The Markets February 9, 2012

Younger Investors Reluctant to Make New IRA Contributions

Less than half (45%) of young investors plan to contribute to an Individual Retirement Account (IRA) for the 2011 tax year.
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According to research from T. Rowe Price, 55% of young investors said they do not plan to fund an IRA or are unsure whether they will do so this tax filing season. By comparison, 71% of these investors made an IRA contribution for the 2010 tax year.

According to the survey, the decline in commitment to IRAs is being driven by several factors, including:

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•  A belief that current participation in a 401(k) plan is adequate for now (42%);

•  A feeling that they can’t afford it (32%);

•  Economic uncertainty (23%);

•  Market volatility (14%); and

•  Job uncertainty (12%).

When asked what they would do with an extra $5,000, most investors (56%) said they would pay off existing debt or add to a “rainy day” fund; only 16% said they would contribute to an IRA.

The study also found that only 22% of Generation X and Generation Y investors feel confident about the financial markets heading into 2012. And among investors who plan to fund an IRA this tax season, 28% said they will direct their contributions to relatively stable investments such as money market funds, despite the historically low current yields offered by these vehicles and their lack of suitability as long-term retirement investments.

T. Rowe Price’s research into IRAs and the investing practices of Generation X and Generation Y investors was conducted online from December 1 to 12, 2011, by Harris Interactive among a national sample of 860 adults aged 21-50 who currently have one or more investment accounts.  

Products February 9, 2012

Pioneer Launches Tool for 408(b)(2) Compliance

Pioneer Investments launched a tool for registered investment advisers (RIAs) to help them comply with the new 408(b)(2) regulation.  
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Pioneer’s tool is a model Advisory Agreement designed to meet the requirements of the 408(b)(2) regulation from the Department of Labor (DoL), which says advisers must provide 401(k) plan sponsors and other retirement fiduciaries with standardized disclosure about their business before they provide advisory or other services to retirement plans. The rule will take effect July 1, 2012 (see “DoL Issues Final Rule on 401(k) Disclosure”).

To develop the Advisory Agreement, Pioneer partnered with Drinker Biddle &Reath LLP, a national law firm; and fi360, a specialist in investment fiduciary responsibility.

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“We have found that retirement plan advisers generally understand what 408(b)(2) represents, but find it a challenge to incorporate the requirements into their own practice,” says Jamie Axford, senior vice president and director of business development, Investment Only and Retirement Group at Pioneer. “This model Advisory Agreement provides advisers with an easy-to-understand solution for meeting their obligations under the new rule.”

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