Tax Breaks Among Fund Industry's Goals

This bill and the pension reform bill will be a priority when Congress returns from recess April 24.

Last year, the House passed legislation extending the 15% tax cut for two years, but the Senate version of the bill omitted this provision. House and Senate conferees currently working to merge the bills are finding the 15% tax cut provision “arguably the most controversial aspect of the entire bill,” according to a recent report by Washington Analysis, a securities advisory firm.

Crowley says the mutual fund industry supports the House version of the bill because it extends the tax cut provisions by two years and is silent on indexing the alternative minimum tax (AMT), a point that will be addressed without the need to be included in the bill. The Senate bill calls for extending the tax cut and the AMT both for one year.

“We support the House provision because the AMT indexing extension is very popular and has bipartisan support,” Crowley says. “Therefore, we believe it be moved through the Congress on its own, separate from the tax reconciliation bill.”

Regarding the investment advice provision in the pension reform bill, Crowley says concerns by detractors to accepting the House language on investment are misplaced.

The provision in the House bill “makes it easier for 401(k) investors to turn to the professionals most familiar with their 401(k) plan investment options for advice,” Crowley says. “It is abundantly clear that investors need and are seeking more advice in these plans, yet the investment providers – the fund companies – are prohibited from recommending specific options due to concerns about potential conflicts of interest.”

While it will reduce certain conflict of interest provisions contained in current law, it will also impose a higher standard of care on those providing investment services to owners of 401 (k) plans administered by a financial services provider. “The reality is that it would strengthen the protection for investors by making the advisor a fiduciary, a higher standard of care under which the advisor would be held liable under ERISA for providing inappropriate advice.

“The real question is what is in the best interest of the investor,” he says. “Our research shows that the 401 (k) owner wants that advice.” Moreover, he adds, “to the extent they get that advice, the more they will invest.”

One piece of legislation that has been introduced but will likely take several years to get through Congress proposes to defer taxation of automatically reinvested capital gains: “This is a multi-year project,” Crowley says. Called the GROWTH Act (Generate Retirement Ownership Through Long Term Holding) Act, or H.R. 2121 in the House, the bill has 68 co-sponsors from both sides of the aisle. A similar bill in the Senate has six co-sponsors, Crowley says.

In comments at an industry meeting in Boston earlier this year, Crowley says, “In my view, mutual funds are simply the most effective way for most Americans to receive low cost portfolio diversification and professional portfolio management.”

In fact, he adds, “mutual funds have democratized investing in the United States and have helped create a culture of investing here that is unparalleled in the rest of the world.

We as an industry therefore have a responsibility to ensure the safety and integrity of our products, and to be ever mindful of our fiduciary role as the custodians of these assets,” he adds.