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What Advisors Need To Tell Boomers About The New Pension Act

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New changes in pension law should have advisors considering the immediate impact on boomer clients when they conduct their regular client reviews, according to interviews conducted by National Underwriter.

The Pension Protection Act of 2006 was signed into law on Aug. 17 by President Bush. The law’s provisions will have numerous long-term effects on retirement savings. But some of the changes either take effect at the start of 2007 or require planning to start now in preparation for their effective dates later on.

One issue that should be raised is the extension of the laws from 2001 that would continue to allow tax-free withdrawals from 529 plans, according to Jim Holtzman, a financial advisor who holds the title of shareholder with Legend Financial Advisors, Pittsburgh. Holtzman says he is asked that question by many clients, and it is one that should be raised when considering the implications of the act.

Another point that should be made is a client’s ability to continue making pre-tax contributions to retirement plans, an amount that will increase to $15,500 in the 2007 tax year, he adds.

The issue of automatic enrollment in retirement plans should be raised, he says. While Holtzman notes the benefits of saving in a tax-qualified plan and says employees should consider contributing to at least the level matched by the employer, he does feel there are cases in which automatic enrollment could have a cash flow impact.

Additionally, he says, because of the automatic enrollment provision, an advisor should look at whether the 401(k) that an employer offers to its employees has good investment options. If it does not, then the advisor could advise that a boomer client consider a qualified IRA instead, Holtzman adds.

Another issue that advisors should consider now is whether new annuity products with long term care options should be considered, he says. However, he notes that a number of the brokers and agents he spoke with did not know about the provisions that would create these new products.

So, he adds, one of the immediate needs going forward will be education on how the new law will impact boomers as well as their employers.

Peter Radloff, a vice president of advanced markets with Jackson National Life Distributors, Denver, says advisors should contact employer sponsors and let them know of changes in the law because there are a lot of provisions that need review. It is a combination of both educating both employers and those participating or thinking of participating in plans, he adds.

In fact, according to Radloff, Jackson National is already educating wholesalers and advisors on the new provisions.

Radloff says that for advisors who recommend annuities as part of their planning strategy, there should be a review with clients about new provisions that include the allowance of rollovers from retirement plans for non-spousal beneficiaries, as well as stretching benefits over a beneficiary’s life expectancy rather than over the 5-year period that has been allowed in the past.

Radloff also notes the ability to do a charity IRA rollover in 2006 and in 2007 unless a client is age 70-1/2 or older.

Advisors should be reviewing the beneficiary designation now, adds John Koehler, director of advanced markets with JNL Distributors, because of the new non-spousal provision. The new provision can be used for a variety of non-spouse situations including boomers who are in same-sex partnerships, he adds.

Beginning in the 2007 tax year, he continues, an IRS refund can be made directly to an IRA, allowing you to “pay yourself first and never touch it [the refund.]“

Ron Gebhardtsbauer, a senior pension fellow at the American Academy of Actuaries, Washington, says a financial advisor can help a boomer who is still employed make a decision on whether or not to opt out of automatic enrollment and show that boomer why they should participate in a qualified plan.

And, since many plans have a default lifestyle investment choice, a financial advisor can help that boomer decide whether such an option is the right one to select, he adds.