Your 401(k) Resource

Your 401(k) Resource

September 2008

Andrew Sweeny, Jr.

Vice President

andrews@horansecur.com

In This Issue

Roth 401(k) and IRA

Plan Sponsors Beware

Fee Disclosure Timetable

For more information about these topics, please contact

Andy Sweeny

at 513.745.0707.

Greetings!

Thank you for your continued business. If you know of anyone that could benefit from my services, please feel free to forward this newsletter on to them.

Roth 401(k) and IRA

Roth 401(k) and Roth IRAs can be powerful tools for saving for your retirement. The Roth IRA was created in 1996 and the Roth 401(k) in 2006. They both allow you to save for retirement and enjoy tax-free withdrawals. The Roth IRA has income limitations for contributions and conversions. These limitations do not apply to the Roth 401(k). In 2010, a one-time window allows increased access to Roth conversions. Details on this window are below.

Roth IRA

The original 1997 law that created the Roth IRA limited who could convert an existing IRA to those with an AGI of less than $100,000. However, in May of 2006 President Bush signed a $70 billion tax cut provision that changed the eligibility rules for Roth IRA conversions. Starting in 2010, taxpayers with modified AGI of more than $100,000 can convert a traditional IRA to a Roth IRA. This change applies for one year only - 2010 - and the income taxes due on conversions can be spread over two years. The 2010 conversion amount may be included as taxable income in 2011 and 2012 - helping to spread out the tax bite. Conversions in subsequent years will follow the current rules. There is no change to the rules for funding a Roth IRA, but anyone will be able to convert to a Roth IRA for one year.

Even if your income is too high to make a Roth IRA contribution this year, by making a traditional IRA contribution this year and next you will be able to convert this balance and any other traditional IRAs in 2010 and take advantage of spreading the tax bill over two years.

Roth 401k
One of the great things about the Roth 401(k) is there are no income limits to contribute. The Roth 401k provision was part of the Economic Growth and Tax Relief Reconciliation Act that became effective in 2006. In 2008, Roth 401k contributions remained the same as they were in 2007 - $15,500. In addition, for those age 50 years and older the catch-up contribution raises the limit to $20,500.

Another benefit is you can rollover a Roth 401k into to a Roth IRA when you terminate employment or at retirement. This loophole allows you to get around the minimum distribution requirement at age 70 1/2 - just roll the Roth 401k into a Roth IRA (which has no minimum distribution requirement). Keep in mind the contribution decision is sometimes based on what you think your tax bracket or tax rate will be in the future. If you expect your tax bracket will be higher or the same as it is now when you are retired, then you are probably better off with a Roth 401k. If your tax bracket will be lower in retirement, then the tax-free withdrawal advantage of the Roth 401k plan diminishes.

See full story, by Scott Thole with HORAN. We invite additional questions about these features and how they relate to your 401(k) plan. Please contact Andrew Sweeny Jr. or Scott Thole at 513.745.0707.

Don't Become a Cautionary Tale: Sponsors Must Beware Paying Plan Expenses From the Plan

An employer might ask: Can plan expenses be paid from my pension plan or 401(k) plan? Yes, they certainly can and, in fact, probably already are. However, the decision to do so must be made by the responsible plan fiduciaries who make sure that proper documentation and disclosures are provided.

Since the Department of Labor in 2003 issued guidance allowing expenses to be allocated differently among active and terminated participants, much more focus has been placed on expenses being paid from a retirement plan.

Eligible expenses are generally operational expenses, as opposed to costs associated with the design and implementation of a plan. For example, the creation of plan documents associated with the initial adoption of the plan, as well as all legal fees associated with such adoption, would generally be settlor expenses, which may not be paid by the retirement plan.

Over the years, DOL has issued several pieces of guidance around the section of ERISA governing this matter. Based on these bits of guidance, plan expenses in both defined contribution and defined benefit plans may include:

Costs incurred to secure an IRS Favorable Determination Letter on the plan
Annual accounting of trust assets
Cost of valuing assets in the plan
Service provider fees, which could include third-party recordkeeping, accounting fees, preparation of employee communication materials and summary plan description
Fees related to trustee and custodial services, investment adviser fees, investment management fees, asset management fees, broker commissions and banking fees
Legal fees in making the determination of a domestic relations order of status as a qualified domestic relations order
Expenses due to selecting, appointing and monitoring fiduciaries
Premiums for fiduciary liability policies and fiduciary bonds
Fees for implementing the decision to terminate a plan

See full story, located at EmployeeBenefitNews.

Fee Disclosure Timetable Met with Some Skepticism

Lobbyists say date of new rules leaves little time for orderly implementation.

The Department of Labor's announcement that it is planning to implement new fee-disclosure regulations for participant-directed defined contribution plans beginning on or after Jan. 1, 2009, was met with skepticism by pension industry consultants and lobbyists even though the proposed rule itself generally received favorable reviews.

The DOL's proposed rule, published in the Federal Register July 23, is intended to ensure that participants in 401(k) plans and other participant-directed DC plans receive uniform and useful fee and expense information about their investment options.

Key information that plan fiduciaries would have to provide about plan investment options under the proposed rule would include fees and expenses, past performance data, a comparable benchmark return and a website address for participants seeking more detailed information about the investment option than required by the rule.

The information, which is supposed to be presented in a format that makes it easy for plan participants to compare investment options, would have to be given to participants annually and to new participants when they first become eligible to participate in a plan.

In addition, the proposed rule would require plan fiduciaries to disclose to participants quarterly the dollar amounts charged to the participants' accounts during the preceding quarter for plan-level administrative expenses.

Pension industry lobbyists said it unlikely that the DOL will be able to publish its final rules before the end of the year, because the comment period doesn't end until Sept. 8.

See full story, located at Pensions&Investments. (free registration may be required)

How Much Have Americans Ages 19-39 Saved? Not Enough

A survey this year asked Americans in this age group-members of so-called Generation X and
Generation Y a series of questions to gage their understanding of finances and the resources they are most likely to use to obtain financial information.

One question asked how much money survey participants would say they and their spouse or partner have in savings and investments, not including the value of the primary residence or any defined benefit (pension) retirement plan. Those responding were asked to include savings, certificates of deposit, stocks, bonds, mutual funds, employer-sponsored defined-contribution retirement savings plans (such as a 401(k) or 403(b) plan), and other investments.

As might be expected, younger Americans reported only modest savings: 57 percent said they had less than $10,000 and two-thirds (67 percent) said they had less than $20,000. The survey also found those in "Gen X" and "Gen Y" overwhelmingly say they are not saving as much as they need to.