By Jeannie Fanning
April 11, 2011

Mayors can help their city employees make the most of retirement tax savings by highlighting a golden opportunity. The Saver's Credit, a hidden gem in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) that was made permanent and indexed for inflation by the Pension Protection Act of 2006 (PPA), allows qualified workers to claim the credit to receive up to a $1,000 tax credit for retirement savings.

The problem is, most workers don't know about it. In fact, according to the 11th annual Transamerica Retirement Survey, only 12 percent of full-time American workers with annual household incomes of less than $50,000 are aware of the Saver's Credit.1 Chances are, if your employees are not aware of the credit, they're not claiming it. During these tight economic times, city employees cannot afford to miss out on these opportunities.

Mayors can help change that. Raising workers' awareness about the credit will benefit them in their plans for retirement. It can make plan participation a lot more affordable for employees, helping some to continue saving and others to join the plan.

Given the right stimulus, workers will save. According to the Brookings Institute, programs that provide tax breaks and matching funds tend to increase participation. Experience suggests that even low-income families will save if presented with incentives.2 The Saver's Credit – a tax credit for saving for retirement through an IRA or an employer'sponsored defined contribution plan like a 457(b), 401(k), or 403(b) – could be that incentive.

Eligibility depends on the participant's filing status and modified adjusted gross income, but through the Saver's Credit the federal government in effect gives qualified participants up to half of what they contribute each year, up to a maximum total credit of $1,000.

So, as city employees are filing their taxes, it is important that they claim this credit if they qualify. And if they are looking for a reason to continue or start saving for retirement in 2011, the Saver's Credit may be it! As the table shows, the credit covers a significant cross'section of wage earners – households with earnings as high as $56,500 can qualify for it.

Source: “IRS Announces Pension Plan Limitations for 2011,” IR-2010-108, Oct. 28, 2010.

Nationwide representatives don-t give tax or legal advice. Participants should check with their tax attorney or legal advisor for answers to their specific questions.

The United States Conference of Mayors and the provider of the USCM Deferred Compensation Plan, Nationwide Retirement Solutions, can help if you would like to find out more information about how the Saver's Credit and how saving for retirement can benefit your employees.

For additional information about the USCM Deferred Compensation Program, contact Kathryn Kretschmer-Weyland with The U.S. Conference of Mayors by e-mail (kweyland@usmayors.org) or by phone (301-460-5251), Jeff Bean by e-mail (jbean@usmayors.org) or by phone (202-446-8140), or contact Louie Watson with Nationwide, by e-mail (WatsonL2@Nationwide.com) or by phone (614-854-8895).

NRM-4104AO-US.3 (02/2011)

Few Workers Aware of Federal Income Tax Retirement “Saver's Credit,” Transamerica Retirement Research Center Media Release, January 12, 2011.

Improving the Saver's Credit, William G. Gale, J. Mark Iwry, and Peter R. Orszag, Policy Brief #135, The Brookings Institute, July 2004; Expanding Automatic Enrollment and Making Saver's Credit a Match Will Help to Improve Retirement Security, William G. Gale and David C. John, The Brookings Institute, September 9, 2010.

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