As retirement plan consultants we generally encourage our clients to formally establish a Retirement Plan Committee, also known at times as the Fiduciary Committee or Investment Committee. The establishment of a committee may be formalized by adopting a committee charter. The committee charter helps to protect the named fiduciary, typically the employer or board of directors, by delegating certain identified fiduciary responsibilities to the committee. It protects the committee members by defining the specific duties for which they are responsible. Furthermore, it protects the participants as it provides for orderly and prudent governance of the plan designed for the exclusive best interests of the participants and their beneficiaries.

If the owners of a small business also serve as the board of directors, named fiduciary and plan trustee, and do not delegate plan or investment decisions to others, some believe that it may simply be restating the obvious to formally charter the decision makers as a committee. We agree, but also suggest that the language of a committee charter can help remind plan decision makers of their specific responsibilities.

An MRPA consultant can assist with the process of adopting a committee charter by providing a sample committee charter document and helping select the appropriate provisions. Consider the following discussion points:

• Determine the purpose of the committee (investment related, administrative issues, or both).
• Determine how committee members are selected (who should/should not be members).
• What is the appropriate number of committee members?
• What topics should the committee cover (e.g., review investments, review the investment policy statement, identify ongoing participant needs/education, review plan design provisions, review plan/participant demographics vs. objectives, consider trends and legislation which may impact the plan, review and benchmark fees)?

PSCA Releases Results of Annual Survey of Profit Sharing and 401(k) Plans

The Plan Sponsor Council of America (formerly called the Profit Sharing/401k Council of America) has released its 54th Annual Survey of Profit Sharing and 401(k) Plans. This most recent release reflects the 2010 plan-year experience of 820 companies with 10.5 million participants and $691 billion in plan assets. Highlights of the survey are provided below. For more information, please visit www.psca.org.

• The average plan has approximately 63 percent of assets invested in equities.
• 41.8 percent of plans have an automatic enrollment feature.
• The most common default deferral is 3 percent of pay.
• The most common default investment option is a target-date fund.
• 59.2 percent of companies allow for immediate eligibility.
• Companies are more likely to have a one-year service requirement for non-matching contributions than for matching company contributions.
• Plans offer an average of 18 funds for both participant and company contributions.
• Investment advice is offered by 57.6 percent of respondent companies; 22.3 percent of participants used advice when it was offered.
• Loans are permitted in 88.8 percent of 401(k) plans.
• The average percentage of eligible employees who have a balance in the plan is 86.3 percent. An average of 76.9 percent of eligible employees made contributions to the plan in 2010, when permitted.
• 45.5 percent of plans allow participants to make Roth after-tax contributions. 16.1 percent of participants made Roth contributions when offered the opportunity.
• 63.6 percent of plans now offer a target-date fund as an investment option.

Do Your Plan Participants Qualify for a Tax Credit?
 -- David M. Montgomery, AIF, CRPS

Taxes, Taxes, Taxes. That is what starts to weigh on everyone's mind by late January as they begin to receive their tax forms. Retirement plan participants might jump a little more quickly to file those tax returns if they knew they could be eligible for a valuable incentive that could reduce their federal income tax liability. It's called the Tax Saver's Credit, and it could mean up to $2,000 to those who take advantage of it.

The Tax Saver's Credit is available in addition to the tax deferral already applied to plan contributions and earnings, but only for those who meet certain income requirements.

If a participant made eligible contributions to their employer sponsored retirement savings plan in 2011 and they meet qualification requirements, they will receive a Tax Saver's Credit of up to $1,000 ($2,000 for married couples). The benefit is claimed in the form of a tax credit ranging from 10% to 50% of their annual contribution.

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

IRS form 8880 should be used when filing their 2011 tax return to determine their official credit amount. In the meantime, the chart below can be used as a guide for how much tax credit they may receive if they qualify. First, they should determine their Adjusted Gross Income (AGI) – their total income minus all qualified deductions. Then refer to the chart below.

For example:

• A single employee whose AGI is $18,000 defers $2,000 to their 401(k) plan will qualify for a tax credit equal to 20% of total contribution. That's a tax savings of $400.
• A married couple, filing jointly, with a combined AGI of $30,000 each contributes $1,000 to their respective company plans, for a total contribution of $2,000. They will receive a 50% credit reducing their tax bill by $1,000.

If an eligible employee didn't contribute to the employer's retirement plan in 2011, they should consider contributing in 2012 to take advantage of this Tax Saver's Credit.

For further details see IRS web page: http://www.irs.gov/newsroom/article/0,,id=251338,00.html or contact David Montgomery at dmontgomery@m-rpa.com

Communication Corner: Leave Excuses Behind

This month's sample employee memo encourages non-participating employees to stop the excuses and begin contributing toward the company's retirement plan. Email info@m-rpa.com for a sample that you can print and distribute to employees.

News from MRPA

• David Montgomery Earns CRPS® Designation
  David M. Montgomery was awarded the Chartered Retirement Plans SpecialistSM (CRPS®) professional designation from the College for Financial Planning after successful completion of course and testing requirements. Mr. Montgomery was previously designated an Accredited Investment Fiduciary® (AIF®) by the Center for Fiduciary Studies.

This material is intended for informational purposes only and should not be construed as legal advice and is not intended to replace the advice of a qualified attorney, tax adviser, investment professional or insurance agent. Montgomery Retirement Plan Advisors does not warrant and is not responsible for errors or omissions in the content of this newsletter.

Securities and investment advisory services offered through Financial Telesis Inc. Member FINRA / SIPC. Montgomery Retirement Plan Advisors and Financial Telesis Inc. are not affiliated.