SURVEY SAYS: Saver's Credit Status
From a plan sponsor standpoint, the application of the Saver’s Credit has no administrative impact – but we wondered what, if anything, our readers had done about the benefit – and what impact had been noted.
Nearly 40% of this week’s respondents had made a special effort of some form to communicate the opportunity to participants, while roughly 31% had said something as part of their general EGTRRA change communications – as one noted, “We put information about the tax credit in our communication piece to employees when we advised them about other EGTRRA changes to our 401(k) plan. We called it another good reason to join the plan.”
Some, of course, have now done both, including the reader who said, “We have done A and B. When the enrollment meetings were held last year, many of our companies included material in the packets for employees. A number of the companies targeted those who are single parents as they are most likely eligible for the credit. This year, we have sent information with the quarterly statements to participants and put up posters for non participants to raise awareness.”
“No” Actions
Roughly 16% had decided not to communicate anything – or, in some cases, not decided to communicate anything. As one noted, “I’ll have to place us with a (c) opted not to do anything, although it really wasn’t much of an actual election, we just read through the information we had and picked out what we needed to address right away and left the rest for later. I suppose later hasn’t quite arrived yet.”
Another 17% hadn’t heard about it yet, such as the reader who said, “Unfortunately, even after all the ballyhoo, all the reading, and all the consultants time, D!” Most weren’t inclined to sit back and do nothing. One noted, “I had heard about it, but didn’t know much about it. Based on your article, I have just contacted our 401(k) administrator to discuss running a communication targeted at those associates the Saver’s Credit would apply to. Since we use auto enrollment, this might be a very meaningful communication to our participants. Thanks for the idea!”
Getting results from the credit may be another matter. While those who offered insights said that workers seemed enthusiastic in their response to hearing about the idea, most were hard-pressed to point to any tangible results. And some were downright cynical about the prospects. As one noted, “The reality is that the people that this applies to are struggling to meet basic living conditions today and will continue to do so into retirement.”
But this week’s Editor’s Choice did a nice job of summing up the challenges: “We plan to communicate a follow-up at the end of this year to remind participants of the opportunity, however I received no comments on the first one and expect none on the second. Those most likely to be impacted
a) can’t read, or
b) don’t read, or
c) read, but don’t understand, or
d) read and understand, but don’t care, or
e) read and understand and care, but still don’t believe they can afford to save.
As the chief said in “The Outlaw Josey Wales”, we shall ” endeavor to persevere”.
Thanks to everyone who participated in our survey!
Got a comment you’d like to add? Want to share your experiences? Drop us a line at nevin.adams@plansponsor.com
The Question:
One of the more overlooked aspects of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) was a new Saver's Credit-an income tax credit specifically designed to encourage lower-income workers to save for retirement. From a plan sponsor standpoint, the application of the Saver's Credit has no administrative impact. Contributions eligible for the credit are included in regular discrimination tests, and even contributions made through an automatic enrollment program are eligible for the credit.
.
This week, we're curious as to what - if anything - your organization has done about this "benefit." Have you:
(a) communicated it as part of our regular communications,
(b) done a special communications campaign to highlight the benefit,
(c) opted not to do anything, and/or
(d) didn't know it existed..
The Answers:
Unfortunately, even after all the ballyhoo, all the reading, and all the consultants time, D!
We have done (a) but have not measured the impact yet.
We are making a special effort to communicate this "benefit" to our employees.
First we included an attachment to all payroll checks describing the credit and how it works.
Second, during meetings w/all current 401k plan participants in which we brought in a CFP to discuss what has happened during the last 12 months in the "markets" (3 days after the payroll note went out) we designated some time during each of these meetings to once again bring it to their attention.
Our next step is to produce worksheets and examples our employees can use to see how the "math" works and to allow them to apply it to their individual circumstances.
I will say, however, that I am not surprised by the "lack of interest" shown so far by employees. I think if it appears like "work" they don't feel it is worth the effort. And, I also think many people still feel like messin' with my paycheck/taxes will only cause trouble.
We have our work cut out for us!
Now watch them make a liar out of me! Wouldn't THAT be great!
RE: The Saver's Credit - (b) we issued a separate communication to employees early on in the process.
We have done A and B. When the enrollment meetings were held last year, many of our companies included material in the packets for employees. A number of the companies targeted those who are single parents as they are most likely eligible for the credit. This year, we have sent information with the quarterly statements to participants and put up posters for non participants to raise awareness.
Even with the extra communication I see only a negligible increase in participation. From what the HR in the field tell me - the market is to blame, those lower income employees refuse to put money in when the market continues to decline. Hopefully the market will continue to tick up and employees will gain confidence and start saving.
We put information about the tax credit in our communication piece to employees when we advised them about other EGTRRA changes to our 401(k) plan. We called it another good reason to join the plan.
Re. the low-income tax credit, we announced this new feature along with all the other EGTRRA features, most all of which we have now incorporated into our Plan. We tried to emphasize this feature at our one 'blue collar' plant in Michigan, as they would most likely be the ones to take most advantage of this provision. One person is actually deferring around 40+% of their income, and still won't come close to the max. But at least they can try to come close....
Good for you! I had heard about it, but didn't know much about it. Based on your article, I have just contacted our 401(k) administrator to discuss running a communication targeted at those associates the Saver's Credit would apply to. Since we use auto enrollment, this might be a very meaningful communication to our participants. Thanks for the idea!
Beginning in December 2001, I presented each of my clients (plan sponsors) with a copy of IRS Announcement 2001-106 and asked them to distribute the model announcement contained therein to their participants.
I also include the Saver's Credit in my discussion of the "cost" of contributions during enrollment meetings. It has been very well received by everyone I've mentioned it to.
Re your survey question - we did (a) as part of a standard update to our SPD in 4Q2001 and we plan to do (b) as a short email reminder 1Q2003 (i.e. around tax time).
Keep up the good work with this email & links!
We sent out the IRS announcement with a cover letter to the specific employees who fell into the earnings levels …and saw absolutely no effect in participation. The group it targets doesn't understand it and don't have the money to set aside. It's a shame. A good idea that will never work.
We provided a special piece in conjunction with a communication on other changes we made as a result of EGTRRA (increase the % available to defer, institute "catch-up" contributions, etc). We plan to communicate a follow-up at the end of this year to remind participants of the opportunity, however I received no comments on the first one and expect none on the second.
Those most likely to be impacted -
a) can't read, or
b) don't read, or
c) read, but don't understand, or
d) read and understand, but don't care, or
e) read and understand and care, but still don't believe they can afford to save.
As the chief said in "The Outlaw Josey Wales", we shall " endeavor to persevere".
We've communicated this as part of the EGTRAA changes. Have not pushed and haven't really gotten any feedback.
This legislation is virtually worthless!
The AGI limits make it impossible for someone to actually save. Perhaps in certain parts of the country taxpayers might be able to save a few dollars after paying housing expenses, but in the Northeast and other metro areas, housing and transportation costs will consume more than 60-70% of available funds.
In order for anyone to seriously consider educating employees and presenting it to employers, this "benefit" needs to be modified to reflect reality. The reality is that the people that this applies to are struggling to meet basic living conditions today and will continue to do so into retirement.
Out of my nine clients, I only had one that decided to address this in a separate communication. Most of the rest had us include it in a basic letter that described EGTRRA. After reviewing the employee population at the client that wanted the separate communication, we found that their education level was about sixth grade and with the fear of layoffs this was going to be a tuff sell. It took us about two months to final draft a letter that everyone was comfortable with.
The interesting thing about the distribution is that it did get a lot of interest, but the majority of people did not understand how to fill it in on their taxes, so decided not to do it. As a provider, we cannot give "tax advice" and thus had to refer the questions back to the company. They are planning on sending out a communication again this year to address this provision and are talking about giving area HR representatives training on how to explain the tax form impact.
b) special communication - must not have done a good job - no noticeable impact in participation
We have provided a mailing to our clients regarding this tax credit. In addition, when I meet with Employers I bring this up again as something to target those making under $25,000 to encourage them to participate in their plan.
"b" - special communications, including posting in areas with lower-paid non-participants. Also extra training to the HR staff in those areas. Additional promotion when we lowered age from 21 to 18, which had moderately-good enrollment results.
We have both communicated the Saver's Credit as part of our regular communications program and prepared a separate payroll notice to all employees eligible to participate in the plan. It is interesting that I received many follow up inqueries from employees who while they are not eligible for the Saver's Credit themselves, have children working elsewhere that would qualify if they participated in their own employer's plan.
Yes - we communicated it in the form of articles and as part of an internal closed circuit TV broadcast that was also available for replay and by tape. We also did a direct mailing to everyone that "might" be eligible for the credit based solely on the compensation data we have on the employee.
We communicated it to our people in our newsletters, including a special 401k edition outlining all the 2002 changes with special emphasis on the Saver's Credit.
Some people increased their 401(k) deferral as a result.
I'll have to place us with a (c) opted not to do anything, although it really wasn't much of an actual election, we just read through the information we had and picked out what we needed to address right away and left the rest for later. I suppose later hasn't quite arrived yet.
Our Plan provider mailed an EGGRTA book to all participants in February.
We also plan on putting an article in our corporate newsletter reminding employees of this tax benefit.
D. Shame on me for not knowing though!
The Saver's Credit is the hidden gem of EGTRRA. We've been waiving the flag in all our meetings with participants. I usually copy the IRS Notice for them and call their attention to how easy it is to get something for nothing basically. It falls in the same category as employer match up to x%. If you're not saving x%, you leave money on the table. People love it!
I just reviewed all the literature that was given to me last year regarding EGTRRA and I couldn't find anything about a Saver's Credit. Please send me more information
Our TPA firm notified clients of all benefits of EGTRRA, however no emphasis was given to the saver's credit. We began to introduce the credit to plan participants through enrollment meetings and found that employees were unaware and very appreciative of the info. (I hope their tax
preparers are knowledgeable when the time comes!)
a) I included it in two articles relating to the benefits of EGTRRA in our monthly newsletter to employees that they get with their pay stubs.
The answer would be (a). In connection with a change in our recordkeeper, we include one article a month in our semi-monthly employee newsletter to "401K News". Our first article was related to the Saver's Credit, indicating the added benefit of participating in the 401k plan. At this point we have no indication as to the effectiveness of the article, but we will be reviewing this benefit during employee orientation when discussing the plan.
Our corporate office handles those communications and has sent letters to those affected by it. So, all those who may be entering eligibility in the future do not know about it at all.
As a Trustee of retirement plans we got the word out last November to all of our plan sponsors. It's a great deal for those who aren't paid much but need to start saving for retirement. My concern goes to income tax filing and the extra complication this will add to the return to get the credit. Income tax return simplification it isn't!
(a) communicated it as part of our regular communications
The feedback has been great. Our communications area put together a one page summary of the changes and we started distribution immediately.
The response was excellent and as more people heard about it that hadn't seen the summary, the response was even greater.
As far as impacting participation I haven't seen any results confirming that question.
We communicated the new credit to our local sites to discuss with employees whose salary with us made them possibly eligible. The Department of Labor put together a nice notice that could be handed to eligible employees. This tied in nicely with a recent campaign to increase participation.
We issued a special memo communicating the availability and details of the credit.