general session: washington update sunday, april 28, 2013 · ("iips"). neither iliac nor...
TRANSCRIPT
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General Session: Washington Update Sunday, April 28, 2013 Robert M. Kaplan, CFP, APA, CPC, QPA
VP, National Training Consultant, ING
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Important Information
Any insurance products, annuities and funding agreements that
may have been purchased are sold as securities and are
issued by ING Life Insurance and Annuity Company ("ILIAC").
Fixed annuities are issued by ILIAC. ILIAC is solely responsible
for meeting its obligations. Plan administrative services are
provided by ILIAC or ING Institutional Plan Services, LLC
("IIPS"). Neither ILIAC nor IIPS engage in the sale or
solicitation of securities. All companies are members of the ING
family of companies. Securities distributed by ING Financial
Advisers, LLC (member SIPC) or other broker-dealers with
which it has a selling agreement.
For financial professional training use only. C11-11-21-015 (02/12) 2
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• Roth Conversions
• 2013 Tax Reform
• Bills to Be Reintroduced??
• IRS Pending Initiatives
• DoL Pending Initiatives
• Fee Disclosure Ongoing
Issues
• Questions?
Agenda
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• Addressed the dreaded F.C. (Fiscal Cliff)
• Affects high income earners ($400,000 individual or $450,000 married both indexed for inflation)
• Income tax rate goes from 35% to
39.6%
• Capital gains rate goes from 15% to 20%
• Dividend rate goes from 15% to 20%
American Taxpayer Relief Act of 2012
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• Phase out of tax deductions for individuals earning over $250,000 or joint filers over $300,000 (both indexed for inflation) were reinstated
• Estate tax increased to 40% for amounts over $5,000,000
American Taxpayer Relief Act of 2012
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• Bad news – the Wall Street Journal (January 1 edition) referred to ATRA as the “largest tax increase from one year to the next – ever!”
American Taxpayer Relief Act of 2012
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• Good news – Dave Camp (R) Chair of the House Ways and Means Committee referred to it as the “largest tax cut – ever” (January 1st edition of the Washington Post) • It is possible he compared it to
what the tax increase would have been without ATRA and if all the Bush tax cuts expired
• He also stated on House floor on January 2nd that these cuts were permanent!! (until the next law change)
American Taxpayer Relief Act of 2012
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• Will the incentives for qualified retirement plans be increased if no other changes take place?
• Current deductions
• Using the Roth for tax diversification
• Estate Planning
• How will employers deal with their overall benefits budget as the Affordable Care Act (ACA) kicks in
American Taxpayer Relief Act of 2012
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• Both McConnell and Boehner stated that “we are done with tax reform and now on to spending cuts”
• Implications for retirement plans – we will discuss in a few minutes
American Taxpayer Relief Act of 2012
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• Roth Conversions • Literally a last minute addition
(Section 902 of a Bill that had 903 sections)
Most important thing we know is that we need guidance from the Treasury and IRS
American Taxpayer Relief Act of 2012
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• Roth Conversions – What We Know • Applies to plans that offer a Roth
deferral feature (401(k), 403(b) or governmental 457(b)
• Optional
• Vested amounts
• All sources of funds (not just those available for distribution)
• Plan will have to be amended to reflect provisions
American Taxpayer Relief Act of 2012
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• Roth Conversions – What We Don’t Know • Timing of amendment (since
voluntary you would think last day of plan year implemented)
• When does the 5 year clock start (remember a conversion is not a contribution)
American Taxpayer Relief Act of 2012
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• Roth Conversions – Communication Issues • Sources (if limited)
• How often (if limited)
• Conversions do not create a distributable event that otherwise does not occur – do you have the money outside the plan to pay taxes
American Taxpayer Relief Act of 2012
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• Roth Conversions – Impact
• Participants like options (even if they do not use them)
• Gives advisors chance to talk tax diversification (and demonstrate their value)
• Any tax changes cause some participants to re-think using the Roth
• So be ready
• Session – Wednesday at 8:15 with Bill Grossman
American Taxpayer Relief Act of 2012
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• Anticipation of Tax Reform in 2013 • Need to address the debt ceiling
• American Taxpayer Relief Act of 2012 did not address spending
• Look for “Revenue Enhancement” to be a theme for 2013 • Translation is higher taxes
2013 Tax Reform
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• President’s 2014 Budget Proposal – April
• Effective in 2014 • Eliminate ESOP Dividend deduction for Large C Corps
• Create Auto IRA in 2015 (Roth is default)
• 28% limit on itemized deductions (impact those in a higher tax bracket)
• Eliminate “stretch IRAs” for non-spouses – must distribute in 5 years
• IRS can mandate additional Form 5500 data be sent electronically
• Eliminate RMDs for accountholders with less than $75,000
• Allow 60 day rollovers by non-spouses (meant to align rollover rules)
• Eliminate contributions for those who have accumulated enough in IRAs,
DBs and DCs to equal annual DB payout of $205,000.
• Tested annually so contributions may recommence due to limit increase or
investment losses
2013 Tax Reform
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• Retirement Plan Deductions that
have been discussed in the past: • Limit DC contributions
• Lower elective deferrals
• Eliminate catch-ups
• Lower considered compensation
• Eliminate cross-testing
• Replace pre-tax system with tax credits
• Limit total deductions
• Note that these are all incentives for employers
to sponsor a plan
• Everything tax related is “on the
table”
• Our best defense – Satisfied
participants!
2013 Tax Reform – Other Proposals
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• Moving Ahead for Progress in
the 21st Century or MAP 21
• A.K.A “The Highway Bill”
• Adjusted interest rates for DB
plans with abnormal results
(you better see an actuary for
details instead of me)
• New PBGC premiums (higher
of course) but at least they do
not get to set their own (which
they wanted)
MAP 21
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• Automatic Enrollment IRA
• Mandate businesses with more
than 10 employees to offer a
payroll withholding IRA
• Would expand coverage
• Was introduced to House in
2012 by Richard Neal (D-Ma)
– HR 4049
• Has been in President’s
budget the last 3 years
Bills to be Reintroduced??
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Lifetime Income Disclosure Act
• Monthly lifetime income amount at
Normal Retirement Date (NRD)
reported on statement .
• No requirement for actual annuities.
• Not controversial because no taxes
involved
• Idea is to educate participants about
a theoretical monthly amount at
retirement (or budgeting) and to
encourage them to save more
• Introduced in 2012 by Senators Kohl,
Bingaman and Isakson
Bills to be Reintroduced??
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Shrinking Emergency Account
Losses in 401(k) Savings Act
of 2013
• Eliminate 6 month suspension
after a hardship withdrawal is
taken
• Allow loan repayments to IRA
for up to 6 months after
termination
Bills that was Reintroduced
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• Several states are getting or
want to get into the retirement
administration business
• Massachusetts – small non –
profit 403(b)s
• Connecticut – 2013 Bill to limit
fees in retirement plans (50% ??)
• California – SB 1234 State based
Auto-Savings Plans (similar to
Auto IRA) – passed in August,
2012 – needs to be implemented
State Initiatives to Keep an eye on in 2013
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• Updated EPCRS (Correction
Program) – 2013-12 released
late December • “Perfect is not lovable” but it may be
a good idea in retirement plans
• Session on this – Monday at
10:30 a.m.
• 403(b) arrangements
• Matching corrections do not have to be
fully vested
• Corrections for missed deferrals cannot
be from forfeitures
IRS Initiatives
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• 401(k) Questionnaire
• 1200 Plans selected (98%
response rate)
• Costly to respond
• Will we see more of these?
• Session – Tuesday at 1:15
with Rich Hochman
IRS Initiatives
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• QLAC Proposed Regulations
• Qualified Lifetime Annuity
Contracts
• In plan annuity purchased at
age 85
• Premiums not included as part of
RMD calculation
• Lesser of $100,000 or 25% of
account balance
• Decumulation – see next slide
IRS Initiatives
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• Regulators starting to look at
decumulation issues
• As we stated – Legislation to
provide “annuity value” on DC
statements
• QLAC Regulations
• DoL RFI several years ago to see
what products are being used
and why more participants are
not using them
• DoL holding public hearings on
Benefit Statement information
• Trend is on payouts – time to
learn the products
Decumulation
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• Rollovers into plans – do they
need to put rules in place to
make it easier • Increase portability
• Make it easier for participants
• Not on the formal work list but industry
organizations were questioned by IRS on
practices
IRS Initiatives
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• Multiple Employer Plan
Advisory Opinion 2012- 4A • “Open MEPs” treated as separate
employers for filing, audit and fiduciary
purposes
• Can still be combined for investment
purposes
• Did not address the level of fiduciary
responsibility for employer in an
association or related MEP
• Richard Neal (D) Mass – might propose
bill to allow “Open MEPs” because it
might make it easier to adopt plans and
increase coverage
DoL Initiatives
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• Multiple Employer Plan
Advisory Opinion 2012- 4A • What do we do about the plans that
we filed for years prior to this Opinion
• Still waiting for clear guidance
• What we really need is coordination
between the IRS rules and DoL rules
• Session at 12:45 on Monday with
Derrin Watson
DoL Initiatives
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• QDIA and Target Date
funds Proposed
Regulations (waiting for
Final) – on work plan for
November 2013
• Require: • Additional Disclosures
• Clearer labeling of funds
• Clearer marketing material
• Funds are not guaranteed and can lose
value
DoL Initiatives
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• Establish an objective process for comparing and
selecting TDFs Gather and evaluate information
• Establish a process for periodic review of TDFs
ERISA Fiduciary requirement
• Fund may need to be replaced if there are significant
changes to the fund or the plan’s objectives
• Understand the TDFs investments and asset
allocation “At retirement” - Glide path most
conservative at target retirement date
• “Through retirement” - Glide path most conservative
after target
Target Date Fund Selection
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• Review fund’s fees and investment expenses
Small differences can have a significant impact
on long term savings
• Develop effective employee communications
Employees need the same information that plan
fiduciaries do
• Take advantage of available sources of
information to evaluate the TDFs and
recommendations you received No sources
named
• Document the selection and review process
Target Date Fund Selection
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• DoL announced it will
reintroduce Investment
Manager Fiduciary
Regulations July, 2013 (based
on DoL work plan)
• Would expand who is a
fiduciary to those who give
recommendations (even if only
to one participant)
• Will it include recommendation
to roll to an IRA???
DoL Initiatives
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• Note: This is for Investment
Manger and does not address
Plan Administrator Fiduciary
Services 3(16)
• Growing trend in the
marketplace
DoL Initiatives
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• Implications?
• Less financial advisors working
on plans?
• More familiar with retirement
plans?
• Some B/Ds limiting who can work
on plans (creating groups of
experienced advisors)
DoL Initiatives
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• Market Place Currently
• Advisors who can be Fiduciaries
• Advisors who partner with firms
that offer Fiduciary services
• Where do you fit in?
DoL Initiatives
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• Failure to Provide on a timely
basis
• Prohibited transaction
• Limited relief for the plan if
• Written request upon realization
of data needed
• 90 day deadline
• Report to DoL if not received
• Determine whether to continue
relationship
• Report it on Form 5500!!!!
Fee Disclosure Ongoing Issues– Failure to Provide 408(b)(2) Notice
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408(b)(2) - Plan Sponsor Responsibilities
• Determine that fees paid out of plan
assets are reasonable (ERISA
requirement is nothing new) • Benchmarking
• Comparison bids
• Does plan have practices and
procedures in place (it is all about
process)
• Documentation of all fiduciary decisions
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• Annual – what might be
charged • August 30, 2012 did not bring a lot of
participant response
• Next disclosures due no later than
August, 2013 (or if earlier, within 12
months of the first set)
• Quarterly – what was charged • Seems like the reaction from participants
was not immediate and vocal
• Will it, however, lead to legal action
• Sessions – today at 4:15 Bruce
Ashton and Roundtable discussions
Monday and Tuesday
Fee Disclosure Ongoing Issues – Participant 404(a)(5)
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• Brokerage Accounts or
Windows
• DoL will be concerned if there
are no designated investment
alternatives in plans – how will
sponsor be meeting their
fiduciary duty??
• Anticipate further guidance by
DoL on this
Fee Disclosure Ongoing Issues – Participant 404(a)(5)
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Questions
• I will be happy to
answer any questions
that you may have
• Thank You