Metro Newsletter #91

December 10, 2015

To our clients and friends:

This is another in a series of newsletters designed to keep you clearly informed of current events in the area of retirement plans. (plus whatever other stuff I find interesting …)

Year End 2015 Edition!

The IRS has announced the changes in the maximum plan limits for 2016 and, drum roll please, there are no changes. This is because inflation didn’t cause the index to go up, just like Social Security. So the 401(k) “salary deferral” limit remains at $24,000 (age 50 or over) and $18,000 (under age 50). The overall 401(k) plan limit, including the Employer contributions, remains at $59,000 (age 50 or over in 2016) or $53,000 (under age 50)

There are some other “housekeeping issues” that you need to keep in mind at this time of the year:

2015 Required Minimum Distributions and Form 1099-Rs:

Any participant who is a 5% owner and has reached age 70 ½ must receive their Required Minimum Distribution by December 31st. In addition, any other participant age 70 ½ or older who is no longer employed must also receive a distribution by December 31st. Metro clients received correspondence from us on or around November 25; please review and respond at your earliest convenience so that we can assist you with the coordination of any RMDs that still need to be processed before year-end.

The IRS Form 1099-R reports distributions to the IRS and to the recipient. Participants that received distributions in 2015 must receive a 2015 Form 1099-R by January 31, 2016. If Metro Benefits, Inc. prepares these forms for a plan, please note that we will be emailing (or mailing) important information concerning the 2015 Form 1099-Rs the week of December 21st. Please watch for this correspondence and provide the requested information in a timely manner so that all needed forms can be prepared and mailed by the IRS deadline. (Thanks to Linda Fulton for this item)

New Plan Deadline:

If you are thinking about establishing a new plan in order to get a 2015 contribution or tax deduction, the time limit for adopting the plan is 12/31/15. Please let us know asap if you want to set up a plan.

Metro Updates:

We are very pleased to announce exam successes for some of our Analysts. As loyal readers and clients know, we are very professionally committed, so for us it is a big deal when our employees achieve professional credentials. Please join me in congratulating Adam Davis and Kristie Black on attaining their QKA designation (“Qualified 401(k) Administrator”) and Chastity Crihfield on passing the DC-1 exam. 🙂

Plan Documents are us:

As you probably know, all 401(k) plan documents will need to be restated by 4/30/16. Many of our clients have already gone through this process. One new technique we are using this time is electronic adoption. While this may not seem as satisfying as actually signing a piece of paper to adopt the plan, the e-adoption process is more efficient, and you can rest assured that forests are being preserved for your grandchildren. Please let us know if you have any questions or concerns about this process. Note that defined benefit and cash balance plans will be re-done in about 2 years.

Lotto Actuarial:

Many of us (not me) play the daily number, and some people have better odds than others. Why? A recent article in the Wall Street Journal (10/11/15, “Lucky Lotto Numbers Will Only Win You Less”, by Jo Craven McGinty) discusses the reasons for this.

Most people play their “lucky” numbers, their kids’ birthdays, or select a pattern of numbers on the card itself. Everyone has the same chance. The problem is when people play “popular” numbers, perhaps the date or another popular set. Apparently, there was a series of numbers in the TV show “Lost”, which people played a lot (more than any other combination, in fact.)

The problem with this “popular” approach is that if there are multiple winners, the prize is divided up among more people, and so you win less. This is, mathematically, a big problem. The option of letting the computer pick random numbers for you is a better option.

One point that the article left out – almost every lottery is a 50/50 deal, where only ½ of the pool is paid out. This can never be a good bet for the player. I am always intrigued by the lack of transparency on this, and I wonder if lotteries’ popularity would go down if this were made clearer.

IRS audit triggers:

At a recent “ABC” meeting in Pittsburgh, an IRS auditor presented a slide that indicated potential retirement plan audit triggers. Here are a few:

  1. A large number of terminated plan members who leave without full vesting
  2. A high percentage of assets classified as “Other”
  3. Significant payouts
  4. Top-heavy 401(k) plans
  5. 401(k) Plans for self employed individuals.

He also mentioned that not responding to a survey or letter might increase audit risk. 25-40% of all audits result in no change, although that range decreases to 15-25% in the Mid-Atlantic region of the IRS. Let me know if you’d like to be invited to these informative, quarterly meetings. We get to hear a variety of speakers.

Preparing for an Efficient 2016:

With a new year quickly approaching, please remember to keep the participant information up to date on your record keeping platform (if you are using one). All address changes and name changes should be updated on your recordkeeper’s plan sponsor website.  Also, please remember to update the platform if an employee leaves employment.    By entering this date, many platforms will automatically send a distribution form directly to the individual for completion.  If you have any questions about the services offered by your recordkeeper, please let us know.  (Thanks to Shelia McLaughlin for this item.)

Wild and Wonderful West Virginia!

Due to a recent change, we now have four positions in our Ripley, WV office. (About 35 minutes from Charleston).  The problem is that we now only have three employees there to fill them. If you know of anyone with a math or accounting background who would like to be part of the Metro team, please let us know. We have a rapidly-growing client base in that State. (Personal note – I really enjoy my trips to visit clients and associates there; people are so friendly. I feel fortunate to be able to live and work in this part of the country = Western PA + WV; this is from someone who grew up in NY and CT.)

What’s cooking with you?  Let me know at the e-mail below ….

 

Happy Holidays

From the entire team at Metro Benefits, Inc.

 

Best Wishes,

David M. Lipkin, MSPA, FSA, Editor

[email protected]

(412) 847-7600

Metro Benefits, Inc. is a regional consulting firm, based in Pittsburgh, PA and Ripley, WV. We provide a wide range of services for qualified plans. While we make every effort to verify the accuracy of the information that we present here, you should consult with your Plan attorney or other advisor before acting on it.