Policy Outlook: Pressing Regulatory Issues and Advocacy Opportunities

Transcription

1 Policy Outlook: Pressing Regulatory Issues and Advocacy Opportunities Lee Covington Senior Vice President & General Counsel Insured Retirement Institute (IRI)

2 Federal Issues & Opportunities Tax Deferred Treatment of Annuities DOL Fiduciary Definition Rule Increasing Access to In Plan Annuity Options Lifetime Income Disclosure Act & DOL Rulemaking VA Summary Prospectus SEC Standard of Care NARAB II Harkin USA Funds Proposal Senior Financial Protection Initiatives Retirement Plan Electronic Disclosure Federal Insurance Office (FIO) Report and Activities DOL Brokerage Window Field Assistance Bulletin

3 State Issues & Opportunities Contingent Deferred Annuities (CDAs) NAIC Model Annuity Suitability Regulation NAIC Annuity Disclosure/Illustrations Model NAIC Annuity Buyer s Guides NAIC ERISA Retirement Income Working Group NAIC Separate Accounts Working Group Market Conduct Regulation Reform

4 Importance of Tax Deferral Protecting current tax treatment of annuities and other retirement savings is a top priority for IRI All serious discussions about the current tax code have included proposals to eliminate all tax expenditures from the tax code Industry must demonstrate the importance of tax deferral for Americans and their retirement savings

5 IRI Research on Tax Deferral 76% of middle income Baby Boomers consider tax deferral an important feature of a retirement investment product 24% would be less likely to save for retirement if those incentives were reduced or eliminated IRI will continue to stress the importance of tax deferral while maintaining an aggressive advocacy campaign

6 Impact of Fiscal Fights Fiscal cliff is in the past, deficit and debt remain Fiscal battles in Washington will continue Always a potential threat to tax deferred status of annuities and other retirement savings

7 DOL Fiduciary Definition Rule The DOL initially proposed a new definition of fiduciary, which would lead to: Increased costs and complexity Less choice for retirement plans and IRAs Increased confusion for service providers 98% of retirement savers with less than $25,000 in IRAs rely on broker dealers Oliver Wyman Study 1 million fewer IRAs established each year 18 million small IRA investors would lose access to their financial professional $240 B in retirement savings lost over the next 20 years Small businesses could stop setting up new 401k plans BDs may not alter their current business model to better accommodate small medium investors

8 DOL Fiduciary Definition Rule Modified proposal expected during the next few months IRI proposed guiding question: How does this help address the retirement security challenges that we face as a nation? Hundreds of letters have been sent to the Administration by our members, and IRI intends to continue this grassroots effort

9 Increasing In Plan Options The President s Middle Class Task Force recommended: Promoting the availability of annuities and other forms of guaranteed lifetime income, which transform savings into guaranteed future income, reducing the risks that retirees will outlive their savings or that their retirees living standards will be eroded by investment losses or inflation.

10 Increasing In Plan Options Treasury/DOL initiative to make lifetime income options more broadly available in retirement plans Treasury s Rule Proposal (2012) Permits Partial Annuitization Allowing of combination options that avoid an allor nothing choice, such as the option to take a portion of an individual s plan benefit as a stream of regular monthly income payable for life Addresses RMD for Longevity Annuities: Enabling use of longevity annuities which permit employees to use a limited portion of their account balance for retirement income beginning at age 80 or 85 by allowing a portion of the account value to be excluded for RMD purposes. Clarifies treatment of lump sum cash payment to DB Plans: Making clear that employees can transfer some or all of 401(k) lump sums to the employer s defined benefit pension plan in order to receive an annuity from that plan; and Clarifies Spousal Protection Rules: Resolving uncertainty as to how the 401(k) plan spousal protection rules apply when employees choose deferred annuities (including longevity annuities) from their plans.

11 Increasing In Plan Options Lifetime Income Disclosure Act (S.276 and H.R.677) / DOL Advanced Notice of Rulemaking (2013) Current account balance; Current account balance converted to an estimated lifetime income stream of payments assuming the participant or beneficiary has reached normal retirement age as of the date of the benefit statement; For participants who have not yet reached normal retirement age, projected account balance based on future contributions and investment returns through normal retirement age; Projected account balance converted to an estimated lifetime stream of payments assuming the participant retires at normal retirement age; Understandable explanation of the assumptions behind the lifetime income stream illustrations, and Statement that the illustrations are estimates and not guarantees.

12 Increasing In Plan Options Selection and Monitoring of Annuity Providers Fiduciary concerns are the most significant obstacle to more widespread inclusion IRI working with DOL and NAIC to provide clarity to plan sponsors

13 VA Summary Prospectus IRI first proposed the VA summary prospectus in December 2008 SEC staff first took up the project a year later after Chairman Schapiro indicated her public support for the proposal

14 VA Summary Prospectus IRI worked with the SEC for two years on multiple drafts Developed VA summary prospectus and annual update proof of concepts Determined the information that should be included in each All the work necessary to move the proposed rule forward has been completed and public supports a summary prospectus Norm Champ, SEC Investment Management Director SEC Financial Literacy Study showing positives reactions to mutual fund summary provides optimism that a variable annuity summary prospectus, if designed and implemented effectively, could provide better disclosure for investors in your products. We are committed to making improvements in the important area of helping variable annuity investors to make informed investment decisions. Investors in variable annuities deserve our best efforts on this important initiative. Listed VA summary prospectus after 3 other priority initiatives

15 IRI VA Summary Research High demand for an easy to read variable annuity investment detail 95% of investors would prefer to receive a shorter VA summary prospectus 6 in 10 respondents stated having a short summary prospectus would make them more likely to consider a variable annuity as part of their investment portfolio or to discuss it with their financial advisor Most (72%) never or rarely read the prospectus 90% never or rarely use the prospectus to answer questions about their variable annuity after purchase Save member companies in excess of $1 million dollars in costs annually and give consumers summary information they need

16 SEC Standard of Care Dodd Frank directed SEC staff study found need for new standard of care for financial professionals providing financial advice IRI Comment Letter Importance of a proposed standard that will appropriately apply given the nature of rendered services Not a one size fits all approach Limited product offerings or proprietary products Disclosure based regulation versus fiduciary nomenclature SEC 2013 Request for Information Detailed cost benefit questions Fiduciary standard acting in best interests Duty of loyalty (disclosure) and duty of care (suitability) Other alternatives

17 IRI Regulatory Burdens Study IRI commissioned research to identify obstacles that impede broker dealers ability and financial advisors willingness to sell lifetime income products

18 IRI Regulatory Burdens Study Results identified four major areas of concerns: Multi state licensing and appointments State annuity training and CE compliance Suitability and other sales practices regulations Inconsistent, voluminous, redundant and complex maze of rules and forms (e.g. application forms)

19 IRI Regulatory Burdens Study State insurance regulatory system creates both hard and soft costs not associated with the sale of securities. Personnel costs (e.g. 25 people versus 5 people); Annuity training; Multi state licensing fees; and Delays in processing due to NIGO transactions. Inconsistent state laws are compounded by unavoidable, yet burdensome, inconsistent interpretations by insurers.

20 NARAB II National Association of Registered Agents and Brokers Reform Act (NARAB II) was reintroduced in both chambers of Congress in March 2013 NARAB II would establish a one stop, federal licensing clearinghouse for financial professionals and broker dealer agencies holding licenses in multiple states

21 Harkin USA Retirement Funds 8 hearings on retirement savings issues Employer mandate Multi employer plan model Independent fund boards Shift fiduciary duties to fund boards Many questions about details

22 Senior Financial Protection IRI has worked closely with the Consumer Financial Protection Bureau on many issues, including their recent RFI regarding senior financial exploitation IRI recognizes the importance of senior financial literacy efforts and current regulations aiding protection against senior financial exploitation CFPR issued report calling on state and federal regulators to: Develop rigorous training standards and criteria for acquiring such senior designations such as qualifying prerequisites, education, training and accreditation. Set minimum standards for the conduct of senior designation holders, and increase enforcement of existing laws and supervision of senior designees

23 Retirement Plan E Disclosure DOL s for Technical Release Governs the use of paper and electronic delivery of required information under the ERISA Does not provide meaningful incentives or make it more feasible to use electronic media IRI supports establishment of rules fostering adoption of electronic disclosures by eliminating liability risks and authorizing all ERISA disclosures to be made in an electronic manner with an opt out option to receive paper disclosures

24 Federal Insurance Office (FIO) Charged with monitoring all aspects of insurance industry and developing reports recommending changes to the current insurance regulatory system IRI Comment Letter FIO should focus on the regulatory environment in the context of the current state of retirementsavings readiness and the need for consumers to insure against risk of outliving their assets 8 major recommendations to FIO

25 DOL Field Assistance Bulletin (FAB) IRI expressed concerns about the DOL s FAB, which included new rules issued outside the federal rulemaking process In an attempt to clarify new defined contribution fee disclosure rules, FAB actually created a new duty that had not previously existed The DOL has since withdrawn the FAB due to the efforts of IRI and its sister trade associations

26 Contingent Deferred Annuities NAIC Life Insurance Committee determined CDAs should be classified as annuities (March 2012) U.S. Government Accountability Office Report: CDAs can help older Americans ensure they do not outlive their assets NAIC CDA WG Report (April 2013) Referral of capital and reserving requirements to appropriate NAIC groups Development of risk management checklist to be used by states when reviewing filings NAIC models currently apply to CDAs and revisions to NAIC models to specifically reference or exempt CDAs

27 Other State Issues NAIC Model Annuity Suitability Regulation NAIC Annuity Disclosure/Illustrations Model Law NAIC Annuity Buyer s Guides NAIC ERISA Retirement Income Working Group NAIC Separate Accounts Review Market Conduct Regulation Reform Producer Licensing Uniform Examination Outline

28 IRI Members Only Website

29 QUESTIONS?