Compliance December 11, 2013

Industry Groups Join Forces on Spouse Rule

A group of retirement industry advocacy groups are urging the Treasury Department to ensure same-gender spouse rule changes won't apply retroactively for qualified retirement plans.
Reported by

In all, 13 industry groups signed an open letter sent to J. Mark Iwry, a senior adviser for retirement and health policy at the Department of the Treasury. The letter is also addressed to George Bostick, benefits tax counsel for the Office of Tax Policy at the Treasury. 

In the letter, the undersigned organizations seek assurance that the Internal Revenue Service (IRS) will utilize its authority under the Internal Revenue Code section 7805(b)(8) to limit retroactive application of Revenue Ruling 2013-17—which took effect September 16 and changed the IRS’s definition of spouse to include legally married, same-gender partners.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

Revenue Ruling 2013-17 stems from the Supreme Court’s Windsor decision handed down this summer. That ruling, in part, struck down the Defense of Marriage Act, which limited the federal government’s interpretation of "marriage" and "spouse" to apply only to heterosexual unions.

The organizations call on the Treasury and the IRS to issue further guidance providing that the agencies will not disqualify a retirement plan as a result of the plan’s failure to administratively comply with the revenue ruling prior to its effective date.

Such guidance would be consistent with the guidance issued subsequent to the Supreme Court’s holding in Central Laborers Pension Fund v. Heinz, the letter argues, another case involving changes to retirement plan benefits.

As a result of the Heinz decision, the IRS issued Revenue Procedure 2005-23, which limited the retroactive application of the Heinz decision for plan qualification purposes.  

Similar guidance to supplement Revenue Ruling 2013-17 is critical to prevent significant administrative and liability issues, argues the letter.

For example, when it comes to Qualified Joint and Survivor Annuities (QJSA) or similar annuity arrangements, it is unclear whether and under what circumstances plans would be required to pay retirement benefits to the same-gender spouses of deceased participants should the ruling should apply retroactively. In other words, if a same-gender married participant retired prior to Ruling 2013-17 and was treated as ineligible to elect a QJSA, must the plan now provide the participant with an opportunity to make that election?

The letter argues similar ambiguities would arise under retroactive application in such areas as 401(k) death benefits, required minimum distributions, rollover distributions, hardship withdrawals, plan loans and nondiscrimination testing.

Signing organizations for the letter include the American Council of Life Insurers, the ERISA Industry Committee, the ESOP Association, Financial Service Institute Inc., the Financial Services Roundtable, Insured Retirement Institute, Investment Company Institute, Plan Sponsor Council of America, Securities Industry and Financial Markets Association, Small Business Council of America, Society for Human Resources Management, the SPARK Institute Inc. and the U.S. Chamber of Commerce.

The groups represent a wide range of plan sponsors, recordkeepers, administrators and advisers of defined contribution retirement plans.

A copy of the letter can be read here.  

The Markets December 11, 2013

Active, Passive Investments Go Together

Actively and passively managed funds can complement each other and allow investors to fill portfolios with the best investment opportunities, both within and across markets.
Reported by

"The trend so far has been going one way or the other—either all actively managed funds or all passively managed funds,” Dave Mazza, co-author of a paper from State Street Global Advisors (SSgA), told PLANSPONSOR. However, he says, by having a combination of actively and passively managed funds in a retirement plan’s investment lineup, investors can have the best of both worlds.

“You can go from asset class to asset class, looking for which funds have done well and which have done poorly,” says Mazza, head of ETF Investment Strategies for SSgA, based in Boston. “For example, plans might choose some passively managed funds, such as large-cap equities, that have done well, and some actively managed funds, such as emerging markets, that have also done well.”

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

In the paper, “Leveraging the Best of Active and Passive Investment Approaches,” Mazza and his co-author, Thomas F. Guarini, product specialist for SSgA, observe that sometimes managers of actively managed funds can lag behind benchmarks. In terms of what due diligence steps plan sponsors can take in choosing such a fund, Mazza says, “Look at what the investment philosophy is. Look for the competitive advantage of a fund, despite its active or passive label. Also, funds and their managers may do better in certain scenarios, like when there is volatility in the market.” All of these elements, he says, need to be factored in.

Mazza and Guarini highlight this in the paper, saying investors should be cognizant that certain investment styles come in and out of favor depending upon underlying market conditions. They cite how certain active managers do well in trending markets, while others may do best when markets reward companies that have been the most beaten up.  

As to how to integrate actively and passively managed funds into an investment lineup, the authors recommend considering factors like cost. In the paper, they point to the lower cost of passive funds being an advantage if the investor if they intend to move frequently in and out of positions with higher turnover strategies. 

The authors also point out passive funds may do a better job of augmenting longer-term positions with more tactical investment ideas. Active funds may, on the other hand, may be better suited to take advantage of a successful manager when their approach is most in favor.

The authors conclude passive funds are no longer just a cost-effective alternative to active funds. They can serve as both a replacement and complement to active funds. The approach of using both types of funds in an investment lineup, they say, harnesses the best of passive and active and can help build the most cost effective, resilient and robust portfolios possible.

More information can be found at www.spdru.com. Registration is required.  

«