General Session: Whats What in Washington Bob Kaplan, APA, CFP, - - PDF document

General Session: What’s What in Washington

Bob Kaplan, APA, CFP, CPC, QPA, Vice President, National Training Consultant, ING US

Robert M. Kaplan, APA, CFP, CPC, QPA Vice President, National Training Consultant, ING US

Bob Kaplan is the VP, National Training Consultant for ING. His responsibilities include web cast and live training for members of the TPA and Financial Advisor community as well as ING personnel. He is currently a Co-Chair of the American Society of Pension Professionals and Actuaries (ASPPA’s) Government Affairs Committee. Bob is a member of ASPPA’s Board of Director’s.

Robert M. Kaplan, APA, CFP, CPC, QPA Vice President, National Training Consultant, ING US

He previously served as a member of the Board of Managers of the American Institute of Retirement Education (AIRE) as well as the Board of Directors of the National Institute of Pension Administrators (NIPA). In 2009, Bob was presented with NIPA’s Lifetime Achievement Award for his contributions to the retirement plan industry. Bob is a frequent speaker at industry events including:

• Annual conferences for ASPPA, NIPA, Western

Benefits Conference, AICPA and the American Bar Association

• Chapter Meetings and webcasts for NIPA
• Benefits Counsels, webcasts and Regional Meetings

for ASPPA

Robert M. Kaplan, APA, CFP, CPC, QPA Vice President, National Training Consultant, ING US

He has provided testimony before the Treasury Department on 401(k) issues and other retirement plan issues. Bob has over 34 years of experience in retirement plan services, including plan design, administration, sales and consulting. Bob is also a former high school basketball

• coach. He is a graduate of the State University at

Albany, NY and has a graduate degree from William Paterson University in New Jersey.

Washington Update

• Any insurance products, annuities and funding

arrangements that you may have 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

• bligations. Plan Administrative services are provided by

ILIAC or ING Institutional Plan Services, LLC (“IIPS”). Nothing herein constitutes an offer for sale, or solicitation

• f any offer to purchase, any security. Securities

distributed by ING Financial Advisers, LLC (member SIPC) or other broker-dealers with which it has a selling agreement Washington Update

• This material highlights key issues of legislative
• initiatives. Currently lawmakers and industry
• rganizations are giving serious attention to a number of
• bills. Any or all of these proposals could die in

committee, change radically or pass after the session

• ends. This information is provided as guidance. It is not

intended to be legal or tax advice.

My Oh myRA

Executive Order

• Employers who do not offer retirement plans
• Think Roth IRA backed by a government guaranteed bond (the “R”

Bond)

• Workers can invest if they make less than $191,000 ($125,000 if single)
• No tax penalty if amounts withdrawn
• Business does not administer – only offers
• Key is payroll to payroll; can be rolled to an IRA and is portable from

job to job

• If account grows to $15,000 or is in place for 30 years must be rolled
• Could be same interest rate as federal thrift plan government securities

My Oh myRA

While we are in favor of expanded coverage (and who would not be)……how will the government pay for this creation??????

Tax Reform

• 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
• Major tax reform may be put off for a while but what if…
• Our best defense – Satisfied participants and reminding

Congress about tax deferral vs. tax expenditure

Tax Reform

• While listening to the rhetoric – keep in mind some

positive news(from a recent Fidelity study):

• Average Account Balance - $89,300
• Over 55 - $165,200
• IRA/Plan total balance - $261,400
• From EBRI – about 80% of full time workers are eligible for a plan
• Scary number – 21% of all 401(k) participants have at least one
• utstanding loan

The President’s 2014 Budget (for 2015)

• Most items repeated from last year
• Subject Roth accounts to RMD rules (this is new)
• 28% cap on retirement plan deferrals
• Eliminate non-spouse lifetime beneficiary payments
• Eliminate RMDs if aggregate is less than $100,000
• Allow 60 day rollover for non-spouse
• Auto IRA – more than 10 employees – default is Roth
• Accumulation cap of $210,000 per year (about $3.2

million)

Tax Reform Proposal by House Republicans

• Introduced by Dave Camp (R- Michigan)
• Double taxation for those at high income levels via a 10% surtax on

employee and employer contributions.

• Also a freeze on contribution limits until 2023
• Limits the same for 401k, 403b and 457
• Eliminate SEPs and SIMPLE 401k but not SIMPLE IRA
• No new pre-tax IRA contribs other than rollovers
• Non spouse 5 year payout rule
• No 6 month penalty for hardship
• 10% for early withdrawal applies to governmental plans
• Loan repayments after term or plan term extended

Retirement Security Act of 2014

• Introduced by Collins (R- Maine) AND Nelson (D- FL)
• Allow easier reporting for MEPs without a “nexus” for

companies with less than 500 EEs

• Allow MEPs to remain qualified even with a “bad apple”
• Allow Auto Enroll QACAs to set limit higher than 10%
• Businesses with less than 100 EEs would get a tax credit equal to

the extra match due to increased deferral limits

• Low income tax credit would be allowed for 1040EZ filers

USA Accounts

• Introduced by Harkin –Democratic Senator –

Iowa

• Universal, Secure and Adaptable = USA
• Think workplace IRA for those without a plan that

pays out in an annuity – pooled professional management

• Key differentiator in the employer mandate and

not optional

USA Accounts

• Other Provisions:
• New safe harbor for selection of annuities (an “annuity

administrator”)

• DB funding relief as proposed by ASPPA
• MEPs for companies with no common interest but only if joining

after January 1, 2014

• Also simplified audit requirements if less than 1000 participants in

total

Hatch Bill (S.1270) - SAFE

• Introduces a starter 401(k)
• SIMPLE plans can be replaced by a 401(k) mid-year
• No TH contribution for part-time workers
• Increase minimum and maximum auto enroll rates

(QACA)

• Adopt plan by due date of tax return (after PYE)
• Many other items that would increase coverage and

simplify administration

Neal Bill (H.R. 2117)

• Permit rollovers of insurance contracts
• SIMPLE plans can be replaced by a 401(k) mid-year
• No TH contribution for part-time workers
• Increase maximum auto enroll rates (QACA)
• Adopt plan by due date of tax return (after PYE)
• Clarify that forfeitures can fund SH contributions
• Remove barriers for “open” MEPs
• Many other items that would increase coverage and

simplify administration

Other Bills leftover from 2013

• Auto IRA
• Companies more than 10 employees
• Don’t sponsor plan
• “R” Bond concept
• Increase coverage

Other Bills leftover from 2013

• Lifetime Income Disclosure
• 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 2013 by Senators Murphy and Isakson

Other Bills leftover from 2013

• Shrinking Emergency Account Losses in

401(k) Savings Act of 2013 - SEAL

• Eliminate 6 month suspension after a hardship

withdrawal is taken

• Allow loan repayments to IRA after termination

On the DB side of things

• PBGC premiums going up
• But watch out – some on Capitol Hill are

proposing further premium increases

State Activity

• Several states are getting or want to get into the

retirement administration business

• Massachusetts – small non-profit deferral plans
• California – SB 1234 State based for companies with more than 5

employees who do not offer a plan – passed in August, 2012 – needs to be implemented

• Other states (Illinois, Maryland, Maine, Connecticut) looking at this

model

• Indiana is looking at a State run MEP concept

State Activity – Mass. Inquiry

• State of Mass. Secretary of State William Galvin
• Match shifting from payroll to annual
• Reaction to AOL
• Others that do this – IBM, Deutche Bank,

Charles Schwab (industry data says 8%)

• He wanted to know – Employers, # of

Employees, Date of change and see disclosures

• Sent to 25 firms (only some were record

keepers)

IRS Activity

Roth Conversions

• IRS Notice 2013-74
• Amend by last day of 2014 or last day of first plan year effective if

later

• Only vested amounts
• Retain distribution restrictions
• Start 5 year clock upon conversion
• Could present opportunities for participant education
• Tax diversification
• Converting after-tax contributions
• How to design plan options

IRS Activity

The Windsor Case - DOMA

• Qualified Plan Issues – just to get started
• HCE and Key EE Definition
• Distributions and RMDs
• Beneficiary Forms
• QDROs
• Guidance Needed
• Retroactive protection
• Plan Document Amendment

Windsor Background

The Windsor Case - DOMA

• June 2013 – Supreme Court strikes down Section 3 of

DOMA

• Marriage between man and woman
• Does not strike Section 2 (full faith and credit)
• States define marriage

IRS Rev. Rul. 2013-17

The Windsor Case - DOMA

• State of celebration counts in determining marriage for

FEDERAL tax purposes

• Effective September 16, 2013
• Retroactive application to federal tax filings for open

years (voluntary)

Windsor may affect the following in plans

The Windsor Case - DOMA

• Stock attribution (HCE, Key, Control and affiliated

groups)

• Spousal consent on payouts
• Loan consents
• Hardship rules (medical, funeral, education)
• Death benefit payouts
• RMD calculations
• Maybe more

Windsor – waiting for….

The Windsor Case - DOMA

• Will it apply retroactively
• If so, what are corrections for past practices
• Timing of plan amendments

Windsor – DoL guidance

Technical Release – 2013-04

• State of celebration (same as IRS)
• Civil unions and domestic partnerships do NOT qualify as

marriage for federal purposes

IRS – Still waiting for

Qualified Longevity Annuity Contracts – QLACs

• Need Final Regulations
• Annuity that kicks in at age 85
• Lesser of $100,000 or 25% of account balance

IRS – Safe Harbor relief

Terminating SH mid-year

• Eliminate Substantial Business loss
• Now only Business operating at a loss during year
• Add language to beginning of year notice that SH may be

terminated

• 2014 for nonelective
• 2015 for both nonelective and match

DoL Issues

Prohibited Persons Project

• Announced in February
• Program will track individuals with a history of misconduct
• Plan sponsors will be able to be aware of history

DoL Issues

• Retirement Readiness
• DoL Benefit Statement Initiative Advanced Notice of Proposed

Rule – May 2013

• Show Account Balance (and Vested Account Balance)
• Assume lifetime payments at NRD began with no additional

accumulations of earnings or contributions

• Project Account Balance:
• 3% increase in contributions per year
• 7% earnings per year
• 3% Inflation
• Calculate lifetime payments based on Projected Account Balance

DoL Issues

• QDIA and Target Date funds Proposed Regulations

(waiting for Final)

• Require:
• Additional Disclosures
• Clearer labeling of funds
• Clearer marketing material
• Funds are not guaranteed and can lose value
• DoL Website – publication for employers on selecting

TDFs (including Proprietary/non-proprietary discussion)

DoL Issues

• DoL announced it will reintroduce Investment Manager

Fiduciary Regulations – August???

• Number One priority of DoL
• 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???
• Note: Marketing of Fiduciary Services and solutions are in

market place NOW

DoL Additional Issues

Fee Disclosure

• Participant – extended deadline (18 months from initial or

can use a 6 month in 2014)

• Service provider Roadmap or Index
• RFI for Self-Directed Brokerage Accounts

Fee Disclosure Lawsuit

Novant Health, Inc.

• Participant law suit against advisor and record keeper
• Plan has 25,000 participants and grew from $642 million

to $1.42 billion from 2008 - 2012

• Record Keeper
• Fees went from $200,000 to $2.4 Million with no new services
• Advisor
• Fees went from $900,000 to $6 Million
• There are real estate relationships between Novant and advisor
• Advisor gave a charitable gift of $5 Million to Novant

Questions

I will be happy to answer any questions on Legislative or Regulatory issues.

Thank You.