Compliance February 23, 2018

IRI Issues Retirement Security Blueprint

The detailed report is aimed at expanding opportunities to save and increasing access to lifetime income products, among other efforts.

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The Insured Retirement Institute (IRI) has issued a Retirement Security Blueprint, meant to guide the group’s dialogue with Congress and the Administration about improving Americans’ retirement outlook.

“The Blueprint was constructed on the pillars of expanding opportunities to save, increasing access to lifetime income in retirement, helping savers make decisions about their finances for their retirement and protecting older investors from financial exploitation,” says IRI Senior Vice President and General Counsel Lee Covington. “We look forward to presenting and discussing these proposals with members of Congress, the Administration and state regulators.”

The first proposal is to maintain and enhance the current tax treatment for retirement savings. IRI also notes that at one point, the Tax Cuts and Jobs Act would have potentially consolidated 401(k), 403(b) and 457 plans. The final legislation did not do that, IRI says, adding that it believes each of these different types of plans are appropriate for the groups they serve.

IRI notes that distributions from guaranteed lifetime income products, including annuities, are taxed as ordinary income. IRI is asking Congress to either lower that tax rate or eliminate it altogether.

Secondly, IRI wants the government to expand opportunities for Americans to save for retirement. The Institute notes that only 40% of full-time workers at small and medium-sized businesses are offered a 401(k) plan. Thus, IRI is asking Congress to pass legislation, such as the Automatic Retirement Plan Act of 2017, which would require all but the very smallest companies to maintain a 401(k) plan and automatically enroll workers into it.

IRI also notes that there are several bills, including the aforementioned one, that would remove the restrictions on employers joining together in a multiple employer plan (MEP).

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Furthermore, IRI would like Congress to pass a bill, such as the Retirement Security Act of 2017, which would increase the automatic deferral rate to 6% and permit automatic escalation up to 15%.

Under current law, small employers with up to 100 employees can receive an annual tax credit equal to 50% of the costs of starting a retirement plan, up to a maximum of $500 for three years. IRI would like the credit to be available for five years and for the maximum credit to be $5,000.

Lifetime income

Thirdly, IRI would like either the Department of Labor (DOL) or Congress to clarify employer fiduciary responsibility for choosing lifetime income products, in order to increase Americans’ access to lifetime income products.

Currently, if an employer that offers a lifetime income product changes recordkeepers, the annuity holders would lose the guarantees associated with those products, due to a technicality in the tax code. IRI would like Congress to amend the code to treat a recordkeeping change as a distibutable event.

The Internal Revenue Service (IRS) tax code currently only allows for a defined contribution (DC) participant to purchase an annuity or other guaranteed lifetime income product at age 59-1/2 or older. IRI would like that to be reduce to age 50 and older. Also, the tax code currently requires an annuity owner to take a required minimum distribution (RMD) at age 70-1/2. Because of longer lifespans, IRI would like that to be raised to age 75.

Additionally, the regulations currently limit the premiums an individual can pay for a qualifying longevity annuity contract (QLAC) to the lesser of $125,000 or 25% of an individual’s account balance in a DC plan or individual retirement account (IRA). IRI would like Congress to ease the administrative challenges associated with rolling over funds into a QLAC and to increase the size of the amount exempted from the RMD rules. IRI would also like Congress to permit capital appreciation and/or capital preservation products to qualify as qualified default investment alternatives (QDIAs).

The fiduciary rule

Fourthly, IRI would like the government to help savers make decisions about their finances. IRI supports the DOL’s fiduciary rule, which is now under review. “IRI and its members have long supported the principle that financial professionals should be required to act in their clients’ best interest when providing personalized recommendations,” IRI says. “To avoid the creation of duplicative or conflicting rules, IRI urges all regulatory bodies—including the Securities and Exchange Commission (SEC), the National Association of Insurance Commissioners (NAIC), the DOL, the Financial Industry Regulatory Authority (FINRA) and the North American Securities Administrators Association (NASAA)—to work constructively and collaboratively to develop a clear, consistent and workable best interest standard.”

IRI would also like lifetime income estimates to be required to be included on workers’ benefits statements, and for the government to adopt a variable annuity summary prospectus. IRI would also like electronic delivery of statements and prospectuses to be the default option for providing required disclosures to participants, with an option to switch to paper if desired.

Lastly, IRI would like the government to help financial advisers protect their older clients from financial exploitation and to increase federal appropriates to state adult protective agencies.

A full copy of IRI’s Retirement Security Blueprint can be downloaded here.
Client Service February 23, 2018

Adviser Opportunities Abound in HSA Market

Devenir finds HSA assets grew to an estimated $45.2 billion, spread across some 22 million accounts, at the end of 2017; as more account owners are investing their HSA dollars, the demand for advice is clear. 

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Devenir, a national provider of investment solutions for health savings accounts (HSAs), released this week the results of its 15th semi-annual health savings account survey—once again measuring strong growth in the use of HSAs both as short- and long-term savings vehicles.

Benefitting from workers’ and employers’ slowly increasing understanding of the “triple tax advantage” of HSAs, the accounts collectively grew to an estimated $45.2 billion in assets in over 22 million accounts at the end of 2017. Preliminary data further shows that by the end of January 2018, HSA assets had risen to almost $50 billion. As Devenir explains, the survey data was collected between January and February of 2018 and primarily consisted of the largest 100 HSA providers in the health savings account market, “with all data being collected for the December 31, 2017, period as well as a January month-end update, since we have historically found it to be such a significant month for the industry.”

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Year over year, the increase represents a 22% jump for HSA assets and an 11% boost for accounts for the year ended December 31, 2017. Important for readers to note, a strong equity market helped propel HSA investment assets to an estimated $8.3 billion at the end of December, up 53% year over year.

The average investment account holder has a $16,457 average total balance, Devenir reports, including both deposit and investment account. For advisers in particular this is an important stat, given evidence that HSA account holders are hungry for guidance about how to best invest and eventually withdrawal these dollars. Even if it is not the most lucrative business line to get into on its own, offering such advice about HSAs and health care costs in general, experts agree, can be a tremendous value add that boosts client loyalty and lifetime wealth outcomes.

Another trend reported by Devenir is a “seasonally low” occurrence of unfunded accounts. In other words, fewer HSAs (20%) were unfunded at the end of 2017 compared the end of 2016 (24%). As the firm reports, this drop off in the percentage of unfunded accounts can largely be attributed to an uptick in the closure of accounts throughout the year, with many HSA providers noting that they were proactively cleaning up their accounts.

From the perspective of HSA providers, “direct employer relationships” became the leading driver of new account growth, accounting for 41% of new accounts opened in 2017. Other key findings show 21% of all HSA dollars contributed to an account came from an employer, with the average employer contribution coming in at just over $600, counting only those employers making contributions.

On the flip side, 63% of all HSA dollars contributed to an account came from an employee, and the average employee contribution was $1,921, again for those making regular contributions. Also interesting to note, 14% of all HSA dollars contributed to an account came from an individual account not associated with an employer, and the average individual contribution was sizable, at $1,475 for those making recurring contributions.

Offering some forward-looking projections, the research suggests HSA providers foresee 19% overall industry asset growth in 2018, while anticipating their own businesses will grow by 25% during the same period. In previous surveys, HSA providers have been fairly accurate with their growth forecasts, Devenir notes, “demonstrating an impressive understanding of the outlook for their book of business.”

For its part, Devenir currently projects that the HSA market will exceed $64 billion in HSA assets by the end of 2019, held among roughly 27.5 million accounts. An executive summary of the data is available for download here.

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