Compliance December 18, 2014

Treasury Issues Final Regs Underlying ‘myRA’ Program

The U.S. Treasury issued final regulations establishing a new type of electronic retirement savings bond designed to serve as the backbone of the president’s myRA program.
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The Bureau of the Fiscal Service, part of the Treasury Department, says a new nonmarketable electronic retirement savings bond is now available through designated custodians serving Roth individual retirement accounts (IRAs) established under the myRA program.

This savings bond is available only to participants in the myRA retirement savings program, the Treasury says. The bonds are designed to protect the principal contributed while earning interest at a rate previously available only to federal employees invested in the Government Securities Investment Fund (G Fund) of the Thrift Savings Plan.

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The agency previously announced its intentions to establish the new class of bond. In February, Mark Iwry, senior adviser to the Secretary and Deputy Assistant Secretary (Tax Policy) Retirement and Health Policy at the Treasury Department in Washington, D.C., said workers looking to start saving for retirement would soon be able to purchase a specially designed Treasury retirement savings bond held in a Roth IRA. He said the bond will have an add-on feature, meaning that additional contributions will increase the value of a single security held by a given investor, instead of requiring the purchase of multiple securities. (See “myRA Program Details and Intent.”)

Iwry pointed out that initial investment could be as low as $25, and contributions as low as $5 could be made through payroll deductions. As starter accounts, myRAs will be limited to a cumulative $15,000 each—not an end target for saving, but rather a transition point at which the individual’s savings would shift to a private-sector Roth IRA. If a saver’s myRA never accumulates to $15,000, the balance will be shifted to a private-sector Roth IRA after 30 years, the Treasury says.

The myRA program was created in January, when President Obama issued a memorandum directing the Secretary of the Treasury to develop a retirement savings program focused on serving new and small-dollar savers. The president’s proposal raised both hopes and eyebrows in the private retirement planning industry and brought significant national attention to America’s retirement issues when introduced during his fifth State of the Union address.

According to the Treasury, myRA accounts will allow savers to begin investing for retirement without start-up costs or fees. These facts have caused some to speculate that the Treasury will have to rely on niche service providers that already specialize in low-balance IRAs, such as those providing automatic rollover and cash-out services for terminating pension plans, among others, to administer the accounts. 

Once their account is established, participants in the program can continue to make periodic electronic contributions in any amount. Amounts contributed by participants in the program will be invested exclusively in the Treasury’s new retirement savings bonds. The designated custodian for the program will purchase and hold these new bonds exclusively for the benefit of the participants.

At any time, participants can transfer their balance to a commercial financial services provider to take advantage of the broad array of retirement products available in the marketplace. Because the accounts offered through the program are Roth IRAs, participants also have the flexibility to withdraw their contributions at any time without a penalty. Participants can keep their account and can continue investing in the retirement savings bond even if they change jobs.

The full text of the new rule is here.

Products December 18, 2014

QBI Announces Fiduciary Service for Sponsors

QBI has introduced a new service providing 3(16) fiduciary support to retirement plan sponsors.
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QBI, a provider of administration and consulting services for qualified retirement plans, launched a new service providing 3(16) fiduciary support to plan sponsors.

The program allows employers to address their fiduciary risk and liability by appointing a qualified professional to oversee plan operations and introduce plan management controls.

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Offered by QBI affiliate Fiduciary Administration, the program names the 3(16) fiduciary as the “plan administrator” who is responsible for the general operation of the plan. The expert adopts the formal responsibility for overseeing many regular plan-related actions, including proper plan documentation, filings, communications and reporting. By delegating this role to the 3(16) fiduciary, an employer has the ability to maintain a compliant plan and reduce their fiduciary risk with respect to this role and its responsibilities.

“We strongly believe that QBI clients who sponsor qualified retirement plans would benefit by appointing a 3(16) fiduciary to take ownership of this important responsibility,” says Nick Stonnington, QBI president and CEO. “Employers start retirement plans to invest for their futures and those of their employees, not to become compliance experts. Missteps can be costly and distract from the goal. With this service, they have the opportunity to relax about several important fiduciary obligations and focus on what matters most to them.”

The delivery of 3(16) services is possible through a contract between Fiduciary Administration and ERISA SMART. ERISA SMART President and CEO David Donaldson and his staff provide services to take responsibility of important fiduciary tasks, ensuring plans stay on track and allowing clients and their advisers to focus instead on helping participants achieve better retirement savings outcomes.

“Many trustees delegate their day-to-day operational responsibilities to employees who are unfamiliar with the complexities and requirements of qualified plan compliance,” Donaldson notes. “The result can be costly in terms of penalties and other legal actions, not to mention the expense of the time it takes company executives to respond to these issues.”

QBI is planning to enact an education campaign in early 2015 to assist financial advisers, accountants, and other industry professionals understand the features and benefits of introducing this service to their clients.

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