May 2017

Inside this issue:


InvestmentNews recently published an article highlighting that plan sponsors can reduce the net cost of investments through optimal handling of the non-investment-management related components of a mutual fund’s expense ratios, commonly referred to as “revenue sharing”. Astute plan sponsors and their advisors generally insist that their plan’s providers credit these “revenue-sharing” amounts directly back to the participants who invested in those specific funds, thus ensuring each participant pays only their pro-rata share of recordkeeping expenses. Our founder, Michael Montgomery, was interviewed for the piece. (link to full article)

Though many advisors and plan sponsors eliminate the excess revenue issue entirely by only utilizing the lowest expense “zero-revenue” fund share classes which do not contain any revenue sharing, the article correctly points out that due to pricing inefficiencies across share classes of some funds, the lowest overall expense share class does not always provide the lowest net investment management cost. As seen in the example below, the lowest cost “zero-revenue” share class has a total expense of 0.60%. The more expensive share class of the same fund has a total expense of 0.75% but credits back 0.25% of revenue sharing, resulting in a net investment cost of 0.50%. In this example, the more expensive share class had the lowest net investment cost.

  Total Expense Revenue Sharing Net Investment Cost
(Total Exp - Rev Share)
Lowest Cost "Zero-Revenue" Share Class 0.60% 0.00% 0.60%
R Share Class 0.75% 0.25% 0.50%

Some recordkeepers handle this task seamlessly, but a number of major providers struggle with the execution. “Some may do the accounting on a daily basis while some may credit revenue based on which participants are in a fund at the end of the month or quarter.” Mr. Montgomery said when interviewed for the article. “Further, record keepers may only extend this service to plans of a certain size.”

One provider that built their system many years ago to handle revenue crediting on a daily basis, Securian Financial Group, now finds themselves well-positioned for the expanding demand for this service. Theodore J. Schmelzle, JD, CIPP, Director of Plan Sponsor Services at Securian commented to MRPA, “Returning revenue sharing to participants on a daily basis benefits plans in so many ways - - using the lowest net share class, assisting plan sponsors with their duty to understand what is actually being paid, increasing performance and avoiding reallocation issues associated with ERISA ‘bucket’ accounts. It provides clarity and peace of mind to plan sponsors and advisors alike, greatly assisting in the ongoing fiduciary duty to monitor share class selection.” 

The full InvestmentNews article by Greg Iacurci shares the experience and opinions of several retirement plan consultants, including MRPA’s Michael Montgomery, and can be linked to below.

(Link to full article)


Several events can trigger a DOL or IRS audit, such as employee complaints or self-reporting under the annual submission of the Form 5500. Often times an audit is a random event, which is why you should always be prepared. Listed below are several key items typically requested in an initial letter sent by the IRS or the DOL in connection with a retirement plan audit. These items should be readily accessible by the plan administrator at all times the plan is in operation.

  • Plan document and all amendments
  • Summary plan description
  • Investment policy statement
  • Copy of the most recent determination letter
  • Copies of Forms 5500 and all schedules
  • Plan’s correspondence files (including meeting minutes)
  • Plan’s investment analyses
  • ADP and ACP testing results
  • Most recent account statements for participants and beneficiaries
  • Contribution summary reports (i.e., evidence of receipt of these monies by the plan's trust)
  • Loan application, amortization/repayment schedule (for all loans)

If you have questions about preparing for an audit, or need plan design review assistance, please contact your plan adviser.


Are your participants aware that your employees may be eligible for a valuable incentive for contributing to your company’s retirement plan? If they qualify, by contributing to your company’s retirement plan, they could further reduce their federal income tax liability by receiving a Tax Saver’s Credit of up to $2,000 ($4,000 for married couples filing jointly). 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 2017. First, participants must determine their 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 2017
Amount of Credit Joint Head of Household Single/Others
50% of amount deferred $0 to $37,000 $0 to $27,750 $0 to $18,500
20% of amount deferred $37,001 to $40,000 $27,751 to $30,000 $18,501 to $20,000
10% of amount deferred $40,001 to $62,000 $30,001 to $46,500 $20,001 to $31,000

For example:

  • A single employee whose AGI is $17,000 defers $2,000 to their retirement plan will qualify for a tax credit equal to 50 percent of their total contribution. That’s a tax savings of $1,000.
  • A married couple, filing jointly, with a combined AGI of $38,000 each contributes $1,000 to their respective company plans, for a total contribution of $2,000. They will receive a 20 percent 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. Accompanying this newsletter is a memo you can distribute to your employees regarding the 2017 Tax Saver’s Credit.

This illustration is hypothetical and there is no guarantee that similar results can be achieved. If fees had been reflected, the return would have been less.


young guns Two retirement plan consultants at our firm, David M. Montgomery and Ronald A. Letaw have been named by the National Association of Plan Advisors (NAPA) to their 2017 Young Guns, Top 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 500 of the nation's leading advisors were nominated for this year's award, and nearly 23,000 votes were received during the month-long voting process. For more information, go to 2017 Young Guns: Top Plan Advisors 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.

Montgomery Retirement Plan Advisors offers investment advisory services through Independent Financial Partners, a Registered Investment Advisor. Independent Financial Partners and Montgomery Retirement Plan Advisors are separate entities.

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©2017 Montgomery Retirement Plan Advisors, All Rights Reserved.

Montgomery Retirement Plan Advisors offers investment advisory services through Independent Financial Partners, a Registered Investment Advisor. Independent Financial Partners and Montgomery Retirement Plan Advisors are separate entities.