If you are a plan sponsor, you may be impacted by new executive initiatives, legislative proposals and a range of anticipated regulatory actions affecting retirement plans.
AMY: I’m Amy Kuntz, Senior Vice President and director of distribution, retirement services for PNC Institutional Investments.
JOHN: And I’m John Ferriera, partner, employee benefits and executive compensation practice for Morgan, Lewis & Bockius, LLP.
AMY: President Obama has introduced myRA, a government-sponsored retirement account, which is designed to be a starter account for Americans who have had difficulty saving for retirement. Eligible individuals whose employers agree to participate will be able to make myRA contributions via payroll deduction. MyRA contributions will be treated like contributions to a Roth Individual Retirement Account (Roth IRA) for tax purposes. MyRA accounts will be invested solely in United States Treasury Bonds. Once the maximum account balance of $15,000 is reached or 30 years have passed, whichever comes first, the balance must redeemed or transferred to a regular Roth IRA. Withdrawals after age 591⁄2 will be tax-free.
JOHN: The President’s 2015 budget proposal includes three key retirement ideas: Mandatory Roth IRA Auto-Enrollment for Small Businesses, a new retirement savings cap and acceleration of retirement distributions. Employers in business for at least two years that have more than 10 employees and do not offer another retirement plan (or have groups of employees not covered by a plan) would be required to auto-enroll employees in a payroll deduction Roth IRA contribution program.
AMY: New contributions to tax-favored retirement accounts such as IRAs and 401(k) plans would be prohibited once an individual’s aggregate account balance(s) exceeded an established “cap” of approximately $3.2 million. The maximum tax benefit for making contributions to defined contribution plans, such as IRAs and 401(k) plans, would be limited to 28%. As a result, high-income taxpayers would not receive the full tax deduction for amounts contributed or deferred.
JOHN: Roth IRAs would be made subject to the same required minimum distribution rules as other retirement accounts, unless the aggregate balance of all retirement accounts is under $100,000. The current “stretch IRA” strategy would be compromised by a proposed change that would require most non-spouse beneficiaries to empty inherited retirement accounts by the end of the fifth year following the account owner’s death. The value of a stretch IRA as an estate planning strategy would be diminished significantly.
AMY: A bill called the Universal, Secure and Actionable (USA) Retirement Funds Act seeks to weave together elements of defined contribution and defined benefit plans by establishing a series of government-sponsored retirement funds. It would require automatic enrollment of employees at companies with ten or more employees that do not already offer a retirement plan with a lifetime income option. USA Retirement Funds would be available to the estimated 61 million individuals without access to a workplace retirement plan and the 14.5 million people who are self-employed.
JOHN: On the regulatory front, the Employee Benefit Security Administration (EBSA) is considering guidance on a range of issues, including the definition of a fiduciary, lifetime income estimates for statements, a fee disclosure guide and self-directed brokerage windows. EBSA expects to re-propose amendments to existing regulations to clarify the circumstances under which someone is considered a fiduciary by reason of providing investment advice for a fee to retirement and other employee benefit plans, plan participants and beneficiaries and IRA owners. EBSA believes that clarifying the fiduciary definition is essential to avoid any misunderstanding between plan sponsors and service providers about the level of
fiduciary responsibility each holds and to reduce alleged conflicts of interest.
AMY: A proposal to require lifetime income estimates addresses the concern that participants have difficulty envisioning the lifetime income that their savings may be capable of generating, limiting their ability to understand how much they need to accumulate in their retirement accounts to help support their retirement income goals. EBSA has proposed an amendment to its fee disclosure regulation that would require covered service providers to supply a “guide” or a “roadmap” to plan fiduciaries to assist them in navigating lengthy or complex fee disclosure documents. EBSA has received many comments from service providers concerned that its proposal will significantly increase costs.
JOHN: With respect to self-directed brokerage windows offered as investment options in participant-directed defined contribution plans, EBSA has expressed concerns about the combination of unsophisticated investors not receiving sufficient guidance and the ambiguity of a plan sponsor’s fiduciary responsibility. Regulatory action in this area could make brokerage windows more burdensome and/or expensive to offer.
AMY: For more information on regulatory and legislative developments, please reach out to PNC Institutional Investments using the information on the next screen.
JOHN: Thank you for your time and attention.
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