Critical IRA Issues FIRMA New Orleans, LA April 29, 2009 Lisa J Bleier

Critical Issues of Today 2009 RMD Waiver 2009 RMD Waiver Presidential & Legislative Proposals Presidential & Legislative Proposals Regulatory Actions Regulatory Actions Valuation of Assets Valuation of Assets

2009 RMD Waiver Worker, Retiree and Employer Recovery Act of 2008, signed into law December 23, 2008, waives any RMD from an IRA for Worker, Retiree and Employer Recovery Act of 2008, signed into law December 23, 2008, waives any RMD from an IRA for 2009.

WRERA – RMD Relief Notice – states that financial institutions do not need to send RMD information that is currently required under Notice Notice – states that financial institutions do not need to send RMD information that is currently required under Notice But, if a notice sent, then must show RMD as zero for 2009 But, if a notice sent, then must show RMD as zero for 2009

2009 RMD Waiver Individuals who turned 70 ½ in 2008 still must take their 2008 RMD by April Individuals who turned 70 ½ in 2008 still must take their 2008 RMD by April Individuals receiving distributions over a 5 year period, in effect, have 6 years. Individuals receiving distributions over a 5 year period, in effect, have 6 years.

Presidential & Legislative Proposals Expansion of SAVER’s Credit Expansion of SAVER’s Credit Auto-IRAs (also called Payroll Deduction IRAs) Auto-IRAs (also called Payroll Deduction IRAs)

Expansion of SAVER’s Credit Current law – receive a credit of up to $1,000 for eligible contributions Current law – receive a credit of up to $1,000 for eligible contributions Proposal – provide a 50% match on the first $1,000 – fully refundable Proposal – provide a 50% match on the first $1,000 – fully refundable

Auto-IRAs Current Law – an option Current Law – an option President’s Proposal – employers (who do not offer a retirement plan) would be required to enroll employees in a direct deposit IRA President’s Proposal – employers (who do not offer a retirement plan) would be required to enroll employees in a direct deposit IRA No further details yet No further details yet

Auto-IRAs No bills introduced yet this Congress No bills introduced yet this Congress H.R. 2167, S “Automatic IRA Act” from last Congress H.R. 2167, S “Automatic IRA Act” from last Congress ● Mandates automatic IRAs ● Default for an employee who does not enroll

Auto-IRAs A newly created government Board, referred to as “TSP II Board”, would provide for the maintenance and establishment of automatic IRAs A newly created government Board, referred to as “TSP II Board”, would provide for the maintenance and establishment of automatic IRAs The TSP II Board would determine annual increases for the default amount The TSP II Board would determine annual increases for the default amount

Auto-IRAs Do banks want these accounts? Do banks want these accounts? Are we concerned about the competition with a TSP II? Are we concerned about the competition with a TSP II? Do we have an alternative solution? Do we have an alternative solution?

Regulatory Actions: Investment Advice January 21, 2009, DOL issued final rules to allow for the provision of investment advice to 401(k) participants and IRA holders. January 21, 2009, DOL issued final rules to allow for the provision of investment advice to 401(k) participants and IRA holders. March 20, 2009, DOL delayed the effective date to May 22, 2009 March 20, 2009, DOL delayed the effective date to May 22, 2009

New Statutory Exemption PPA included an exemption to allow for providing investment advice if: PPA included an exemption to allow for providing investment advice if: ● Advisor’s compensation did not vary (level fees), or ● A computer model generated the advice

Guidance from DOL Regulations Regulations Report to Congress re: Study of Computer Models Report to Congress re: Study of Computer Models Class Exemption Class Exemption

Level Fees Addressed, in part, in FAB , which said that the fee leveling requirement applies to the fiduciary adviser and not all of its affiliates Addressed, in part, in FAB , which said that the fee leveling requirement applies to the fiduciary adviser and not all of its affiliates

Final Regs: Computer Model Apply generally accepted investment theories Apply generally accepted investment theories Avoid recommendations that inappropriately favor options that may generate greater income for the fiduciary adviser Avoid recommendations that inappropriately favor options that may generate greater income for the fiduciary adviser Avoid giving inappropriate weight to any particular investment option Avoid giving inappropriate weight to any particular investment option

Class Exemption Permits individualized investment advice after the furnishing of computer model recommendation Permits individualized investment advice after the furnishing of computer model recommendation When computer modeling infeasible, permits provision of investment education material When computer modeling infeasible, permits provision of investment education material

GAO Report on IRAs Congress should consider giving DOL more oversight of IRAs Congress should consider giving DOL more oversight of IRAs DOL should examine ways to encourage employer sponsorship of IRAs DOL should examine ways to encourage employer sponsorship of IRAs IRS should publish and provide data to DOL re: IRAs IRS should publish and provide data to DOL re: IRAs

GAO Report on IRAs Hearings held Hearings held ● Who should regulate IRAs? ● Is there sufficient oversight?

Valuation FAS 157 – new standards for determining fair value FAS 157 – new standards for determining fair value ● Level 1 – Observable market data in an active exchange ● Level 2 – Unadjusted quoted price in an active market or exchange ● Level 3 Unobservable market data

Valuation Fair value for “alternative investments” Fair value for “alternative investments” Fair value in “inactive markets” Fair value in “inactive markets”

Thank you for your time! Lisa J. Bleier Center for Securities, Trusts & Investments American Bankers Association