Critical IRA Issues

1. Critical IRA Issues FIRMA New Orleans, LA April 29, 2009 Lisa J Bleier 202-663-5479 lbleier@aba.com

2. Critical Issues of Today • 2009 RMD Waiver • Presidential & Legislative Proposals • Regulatory Actions • Valuation of Assets

3. 2009 RMD Waiver • Worker, Retiree and Employer Recovery Act of 2008, signed into law December 23, 2008, waives any RMD from an IRA for 2009.

4. WRERA – RMD Relief • Notice 2009-09 – states that financial institutions do not need to send RMD information that is currently required under Notice 2002-27 • But, if a notice sent, then must show RMD as zero for 2009

5. 2009 RMD Waiver • Individuals who turned 70 ½ in 2008 still must take their 2008 RMD by April 2009. • Individuals receiving distributions over a 5 year period, in effect, have 6 years.

6. Presidential & Legislative Proposals • Expansion of SAVER’s Credit • Auto-IRAs (also called Payroll Deduction IRAs)

7. Expansion of SAVER’s Credit • Current law – receive a credit of up to $1,000 for eligible contributions • Proposal – provide a 50% match on the first $1,000 – fully refundable

8. Auto-IRAs • Current Law – an option • President’s Proposal – employers (who do not offer a retirement plan) would be required to enroll employees in a direct deposit IRA • No further details yet

9. Auto-IRAs • No bills introduced yet this Congress • H.R. 2167, S. 1141 “Automatic IRA Act” from last Congress • Mandates automatic IRAs • Default for an employee who does not enroll

10. Auto-IRAs • A newly created government Board, referred to as “TSP II Board”, would provide for the maintenance and establishment of automatic IRAs • The TSP II Board would determine annual increases for the default amount

11. Auto-IRAs • Do banks want these accounts? • Are we concerned about the competition with a TSP II? • Do we have an alternative solution?

12. Regulatory Actions: Investment Advice • January 21, 2009, DOL issued final rules to allow for the provision of investment advice to 401(k) participants and IRA holders. • March 20, 2009, DOL delayed the effective date to May 22, 2009

13. New Statutory Exemption • PPA included an exemption to allow for providing investment advice if: • Advisor’s compensation did not vary (level fees), or • A computer model generated the advice

14. Guidance from DOL • Regulations • Report to Congress re: Study of Computer Models • Class Exemption

15. Level Fees • Addressed, in part, in FAB 2007-01, which said that the fee leveling requirement applies to the fiduciary adviser and not all of its affiliates

16. Final Regs: Computer Model • Apply generally accepted investment theories • Avoid recommendations that inappropriately favor options that may generate greater income for the fiduciary adviser • Avoid giving inappropriate weight to any particular investment option

17. Class Exemption • Permits individualized investment advice after the furnishing of computer model recommendation • When computer modeling infeasible, permits provision of investment education material

18. GAO Report on IRAs • Congress should consider giving DOL more oversight of IRAs • DOL should examine ways to encourage employer sponsorship of IRAs • IRS should publish and provide data to DOL re: IRAs

19. GAO Report on IRAs • Hearings held • Who should regulate IRAs? • Is there sufficient oversight?

20. Valuation • FAS 157 – new standards for determining fair value • Level 1 – Observable market data in an active exchange • Level 2 – Unadjusted quoted price in an active market or exchange • Level 3 Unobservable market data

21. Valuation • Fair value for “alternative investments” • Fair value in “inactive markets”

22. Thank you for your time! Lisa J. Bleier Center for Securities, Trusts & Investments American Bankers Association lbleier@aba.com