What does the future hold for the retirement industry in the New Year? As the election hangover fades, you can expect at least some of our lawmakers' focus to return to some of the unresolved issues of the last year, including tax reform and a re-proposal of the definition of fiduciary.
Add to that an increased enforcement climate from both the IRS and the DOL, and things could be tougher for retirement advisors and plan sponsors in 2013, especially as more fallout finally appears from fee disclosure regulations. On the upside, there are, at long last, plenty of pressures (and even legislation) to try to help employees actually save for their own retirement.
Bob Kaplan, vice president, national training consultant for ING U.S. Retirement Services, also sits on the American Society of Pension Professionals and Actuaries government affairs committee executive management team. He predicts there will be plenty of regulatory and legislative decisions in 2013 that will affect retirement savings.
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First things first: New IRS enforcement programs are making it so that the penalties will be very high if plan sponsors don't self-audit and correct their plans before the IRS gets involved. Kaplan says he expects an update to these regulations very soon.
He also expects that proposed IRS regulations concerning longevity/annuity contracts will be finalized next year. He believes the IRS could issue some guidance to help plan participants understand their rights and obligations when it comes to taking their retirement funds with them when they leave a job.
The U.S. Department of Labor and its decisions will also have a major impact moving forward, Kaplan said. Its "controversial investment manager fiduciary regulation has been sent to the Office of Management and Budget," he said. The OMB will review it for 90 days and then the final fiduciary regulations will be released around February.
The fallout from fee disclosure regulations that affect both service providers and plan participants will start to be felt in the early part of 2013, Kaplan added. And, while not much pushback has been felt from plan participants this year, 2013 could be different as employees become aware of all the fees they are paying for their retirement plans.
As part of fee disclosure, the Department of Labor is ramping up its enforcement capabilities to make sure companies are doing what they are supposed to do, and that means more audits.
Finalized rules governing target-date funds and qualified default investment alternatives (QDIAs) also could come in 2013, Kaplan said. "A lot of participants are confused about why these have equity exposure and why they lost value in 2008 and 2009," Kaplan said. Most people think that if they put their money in one of these vehicles their returns will be guaranteed and fixed. That means companies will have to be better at marketing these products so that participants know that returns are never guaranteed.
On the legislative side, Kaplan said that he expects Congress to make a move on qualified pension plans this year. Bills proposing automatic enrollment IRAs for companies with 10 or more employees will be resurrected; if companies do not offer a plan, they can at least offer the ability for employees to have money deducted from their paychecks and be deposited into a qualified IRA.
He also expects the Legislature to reexamine rules regarding multiemployer plans. Currently, the rules dictate that employers who join with others in multiemployer plans still have to fill out Form 5500 and can't offload any of their fiduciary responsibilities regarding these plans. Since the goal of these plans was to make it easier for people who can't offer a plan to offer a plan, Kaplan said he hopes they revisit the rules and make it easier for people to participate in a multiemployer plan.
And because both political parties have made tax reform a priority in 2013, Kaplan said that he expects even more discussions about eliminating pre-tax contributions to retirement plans as a way to solve some of the country's immediate budget problems. There's also been talk about lowering elective deferrals and eliminating catch-up contributions.
"Our concern is two-fold: Historically, when Congress tinkers with tax deduction ability, they jeopardize the ability of small employers to offer plans. This goes against the grain of increasing coverage," Kaplan said. There's also been talk of eliminating different deductions, like child care credits and mortgage deductions.
What lawmakers fail to see is that the money put into retirement savings pre-tax will eventually be taxed when it comes out again, he notes. "The government will get my money. They will in the future gain back the tax breaks they are giving us now," Kaplan said, "unlike the mortgage or child care credits which will be gone forever. We're hoping that they will recognize that this is a delay. Already we have insufficient retirement savings in general. If they harm incentives, that could be a problem for retirement savings," he said.
He also believes there will be more consolidation in the retirement industry in 2013 because of the increasing nature of fiduciary responsibility, fee disclosure, overall communications and costs coming down. "To plan participants' benefit we will see less players in each area: advisors, record keepers, third party administrators. [There will also need to be] more sophisticated professionals dealing with plans, because we have to be," Kaplan said.
(Please read Part 2 for a look at next year's efforts to better engage, involve and properly see the investments of participants.)
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