When we were youngsters, one of
the lessons our parents tried to teach us was that we were unlikely to get
everything we wanted. We were to be
appreciative when things went our way, but not be whiners when they
didn’t. The 2015 year now ending was
just that kind of year for those who serve the retirement industry. We have some things to be grateful for, and
some things we might have preferred to have turned out differently. Our glass may not be full, but neither is it
empty, so we won’t whine unreasonably.
For much of the year the dominant
story was the DOL’s fiduciary regulations, renamed – some think – for public
relations purposes as the “conflicted advice” regulations. In my nearly three decades in the retirement
industry I doubt there has been another set of regulations that has generated
so much public comment, whether live in public hearings or in written comments
submitted to the Department.
The polarization between
opponents and supporters has been profound.
Some within the certified financial planner (CFP) community have voiced support
for the proposed regulations; these advisers already consider themselves
fiduciaries. There has also been support
from some retiree, consumer advocacy and public policy groups. Many financial industry firms, affiliated
industry groups, and individual investment professionals on the other hand,
have been extremely critical of a fiduciary standard they fear will ultimately
deprive less affluent savers of badly needed assistance. There was also an unprecedented level of
bipartisan effort in Congress to delay or thwart implementation of these
proposed rules. Many do not think they
will ultimately be in savers’ best interest.
Some opponents hoped the
Consolidated Appropriations Act – the must-pass federal budget legislation enacted
during the week before Christmas – would provide a vehicle by which Congress
could intervene via amendment, but efforts to do so were unrewarded. Advocates of this strategy reportedly may
attempt to introduce stand-alone legislation aimed directly at delaying DOL’s
issuance of the final regulations. But
overcoming an almost certain presidential veto is thought to have a less-than-an-even
chance of succeeding.
Such preoccupation with the proposed
fiduciary regulations left the industry open to a virtual blind-side when the DOL
in November issued guidance on states establishing or coordinating retirement
plans for private sector workers. Many
had expected that the guidance would begin and end with automatic payroll
withholding IRA contribution programs, with some states mandating them for most
employers that do not establish a recognized retirement plan – however sophisticated
or simple. Instead, DOL went well beyond
this, handing states a playbook for assisting businesses in establishing
qualified plans.
Under either the IRA or qualified
plan regimen sketched out by DOL’s proposed regulations and interpretive
bulletin, states could readily find themselves involved in functions that put
them in competition with financial organizations and service providers in the
public sector. DOL, by the way, in its
interpretive bulletin created what many feel is an unprecedented and
inexplicable exception to its past guidance limiting the creation of multiple
employer plans (MEPs).
We understand the numerous
states’ clamor for guidance so that they might confidently proceed in
encouraging retirement saving by private sector workers within their borders. This, in the face of inaction by Congress to
legislate options or parameters. But it’s
hard not to view this DOL state-coordinated plan guidance as anything but legislation
by regulation.
One area in which reason did
prevail in 2015 retirement developments is in the requirements for annual plan
reporting to the IRS and DOL, via the 5500-series forms. Proposed for 2015 plan years was a new
reporting regimen for filers of Form 5500, 5500-SF, and 5500-EZ, to provide
detailed information not only on plan characteristics, but on operations,
testing, amending and other elements of compliance. Apart from an unprecedented level of
intrusiveness and “audit mining” in the questions on draft 2015 forms and
schedules, also to be required was disclosure of preparer/client relationships.
Just as most audacious was the
matter of timing, and the lack of lead time for plan sponsors and service
providers to prepare for the capture, retrieval, and outputting of the
information sought in the 2015 plan year reporting cycle. Fortunately, IRS and DOL were ultimately
convinced that plans and service providers needed more time to comply, and this
compliance-related information will be optional on Forms 5500-, 5500-SF and
5500-EZ for 2015 plan years.
Exactly one week before Christmas
day, Congress and the President found themselves for once pulling in the same
direction and enacted the Consolidated Appropriations Act of 2016. Within this extremely full and complicated
package were some provisions affecting qualified savings programs, including
IRAs, SIMPLE IRA, church retirement and 529 college savings plans, and the new
ABLE accounts for special needs individuals.
Worthy of special mention is the
qualified charitable distribution, or QCD, option for those age 70 ½ or older
with IRAs. This option, which has been
with us under numerous legislative extensions since 2006, allows a taxpayer to donate
up to $100,000 of IRA assets annually to a qualifying charity, tax-free. It was made permanent by CAA 2016. Instead of such taxpayers generally being
limited to a charitable tax deduction up to 50 percent of annual income, the
amount contributed under QCD can be as much as 100 percent of income, but no
more than $100,000.
One might guess that this option
would be availed by only a limited number of taxpayers. But based on evidence from our retirement
consulting practice, it was the most-asked-about provision in this
legislation. Also based on our informal
data, it’s certainly not the case that every taxpayer using this option gives
the maximum amount. Far from it. Donating under the QCD program is not “a
wash” tax-wise for the giver, either.
Keeping, rather than donating the amount, would still be a net cash
benefit to the taxpayer. While the tax
break may be generous, so is the charitable giving!
One can argue that this tax
provision has a cost in tax revenue that must be borne by other taxpayers. But that can be said of just about any of the
several dozen tax benefits in the Act.
Very few of these have at their core the creation of an incentive to be
generous. Among these many so-called
“tax extender” provisions, this is one that a taxpayer can be proud to have
taken advantage of.
