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IRAs


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[Opinion] Conflicted Interpretations Arising from DOL Final Fiduciary Rule
"Was it the DOL's intent to provide incentives for you to apply your AUM fees to a client's cash accounts, so you could comply with the new regs? Do you think the DOL believes you should give up your investment judgment and simply recommend whatever happens to be on the Morningstar list of least expensive options? Don't you think the BICE exemptions were purely and simply an accommodation to product manufacturers who were selling investments that would otherwise be hard to justify as a fiduciary recommendation?" (Bob Veres in Inside Information)
Tips for Drafting Best Interest Contracts Under DOL Rule (PDF)
"In the BIC contract or in a separate single written disclosure provided with the contract, the [financial institution (FI)] must clearly and prominently make certain disclosures. The content of the disclosures will be subject to customization to the FI's particular circumstances. As they apply to IRAs, a few of the disclosures are redundant to other contract terms. So long as the required information is provided clearly and prominently, a single disclosure of particular information is sufficient." (Sutherland Asbill & Brennan LLP)
Planning Opportunities for Non-Spouse Beneficiaries of Inherited Retirement Accounts
"[T]he rules permitting a transfer from an inherited employer retirement plan to an inherited IRA also allow the assets to be shifted to an inherited Roth IRA, effectively giving the beneficiary the option of doing a Roth conversion even after the death of the original account owner. This is a strategy uniquely available to beneficiaries of inherited employer retirement plans, as an inherited IRA may not be converted to a Roth. The caveat, however, is that ... since an inherited Roth IRA (after conversion) still has required minimum distribution obligations, it will usually be preferable to convert any other type of pre-tax retirement account first!" (Michael Kitces in Nerd's Eye View)
[Guidance Overview] Interesting Angles on the DOL's Fiduciary Rule, Part 11
"While the concept of reasonable compensation is old-hat for advisers and service providers to ERISA qualified retirement plans, it has not, by and large, been used in the IRA world.... The DOL explained the concept in a preamble ... 'reasonableness' is defined by free market practices ... in a market where the costs and compensation are transparent and, therefore, where the market is truly competitive.... Benchmarking is on its way to IRAs." (FredReish.com)
Retirement Assets Total $24.1 Trillion in First Quarter 2016
"Assets in [IRAs] totaled $7.4 trillion at the end of the first quarter of 2016, an increase of 1.0 percent from the end of the fourth quarter of 2015. [DC] plan assets rose 1.7 percent in the first quarter of 2016 to $6.8 trillion. Government [DB] plans -- including federal, state, and local government plans -- held $5.1 trillion in assets as of the end of March, a 0.8 percent decrease from the end of December. Private-sector DB plans held $2.8 trillion in assets at the end of the first quarter of 2016, and annuity reserves outside of retirement accounts accounted for another $2.0 trillion." (Investment Company Institute [ICI])
[Guidance Overview] The New Fiduciary Regs: A Practical Review, Part 2 (PDF)
"It is clear from the Preamble to the exemption, as well as the exemption terms themselves, that the DOL is trying to structure an environment where the participant remains protected and the advisor acts in the participant's best interests. The DOL approaches this in two ways: on the one hand, forcing the fiduciary to behave within constraints, and on the other, giving a disappointed participant access to litigation as an enforcement mechanism." [Also see Supplement: Best Interest Contract Exemption.] (Ferenczy Benefits Law Center LLP)
[Guidance Overview] The Cold Comfort of the Best Interest Contract Exemption
10 pages. "[T]he BIC Exemption comes at a steep price, imposing extensive compliance costs in the form of new disclosure requirements, as well as new policies and procedures requirements ... The exemption also substantially increases litigation risk by providing IRA and other retirement plan investors ... a new private enforcement right against financial advisers." (Latham & Watkins)
[Guidance Overview] DOL Issues Final Investment Advice Fiduciary Rules (PDF)
16 pages. "Sponsors and fiduciaries of ERISA-governed plans who wish to retain an investment advice fiduciary to advise participants ... need to carefully review the agreements under which those services will be performed to determine if the compensation arrangements or other potential conflicts of interest require reliance on the 'best interest contract' exemption. If so, then the plan fiduciaries would need to determine if the contract or other disclosures provided by the fiduciary meet the requirements of the exemption and to monitor the investment adviser's compliance with the exemption going forward." (Pillsbury Winthrop Shaw Pittman LLP)
Interesting Angles on the DOL's Fiduciary Rule, Part 10
"FINRA issued its Regulatory Notice 13-45 in late 2013. As that notice explained, distribution recommendations are investment recommendations (and thus, in the case of FINRA, are subject to the suitability standard), but distribution education is not an investment recommendation.... [M]any RIA firms and broker-dealers adopted a distributions education approach using 13-45 as the model. While the DOL agrees that distribution education is not a fiduciary recommendation, it does not agree that 13-45 is a safe harbor:" (FredReish.com)
[Opinion] The Impact of the New Fiduciary Rule on Investors
"[It's] a big retooling for ... been insurance companies, broker-dealers, who now have this different standard to which they are going to be held.... [We're] frankly in a little bit of an awkward regulatory environment because [an investor] could actually work with an advisor who has different regulatory requirements about how good the advice has to be for my IRA account versus my taxable brokerage account, at the same firm with the same advisor.... [That's not] tenable in the long run." (Morningstar)
[Guidance Overview] What Does the DOL Fiduciary Regulatory Package Really Mean for Advisors?
11 pages. "[F]iduciary status does not apply retroactively, so what will that mean for your existing business? ... [D]istribution model structures for making investment recommendations to small-plan sponsors can take on a variety of new forms. What should you consider? ... [W]hat's a reasonable fee? How to best work with other fiduciaries, wholesalers and service providers ...[W]hat should you consider when making investment recommendations?" (Groom Law Group, for Principal Financial Group)
Under New Fiduciary Rule, DOL Has Reason to Pay Attention to Reverse Churning
"[The DOL's] 1,000-plus page fiduciary rule makes only one obscure reference to 'reverse churning.' ... The SEC and Finra have had this regulatory matter on their radar for years.... In a nutshell, reverse churning occurs when an adviser places client assets in an advisory account, charges an ongoing management fee, and gets paid for doing little or nothing thereafter." (InvestmentNews)
Fiduciary Rule's Impact on IRAs Should Be No Surprise (PDF)
"Both ERISA-governed plans and IRAs have been governed by the same fiduciary investment advice for decades. Considering the DOL has since been given rulemaking authority over Code section 4975, it should come as no surprise that IRAs are subject to the same recently issued final rule that also applies to ERISA governed employer retirement plans." (Ascensus)
[Guidance Overview] How to Comply With DOL's Best Interest Standard of Care
"[M]any advisors don't understand how the best interest standard of care will impact their advice to IRAs ... [T]he best interest standard of care duties [can be divided] into two categories: macro and micro. The macro requirement is that the investment products be generally prudent for retirement investors. The micro requirement is that the recommended combination of investment products and services be prudent for the particular retirement investor." (Fred Reish, in ThinkAdvisor)
Rules to Do an IRA Qualified Charitable Distribution
"[O]btaining the tax benefits for doing a QCD from an IRA to a charity requires meeting very specific requirements, including a minimum age limitation, a maximum dollar amount limitation, and contributing to only certain types of eligible (public) charities ... In addition, there is the most stringent requirement -- though also the easiest to satisfy -- that for an IRA distribution to qualify as a QCD, the check cannot be made payable to the IRA owner and instead must be made payable directly to the charitable entity[.]" (Michael Kitces in Nerd's Eye View)
[Opinion] State-Sponsored Retirement Programs for Small Business Employees: Is Government Action Wise?
"Some of the states that are setting up retirement programs for private company workers have a poor track record as evidenced by underfunded pension plans for municipal staff.... It's not clear ... that individuals will have a better level of consumer protection by being part of a state-run program versus setting up an IRA account directly with a reputable financial institution." (Pension Risk Matters)
Third Legal Challenge to DOL Fiduciary Regulation Filed
"ACLI and NAIFA support responsible and balanced regulations that protect the interests of retirement consumers. But the regulation is neither reasonable nor balanced. It has become clear that it will harm the very people it is meant to help. It will harm retirement savers who now, more than ever, need access to the guaranteed lifetime income products -- personal pensions -- offered by ACLI and NAIFA members[.]" [ACLI, NAIFA et al. v. Perez, No. 16-cv-1530 (N.D. Tex. filed June 8, 2016)] (American Council of Life Insurers [ACLI])
Retirement Health Care Costs and Income Replacement Ratios (PDF)
10 pages. "[C]urrent [income replacement ratios], which do not include unexpected out-of-pocket medical expenses, accurate health care inflation rates, life expectancy projections, and Medicare means-testing surcharges, will likely fail to produce sufficient income for retirees to afford quality health care and maintain the standard of living they have planned for.... [W]hile the health care savings gap will be substantial, it can be managed through modest additional contributions to 401(k) plans, HSAs, Roths, annuities, or other products, such as life insurance." (HealthView)
[Opinion] Fiduciary Rule Advances Investors' Interests
"If they cannot document that they serve investors' interests, broker-dealers, 401(k) plan providers, and other retirement advisors face potential private legal actions, including possible class-action lawsuits. (The DOL lacks the statutory authority to bring enforcement actions against retirement advisors, but it can require that they enter into contracts guaranteeing retirement investors the right to sue their advisors and plan providers.) In the 401(k) space, where plan sponsors have long had fiduciary obligations, similar class-action lawsuits have likely pushed down fees to investors, by giving sponsors an incentive to ensure that they are offering the lowest-cost share class for which they are eligible." (Morningstar Advisor)
NAFA Seeks Preliminary Injunction Against DOL Fiduciary Rule (PDF)
"NAFA ... has filed a federal lawsuit in the D.C. District Court challenging the [DOL]'s new 'fiduciary rule.' The lawsuit seeks a preliminary injunction to stay the rule, which is currently scheduled to become operational in April 2017.... The lawsuit alleges the DOL rule is invalid on grounds that the agency exceeded its authority to regulate IRAs and that it improperly categorizes insurance agents as fiduciaries. The lawsuit further alleges that the rule creates a private right of action, which only Congress can do." (National Association for Fixed Annuities [NAFA])
Statement of DOL Secretary Perez on Legal Challenge to Department's Efforts to Ensure Best Interest Retirement Advice (PDF)
"This rulemaking was one of the most deliberate, open regulatory processes in recent memory.... We heard what stakeholders had to say, thoughtfully considered their comments and made improvements to the rule based on their feedback. The department's Conflict of Interest rule is built upon solid statutory and legal foundations, and we will defend it vigorously." (U.S. Department of Labor [DOL])
Lawsuit Filed to Challenge DOL Fiduciary Rule That Prevents Financial Professionals from Best Serving Retirement Savers
"The [DOL]'s new, 1,023-page rule ... creates sweeping changes to existing regulations that will make saving for retirement more difficult for the very same hardworking American families and individuals it claims to protect.... The rule will shackle Main Street financial advisors with extensive new requirements and constant liability, forcing them to limit the options and guidance they provide to retirement savers.... Advisors servicing small business plans will similarly be left with no choice but to limit or stop servicing the retirement plans offered by those job-creators, significantly reducing the retirement savings options available to their millions of employees. These consequences collectively reinforce that government officials failed to perform an adequate cost-benefit analysis during the rule's development." (U.S. Chamber of Commerce, Financial Services Institute, Financial Services Roundtable, Insured Retirement Institute [IRI], Securities Industry and Financial Markets Association [SIFMA], and four Texas business and financial organizations)
Text of Complaint Filed by Employer and Financial Services Organizations Challenging DOL Fiduciary Rule (PDF)
"The SEC has more than eighty years' experience regulating financial markets and services ... and has been specifically charged by Congress with studying the propriety of adopting a uniform fiduciary standard. The [DOL's] authority, by contrast, is more narrowly prescribed and is generally restricted to employee benefit plans. It possesses neither the expertise nor the authority to regulate financial services in a manner that properly balances the needs of retirement savers and small businesses. Because the [DOL] lacks affirmative authority to regulate financial services outside the context of employee benefit plans, it has sought to promulgate this new regulatory regime through its exemptive authority under ERISA. That is, the Department seeks to convert its authority to lift regulatory burdens into a means to impose them, resulting in the most sweeping change in retirement planning since the adoption of ERISA itself. By doing so, the Department has disregarded the regulatory framework established by Congress, exceeded its authority, and assumed for itself regulatory power that is vested in the SEC in ways that will harm retirement savers." [Chamber of Commerce of the United States of America, et al. v. Perez, No. 3:16-cv-01476-G (N.D. Tex. filed June 1, 2016)] (U.S. District Court for the Northern District of Texas)
Getting Stretch IRA Treatment With an A/B Trust
"[E]ven where the see-through trust rules do allow for the stretch of an inherited IRA, the income tax treatment will often be less favorable than naming beneficiaries outright (due to the compressed trust tax brackets). As a result, anytime an A-B trust is being considered as the beneficiary of an IRA or other retirement account, it's crucial to weigh the non-tax (and potential estate tax) benefits against the likely income tax disadvantages!" (Michael Kitces in Nerd's Eye View)
[Guidance Overview] DOL Rules Target Fiduciary Conflict of Interests
"While the rules discourage abusive activities by avaricious salespeople, they also preclude some appropriate practices and may drive honest advisers out of the market.... [T]he reach of the rule is not limited to investment advisers, plan participants and IRA owners. The rule also may affect plan sponsors and other plan fiduciaries." (Snell & Wilmer)
[Guidance Overview] IRS Issues Final Regs on Allocation of After-Tax Amounts from Roth Accounts
"If disbursements are made from a taxpayer's designated Roth account to the taxpayer and also to the taxpayer's Roth IRA or designated Roth account in a direct rollover, then pre-tax amounts will be allocated first to the direct rollover, rather than being allocated pro rata to each destination. A taxpayer will be able to direct the allocation of pre-tax and after-tax amounts that are included in disbursements from a designated Roth account that are directly rolled over to multiple destinations[.]" (Practical Law Company)
For IRA Investors, a Warning on DOL Fiduciary Rule
"[T]he DOL's 'best interest' rule does indeed represent a substantial 'watering down' of the ERISA standard that covers advice on pension assets, such as 401(k)s, but now doesn't apply to rollovers into IRAs. While the DOL initially sought to close this legal 'loophole,' in the department's willingness to compromise with the securities industry, it has shifted from a strict rules-based approach, with essentially 'no tolerance' for financial conflicts of interest, to a much more lenient 'justify your actions' standard." (ThinkAdvisor)
[Guidance Overview] Simplified 401(k) Roth Rollover Rules Finalized
"The Proposed Rules were just finalized and are effective for distributions on and after January 1, 2016. The final rules do not change the tax treatment of rollovers that were made between September 18, 2014 and January 1, 2016 or the notices provided with respect to those distributions. In fact, the revised notices will be able to continue to be used under the final rules because the proposed changes were adopted substantially without any changes other than clarifying changes." (Winstead PC)
Q&A on the DOL's Fiduciary Rule: Is This Covered?
"HSAs are covered under the new Rule. Are Coverdell IRAs also covered? ... If the SEC comes out with a uniform fiduciary standard, will it trump the DOL ruling? What is the future for taxable accounts and fiduciary advice? ... Will a bank teller's referral of a client to an advisor, and receiving a bonus for doing so, be considered a fiduciary act? ... Under the rule will all retirement investment advisors be ERISA 3(21) fiduciaries with some operating under the BIC exemption?" (fi360)
'Best Interest,' BICE and Class Action Targets, Part 2
"Unless Financial Institutions and their Advisers understand and successfully adapt to the shift from a culture of 'suitability' to the more demanding 'fiduciary/"best interest"/prudence' culture required under the DOL's new fiduciary rule and BICE, the likelihood of successful class actions against them will definitely increase.... [This article addresses] the issue of 401(k) Rollovers and IRAs, variable annuities and equity/fixed index annuities." (The Prudent Investment Adviser Rules)
[Guidance Overview] The DOL's 2016 Final Fiduciary and Conflict of Interest Rule: Why Challenges to the DOL's Authority to Regulate the IRS Will Fail
"Has the [DOL] exceeded its authority by regulating rollovers to, and investments in, [IRAs] and other tax-favored accounts under the Internal Revenue Code that are not subject to regulation under [ERISA]? ... [S]ome commentators expect the financial services industry to seek to overturn these rules in the courts ... Should such a challenge materialize, however, [the authors] are of the view that it would fail -- at least to the extent that the challenge is based on the lack of authority on the part of the [DOL] to regulate IRAs." (Mintz Levin)
'Best Interest,' BICE and Class Action Targets
"[T]here are six areas that will face the most scrutiny and potential class action litigation under the DOL's new fiduciary rule and BICE: [1] Actively managed mutual funds; [2] Closet index funds; [3] Brokerage 'preferred provider' programs; [4] 401(k) rollovers and IRAs accounts; [5] Variable annuities; [5] Equity indexed annuities." (The Prudent Investment Adviser Rules)
[Official Guidance] Text of IRS Final Regs: Removal of Allocation Rule for Disbursements from Designated Roth Accounts to Multiple Destinations
8 pages. "This document contains final regulations eliminating the requirement that each disbursement from a designated Roth account that is directly rolled over to an eligible retirement plan be treated as a separate distribution from any amount paid directly to the employee and therefore separately subject to the rule in section 72(e)(2) ... allocating pretax and after-tax amounts to each distribution. As a result of this change, if disbursements are made from a taxpayer's designated Roth account to the taxpayer and also to the taxpayer's Roth IRA or designated Roth account in a direct rollover, then pretax amounts will be allocated first to the direct rollover, rather than being allocated pro rata to each destination. Also, a taxpayer will be able to direct the allocation of pretax and after-tax amounts that are included in disbursements from a designated Roth account that are directly rolled over to multiple destinations, applying the same allocation rules to distributions from designated Roth accounts that apply to distributions from other types of accounts." (Internal Revenue Service [IRS])
[Guidance Overview] More DOL Final Fiduciary Rule Fallout: Some Potential IRS Pitfalls for IRA Custodians and Trustees
"For IRA custodians and trustees using prototype custodial or trust agreements that have been submitted and approved by the IRS, ... any changes made to prototype agreements are submitted to the IRS for approval ... [B]ecause the prototype IRA custodial and trust agreements have generally not been required to be updated for changes in the law since 2002, the IRS may require any prototypes submitted that have not been updated to be updated for law changes before approval." (Morgan Lewis)
Retirement Funds and Business Start-Ups: Do 'ROBS' Work?
"The IRS zeros in on two primary concerns ... [1] [If] the ROBS 401(k) plan is set up in a way that permits only the business owner to invest his 401(k) plan account in company stock, it may discriminate against any rank and file employees who qualify to participate in the plan.... [2] [T]he new 401(k) plan is prohibited by law from paying more for the shell corporation's stock than the fair value of its business. Is a start-up franchise business, for example, really equal in initial value to the amount of its substantial up front franchise fee and other start-up costs -- before it has generated even one dollar of revenue? Questionable, and remember it's your burden to establish that value in the unfortunate event the IRS comes calling." (Golan & Christie LLP)
The Final Fiduciary Rule: How the Labor Department Brought the Internal Revenue Service Wolf to the RIA Door
"If the DOL writes a rule, is it really a regulation at all if nobody is there to enforce it other than a bunch of freelancing tort lawyers? It's a metaphysical and legal questions that hangs over the [DOL's] imposition of fiduciary responsibility over IRA assets where it has no jurisdiction to mete out justice against financial advisors who put their own interests ahead of clients. It's the [IRS] that oversees Individual Retirement Accounts. So what gives?" (RIABiz)
How Many IRAs Should You Have?
"If you have a Roth IRA and a traditional IRA, they obviously must be in separate accounts. If you own an IRA you established for yourself and an inherited IRA, those cannot be combined. In fact, you cannot combine an IRA you inherited from one decedent with an IRA you inherited from another decedent. If you have a business that contributes to a SEP-IRA, the SEP-IRA must be separate from your other traditional IRAs.... There are three reasons offered for keeping your rollover IRAs 'pure' and uncontaminated by 'regular' contributions -- but only one of those reasons is valid! ... There is an unlimited bankruptcy exemption for (noninherited) rollover IRAs. The exemption for 'contributory' IRAs is very generous but not unlimited." (Natalie Choate, in Morningstar Advisor)
[Guidance Overview] The DOL's 2016 Final Fiduciary and Conflict of Interest Regs: The New Fiduciary Standard
"In a welcome and much needed clarification, the Department also said that a consultant or advisor does not become a fiduciary by advertising investment advice or investment management services or by responding to an RFP.... [An] adviser can recommend that a retirement investor enter into an advisory relationship with the adviser without acting as a fiduciary. When the adviser recommends that the investor pull money out of a plan or invest in a particular fund, however, that advice is given in a fiduciary capacity even if it is part of a marketing pitch or RFP." (Mintz Levin)
[Guidance Overview] Final Fiduciary Rule Creates Implications for Plan Sponsors and Financial Advisers
"The final rule could threaten common arrangements that financial advisers have with ERISA-covered plans and IRAs under ERISA's fiduciary duty rules or under related prohibited transaction rules.... The BICE is available to both plans and IRAs and provides needed relief from the ... prohibited transaction provisions in ERISA that would otherwise apply if a participant is deemed to be a fiduciary." (Porter Wright Morris & Arthur LLP)
[Guidance Overview] The DOL's New Fiduciary Rule: The Thin Line Between Education and Advice (PDF)
"The line between investment education and investment advice will pose special challenges for broker and plan-specific call centers, where call center personnel have been specifically trained to know the details of a plan's investment options and the products and services available by the provider. This may result in separate call centers dedicated to IRA customers that provide less information about investment options than to retail customers generally." (Shearman & Sterling LLP)
[Guidance Overview] SEC Extends Rule 482 Relief to Non-ERISA Retirement Plans
"[T]he SEC staff issued a no-action letter in late 2011 under which it agreed, for ERISA plans, to treat the DOL-required disclosures as if they satisfied the conditions of Rule 482. The SEC staff's February 18 letter extends that position to cover provision of the same disclosures required by the DOL rule to participants and beneficiaries in plans that are not subject to ERISA, thus permitting reliance on Rule 482 for such disclosures." (Carlton Fields)
Q&A on the DOL's Fiduciary Rule: BICE & PTEs
"[If] a new person is enrolled in an existing SIMPLE IRA or 403b after the rule is implemented, is BICE required for the new person that comes into the plan? ... With respect to the contract requirements for IRAs and non-ERISA plans under BICE, what content requirements are there? Or, are we creating the content of the contract as we go along? ... If specific funds are being used within the core menu of investment options available, will this be deemed education? ... For the sellers carve-out, is providing a disclaimer in marketing materials and/or account opening documents that the firm is not a fiduciary sufficient? ... How does BICE dovetail -- or not -- with the eligible investment advice provisions of the Pension Protection Act of 2006?" (fi360)
[Opinion] The DOL's Fiduciary Rule: Better Late Than Never
"This change clearly is a victory for investors. Roughly half of retail U.S. mutual fund assets will be protected by the new, higher standards. They will not prevent bad advice, of course, nor trades from lower- to higher-cost funds. But they do command that all advice, whether successful or not, be offered in good faith, and that the rationale for all trades, whether into cheaper or pricier funds, be recorded. Such precautions will inevitably lead to better overall outcomes.... What is less clear is that it is also a victory for financial advisors." (Morningstar)
[Guidance Overview] The DOL's New Fiduciary Rule: The Details on Disclosure (PDF)
"[T]he final [DOL] fiduciary rule provides for two new prohibited transaction exemptions ... Financial institutions seeking to rely on these exemptions must make detailed disclosures to their retail clients, the [DOL] and the general public.... [A 5-page chart] describes the different disclosure requirements applicable under each of the BIC Exemption and the PT Exemption." (Shearman & Sterling LLP)
Independent Agents to Suffer Under DOL Rule
"A significant population of insurance agents are not affiliated with a financial institution 'and these independent agencies are seemingly disenfranchised by the rule, absent some future relief from the DOL,' [Alain Karaoglan, of Voya Financial] said. He also said that 60 percent of Voya's sales are conducted through financial institutions and 85 percent of sales are conducted through registered representatives. Those distributors, if they need to affiliate with a financial institution, 'will be able to do so.' Under the new rule, the insurance company or the broker/dealer, not the individual agent, bears the responsibility for assuring fiduciary conduct." (InsuranceNewsNet.com)
[Guidance Overview] The Final Fiduciary Rule: A Plan Sponsor's Perspective (PDF)
"The Fiduciary Rule largely allows employers to continue to provide plan information and educational materials to participants without taking on additional fiduciary responsibility.... Plan sponsors should expect to see material changes to both the procurement process (e.g., RFPs) and their ongoing relationship with service providers." (Groom Law Group)
[Guidance Overview] DOL's Fiduciary Rule Means Financial Advisers Must Consider Changes to Business Models
11 pages. "Financial services companies will need to reassess practices that historically would not have created a fiduciary relationship, and determine the impact on their business models.... [T]his reassessment will need to include everything from what is commonly considered the provision of investment advice, to the marketing and educational materials, and even call center protocols.... [T]he compliance cost will drive many retirement accounts that previously were serviced under a commission structure into a fee-based advisory account structure." (Latham & Watkins)
[Guidance Overview] Traditional and Roth IRAs: A Primer (PDF)
21 pages. "This report explains the eligibility requirements, contribution limits, tax deductibility of contributions, rules for withdrawing funds from the accounts, and provides data on the account holdings. It also describes the Saver's Credit and provisions enacted after the Gulf of Mexico hurricanes in 2005 and the Midwestern storms in 2008 to exempt distributions to those affected by the disasters from the 10% early withdrawal penalty." [Report No. RL34397, dated Apr. 27, 2016.] (Congressional Research Service [CRS])
The Fiduciary Rule Odyssey: Phyllis Borzi at the Helm
"Standing at the center of that narrative is a woman with a hard-shell concept of right and wrong and who was beat back by those who didn't see the black-and-white nature of her ideal. After patching up the battle scars from an early defeat, she regrouped with a powerful duo and conceded to the reality of gray, in one last drive to change the financial advice business forever." (InvestmentNews)
First Quarter Retirement Savings Analysis: Account Balances Lower, Long-Term Savers See An Increase
"The average 401(k) balance dipped slightly at the end of Q1 and is down roughly five percent from the record high balance at the end of Q1 2015. The average IRA balance also decreased at the end of Q1, and is also down five percent from one year ago.... The average balance for people who have been in their 401(k) continuously for 10 years increased 2 percent year-over-year to $240,700. For long-term savers between the ages of 35-39 -- when, according to Fidelity, individuals should aim to have saved between two to three times their salary in retirement savings -- the average balance was $131,000 at the end of Q1." (Fidelity)
There's Rare Good News on the Retirement Front
"A record 13.6 percent of 401(k) participants raised their savings rate during the first quarter this year. Overall, employee contributions, combined with employer matching funds and profit sharing, rose 12.7 percent to reach another record. Not only are savings rates up, but more people are saving in both a 401(k) and an Individual Retirement Account ... Fidelity's universe of double-barreled savers is up 7 percent from a year ago, to 1.3 million people, with an average contribution of $11,600, up $300." (Bloomberg)
House Passes Resolution to Block DOL Fiduciary Rule
"H.J. Res. 88, which passed the House by a vote of 234 to 183, will... [1] Protect access to affordable retirement advice for all Americans. [2] Ensure small business owners can continue to find the advice they need to help their employees plan for retirement. [3] Build upon a larger, bipartisan effort to strengthen protections and help all Americans retire with the financial security and peace of mind they deserve." [Editor's note: the President has stated he will veto the resolution if is presented to him (i.e., if it is approved by the Senate).] (Committee on Education and the Workforce, U.S. House of Representatives)
Fiduciary Enforcement: How Advisers Can Avoid Legal Trouble (Part 2)
"The DOL retains the right to evaluate an institution's policies and procedures, and has vowed that it will be 'closely monitoring' institutions as they roll out new policies and procedures in the coming year.... [T]he agency can potentially declare that the institution has failed to meet the best interest contract requirements -- which would render the firm ineligible for the necessary prohibited transaction exemption, causing all of its advisors and conflicted compensation to be in violation of the rules, a potentially catastrophic outcome that institutions will desperately wish to avoid." (Michael Kitces, in Financial Planning)
The DOL Fiduciary Rule: How Advisors Can Comply and Thrive (Part 1)
"In essence, financial services product companies claimed that they can offer often illiquid and opaque, commission-based and sometimes even proprietary products to consumers, while also receiving revenue-sharing agreements, and still act simultaneously in a client's best interests as a fiduciary ... [W]hile the fiduciary rule didn't outright regulate what the financial industry can and cannot do, it did change the legal standard by which the industry's actions will be judged, and ensure that eventually the courts will have the opportunity to rule on these fiduciary conflicts. And in the long run, that will be a world of difference." (Michael Kitces, in Financial Planning)
[Guidance Overview] DOL New Fiduciary Regulation: Action Items for the Next Year
"Understand that this rule is directed at investment advice, and is not confined to defined contribution plans -- HSAs with investment components are subject to this rule ... Review any agreements or correspondence from service providers... and note where changes may be forthcoming from the providers, including potentially higher fees ... Review any communications to plan participants regarding rollovers and distributions to ensure that no particular recommendations are inadvertently being made ... Review who the employees are (and how they are compensated) who regularly communicate with plan participants and beneficiaries, and educate them about the new rule's requirements." (Findley Davies)
The IRS Attack on Illiquid IRAs
" 'The IRS has long believed that there is substantial noncompliance with minimum distribution requirements,' says Natalie Choate, an attorney with the Boston law firm Nutter McClennen & Fish.... Choate points to two windows: Form 5498, filed annually with information on how much an IRA account is valued and whether a distribution is required, and Form 1099-R, which reports the amount of any distribution. Starting with the 2015 versions of these forms, due in the first half of 2016, IRA custodians must reveal the presence of hard-to-value assets, and the asset type.... The new information from the forms can show the agency which large IRAs with illiquid assets are in the RMD stage." (Financial Planning)
[Guidance Overview] The DOL's New Fiduciary Rules for Retirement Investment Advice
"In applying the new fiduciary definition, a critical threshold question is whether a communication is a 'recommendation.' Borrowing from FINRA's definition, the final regulation defines 'recommendation' as 'a communication that, based on its content, context and presentation, would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course of action.' The DOL also borrowed from select SEC and FINRA interpretations about recommendations regarding the degree of individually tailored communications, lists of securities, aggregating communications, and disregarding whether the source is a person or a computer." (Faegre Baker Daniels LLP)
[Guidance Overview] The DOL's Final 'Fiduciary' Rule -- Countdown to Implementation Begins in Earnest
"In general, the structure of the Final Rule gives fund sponsors more basis for contending that their sales activities should not be treated as a 'recommendation' ... The Preamble indicated that the DOL did not intend to depart from a 'plain and natural reading' of the term 'investment advice' in the statutory text of ERISA.... The DOL also stated (in the Preamble only) that a communication must involve a 'call to action' in order to rise to the level of a recommendation.... By removing the 'asset list' in the BIC Exemption, the scope of the exemption expands significantly, and comes closer to becoming the 'principles-based' approach intended by the DOL." (Jones Day)
[Opinion] ICI Urges Congress to Reject DOL Fiduciary Rule
"While the Department's final rule reflects a number of modifications, the basic structure of the proposed rule remains intact. Like the proposed rule, the final rule imposes significant new liability through a complicated, back-door regulatory regime that will have the effect of limiting available advice options for many savers. As a result, implementation of the rule will make it more difficult for low- and middle-income Americans to save for retirement. Small businesses, in particular, will find it more difficult to offer their employees saving opportunities." (Investment Company Institute [ICI])
Even 'Softer' Fiduciary Rule Will Challenge Providers
"One veteran retirement plan adviser predicts the real impact of the new DOL fiduciary rule will take shape over the long-term -- and firms' initial attempts at compliance may not represent their final approach." (PLANSPONSOR)

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