General Session: What s What in Washington. Bob Kaplan, APA, CFP, CPC, QPA, Vice President, National Training Consultant, ING US

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1 General Session: What s What in Washington Bob Kaplan, APA, CFP, CPC, QPA, Vice President, National Training Consultant, ING US

2 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.

3 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

4 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.

5 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 obligations. Plan Administrative services are provided by ILIAC or ING Institutional Plan Services, LLC ( IIPS ). Nothing herein constitutes an offer for sale, or solicitation of 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

6 Washington Update This material highlights key issues of legislative initiatives. Currently lawmakers and industry organizations 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.

7 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

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

9 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

10 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 outstanding loan

11 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)

12 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

13 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

14 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

15 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

16 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

17 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

18 Other Bills leftover from 2013 Auto IRA Companies more than 10 employees Don t sponsor plan R Bond concept Increase coverage

19 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

20 Other Bills leftover from 2013 Shrinking Emergency Account Losses in 401(k) Savings Act of SEAL - Eliminate 6 month suspension after a hardship withdrawal is taken - Allow loan repayments to IRA after termination

21 On the DB side of things PBGC premiums going up But watch out some on Capitol Hill are proposing further premium increases

22 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

23 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)

24 IRS Activity Roth Conversions IRS Notice 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

25 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

26 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

27 IRS Rev. Rul 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)

28 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

29 Windsor waiting for. The Windsor Case - DOMA Will it apply retroactively If so, what are corrections for past practices Timing of plan amendments

30 Windsor DoL guidance Technical Release State of celebration (same as IRS) Civil unions and domestic partnerships do NOT qualify as marriage for federal purposes

31 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

32 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

33 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

34 DoL Issues Retirement Readiness DoL Benefit Statement Initiative Advanced Notice of Proposed Rule May Show Account Balance (and Vested Account Balance) - Assume lifetime payments at NRD began with no additional accumulations of earnings or contributions - Project Account Balance: o 3% increase in contributions per year o 7% earnings per year o 3% Inflation - Calculate lifetime payments based on Projected Account Balance

35 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)

36 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

37 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

38 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 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

39 Questions I will be happy to answer any questions on Legislative or Regulatory issues. Thank You.