Month: November 2022

News You Should Know: What to Expect With Next Year’s Tax Return

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10 Tax Changes That Could Affect the Size of Your Refund Next Year | CNET

The IRS is giving taxpayers a heads up that next year’s tax refunds could be much different than this year – smaller, in many cases. That’s because of a number of important changes, including the end of federal stimulus payments and changes to some common tax credits.

5 Major Revelations About the Collapse of Crypto Giant FTX | NPR

Before its sudden demise in early November, FTX was one of the biggest cryptocurrency exchanges for those looking to buy and sell digital currency. Many are now left wondering what happened to their money. Bankruptcy proceedings show the company was rife with issues that may have contributed to its downfall.

Dementia Rates Fall 30 Percent, Likely Due to Better Health, Higher Education Levels: Study | McKnights

New research finds the prevalence of dementia in older Americans has fallen substantially in recent years ­­– from 12.2% in 2000 to 8.5% in 2016. Researchers also say gaps in dementia prevalence between men and women, as well as other demographic groups, have narrowed during that time. An increase in the average level of education could be a big reason for the shift.

Women Have Made Big Strides In Retirement Readiness | AARP

Fewer women are relying on a spouse for their retirement income, and new research finds that since the passage of Title IX, women who remain single are just as prepared for retirement as married couples. However, disparities such as the pay gap between men and women continue to pose challenges to women’s financial footing.

News You Should Know is a digest of news from publications around the nation about finance, investing, and retirement.

News You Should Know: Lawmakers Still Working on SECURE 2.0 Retirement Legislation

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SECURE 2.0 Could Pass Before New Congress | Pensions & Investments

Lawmakers in Washington, DC continue to work on a number of retirement-related proposals that have collectively been referred to as “SECURE Act 2.0.” While time is running low to pass new legislation, there’s still a chance lawmakers could reconcile the bills and pass a final package before the end of the year.

Explainer: Several Parts of the U.S. Yield Curve Are Inverted: What Does It Tell Us? | Reuters

Experts often look to the U.S. Treasury’s so-called “yield curve” to determine if the country is headed for a recession, since inversions in the curve have reliably predicted past recessions. Here’s a look at recent trends in Treasury yields and what they could mean for the economy.

U.S. Personal Savings Rate Nears Historical Bottom | Investing.com

During the early months of the COVID-19 pandemic, many people buckled down and significantly increased the amount of money they were putting into savings. That trend has since reversed, and recent data show Americans are now saving at historically low levels.

What is ‘Pretirement’ and Why Do More People Want One Before Retiring? | 401(k) Specialist

Workers are increasingly interested in the idea of “preretirement,” a period of transition between full-time work and traditional retirement. A recent survey found 69 percent of respondents view retirement as a gradual transition away from full-time work rather than an abrupt end.

News You Should Know is a digest of news from publications around the nation about finance, investing, and retirement.

IRS to Begin Using Updated Form W-4P and New Form W-4R in 2023

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Editor’s note: Updated forms are now available online at copera.org.

The IRS is implementing some changes to tax withholding forms in 2023 that could affect retirees who receive benefit payments from plans like Colorado PERA.

Background

In 2020, the IRS began requiring employers to use a new version of Form W-4, which employees fill out to tell their employer how much to withhold from their paychecks. The updated form was a result of the Tax Cuts and Jobs Act of 2017, which made a number of significant changes to tax law, including eliminating personal exemptions. Instead of using complicated worksheets and declaring a number of withholding allowances, employees now fill out the form with the relevant information, and employers calculate the appropriate amount of tax to withhold.

The updated form is intended to ensure employers withhold a more accurate amount from workers’ paychecks. The result is fewer people who either owe money to the IRS or who receive large refunds at tax time.

Updated W-4P and new W-4R

Following the tax code changes from the Tax Cuts and Jobs Act and the updated W-4 form, the IRS is also updating Form W-4P, which is used to determine tax withholdings for pension and annuity accounts.

While the old form covered both one-time distributions and recurring payments, there are now two forms. Form W-4P is only for recurring payments such as monthly PERA benefit payments, while Form W-4R is for one-time or lump-sum distributions such as refunds or rollovers.

Like the W-4, the W-4P form no longer allows tax filers to adjust their withholdings by electing a specific number of withholding allowances. Instead, the W-4P form has new input fields for increasing or decreasing the amount to withhold, including fields for tax credits and deductions.

What the changes mean for PERA retirees

PERA retirees and benefit recipients who are currently receiving ongoing PERA benefit payments and who do not wish to make changes to their federal tax withholding elections are not required to file a new form. However, PERA recommends completing a new W-4P form for 2023 to ensure the appropriate tax amount is withheld. 

If a filer makes no changes to their federal tax withholding elections, PERA will use the IRS method to bridge their tax table elections over to the new methodology as of January 1, 2023. This bridging, in most cases, will adjust their withholding accordingly. If a person’s current election is to withhold zero federal tax, a flat dollar amount tax or flat percentage tax, those elections will remain the same, but may be incorrect withholding amounts under the new IRS guidelines, which is why PERA recommends submitting the new W-4P form for 2023.

PERA anticipates retirees and benefit recipients will be able to update their tax withholding elections online and by paper forms in mid-December 2022 for changes to take effect January 1, 2023.

Please note that PERA cannot provide tax advice, including advice about how to complete these forms. If you have questions about your particular situation, please contact a tax or legal advisor.

For more information on taxes and PERA benefits, visit copera.org.

Recap of the PERA Board’s November 2022 Meeting

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The PERA Board of Trustees met for its last meeting of 2022 on Nov. 18. The Board heard updates from PERA staff and consultants, and considered several important issues, including the next Board election, the member contribution interest rate, the results of the actuarial audit, and the Board’s strategic planning process.

2023 Board election

The Board approved the calendar for the 2023 Board election, where four seats will be up for election:

  • School Division – currently held by JB Phillips
  • Local Government Division – currently held by Trina Ruhland
  • Judicial Division – currently held by Hon. Rebecca R. Freyre
  • Retiree – currently held by Timothy M. O’Brien

Candidacy application will begin January 3 and the election will be held in May

Member contribution interest rate

By statute, the PERA Board is required to set the interest rate paid on PERA Defined Benefit (DB) Plan accounts. In 2020, the Board updated their policy regarding the setting of the interest rate. The policy reflects the Board’s principles and evaluates the interest rate as a component of members’ overall retirement benefit. Based on the guidance provided in the policy, the Board voted to keep the current rate of 3% (compounded annually) for 2023.

If a PERA member leaves PERA-covered employment and requests a refund of their DB account, they receive their contributions, the interest earned on that balance, and any applicable employer match. If that member keeps their account with PERA, however, their balance will continue to accrue interest and the member will be eligible for a lifetime monthly benefit when reaching retirement eligibility.

Results of actuarial audit

The Board heard the results of an independent audit of the work of PERA’s actuarial consultants, The Segal Group, Inc. The audit, by consulting firm Buck Global, LLC, found that Segal’s actuarial assumptions and methods are sound and in compliance with actuarial standards of practice.

Related: Explaining the Role of Actuaries in Retirement Plans like PERA

Strategic plan update

Executive Director Ron Baker spoke about how the Board is continuing with its yearlong process to develop a new strategic plan to guide the organization and emphasized the current plan’s four key goals: (1) To fortify PERA’s financial resilience and adaptability, (2) to elevate PERA’s identity among stakeholders to that of a partner, (3) to strengthen organizational health and performance, and (4) to improve retirement security through “best fit” products, services, and education.

The Board will continue working on a draft plan throughout 2023, with the goal of adopting a new strategic plan for 2024 – 2029 by the end of the year. The strategic plan will guide the efforts of PERA staff.