A new report out from the Government Accountability Office (GAO),
titled “Improved Guidance Could Help Account Owners Understand the Risks of
Investing in Unconventional Assets,” suggests there is a significant lack of
reliable data around the use of “unconventional” assets within defined
contribution (DC) plans.
“Federal data collection efforts to date have captured
little information on retirement accounts holding unconventional assets—such as
real estate, precious metals, private equity, and virtual currency,” the report
notes, “making the prevalence of such accounts unknown.”
According to GAO, in tax year 2015, the Internal Revenue
Service (IRS) began requiring that custodians or trustees of individual
retirement accounts (IRA)—including banks or other institutions approved to
hold account assets—report selected information on unconventional assets in their
clients' accounts to IRS.
“As of November 2016, IRS plans to begin compiling the new
IRA asset data in 2017, but has not specified when the new IRA asset data will
be available for analysis,” GAO reports. “Seventeen of the 26 custodians, who
GAO identified as allowing retirement accounts with unconventional assets and
who participated in GAO's data collection effort, reported having nearly half a
million of these accounts in their custody at the end of calendar year 2015.
IRAs made up the vast majority of accounts and assets reported.”
GAO's review of industry documents found that individuals
wanting to invest in unconventional assets through their IRA “generally agree
to be responsible for overseeing the selection, management, and monitoring of
account investments and shoulder the consequences of most decisions affecting
their accounts.” For example, owners of such accounts assume
a fiduciary role, which makes them assume greater responsibility for
overseeing the selection, management, and monitoring of account investments,
and shoulder the consequences of most decisions affecting their accounts.
According to GAO, current IRS guidance “provides little
information to help IRA owners understand their expanded responsibilities and
potential challenges associated with investing in unconventional assets.”
“Targeted IRS guidance for these IRA owners may help them
navigate the potential compliance challenges associated with certain types of
unconventional assets,” GAO argues.
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