December 2014

Inside this issue:

Case Study: Stuck at 2%

Executives at PinnacleHealth in Pennsylvania noticed that participants were headed toward insufficient income in retirement. reported that PinnacleHealth had implemented automatic enrollment in 2007 with a default deferral rate of 2%. Analysis revealed that many participants remained at the 2% rate and were not increasing their retirement savings.

Full employer match not utilized
PinnacleHealth offers a 50% match of the first 6% of participant contributions. After five years of service, the match rate rises to 67% of the first 6% of deferrals. Participants at the 2% default rate were missing significant matching dollars.

First step: reenrollment
The employer decided to conduct a reenrollment as the first step in a campaign to encourage employees to save more for retirement. The reenrollment was completed at the end of 2013 and was a success. Before the reenrollment, 355 employees were not contributing to the plan. Only 79 were still not participating after this step was taken. Executives reported no problems with or complaints about the reenrollment.
At the same time, PinnacleHealth put in place an automatic contribution rate increase feature, in which hundreds of employees enrolled.

Updated website introduced
PinnacleHealth also updated and rebranded its website for participants. It was made easier to use in getting information about the retirement plans, and it permits employees and participants to perform transactions, such as enrolling, increasing contributions and designating beneficiaries. The modernized website also contains current, relevant and frequently updated educational information.

The end result is that the action steps taken by management resulted in significantly renewed employee interest in the retirement plans. Also, the revitalized plans are more focused on reaching PinnacleHealth’s goal: “to help employees retire with dignity.”

Details are at

Pension Protection Act of 2006 Restatements

If your retirement plan document is a “pre-approved” document (prototype or volume submitter), every six years you are required to restate your plan. Your last required restatement was likely your EGTRRA (Economic Growth and Tax Relief Reconciliation Act of 2001) restatement.

And it’s time for restatement again.

The present restatement window is being referred to as the Pension Protection Act of 2006 (“PPA”) restatement. The restatement is meant to update your document to incorporate that piece of legislation along with the following:

• Final 415 Treasury regulations;
• The Katrina Emergency Tax Relief Act of 2005 (KETRA);
• The Gulf Opportunity Zone Act of 2005 (“GOZone”);
• The Heroes Earnings Assistance and Tax Relief Act of 2008 (HEART); and
• The Worker, Retiree, and Employer Recovery Act of 2008 (WRERA).

Because your plan document must be restated, now is a good time to also reexamine all of your existing plan design provisions. Perhaps your document, as it presently exists, has historical provisions that no longer reflect your plan’s demographics, your company’s retirement plan goals, or you wish to make your plan more dynamic. The optimal course of action would be to fold these plan design changes into a required restatement.

The current restatement must be completed by April 30, 2016. Failure to restate your plan jeopardizes its qualified status. If a plan loses qualified status it results in a loss of deductibility of contributions for you, the employer, and employees’ vested account balances would become immediately taxable (and ineligible for rollover to another qualified plan or IRA). If the plan is restated after April 30, 2016 it must file as a late amender in the IRS’s Voluntary Correction Program (with attendant fees . . . ranging from $750 - $5,000).

Your plan provider has already begun the process by having their prototype and volume submitter documents submitted to, and approved by, the IRS for opinion or advisory letters. In other words, the form of your plan’s restatement has already been designed and likely approved by the IRS. All that’s likely left to do is for you to discuss any potential plan design changes desired with your plan consultant and service provider, have the document’s specific provisions selected to reflect your specific plan and have the document executed.

Common Misconceptions about Retirement

Retirement has a different meaning today than it did in previous generations. Here are a few highlights of how it differs:

"I'll continue to work during retirement"
As Americans consider their outlook for retiring, many are assuming the easiest way to deal with their lack of preparedness is to decide to just continue to work during what would otherwise be their retirement years. In fact 70% of employed Americans plan to work beyond the age of 64. The reality is that only about 28% of current retirees were actually able to do so. Numerous factors are impacting retirees such as personal health issues, family obligations and employer problems, which may include losing their job. Longevity also continues to be a recurring theme. A 65 year old couple today has a 91% chance that at least one member will live to be 80 years old, and a 52% chance of making it to 90. More than ever, Americans need to plan for at least 30 years of being in retirement.

"My spending patterns won't change much in retirement"
The highest area of inflation by spending category over the past 30 years is medical care. The inflation rate for this area has been 5.3%, when inflation for things like housing and transportation has hovered below 3%. Additionally, out of pocket medical expenses are three times larger for individuals 65 or older, versus those between the ages of 25 to 34. On average, out of pocket expenses for medical care are 15% of retiree expenses, or about the same as the cost for food.

"My medical expenses will be covered"
First off, only about 27% of retirees report having access to employer medical coverage. More importantly, the costs for those who don't have employer medical coverage are significant. For those individuals retiring in 2010, the present value of savings needed to cover 90% of the possible health outcomes and prescription drug expenses is $187,000 for men and $213,000 for women, who typically live longer. Those same expenses are expected to be $313,000 for men and $357,000 for women by 2020.

*JP Morgan Guide to Retirement, 2012.

2015 Plan Limits Announced

The Internal Revenue Service (IRS) today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2015.  Many of the pension plan limitations will change for 2015 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment.  However, other limitations will remain unchanged because the increase in the index did not meet the statutory thresholds that trigger their adjustment.

Plan Limits for Plan Year
401(k), 403(b), 457 Elective Deferral Limit
Catch-Up Contribution Limit
Annual Compensation Limit
Defined Contribution Limit
Defined Benefit Limit
Key Employee
Definition of Highly Compensated Employee
Taxable Wage Base
IRA Contribution Limit
IRA Catch-Up Contributions

For more information about retirement plan limits, please contact your plan consultant, or visit    

Happy Holidays from Montgomery Retirement Plan Advisors

On behalf of Montgomery Retirement Plan Advisors, I would like to extend to you the greetings of this special season. To our clients, I would like to express our gratitude to you for the privilege of serving as your retirement plan consulting team. To our partners and peers within the retirement plan industry, I sincerely appreciate your support and the confidence you have shown in our firm.

- Mike Montgomery

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.

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.


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