The Markets January 30, 2009

Employer Accounts Pumping Up IRAs

Nearly half of Americans own an individual retirement account (IRA), though the odds are that those accounts were funded by an employer-sponsored retirement account.
Reported by
In a new report, the Investment Company Institute (ICI) says that the most recent available data show that households transferred more than $200 billion from employer-sponsored retirement plans to IRAs in 2004. In fact, the ICI notes that in 2008, nearly 20 million U.S. households – 52% of all U.S. households owning traditional IRAs – had traditional IRAs that included rollover assets.
In “The Role of IRAs in U.S. Households’ Saving for Retirement, 2008,” the ICI notes that with their most recent rollovers, the vast majority of these households (85%) transferred their entire retirement plan balances into traditional IRAs.
When money was withdrawn from those traditional IRAs, it was typically taken to fulfill the imposition of required minimum distributions, or RMDs. Those Traditional IRA–owning households that took a withdrawal in tax-year 2007 usually consulted an outside source to determine the amount of the withdrawal, with nearly six in 10 consulting a professional financial adviser to determine the amount to withdraw in tax-year 2007, while a third consulted IRS rules or publications.
Rollover Trends
Among households with rollovers in their traditional IRAs, nearly half (43%) only had rollover IRAs (having never made traditional IRA contributions), and, not surprisingly, households with rollover assets in their IRAs tended to have higher IRA balances, compared with IRAs funded purely by individual contributions, according to the report. Median traditional IRA holdings that include rollovers were $75,000 in 2008, compared with median traditional IRA holdings of $40,000 for balances that did not include rollovers.
The ICI report noted that most U.S. households do not contribute to IRAs. In fact, in tax-year 2007, only 14% of all U.S. households made contributions to an IRA, and only about one-in-four of those contributing to employer-sponsored IRAs in tax-year 2007, with 17% only contributing to employer-sponsored IRAs.
Few households withdraw money from their IRAs in any given year, and most of those are retirement related, according to the report. Just over one-in-five (22%) of households still owning traditional IRAs in 2008 reported taking withdrawals from these IRAs in tax-year 2007, and among those, 82% reported someone in the household was retired from their lifetime occupation. Nevertheless, among retired households owning traditional IRAs in 2008, nearly three out of five did not take a withdrawal in tax-year 2007, according to the report.
Moreover, those traditional IRA–owning households who made withdrawals generally took modest-sized amounts, according to the ICI; 29% took less than $2,500 from their IRAs. And, while some withdrawals in dollar amounts appear large, a median of just 6% of the account balance was typically withdrawn, according to the report.
“The Role of IRAs in U.S. Households’ Saving for Retirement, 2008’ is online at http://www.ici.org/pdf/fm-v18n1.pdf
Compliance January 30, 2009

Pension Fund Sues UBS

The New Orleans Employees Retirement System has filed a class action lawsuit seeking billions of dollars in damages from UBS.
Reported by
The suit was filed in the United States District Court for the Southern District of New York, by the $400 million pension fund on behalf of all purchasers of UBS stock between May 4, 2004 and January 26, 2009. The pension fund says that it purchased shares of UBS at “artificially inflated prices during the Class Period.’
The complaint, through the pension fund’s counsel Labaton Sucharow LLP, alleged that UBS maintained and benefited from a scheme allowing and encouraging clients to evade U.S. tax law by concealing billions of dollars of funds in “undeclared’ Swiss bank accounts.
According to a press release, the complaint also alleges that UBS’s Swiss bankers have improperly sold securities in the United States without a license in violation of SEC regulations, and have actively conspired to subvert Qualified Intermediary reporting obligations which facilitated tax evasion for U.S. investors.
The complaint says that “Defendants touted the record levels of Net New Money attracted, bragged of record income, profits and earnings per share (“EPS’), and boasted of the Company’s purported commitment to integrity and business ethics’, and also “routinely assured investors and analysts that the Company employed state of the art risk management tactics and had robust internal controls designed to identify and mitigate operational risks.’ However, the complaint alleges that those statements were “…all false and misleading because at the time they were made Defendants were actively engaged in a tax evasion scheme which, even when investigators had fingered some of the Company’s lower level client advisors, Defendants ultimately could not abandon because it was simply too valuable to UBS.’
The complaint goes on to note that, “when the scheme was finally uncovered by U.S. authorities and UBS began disclosing the true nature of its Swiss banking business, the Company’s stock price plummeted causing substantial losses to UBS shareholders. Further, that as a result of its alleged malfeasance, UBS now faces a penalty fine in the amount of $1.2 billion, and possibly a felony indictment from the U.S. Government.
You can view a copy of the complaint online at http://www.labaton.com/en/cases/upload/UBS-Complaint.pdf

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