Compliance December 29, 2015

New Law Expands Allowable Rollovers to SIMPLE Plans

It also expands the exceptions for the 10% additional income tax on distributions for those younger than 59-1/2.
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The Consolidated Appropriations Act that became law on December 18 allows a participant in a qualified retirement plan, 403(b) plan or 457 plan to roll over their distribution from that plan to a Savings Incentive Match Plan for Employees (SIMPLE) retirement account, according to various law firms’ client alerts.

Before this change, a SIMPLE account could only accept contributions under a qualified salary reduction arrangement (i.e., another SIMPLE plan). The change applies only to rollovers after the two-year period beginning on the date a participant in such an employer plan first participated in the SIMPLE plan sponsored by their employer. The employer will have to verify that the two-year period has been satisfied before permitting the rollover. 

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The law also expands exceptions to the 10% additional income tax on a distribution from a qualified retirement plan to a participant younger than 59-1/2. Under current law, there is an exception if the distribution is made to an employee after separation of service if they are 55 or older, and for distributions from governmental plans for qualified public safety employees, the exception applies to those 50 or older. The budget bill expands the definition of “qualified public safety employees.”

Furthermore, the act permanently extends the ability of people 70-1/2 or older to exclude from gross income charitable distributions of $100,000 or less from individual retirement accounts (IRA).

According to a publication from Groom Law Group, the law also includes a package of church plan changes that include a provision that prevents the Internal Revenue Service (IRS) from aggregating certain church plans together for the purposes of nondiscrimination rules. It also allows church plans to decide which other church plans with which they associate. It also prevents certain grandfathered church defined benefit plans from having to meet certain requirements relating to maximum benefit accruals, and it allows defined contribution church plans to offer automatic enrollment. Finally, it streamlines the rules for merging and reorganizing church plans, and allows them to invest in 81-100 collective trusts. 

The Markets December 28, 2015

Advisers Conducting More RFPs Than Ever

More than 75% of asset managers expect to see an increase in RFPs, RFIs, and due diligence questionnaires in the next 12 months, according to Cerulli Associates. 
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A new report from Cerulli Associates finds asset managers are receiving more formal requests for proposals (RFPs) than ever before, especially from investment consultants and registered investment advisers (RIAs) hoping to gain tighter control of client portfolios.  

The push from RIAs towards the “rep-as-portfolio-manager” (RPM) model makes sense, Cerulli says, given assets managed by this category of adviser grew year over year by 6.3% through the end of the third quarter of 2015—despite serious market volatility. This stacks up against an average growth rate during this time period of 2.9% for all managed account products. Such strong growth is obviously enticing, but Cerulli warns the RPM model is far from the most efficient approach to advising. 

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“Wirehouse advisers have flocked to the RPM platform to reassert control over the portfolio construction process,” Cerulli explains. This has helped fuel the trend of asset managers “witnessing much higher volumes and increased complexity in RFPs, requests for information [RFIs], and due diligence questionnaires.”

Cerulli finds advisers (and other investor types) today routinely file 50-page RFPs, diving deep into such topics as risk control and investment procedures, “a substantial jump from 10 or so pages a few years ago.” The report further shows both large and medium/small managers anticipate a 13% jump in RFIs during 2015, while 31% and 18% of large and medium/small managers, respectively, expect a “significant increase” in that time period.

NEXT: Where the interest lies 

“Some RFIs are a combination of ad hoc questions and multiple pages of standard questions,” Cerulli notes. “Others may be very specific to a manager’s general expertise in a particular area. For instance, one manager whom Cerulli interviewed said that they are receiving multiple requests associated with their firm’s commitment to socially responsible investing.”

According to Cerulli , “almost all managers surveyed report that they completed RFPs for investment consultants, private defined benefit, and endowment and foundation channels,” while fewer answered formal questions from bank trusts, insurance general accounts, or family offices. Over the next 12 months, more than 70% of managers Cerulli surveyed expect to see an increase in RFPs for mutual fund and variable annuity sub-advisory arrangements from investment consultants and RIAs.

Cerulli concludes sub-advisory relationships “continue to grow among asset managers that possess niche expertise such as alternatives or real estate.” At the same time, investment consultants are having a greater influence on mandate decisions, “coinciding with firms’ expectations for more RFPs originating from these professionals.”

“With the migration of financial advisers toward the RIA channel and a desire for these advisers to vet managers, Cerulli expects that more RFPs will come through RIAs than broker/dealers over the next three years (72% versus 54%),” the report concludes.

More information on obtaining Cerulli research is here.

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