Critical IRA IssuesCritical IRA Issues

FIRMAFIRMANew Orleans, LANew Orleans, LA

April 29, 2009April 29, 2009

Lisa J Bleier202-663-5479lbleier@aba.com

Critical Issues of TodayCritical Issues of Today

New LawsNew Laws

Presidential & Legislative Presidential & Legislative ProposalsProposals

Regulatory ActionsRegulatory Actions

Valuation of AssetsValuation of Assets

Marketing your IRA department Marketing your IRA department for retirementfor retirement

New LawsNew Laws

2010 Roth Conversions2010 Roth Conversions

Charitable Giving IRAsCharitable Giving IRAs

2010 Roth Conversions2010 Roth Conversions

Effective January, income limits on Effective January, income limits on Roth conversions expired (thanks Roth conversions expired (thanks to the PPA of 2006)to the PPA of 2006)

Funds can now be converted by Funds can now be converted by persons of any income from a persons of any income from a traditional IRA (or employer-traditional IRA (or employer-sponsored retirement plan) to a sponsored retirement plan) to a Roth IRA.Roth IRA.

2010 Roth Conversions2010 Roth Conversions

Conversion is subject to Conversion is subject to income tax, but future income tax, but future withdrawals are tax-freewithdrawals are tax-free

For 2010 conversions, half the For 2010 conversions, half the taxable income can be paid in taxable income can be paid in 2011 and half in 2012.2011 and half in 2012.

2010 Roth Conversions2010 Roth Conversions

Conversion income may impact Conversion income may impact individual’s state tax bill.individual’s state tax bill.

Conversions can be rolled back Conversions can be rolled back over – i.e. recharacterized – if over – i.e. recharacterized – if done before tax bill is due.done before tax bill is due.

Roth funds are not subject to Roth funds are not subject to RMDs at age 70 ½. RMDs at age 70 ½.

Charitable Giving IRAsCharitable Giving IRAs

H.R. 4213 – not yet signedH.R. 4213 – not yet signed

Taxpayers over age 70 ½ can Taxpayers over age 70 ½ can exclude distributions from gross exclude distributions from gross income if donated to qualified income if donated to qualified charitiescharities

Legislation extends to December Legislation extends to December 2010.2010.

Presidential & Legislative Presidential & Legislative ProposalsProposals

Expansion of SAVER’s CreditExpansion of SAVER’s Credit

Auto-IRAs (also called Payroll Auto-IRAs (also called Payroll Deduction IRAs)Deduction IRAs)

Expansion of SAVER’s CreditExpansion of SAVER’s Credit

Current law:Current law:

●a credit of up to $1,000 for a credit of up to $1,000 for singlessingles

●Credit rate is 10%, 20%, or 50% Credit rate is 10%, 20%, or 50% depending on AGIdepending on AGI

Expansion of SAVER’s CreditExpansion of SAVER’s Credit

Proposal:Proposal:

●provide a 50% match on the first provide a 50% match on the first $500 for singles – for $250 max$500 for singles – for $250 max

●fully refundablefully refundable

●Higher income thresholdHigher income threshold

Auto-IRAs: President’s Auto-IRAs: President’s ProposalProposal

Current Law – an optionCurrent Law – an option

President’s Proposal – President’s Proposal – employers (who do not offer a employers (who do not offer a retirement plan) would be retirement plan) would be required to enroll employees in required to enroll employees in a direct deposit IRAa direct deposit IRA

Auto-IRAs – President’s Auto-IRAs – President’s ProposalProposal

Employers in business at least Employers in business at least two yearstwo years

More than 10 employeesMore than 10 employees

Employees can opt-outEmployees can opt-out

Auto-IRAs – President’s Auto-IRAs – President’s ProposalProposal

Statute would dictate low-cost Statute would dictate low-cost default investmentsdefault investments

No employer contributionsNo employer contributions

No employer liabilityNo employer liability

Small credit for employer’s for Small credit for employer’s for first 2 yearsfirst 2 years

Auto-IRAs: Legislative Auto-IRAs: Legislative ProposalProposal

No bills introduced yet this No bills introduced yet this Congress Congress

H.R. 2167, S. 1141 “Automatic IRA H.R. 2167, S. 1141 “Automatic IRA Act” from last CongressAct” from last Congress●Mandates automatic IRAsMandates automatic IRAs

●Default for an employee who does not Default for an employee who does not enrollenroll

Auto-IRAs: Legislative Auto-IRAs: Legislative ProposalProposal

A newly created government Board, A newly created government Board, referred to as “TSP II Board”, would referred to as “TSP II Board”, would provide for the maintenance and provide for the maintenance and establishment of automatic IRAsestablishment of automatic IRAs

The TSP II Board would determine annual The TSP II Board would determine annual increases for the default amountincreases for the default amount

Auto-IRAs: New Auto-IRAs: New DevelopmentsDevelopments

““R” bonds or “I” BondsR” bonds or “I” Bonds

●Similar to a government money Similar to a government money market accountmarket account

●An “incubator” for the accountsAn “incubator” for the accounts

●How to sweep it out?How to sweep it out?

Auto-IRAs: New Auto-IRAs: New DevelopmentsDevelopments

Consortium of providers?Consortium of providers?

Use refund process to open Use refund process to open IRAs?IRAs?

Manage more electronically?Manage more electronically?

Regulatory Actions: Regulatory Actions: Investment AdviceInvestment Advice

January 21, 2009, DOL issued final rules January 21, 2009, DOL issued final rules to allow for the provision of investment to allow for the provision of investment advice to 401(k) participants and IRA advice to 401(k) participants and IRA holders.holders.

March 20, 2009, DOL delayed the March 20, 2009, DOL delayed the effective date to May 22, 2009effective date to May 22, 2009

March 2, 2010, DOL re-proposedMarch 2, 2010, DOL re-proposed

New Statutory ExemptionNew Statutory Exemption

PPA included an exemption to PPA included an exemption to allow for providing investment allow for providing investment advice if:advice if:

●Advisor’s compensation did not Advisor’s compensation did not vary (level fees), orvary (level fees), or

●A computer model generated the A computer model generated the adviceadvice

Level FeesLevel Fees

Addressed, in part, in FAB Addressed, in part, in FAB 2007-01, which said that the fee 2007-01, which said that the fee leveling requirement applies to leveling requirement applies to the fiduciary adviser and not all the fiduciary adviser and not all of its affiliatesof its affiliates

Class ExemptionClass Exemption

WithdrawnWithdrawn

No longer permits No longer permits individualized investment individualized investment advice after the furnishing of advice after the furnishing of computer model computer model recommendationrecommendation

New Final RegsNew Final Regs

Level Fees:Level Fees:

●““Even though an affiliate of a fiduciary Even though an affiliate of a fiduciary adviser may receive fees that vary depending adviser may receive fees that vary depending on investment options selected, any on investment options selected, any provision of financial or economic incentives provision of financial or economic incentives by an affiliate to a fiduciary adviser or any by an affiliate to a fiduciary adviser or any individual employed by such fiduciary individual employed by such fiduciary adviser to favor certain investments would adviser to favor certain investments would be impermissible.” be impermissible.”

New Final RegsNew Final Regs

““Nothing contained in ERISA…or Nothing contained in ERISA…or this regulation invalidates or this regulation invalidates or otherwise affects prior otherwise affects prior regulations, exemptions, regulations, exemptions, interpretive or other guidance interpretive or other guidance issued by the DOL pertaining to issued by the DOL pertaining to the provision of investment the provision of investment advice…”advice…”

New Final RegsNew Final Regs

Requests for comment:Requests for comment:

●What investment theories should What investment theories should be used for the computer model?be used for the computer model?

●What historical data should be What historical data should be taken into account?taken into account?

●What types of criteria are What types of criteria are appropriate for asset allocation?appropriate for asset allocation?

ValuationValuation

FAS 157 – new standards for FAS 157 – new standards for determining fair valuedetermining fair value

●Level 1 – Observable market data Level 1 – Observable market data in an active exchangein an active exchange

●Level 2 – Unadjusted quoted price Level 2 – Unadjusted quoted price in an active market or exchangein an active market or exchange

●Level 3 Unobservable market dataLevel 3 Unobservable market data

ValuationValuation

Fair value for “alternative Fair value for “alternative investments”investments”

Fair value in “inactive markets”Fair value in “inactive markets”

Marketing IRAs for RetirementMarketing IRAs for Retirement

Our Offerings:Our Offerings:

●Investment managementInvestment management

●Tax and financial planningTax and financial planning

●Trust and estate administrationTrust and estate administration

Marketing IRAs for RetirementMarketing IRAs for Retirement

10% of affluent clients who 10% of affluent clients who rolled a 401(k):rolled a 401(k):

●18% to a bank (avg $113K)18% to a bank (avg $113K)

●67% to an investment firm (avg 67% to an investment firm (avg $162K)$162K)

Marketing IRAs for RetirementMarketing IRAs for Retirement

View through “retirement” lensView through “retirement” lens

Advertise as “retirement” Advertise as “retirement” providersproviders

Management of distribution Management of distribution phasephase

Marketing IRAs for RetirementMarketing IRAs for Retirement

Use retirement termsUse retirement terms

Discuss retirement plansDiscuss retirement plans

Retirement link on websiteRetirement link on website

Thank you for your time!Thank you for your time!

Lisa J. BleierLisa J. Bleier

Center for Securities, Trusts & InvestmentsCenter for Securities, Trusts & Investments

American Bankers AssociationAmerican Bankers Association

lbleier@aba.comlbleier@aba.com