Compliance December 20, 2007

IRS Extends Relief for Employer Stock Account Diversification

The Internal Revenue Service (IRS) has extended transitional relief for defined contribution plans subject to the employer stock diversification rights rules put in place by the Pension Protection Act (PPA).
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In Notice 2008-7, the IRS said relief is extended until the regulations under § 401(a)(35) of the Internal Revenue Code become effective. The IRS is in the process of issuing proposed regulations and said it expects that when finalized, the regulations will not be effective before plan years beginning on or after January 1, 2009.

The PPA requires that a defined contribution plan that holds publicly traded company stock permit participants to diversify the stock accounts after three years of service. Plans must give participants a notice of their diversification rights as well as educational material about the importance of diversification no later than 30 days before they are eligible for diversification rights.

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In Notice 2006-107, the IRS provided transitional relief in the 2007 plan year for notice to participants immediately eligible for diversification, as well as other transitional relief prior to plan years beginning January 1, 2008. The IRS guidance also included a model participant notice (See IRS Issues Guidance on Employer Stock Account Diversification http://www.plansponsor.com/pi_type10/?RECORD_ID=35757 ).

IRS Notice 2008-7 is available here. http://www.irs.gov/pub/irs-drop/n-08-07.pdf

Products December 19, 2007

Kaplan Financial Introduces Ethics Training For Advisers Targeting Boomers and Seniors

Kaplan Financial, a provider of education and compliance solutions, has developed a new course offering for brokerage and investment firms to certify the credibility of their sales people who reach out to retired or soon-to-be retired investors.
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The course, scheduled to debut in January, aims to provide “best practice guidelines’ for representatives in their transactions with members in this expanding investor group.

“The course will focus on fraud perpetrated through a variety of hard to resist selling techniques, such as the free lunch seminar, misleading professional designations, email pitches and other suspicious promotional tactics,’ said Melaine Kimmel, Senior Vice President of Securities Education at Kaplan Financial, in a press release.

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This new program updates Kaplan’s Ethics and Senior Investors course that in the past has provided a foundation for financial service firms in a subject deemed crucial by government agencies, the company explained. Kaplan said this update was driven by requests from the firm’s financial services customers who wanted to proactively train their sales representatives in proper techniques and, at the same time, mitigate their compliance risks while promoting and selling to seniors and baby boomers.

Kaplan noted that some clients have provided input for the course (which they intend to use), while other firms see the ethics course as a stand alone element in sales training.

There has been increased emphasis on advisers selling into the Baby Boomer and senior market by certain regulatory bodies, including the SEC and the Secretary of the Commonwealth of Massachusetts. According to Kaplan, this $16-trillion dollar market is extremely vulnerable to fraud by unscrupulous representatives selling “too good to be true’ deals to which too many soon-to-retire baby boomers and seniors fall victim.

In September, the Financial Industry Regulatory Authority (FINRA) announced the initiation of two regulatory sweeps intended to ensure that securities firms are using appropriate sales practices in their dealings with seniors and individuals nearing retirement (See FINRA to Check Securities Firms’ Sales Practices with Seniors).

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