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