If You're the Smartest Person in the Room, You're in the Wrong Room!

This title is one of my favorite quotes that is so very wise.  It was originally said by a noted academic, Dr. David Weinberger.  By applying this adage to my professional life, I've almost universally been the better for it.  If it weren't for this philosophy, I never would have tried to write papers, blogs and the like, and thus would never have decided to create this blog.  I've recently realized, that this blog is really the only independent place where I can document all of the work I've done in my career.  So, here are a few of my notable papers in one place, the better ones co-written by someone who is most definitely the smartest person in my two person rooms, HA!  Hope you enjoy these.

Retirement Success: A Surprising look into the Factors that Drive Positive Outcomes - This is the very first paper I published in my professional career, originally published in the Summer edition of the ASPPA Journal in 2011.  Interestingly, this piece has been a weight baring beam in my career, a foundational notion for everything I've done since.  The smart co-author on this gem is David Blanchett (now head of Retirement Research at Morningstar) who took my original question and did 100% of the math! - September 1, 2011

Deconstructing the Fiduciary Models: 3(38) vs. Discretionary Trustee - In this piece, my very smart associate, Mike Samford and I try to tackle a highly nuanced area of ERISA fiduciary service, taking discretion over plan investments.  While I would change some of what I've written here nearly ten years later, most of this still holds.   - July 11, 2012

Third Party Fiduciaries; Myth and Reality- Occasionally, I managed enough nerve to write solo, and invariably the result never as good as when I've written with a partner.  This is my first ever solo piece, originally self published but picked up by Retirementsolutionsnow.com. - June - 2013 (Orig. Jan. 17, 2013)

Retirement Income—In-Plan vs. Out-of-Plan Solutions, Which Is Better?

Retirement Income - In Plan vs Out-of-Plan Solutions, Which Is Better?  - This is still today (in 2021) a hot topic, annuities in retirement plans.  We had this published in the Journal of Pension Benefits and it explores Retirement Income solutions, as they exist within 401(k) plans, whether individuals would be served better with those solutions or out-of-plan solutions and provides ideas for how to adequately deliver retirement income for retired Americans.  The 'smart' on this one was my co-author, Dr. Greg Kasten. - Feb. 1, 2013.

How 401k Advisors can Effectively Offer 316 Services - Here's a piece I authored in 401(k) Specialist which discusses the 'at the time' new spate of administrative fiduciary services and a model for retirement plan advisors to gain a competitive advantage.  No co-author on this one, AND you can tell! - June 14, 2016

- Jason Grantz, QPA, QKC, QKA, AIFA

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SECURE ACT 2.0, The 'Pay For', Part 3

 

In the previous 2 posts on this subject, we discussed SECURE 2.0 and highlighted some of my favorite parts.  We're going to wrap up this series with my last two favorite provisions, which interestingly fall on the side of revenue generators.  As a reminder, this is a new piece of proposed bipartisan legislation seeking to improve retirement plans.  While there are more steps to this Act becoming a law, I feel pretty confident that this one has legs, and candidly, that's GREAT news for the retirement plan community and our clients.  I think this will get done in 2021 with implementation of many of the provisions in 2022. 

For a an amazing summary of all of the new provisions contained within the final mark-up, here's a link What's in SECURE 2.0?.

The What:

Committee Chairman Richard Neal (D-MA), along with the Committee’s ranking Republican, Rep. Kevin Brady (R-TX), first introduced the bill, Securing a Strong Retirement Act (SSRA), last October as a sequel to the 2019 SECURE Act. While that version of the bill included some 36 provisions, the new Securing a Strong Retirement Act of 2021 (H.R. 2954) now contains about 45 provisions, including new revenue offsets to pay for the bill. 

My Favorite Few Provisions continued, part 3: 

These final two provisions we're looking at in the series work together in my opinion as they're engineered to create more tax based flexibility for individuals while at the same time allowing immediate tax revenue to be generated to help pay for all of the new benefits.  They are estimating that these provisions could raise as much as $27 billion in new revenue over a 10-year period.  This 10-year period is important because while retirement plan benefits can spread over lifetimes, congress only looks at tax over ten year periods.  One way to think of this is that it's the 'Rothification of Retirement' as is discussed in this excellent piece in Think Advisor. 

SIMPLE and SEP Roth IRAs: Most employers and individuals have heard of the most famous Internal Revenue Code, Section 401(k).  However, many small employers opt not to install a 401(k) because of the costs, risks and compliance requirements.  Back in late 1990's this was addressed by creating a hybrid type employer sponsored retirement plan that took on the characteristics of both IRAs and 401(k)s called a SIMPLE IRA.  While these are lesser known, they can be very valuable benefits and also "starter" retirement plans for business'.  

Under current law a SIMPLE IRAs and Simplified Employee Pensions (SEPS) are solely tax deferred vehicles.  SECURE 2.0 changes this so that they could be designated as Roth.  Like other ROTHs, contributions made in this manner would be subject to current year taxes, but the growth on such contributions would be tax free.  ERISA qualified DC plans (401(k), 403(b), etc.) currently allow for such contributions and this closes the door on that distinction between the two structures.  This proposal applies to tax years beginning after Dec. 31, 2021.  

EMPLOYER MATCH as ROTH too??!!!

Just like the previous provision in reference to SIMPLE IRAs and SEPs, the proposal allows for a new contribution source in 401(a), 401(k), 403(b) and 457(b) plans.  The ROTH EMPLOYER MATCH!  Similarly, just like other ROTH structures, the taxation of this works the same way, the contribution is immediately taxable, and the growth grows tax free and is tax free upon distribution from the plan.  This one is interesting to me not because of the ROTH part, but because these are employer dollars being contributed to an employees plan, BUT will need to be included in the gross income of that employee today.  I suspect the payroll providers are going to have a little programming to do in order to accommodate this on pay stubs and W-2s.  That said, I like it.  My view on ROTH has never been ROTH (After-Tax grows tax free) is necessarily better than traditional deferral (Pre-Tax grows Tax deferred) or vice versa, but rather it allows for strategic tax diversification at retirement which can be highly beneficial during someone's decumulation phase when they're taking distributions.  

This concludes the series on SECURE 2.0.  Please be sure to subscribe to the feed for more blog content in the future.

- Jason Grantz, QPA, QKC, QKA, AIFA

 

 

 

 

 

 

ARE YOU FEELING SECURE? SECURE 2.0, PART 2

In my previous post, I mentioned that it was the start of a three-part series discussing SECURE 2.0 highlighting some of my favorite parts.  As a reminder, this is a new piece of proposed bipartisan legislation seeking to improve retirement plans.  While there are more steps to this Act becoming a law, I feel pretty confident that this one has legs, and candidly, that's GREAT news for the retirement plan community and our clients.  I think this will get done in 2021 with implementation of many of the provisions in 2022. 

For a an amazing summary of all of the new provisions contained within the final mark-up, here's a link What's in SECURE 2.0?.

The What:

Committee Chairman Richard Neal (D-MA), along with the Committee’s ranking Republican, Rep. Kevin Brady (R-TX), first introduced the bill, Securing a Strong Retirement Act (SSRA), last October as a sequel to the 2019 SECURE Act. While that version of the bill included some 36 provisions, the new Securing a Strong Retirement Act of 2021 (H.R. 2954) now contains about 45 provisions, including new revenue offsets to pay for the bill. 

My Favorite Few Provisions continued:

These next two provisions I think work together as they're adjustments to the existing provisions.  Specifically, we're moving back the ages on certain rules allowing greater savings and potentially delaying when taxes need to be recouped which aligns with trends towards working longer and increases in life expectancy over the last several decades.

New Required Beginning Dates for RMDs: What's an RMD?  RMD's or Required Minimum Distributions are the requirements placed on retirees to codify the oldest age they can attain before they MUST start taking distributions from their tax advantaged accounts and start paying taxes.  For many years, really decades, the age was set to 70 1/2.  In the first SECURE ACT it was moved back to age 72.  In this new rule, it piggy back's on this to expand the age ultimately back to age 75.  My take is that I think it's going to be a bit confusing to implement, but I like what they're trying to do.  Essentially, what the rule says is that for those who want to delay tapping their IRAs or retirement plans for as long as possible, they'll have more time depending on what age bracket they fall in.  While I like this idea, I'm not a fan of the 'how' on this as I think it's going to cause confusion and will need care and attention paid to it instead of making it simple.  Here's how it will work.

The Phase-In: The new rules will require a phase in of the required beginning date from the calendar year in which the employee or IRA owner attains age 72 to the calendar year in which the employee or IRA owner attains age 73.  This is ONLY for individuals who attain age 72 after Dec. 31, 2021, and who attain age 73 before Jan. 1, 2029. But if you're not in that window, there's a second and third tier as follows;

The proposal changes such age from 73 to 74 for individuals who attain age 73 after Dec. 31, 2028, and who attain age 74 before Jan. 1, 2032.  With the third tier further increasing the RMD age to 75 for individuals who attain age 74 after Dec. 31, 2031. T

In short, GREAT idea, but this is going to require some attention to detail for practitioners.

Higher Catch-up Limit to Apply at Age 62, 63 and 64: What's Catch-up?  The current rule stipulates that if you a participant has attained age 50, that they can defer more than the statutory limit to their 401(k) plan (and certain other plans).  The deferral limit in 2021 is $19,500 and those over 50 can do an additional $6500 for a total of $26,000. The idea is to help aid workers in "catching up" for the earlier years in their careers where they weren't able to contribute to the maximum.  

In this new legislation it raises the amount of the catch-up contributions to $10,000 for those who have attained age 62, 63 or 64, but interestingly ONLY for those three ages and NOT for those older than 64.  This would apply to those in employer-sponsored 401(k) and 403(b) plans. Similar provisions with different amounts would apply to SIMPLE IRAs. For those aged 50-61, the provision retains the existing catch-up contribution limits. In addition, these changes would also be indexed for inflation like current limits, starting in calendar year 2023. The provision applies to tax years beginning after Dec. 31, 2022.

My take, I very much like the idea here, people are woefully behind on saving for retirement, so anything that allows more money to get put away I'm in favor of.  However, just like the RMD provision, this one is going to require someone to pay attention to ensure that the increase happens precisely in the three-year age window.  I'd like this one to be fixed to basically increase it starting at 62 and not stopping it at 64.  

On our final installment of SECURE 2.0, we're going to address two of the provisions that are categorized as Revenue Generators to help pay for this and keep it as Revenue Neutral as possible. 

- Jason Grantz, QPA, QKC, QKA, AIFA

 

FEELING SECURE? I know I am a little more with SECURE 2.0! Part 1

Greetings all!  Hopefully this new entry into the blog will be the start of a renewed interest in blogging AND, candidly in response to the overwhelmingly positive response I received from many of my clients and colleagues to "blog, blog, blog".  

For my first attempt, I thought I'd tackle the new SECURE 2.0 legislation that went to and came out of committee (House Ways & Means) this week as a multi part series. While there are more steps to this Act becoming a law, I feel pretty confident that this one has legs, and candidly, that's GREAT news for the retirement plan community and our clients.  I think this will get done in 2021 with implementation of many of the provisions in 2022. 

For a an amazing summary of all of the new provisions contained within the final mark-up, here's a link What's in SECURE 2.0?.

The What:

Committee Chairman Richard Neal (D-MA), along with the Committee’s ranking Republican, Rep. Kevin Brady (R-TX), first introduced the bill, Securing a Strong Retirement Act (SSRA), last October as a sequel to the 2019 SECURE Act. While that version of the bill included some 36 provisions, the new Securing a Strong Retirement Act of 2021 (H.R. 2954) now contains about 45 provisions, including new revenue offsets to pay for the bill. 

My Favorite Few Provisions:

As mentioned, while this has 45 provisions, I thought I'd cherry pick out a few of my favorites. These will be discussed one part at a time as part of a series of posts.

Student Loan Payments: In the original version submitted in October it contained a provision that would use the retirement plan ecosystem to encourage younger workers to pay off student loans, a novel and candidly, very good idea.  The original bill however didn't account for a potential negative impact on compliance testing (ADP test).  This new version addresses this problem, clearing the path for employers to adopt this provision effective for 2022. 

So what is this?  Simply, it's a matching program where the employer could create a formula where they would match some/all of what the employee pays off of their student loan. This allows employees with student loan debt to not have to fully choose between saving for retirement OR paying down debt, both important for their short and long term financial well being.  Personally, I love this idea.  Savings rate is by far the most important factor in a successful retirement (Quantifying the Drivers of Retirement Success), and the earlier years are the most important.  One big inhibitor to younger workers participating in plans is the skyrocketing costs of higher education that has occurred over the past few decades leaving many with a huge loan to deal with right at the beginning of their careers.  This new provision can allow many of these employees who are new to the workforce to pay down debt whilst simultaneously not missing out on the employer match and thus being able to get some money saved for retirement. 

The big question, which we'll learn the answer to soon, is whether employers will want to altruistically adopt this OR if they will take the position that participants personal finances are not 'their problem'.  Frankly, the more astute employers will grab this idea and tout it loudly because this is the exact type of benefit that breeds employee loyalty.  I'd be curious as to what others think about this.

Stay tuned for Part 2 of this Series.

- Jason Grantz, QPA, QKC, QKA, AIFA