Compliance June 1, 2012

ASPPA Asks for Roth Conversion Guidance

The American Society of Pension Professionals & Actuaries (ASPPA) has asked for additional guidance concerning Roth 401(k) accounts.
Reported by

Internal Revenue Code section 402A states that a distribution from a designated Roth account is considered a qualified distribution and is not subject to income tax if made following a five-taxable-year holding period (the nonexclusion period). ASPPA asked the Internal Revenue Service (IRS) to issue guidance clarifying that the five-taxable-year holding period for in-plan Roth conversions begins as of the date of conversion.  

ASPPA cited regulations in which this appears to be the intent, and noted it is consistent with the treatment of Roth accounts created by the conversion of accounts by any other method.  However, the question arose because the IRS response to a Q&A at the 2011 ASPPA Annual Conference indicated the IRS may not agree.    

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The ASPPA letter is here.

 

Data & Research May 31, 2012

ASPPA Counters Analysis of Retirement Plan Fees

The American Society of Pension Professionals & Actuaries (ASPPA) is challenging the assumptions behind a report about retirement plan fees.
Reported by

 

The research group Demos claimed in a report that a two-earner household, in which each partner earns the median income for their gender each year over their working lifetime, will pay an average of $154,794 in 401(k) fees and lost returns. A higher-income dual-earner household, in which each partner earns an income greater than three-quarters of Americans each year, can expect to pay an even steeper price: as much as $277,969. (See “Retirement Plan Fees Consume 30% of Returns.”)

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Brian H. Graff, chief executive and executive director of the ASPPA, contends that Demos inflated those figures. He said the organization estimated fees for mutual funds in 401(k)s at 200 basis points (2%) of plan assets, a level he called ridiculous.

Graff also challenged Demos’ claim that the new disclosure requirements from the Department of Labor (DOL) are not enough to ameliorate high fees. He said that retirement service providers will have to lower their fees because of increased competition once fee information goes public with the new law.  

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