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

Critical Issues of Today New Laws New Laws Presidential & Legislative Proposals Presidential & Legislative Proposals Regulatory Actions Regulatory Actions Valuation of Assets Valuation of Assets Marketing your IRA department for retirement Marketing your IRA department for retirement

New Laws 2010 Roth Conversions 2010 Roth Conversions Charitable Giving IRAs Charitable Giving IRAs

2010 Roth Conversions Effective January, income limits on Roth conversions expired (thanks to the PPA of 2006) Effective January, income limits on Roth conversions expired (thanks to the PPA of 2006) Funds can now be converted by persons of any income from a traditional IRA (or employer- sponsored retirement plan) to a Roth IRA. Funds can now be converted by persons of any income from a traditional IRA (or employer- sponsored retirement plan) to a Roth IRA.

2010 Roth Conversions Conversion is subject to income tax, but future withdrawals are tax-free Conversion is subject to income tax, but future withdrawals are tax-free For 2010 conversions, half the taxable income can be paid in 2011 and half in For 2010 conversions, half the taxable income can be paid in 2011 and half in 2012.

2010 Roth Conversions Conversion income may impact individual’s state tax bill. Conversion income may impact individual’s state tax bill. Conversions can be rolled back over – i.e. recharacterized – if done before tax bill is due. Conversions can be rolled back over – i.e. recharacterized – if done before tax bill is due. Roth funds are not subject to RMDs at age 70 ½. Roth funds are not subject to RMDs at age 70 ½.

Charitable Giving IRAs H.R – not yet signed H.R – not yet signed Taxpayers over age 70 ½ can exclude distributions from gross income if donated to qualified charities Taxpayers over age 70 ½ can exclude distributions from gross income if donated to qualified charities Legislation extends to December Legislation extends to December 2010.

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: Current law: ● a credit of up to $1,000 for singles ● Credit rate is 10%, 20%, or 50% depending on AGI

Expansion of SAVER’s Credit Proposal: Proposal: ● provide a 50% match on the first $500 for singles – for $250 max ● fully refundable ● Higher income threshold

Auto-IRAs: President’s Proposal 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

Auto-IRAs – President’s Proposal Employers in business at least two years Employers in business at least two years More than 10 employees More than 10 employees Employees can opt-out Employees can opt-out

Auto-IRAs – President’s Proposal Statute would dictate low-cost default investments Statute would dictate low-cost default investments No employer contributions No employer contributions No employer liability No employer liability Small credit for employer’s for first 2 years Small credit for employer’s for first 2 years

Auto-IRAs: Legislative Proposal 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: Legislative Proposal 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: New Developments “R” bonds or “I” Bonds “R” bonds or “I” Bonds ● Similar to a government money market account ● An “incubator” for the accounts ● How to sweep it out?

Auto-IRAs: New Developments Consortium of providers? Consortium of providers? Use refund process to open IRAs? Use refund process to open IRAs? Manage more electronically? Manage more electronically?

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

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

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

Class Exemption Withdrawn Withdrawn No longer permits individualized investment advice after the furnishing of computer model recommendation No longer permits individualized investment advice after the furnishing of computer model recommendation

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

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

New Final Regs Requests for comment: Requests for comment: ● What investment theories should be used for the computer model? ● What historical data should be taken into account? ● What types of criteria are appropriate for asset allocation?

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”

Marketing IRAs for Retirement Our Offerings: Our Offerings: ● Investment management ● Tax and financial planning ● Trust and estate administration

Marketing IRAs for Retirement 10% of affluent clients who rolled a 401(k): 10% of affluent clients who rolled a 401(k): ● 18% to a bank (avg $113K) ● 67% to an investment firm (avg $162K)

Marketing IRAs for Retirement View through “retirement” lens View through “retirement” lens Advertise as “retirement” providers Advertise as “retirement” providers Management of distribution phase Management of distribution phase

Marketing IRAs for Retirement Use retirement terms Use retirement terms Discuss retirement plans Discuss retirement plans Retirement link on website Retirement link on website

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