Critical IRA Issues

1. Critical IRA Issues FIRMA New Orleans, LA April 29, 2009 Lisa J Bleier 202-663-5479 lbleier@aba.com

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

3. New Laws • 2010 Roth Conversions • Charitable Giving IRAs

4. 2010 Roth Conversions • 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.

5. 2010 Roth Conversions • 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 2012.

6. 2010 Roth Conversions • 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. • Roth funds are not subject to RMDs at age 70 ½.

7. Charitable Giving IRAs • H.R. 4213 – not yet signed • Taxpayers over age 70 ½ can exclude distributions from gross income if donated to qualified charities • Legislation extends to December 2010.

8. Presidential & Legislative Proposals • Expansion of SAVER’s Credit • Auto-IRAs (also called Payroll Deduction IRAs)

9. Expansion of SAVER’s Credit • Current law: • a credit of up to $1,000 for singles • Credit rate is 10%, 20%, or 50% depending on AGI

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

11. Auto-IRAs: President’s Proposal • 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

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

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

14. Auto-IRAs: Legislative Proposal • No bills introduced yet this Congress • H.R. 2167, S. 1141 “Automatic IRA Act” from last Congress • Mandates automatic IRAs • Default for an employee who does not enroll

15. 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 • The TSP II Board would determine annual increases for the default amount

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

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

18. 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. • March 20, 2009, DOL delayed the effective date to May 22, 2009 • March 2, 2010, DOL re-proposed

19. New Statutory Exemption • 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

20. Level Fees • Addressed, in part, in FAB 2007-01, which said that the fee leveling requirement applies to the fiduciary adviser and not all of its affiliates

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

22. New Final Regs • 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.”

23. 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…”

24. New Final Regs • 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?

25. Valuation • 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

26. Valuation • Fair value for “alternative investments” • Fair value in “inactive markets”

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

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

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

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

31. Thank you for your time! Lisa J. Bleier Center for Securities, Trusts & Investments American Bankers Association lbleier@aba.com