L1: Proposed ChangePlease note that there is a pending Bill S. 3760 , which proposes changes to the 1986 law on retirement accounts. Within the bill there is a reference to 72T. Recently there have been some hearings on this bill.Overall questions is:Will this effect current SEPP plans and current non-SEPP retirement accounts, if so in what way?If yes, my detailed questions are, but not limited to:Will SEPP distributions, as per defined methods in current plans, be continued and if so, without penalty?Will new establishment of SEPP plans be effected ?Will elective distributions from non-SEPP IRA’s be permitted, either post age 59 _ or early with penalty?Will direct investing in individual equities or other instruments be restricted, instead investments will be limited to grouped risk investment categories?Will all current retirement accounts, including non-SEPP, possibly have their future distributions limited to an annutized distribution amount, notwithstanding the person’s current age?Thank you for your review and expertise,Bob2010-10-12 15:58, By: BobVA, IP: [220.127.116.11]
L2: Proposed ChangeBob:
Those are some good questions. However, I doubt that most folks on this board, myself included, have any clue ofthe contents ofSB 3760, so it would be rather difficult to answer any of your questions. Maybe if you could provide a link to the text of this bill we could do a better job of providing some answers.
Jim2010-10-12 16:03, By: Jim, IP: [18.104.22.168]
L3: Proposed ChangeJim,
Please find the link below to the official pdf file. Note that Page 38 line 19 continued into page 39 directly refers to 72 t, while the overall bill has provisions that brought forth my various questions.
Thanks, Bob2010-10-12 16:15, By: Bob VA, IP: [22.214.171.124]
L2: Proposed ChangeThe bill is merely a proposed bill so it is somewhat impossible to determine the impact on a SEPP plan.
Here is a link to a summary of the bill as proposed by the democrat who came up with this brilliant idea. http://www.retirementmadesimpler.org/Library/AutoIRA-S-3760-Summary.pdf
In reality, to me it seems like a power grab to have the government get access to more money – your personal retirement funds. They already blew most of the theoretical Social Security trust fund and the want access to more dollars.
I don’t want to get political, but on November 2 vote Republican and my guess is that it will have no impact as it will probably fade into things they wanted to do.2010-10-12 16:17, By: Gfw, IP: [126.96.36.199]
L3: Proposed ChangeGFW,
During the lame duck session there remains uncertainty as to what bills may be addressed. Therefore this bill could be brought forward on its own or inserted into another bill, notwithstanding the results of the election. Perhaps you can address only the 72T provision on page 38 line 19 into page 39 to provide a clearer idea as to the intent of the language directed to 72T in the bill My prior post contains a link to the official bill.
Thanks again, Bob2010-10-12 16:52, By: BobVA, IP: [188.8.131.52]
L4: Proposed ChangeBob:
I have now read both the summary in the link sent by Gordon, and the entire proposed bill in the link you provided. Here are my thoughts. Keep in mind that I am a financial planner and not an attorney or CPA.
Page 38, Line 19 through Page 39, Line 6 which you specified: My understanding of IRC 72(t) covers more than just the SEPP Plans which we address here. My read on the specific parts of Pages 38 & 39 arestraight forward and do not have anything to do with SEPP Plans. Simply put, in my opinion, this reference to IRC 72(t) says that if an employee is automatically enrolled in an Automatic IRA, the employee has 90 days to reject the employer’s action and remove the funds without penalty. Plain and simple. Someone else may have a different read.
As to the rest of your questions, they are just “speculative fodder” for someone to ponder for whatever reason. I see no reason to address them further since it would be a total waste of time and would not accomplish anything. Now if this bill becomes law, then someone might review your questions. If this response offends you, I am sorry.
One question does come to mind about SEPP Plans and the Automatic IRA. The Automatic IRA can only exist if an employee is working and the employer is making contributions for the employee. Once the employee terminates work and separates from that employer, then you simply have either a Traditional IRA or a Roth IRA. (NOTE: The Automatic IRA default is the Roth IRA.) HERE’S MY POINT! You CANNOT INCLUDE an Automatic IRA (while the employee is still working) within a SEPP Plan universe since it is receiving regular contributions and that alone would BUST the plan!
I see several potential problems with this bill but nothing associated with SEPP Plans so I will onlyaddressone of my thoughts in this regard. The Default Investment for the first $5,000 is the “PRINCIPAL PRESERVATION” section defined on Page 21 lines 16 through 22. Several optons are listed which includes US Treasuries. The bill also describes a “Principal Protection Bond” which is issued by the US Treasury. By requiring investment in these types of instruments, the government gains control of your retirement assets. (Remember … The Social Security “Trust Fund” doesn’t contain dollars … it contains “US Treasurey Bills” which are “IOU’s!”) When the account reaches $5,000, the automatic action is to transfer to adifferentinvestment option, but the employee has the option to stay in the “Principal Preserevation” fund. Since most employees don’t have the confidence of investing in a”Balanced Fund” option, I think the designers of this bill are betting on many dollars staying invested with the government option. Think about it!
As to the possibility of this bill becoming law during the Lame Duck Session, I don’t see that happening. If the Republicans take over as is generally expected, the Lame Ducks will have other, bigger “fish to fry” while they still have the opportunity to strike. This bill will be very low on their radar.
Just my thoughts.
2010-10-12 20:18, By: Jim, IP: [184.108.40.206]
L5: Proposed ChangeJim,Thank you for your time and thorough analysis. Guess we will wait to see what the results of the elections are and if this bill eventually evolves.Thanks again, Bob2010-10-13 05:04, By: Bob VA, IP: [220.127.116.11]