-U will not be known until after September 30, 2009, there is the possibility of a decrease from the 2008 third quarter CPI-U. If such a result occurs, it is not clear whether the Treasury Department would actually decrease the limits. As of this writing, the Treasury has not stated its position.

While the statute speaks about adjustments in terms of “annual increases,” the mathematical formula set out under the regulations only protects the base limit (as opposed to the prior year limit). The indexation of retirement benefit limits is designed to be similar to procedures used to adjust benefit amounts under the Social Security Act. However, Social Security benefits are not allowed to decrease from one year to the next.

Any decrease in limits would be a detriment to those trying to make up for investment losses incurred over the last year, by maximizing contributions. Defined benefit plans in certain industries that allow generous early retirement benefits also face the potential of a decrease in accrued benefits for participants in pay status or near retirement. Under the anti-cutback rule, no amendment may decrease a participant’s accrued benefit. It is not clear if a decrease in the defined benefit limit would be considered an amendment, or if an exception to the anti-cutback rule would be applied if the benefit limit is decreased.

As these concerns are being raised with the Treasury Department, we wanted to make you aware of this potential issue, especially as enrollment materials for 2010 may be in development. As further information becomes available, we will keep you apprised.

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Contact us at: Retirement_Insights@JPMorgan.com

For questions regarding your personal 401(k) plan, contact your 401(k) plan provider.

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Disclosures


Availability of products and services featured in Insights vary by plan. For details, contact your J.P. Morgan representative.

1Assumes initial auto-enrollment rate is 3%.

2Note that the “early participation rule” may not be utilized in the ACP test; although, it is permissible to use the “otherwise excludable rule.” Under early participation, non-highly compensated employees who do not meet the statutory eligibility requirements of age 21 and one year of service may be excluded from the testing, with all highly compensated employees included in the test. With the otherwise excludable rule, all employees who have not met the statutory requirements are excluded from the test, but if the excluded group has any highly compensated employees, a separate test must be performed for the excluded group.

This comparison chart is intended to assist plan sponsors in determining which, if any, arrangement is appropriate for their plan and workforce. Once a decision is made, there may be other plan design and/or administrative details to be considered.

This information is intended for informational and educational purposes only. It is not intended to provide, and should not be relied upon for investment, accounting, legal or tax advice.  For specific impact on your plan or particular circumstances, you should consult with your legal counsel and benefit advisers.

Financial Engines® is a registered trademark of Financial Engines, Inc. All advisory services are provided by Financial Engines Advisors L.L.C. (“FEA”), a federally registered investment advisor and wholly owned subsidiary of Financial Engines, Inc. Financial Engines is an independent company that is not affiliated with J.P. Morgan Retirement Plan Services LLC. FEA does not guarantee future results.

All case studies are shown for illustrative purposes only and should not be relied upon as advice or interpreted as a recommendation.  They are based on market conditions at time of the analysis and are subject to change.  Results shown are not meant to be representative of actual investment results. Past performance is not a guarantee of and may not be indicative of future results.

IRS Circular 230 Disclosure: JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with JPMorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

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