The American Society of Pension Actuaries (ASPA) is gearing up to
make sure that a bill designed to create a tax break for annuities
purchased outside of a traditional employer-sponsored retirement plan
doesn't become law next year, at least the way it is written
The Retirement Security for Life Act, H.R. 4849, would permit a tax
exclusion of up to 50% of the taxable portion of a lifetime payment
from these types of nonqualified annuities. ASPA wants to broaden the
bill to include qualified plans. "We are working with other
members of Congress who are interested in an alternative," says
Brian Graff, ASPA's executive director. He declined to say which
members of Congress, but did note the effort has bipartisan support.
"This should be about the concept of annuitization?not
favoring one particular product over another."
H.R. 4849 is designed to help the large portion of the U.S.
workforce that lacks access to pension coverage, according to a
spokesman for Americans for Secure Retirement <a
a coalition of the bill's promoters that includes the American Council
of Life Insurers and National Taxpayers Union. A high percentage of
buyers of nonqualified annuities earn less than $75,000 per year,
according to spokesman Kevin Bruns. He says that the bipartisan bill,
sponsored by Rep. Nancy Johnson (R-Connecticut), will likely be
reintroduced when Congress gets back to business in
The SEC Watches the Clock
legislation can lie fallow for many months, the Securities & Exchange
Commission has moved decisively on another initiative that affects
retirement plans. Retirement planners are eyeing warily the proposed 4
p.m. (Eastern Time) close for mutual fund transactions and the
proposed 2% redemption fee on shares redeemed or exchanged soon after
their purchase to prevent price arbitrage or market timing.
Market timing opportunities are not limited to international funds.
"Mutual funds that invest in small-cap securities and other types
of investments which are not frequently traded, including high yield
bonds, also can be the targets of market timers," the SEC says.
While market timing is not illegal, the agency notes that it "may
dilute the value of long-term shareholders' interests in a mutual fund
if the fund calculates NAV (net asset value) using closing prices that
are no longer accurate."
New York Life Investment Management (NYLIM) wants the redemption
fee to be limited to participant-initiated exchanges, an affirmative
decision to trade out of a fund, and that an exception be made for
financial emergencies, such as cashing out of a 401(k) plans to pay
for a necessary expense. "You are not going to be market timing
by taking a loan from a plan," says Mark Niziak, NYLIM's
Retirement Plan Services' director of ERISA/consulting services.
"If someone needs a hardship withdrawal, that is not market
With the 4 p.m. hard close proposal, third-party administrators
would have to get a trade in to a mutual fund family by that hour, so
trades would have to be reconciled as early as noon, or earlier if the
firm is on the West Coast, Niziak notes.
Judy Schub, managing director of the Committee on Investment of
Employee Benefit Assets (CIEBA), a committee of the Association for
Financial Professionals, says the 4 p.m. proposal is a
"disadvantage" to plan participants because "it creates
different classes of investors" who would either have to shut
down trading very early or bear market risk for 24 hours. One positive
note, however, according to a CIEBA survey, is that more than
two-thirds of large retirement plan sponsors have taken action to
control market timing in their 401(k) plans.
The SEC is considering alternatives to its 4 p.m. proposal, which
could be ruled on as early as this fall. One alternative would allow
administrators to have time and date stamps so they could lock in a
trade until 4p.m.
Link to market timing comments filed with
the SEC: <a
Link to hard 4 PM close comments filed with the SEC: <a
size="3">Lord, Abbett & Co. is offering advisors a speedy way to
create customized retirement plans for small business owner clients.
Dubbed the Lord Abbett Retirement Proposal System, the Web-based
service gives the advisor all the financial information needed to
present a business owner with a 401(k) plan in real time. The advisor
can use the Web site to gather all the information needed to prepare a
401(k) plan, thus bypassing the lengthy two weeks it usually takes to
retrieve, manually enter, fax, and process client information,
according to Sarah Tracy, director of operations for Lord Abbett's
retirement group. The firm estimates it takes 20 minutes to set up a
customized plan online. Lord Abbett developed the system over a
six-month period and beta tested it with wirehouses and independent
advisors, Tracy says. To learn more, advisors who do business with
Lord Abbett can click "Retirement Planning" at <a
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