Nevin E. Adams, JD Chief of Communications, ASPPA/NAPA

Washington Update:

Bipartisan Concerns About

• Retirement Savings

• Leakage (rollovers)

• Coverage

Retirement Security is What Americans Worry

About Most

Financial Concerns 18-29 30-49 50-64 65+

Not enough money for retirement 50% 70% 68% 37%

Not paying for children’s college 46% 55% 23% 8%

Not affording serious medical 52% 54% 58% 43%

Not paying off debt 47% 45% 42% 20%

Not maintaining living standard 52% 44% 52% 41%

Not paying normal healthcare 35% 37% 46% 33%

Not paying normal monthly bills 40% 33% 38% 29%

Not paying rent or mortgage 40% 30% 31% 20%

Not paying credit card minimums 14% 17% 18% 15%

3 * Gallup, Economy and Personal Finance Survey, ranked by 30-49 year olds (April 2014)

Total Savings and Investments

2012 2013 2014 2014

Has Ret Plan

2014 No Ret

Plan

< $1,000 30% 28% 36% 11% 73%

$1,000-$9,999 18% 18% 16% 17% 16%

$10,000-$24,999 12% 11% 8% 10% 5%

$25,000-$49,999 10% 9% 9% 14% 2%

$50,000-$99,999 10% 10% 9% 14% <0.5%

$100,000-$249,999 11% 12% 11% 16% 2%

> $250,000 10% 12% 11% 17% 1%

*EBRI, The 2014 Retirement Confidence Survey, Confidence Rebounds

– For Those With Retirement Plans (Mar 2014)

Total Savings and Investments

2012 2013 2014 2014

Has Ret Plan

2014 No Ret

Plan

< $1,000 30% 28% 36% 11% 73%

$1,000-$9,999 18% 18% 16% 17% 16%

$10,000-$24,999 12% 11% 8% 10% 5%

$25,000-$49,999 10% 9% 9% 14% 2%

$50,000-$99,999 10% 10% 9% 14% <0.5%

$100,000-$249,999 11% 12% 11% 16% 2%

> $250,000 10% 12% 11% 17% 1%

*EBRI, The 2014 Retirement Confidence Survey, Confidence Rebounds

– For Those With Retirement Plans (Mar 2014)

Total Savings and Investments

2012 2013 2014 2014

Has Ret Plan

2014 No Ret

Plan

< $1,000 30% 28% 36% 11% 73%

$1,000-$9,999 18% 18% 16% 17% 16%

$10,000-$24,999 12% 11% 8% 10% 5%

$25,000-$49,999 10% 9% 9% 14% 2%

$50,000-$99,999 10% 10% 9% 14% <0.5%

$100,000-$249,999 11% 12% 11% 16% 2%

> $250,000 10% 12% 11% 17% 1%

*EBRI, The 2014 Retirement Confidence Survey, Confidence Rebounds

– For Those With Retirement Plans (Mar 2014)

Source: Congressional Budget Office, December 2013

Coverage Challenge

…middle class workers are 15 times more likely to save for their families’ retirement at work than on their own….

Over 20 million private sector workers earning between $30K-$100K

do not have access to a retirement plan at work.

Federal Response

• President Obama’s MyRA Proposal “I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It's a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in.” - President Obama, State of the Union, January 28, 2014

• Senator Marco Rubio’s TSP Proposal “That is why I propose we give Americans who do not have access to an employer sponsored plan the option of enrolling in the federal Thrift Savings Plan. Opening Congress' retirement plan to the American people will allow us to bring the prospect of a secure, comfortable and independent retirement into reach of millions of people.” - Senator Marco Rubio, National Press Club, May 13, 2014

States with Retirement Proposals for

Private Sector Employers

Elements of State Proposals

1) Require private employers over a certain size to offer a retirement plan for their employees

2) Create a state-run retirement plan for private employers to fulfill the requirement

Elements of State-Run Plans

• No cost for the employer a) Employers will not be required to contribute to the

plan b) Employers will not have to pay any administrative

expenses

• Institutional pricing on investments

• Guaranteed return options are available

• Exempt from ERISA (DOL Interpretive Bulletin 99-1 lays out how this can be accomplished for payroll deduction IRAs)

• “…if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little or nothing for middle-class Americans” – President Obama, 2014 State of the Union Address

• $3 Million Cap on Retirement Savings

• Double Taxation on Deferrals

Attacks on Retirement System

Top Ten Tax Expenditures • Exclusion for employer provided health insurance - $785.1 billion

• Cap gains & dividend tax preference - $632.8 billion

• Home mortgage interest deduction - $405.2 billion

• Defined contribution plans - $399 billion

• Earned income credit - $352 billion

• Health insurance exchange subsidies - $318.1 billion

• State and local tax deduction - $316.4 billion

• Child tax credit - $285.5 billion

• Defined benefit plans - $248.5 billion

• Exclusion of untaxed social security and railroad retirement benefits - $209.1 billion

Source: The Joint Committee on Taxation - https://www.jct.gov/publications.html

Note: Dollar figures are the total amount of the expenditure over a period of five years (from 2014-2018).

• Double Taxation on DC Plan Contributions

• 10-Year Freeze on COLA Limit Increases

• Roth Only Above 50% of 401(k) Limit

Camp Tax Reform Proposal

Coming “Attractions?” • “Take a look at the state

of retirement savings in the U.S., and it’s clear that something is out of whack….”

• "Retirement savings are going to be a focus in bipartisan tax reform."

Legislative Front

SAFE Act of 2013

• On July 9, 2013, Senator Orrin Hatch (R-Utah), ranking member on the Senate Finance Committee, introduced the Secure Annuities for Employee Retirement (“SAFE”) Act of 2013 (S. 1270).

• The bill is divided into 3 Titles: – Public Pension Reform – Private Pension Reform – Individual Retirement Investment Advice

Reform

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• The Act proposes a new “Starter 401(k)” in the form of a deferral-only safe harbor plan. – Elective deferrals only, no other contributions. – Employer must not have had any other qualified plan

during the plan year of initial adoption. – Mandatory auto enrollment of between 3%-15%. – Maximum contribution of $8,000 (other than catch-

up). – Normal catch-up limits for those eligible. – Exempt from top-heavy requirements. – No Form 5500 required.

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SAFE Act of 2013

SAFE Act of 2013

• “Secure Deferral Arrangement” - new 401(k) automatic enrollment safe harbor alternative.

– Auto enrollment % would begin between 6%-10%, rise to at least 8% in the second year and go to at least 10% thereafter.

– NHCE matching contributions required equal to 50% on the first 2% of pay plus 30% match on deferrals between 2% and 10% of pay (for a maximum of 3.4%).

– Exempt from top-heavy and ADP/ACP testing.

– Tax credit equal to 10% of the NHCEs’ contributions, to a max of $10,000 per year for the first 3 years.

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Regulatory Agendas

Definition of Fiduciary

“…workers contemplating investing through an IRA (401k) should be able to trust their advisers and rely on the impartiality of their investment advice.”

- Phyllis Borzi

Phyllis Borzi, Department of Labor

Assistant Secretary for Employee Benefits Security

Definition of Fiduciary

• Impact on IRAs

• Impact on Rollovers

– Possible Restriction on Current Advisors/Providers

• Impact on 401(k) Plans

– Consistent with Market Trends

– Challenge for Small Plan Distribution

• Impact of SEC RFI

– Coordination with DOL

GAO Report (March 2013) • 401(k) Plans: Labor and IRS Could Improve the

Rollover Process for Participants

• The current process favors rollovers to IRAs

• “The opportunity for service providers to sell

participants their own retail investment products

and services, such as IRAs, may create an

incentive for service providers to steer

participants toward the purchase of such products

and services even when they may not serve the

participants’ best interests”

GAO Report (July 2014) • “401(K) Plans: Improvements Can Be Made to

Better Protect Participants in Managed Accounts”

• Recommended that the Department of Labor

(DoL) consider fiduciary roles for managed

account providers, require disclosure of

performance and benchmarking information to

plan sponsors and participants, and provide

guidance to help sponsors better select and

oversee managed account providers.

FINRA Reg. Notice 2013-45

• “Reminds” broker-dealers of their responsibilities concerning IRA rollovers

• “Any recommendation to sell, purchase or hold securities must be suitable for the customer and the information that investors receive must be fair, balanced and not misleading”

SEC 2014 Exam Priorities • SEC’s National Examination Program 2014

exam priorities will include rollovers to IRAs

• When participants take distributions from retirement plans “investment advisers and broker-dealers may have incentives to recommend that the assets be placed with an IRA or other alternative offered by a financial services firm”

What’s Next?

Washington Update: