Compliance July 30, 2010

The IRS to Issue a How-To for PRA Funding Relief Elections

The Internal Revenue Service (IRS) said it will be issuing detailed guidance about the special funding rules for single-employer defined benefit plans in the recent Pension Relief Act of 2010 (PRA).

 

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In Notice 2010-55, the tax agency said the anticipated guidance could deal with topics such as:

  • calculation of the alternative amortization schedules permitted under PRA 2010 (and the effect on funding balances);
  • the rules relating to installment acceleration amounts under § 430(c)(7);
  • the procedures for making the election to use an alternative amortization schedule; and
  • the notice requirements of § 430(c)(2)(D)(vi).

 

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According to the IRS, in the case of a plan year that ends before the guidance is issued, the plan sponsor will be permitted to elect to use an alternative amortization schedule under PRA without regard to whether the Form 5500 (and Schedule SB) has been filed for that plan year.  For example, the tax agency noted, the sponsor of a plan with a calendar year plan year will not be precluded from making the election for 2009 merely because the Form 5500 for that plan year has been filed for that plan year.

Accordingly, such a plan sponsor should file the Form 5500 (and Schedule SB) in accordance with the applicable deadline, taking into account the rules for obtaining an extension.

The future guidance will address reporting requirements if the plan’s Form 5500 (and Schedule SB) for the plan year has been filed, the IRS document said.

The new IRS document is at http://www.irs.gov/pub/irs-drop/n-10-55.pdf. 

The Markets July 30, 2010

Less Active Investors Seeking Help

Fidelity Investments has released research data that finds varying investor reaction and behavior to the ongoing market volatility.
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The firm recently polled active investors — those highly engaged individuals who trade 36 or more times a year, and general investors — those with retirement and brokerage accounts who may be less active in their trading –  and found general investors, although more cautious than active investors, have proactively reached out to Fidelity for help in navigating the markets’ daily swings. Fidelity said interactions via phone, investor centers, and through online asset allocation and planning tools are up 8% year over year.  

According to a press release, the firm’s business data shows more clients are choosing to hand over management of their investments to Fidelity’s managed account services team, with its new account openings growing 23%, and assets under management growing 40% year-over-year through June 2010.  

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Broader financial issues such as potential tax increases are also impacting general investor confidence and behavior. Investors list “tax increases” as one of their top three financial challenges in the next 12 months, alongside “deciding where to invest” and “saving for retirement.” Eighty-nine percent of general investors said they expect their taxes to go up during the next 12 months, and Fidelity has found they are seeking help on how best to prepare for this changing tax landscape, the press release said.  

In an investor poll earlier this month, general investors showed their more risk-averse nature when roughly eight in ten (83%) said they would like to see a minimum of six months of market stability in order to feel comfortable making further investments, and of that group, nearly half would prefer a year or more. The poll showed that general investors’ expected investing returns varied greatly, and on average were surprisingly aggressive, with the median annual investment return expected to be 8%.  

Meanwhile, in a poll conducted last month with active investors, more than a third (36%) indicated that they believe the current state of the market is just a temporary setback. These more experienced traders told Fidelity they see market opportunities in today’s environment and are increasing their trading with nearly one-third (32%) saying they are taking advantage of bargains and attractive valuations right now.   

According to the press release, this more opportunistic view of the market is also reflected in the fact that 43% of active investors indicated they plan to decrease their portfolio’s cash allocation in the next six months with nearly half intending to decrease by more than 20%. Additionally, 67% forecasted they would beat the market in the next 12 months.

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