April 2016

Inside this issue:


The Employee Retirement Income Security Act of 1974 (ERISA) holds fiduciaries to a standard of prudence when making investment-related decisions for a qualified ERISA plan. The Department of Labor (DOL) and the courts have largely determined that said standard of prudence can best be determined by a fiduciary’s process, or procedures, used in making such decisions. And though a written investment policy statement (IPS) is not explicitly required by ERISA, it is considered a best practice to create, and update, one to assist in guiding fiduciaries in making plan-related investment decisions. The DOL routinely requests a copy of a plan’s IPS during investigation. And the courts have regularly looked to the terms of a plan’s IPS to determine if fiduciaries undertook a prudent process in making decisions on behalf of the plan.

The language of an IPS can be a delicate matter. It must be neither too vague nor overly strict. A vague IPS creates no evidence of process. If a court of law cannot determine the actual steps being taken in determining fiduciary action, the IPS is virtually toothless.

EXAMPLE: A plan sponsor decided to remove from our sample IPS the timing conventions for placing an investment on watchlist and potentially removing an investment. During investigation the DOL requested and reviewed the client’s IPS. The investigator cited the plan for lack of discernible procedure in their IPS. In the investigator’s mind the plan essentially did not have a prudent process because there was no guidance regarding when a fiduciary was to take an action in regards to an investment offered by the plan.

At the other end of the spectrum, an overly strict IPS serves to limit the flexibility of the plan fiduciaries and may lead to unintended consequences. A strict IPS typically contains a word such as “must.” This word leaves little room for decision making on the part of fiduciaries. And if the plan ever, even for a moment, doesn’t meet one of the “must” requirements it is out of compliance with the terms of the IPS, a potential fiduciary breach. An overly strict, or overly detailed, IPS may inadvertently set unavoidable traps for fiduciaries.

EXAMPLE: The Tussey v. ABB case provides multiple examples of an overly strict/detailed IPS. The plan had adopted an IPS whose requirements were too easily violated. As a result, though the fiduciaries may have been practicing prudent processes, those processes were not reflected in the terms of their IPS. The court strictly construed the terms of the IPS and found that in multiple occasions the fiduciaries violated their duties by failing to follow the letter of their IPS.

Our firm routinely reviews and edits our sample IPS to be reflective of a robust prudent process for making investment-related decisions for ERISA plans. The goal is that the IPS will reflect a process that will lead to prudent investment choices for participants while simultaneously mitigating as much risk to fiduciaries as possible under the law. Ultimately each client’s IPS is their own document and should reflect the client’s fiduciary philosophies and goals. Thus the sample IPS may be edited to that purpose, or a client may use a fully custom IPS.


Participants may be eligible for a valuable incentive, which could reduce their federal income tax liability, for contributing to your organization’s 401(k), 403(b) plan or governmental 457(b). If they qualify, they may receive a Tax Saver’s Credit of up to $2,000 ($4,000 for married couples filing jointly) if they made eligible contributions to an employer sponsored retirement savings plan. The deduction is claimed in the form of a non-refundable tax credit, ranging from 10 percent to 50 percent of their annual contribution.

When participants contribute a portion of each paycheck into the plan on a pre-tax basis, they are reducing the amount of their income subject to federal taxation. And, those assets grow tax-deferred until they receive a distribution. If they qualify for the Tax Saver’s Credit, they may even further reduce their taxes.

Participants’ eligibility depends on their Adjusted Gross Income (AGI), tax filing status and retirement contributions. To qualify for the credit, a participant must be age 18 or older and cannot be a full-time student or claimed as a dependent on someone else’s tax return.

The chart below can be used to calculate the credit for the tax year 2015. First, participants must determine their Adjusted Gross Income (AGI) –total income minus all qualified deductions. Then they can refer to the chart below to see how much they can claim as a tax credit if they qualify

Filing Status/Adjusted Gross Income for 2015
Amount of Credit Joint Head of Household Single/Others
50% of amount deferred $0 to $36,500 $0 to $27,375 $0 to $18,250
20% of amount deferred $36,501 to $39,500 $27,376 to $29,625 $18,251 to $19,750
10% of amount deferred $39,501 to $61,000 $29,626 to $45,750 $19,751 to $30,500

Source: IRS Form 8880

For example:

• A single employee whose AGI is $17,000 defers $2,000 to her retirement plan will qualify for a tax credit equal to 50% of her total contribution. That’s a tax savings of $1,000.
• A married couple, filing jointly, with a combined AGI of $37,000 each contributes $1,000 to their respective company plans, for a total contribution of $2,000. They will receive a 20% credit reducing their tax bill by $400.

With the Tax Saver’s Credit, participants may owe less in federal taxes the next time they file by contributing to their retirement plan.



Younger employees are participating in our retirement plan, and that’s good. But their contribution rates are lower than we’d like, and we’re concerned they may not be savvy enough to make informed investment decisions. How do we help them save more and invest with confidence?

A: Your observations are spot-on. Although they’re just starting their careers, and paying down credit card and student debt is a top financial priority, 67% of workers in their 20s are already saving for retirement, according to a recent report from Transamerica Center for Retirement Studies.

However, savings rates for 20-somethings are quite low. The median contribution rate is 7% of annual pay, and many experts agree it should be around 10% for this age group.

Their investing knowledge is rudimentary, too. Thirty-seven percent say asset allocation—a basic, yet vital retirement investing principle—is a mystery. According to Transamerica, 27% “aren’t sure” how their contributions are invested, and 24% are in low-risk, low-return investments that may be too conservative for their time horizon.

So what’s a plan sponsor to do? Implementing step-up contributions is one way to help raise savings levels over time and attain that recommended 10% deferral rate faster than participants might on their own.

Offering a qualified default investment alternative (QDIA) also makes it easier for employees to make smarter investing choices. Target date funds1 are an excellent way to pursue long-term investing success. And a strong education and communication program, including face-to-face meetings with a financial advisor, informative materials that explain basic investing concepts and detail the plan’s investment options, and calculators to assist them in determining their retirement savings needs, can help all employees invest wisely and maximize the benefits of years of good savings habits.

Learn more about 20-somethings’ retirement attitudes at http://tinyurl.com/Transamericatwentysomethings


Consult your plan’s counsel or tax advisor regarding these and other items that may apply to your plan.


  • Begin planning for the timely completion and submission of the plan’s Form 5500 and, if required, a plan audit (calendar-year plans). Consider, if appropriate, the Department of Labor’s small plan audit waiver requirements. If a plan audit is required in connection with the Form 5500, make arrangements with an independent accountant/auditor for the audit to be completed before the Form 5500 due date (calendar-year plans).
  • Review all outstanding participant plan loans to determine if there are any delinquent payments. Also, confirm that each loan’s repayment period and the amount borrowed comply with legal limits.
  • Check physical and online bulletin boards to make sure that posters and other plan materials are conspicuously posted and readily available to employees, and that information is complete and current.
  • Audit first quarter payroll and plan deposit dates to ensure compliance with the Department of Labor’s rules regarding timely deposit of participant contributions and loan repayments.


David M. Montgomery, Vice President of MRPA and President of our sister firm, Fidelis Fiduciary Management, has been named by the National Association of Plan Advisors (NAPA) to their Young Guns, Top 50 Plan Advisors Under 40 list.

Established in 2014, the list is primarily drawn down from nominations provided by NAPA Firm Partners, vetted by a blue ribbon panel of senior advisor industry experts based on a combination of quantitative and qualitative data, and voted on by thousands in the retirement plan industry.  These "Young Guns" are widely seen as the future leaders of the retirement plan advisor industry.

More than 400 of the nation's leading advisors were nominated for this year's award, and more than 20,000 votes were received during the month-long voting process. For more information, go to Top 50 Under 40.

No strategy assures a profit or protect against loss.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

For Plan Sponsor use only – Not for use with Participants or the General Public.This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. 

Montgomery Retirement Plan Advisors does not warrant and is not responsible for errors or omissions in the content of this newsletter.

About Us  |Resources | Contact Us
©2015 Montgomery Retirement Plan Advisors, All Rights Reserved.

Securities and Retirement Plan Consulting Program advisory services offered through LPL Financial, a Registered Investment Advisor, member FINRA/SIPC. Other advisory services offered through Montgomery Retirement Plan Advisors, a separate entity.

Fidelis Fiduciary Management is not affiliated with LPL Financial.

The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: Florida, Texas, California, Nevada, Ohio, Tennessee.