Time to find yourself a new broker :: Herald News :: Malcolm Berko
My letter to the Chicago Sun Times regarding a complete idiot "Advisor" columnist.
I am a fee-only financial planner who works with many teachers. I co-authored The 403b Wise Guide along with Dan Otter of www.403bwise.com (the #1 site on the internet for unbiased 403(b) information). I also consult with one of the largest pension systems in the world on their 403(b) plans.
After reading Malcom Berko's absolutely appalling response to F.L. in the above referenced article I had to write you. Not only did he refer to educators as dumb, but he made fun of the couple's lifesavings, calling it "pathetic". You should never allow him to write for your publication again and should immediately begin an investigation to see how he has unduly profited from this column. He should also be forced to make a written apology.
While I agree with the his assessment that the High Yield funds are a rotten idea, the way he talks down to the educators and berates them (how does he know what they've been through in their 31 years, maybe they had to scrimp to get to that $231k figure) is out of line and uncalled for.
What is worse is that he calls out the brokerage firm for recommending commission based products and then recommends commission based variable annuity products that will make him around 7% commission (more than the 4.75% that he berates the other broker for). The products that he is selling are horrible and excessively expensive, probably around 3% in annual fees or more. The guarantees come with catches that he fails to mention.
You would be wise to remove this ticking time bomb and replace him with someone who is less conflicted or not replace him at all.
This is one of the most self serving columns I've ever read.
I urge you to get rid of Malcom Berko.
Scott Dauenhauer, CFP, MSFP, AIF
Laguna Hills, CA 92563
Wednesday, September 19, 2007
Monday, September 17, 2007
403(b) Company, American Fidelity Banned By Pentagon
American Fidelity, a company that markets 403(b) and other programs has been banned by the Pentagon from military bases throughout the United States as the linked document above will show.
They were banned from deceptive sales practices and other stuff that you can read about.
Why is it that the military can ban these people, but they are free to roam my wife's school district?
Why in California can this company continue to harass school teachers and be protected by law (insurance code section 770.3). Under current California law if American Fidelity is willing to sign a hold harmless agreement with a school district they can offer their products and services........a district can not ban them. This is ridiculous.
Scott Dauenhauer, CFP, MSFP, AIF
They were banned from deceptive sales practices and other stuff that you can read about.
Why is it that the military can ban these people, but they are free to roam my wife's school district?
Why in California can this company continue to harass school teachers and be protected by law (insurance code section 770.3). Under current California law if American Fidelity is willing to sign a hold harmless agreement with a school district they can offer their products and services........a district can not ban them. This is ridiculous.
Scott Dauenhauer, CFP, MSFP, AIF
Updated 403(b) Regulations – an In-Depth Review
Deloitte's take on the new regs.
Scott Dauenhauer, CFP, MSFP, AIF
Scott Dauenhauer, CFP, MSFP, AIF
Dechert Publishes Newsletter on 403(b) Regs
Yet another law firm with yet another offering of information on the 403(b) regulations.
Nothing new here.
Scott Dauenhauer, CFP, MSFP, AIF
Nothing new here.
Scott Dauenhauer, CFP, MSFP, AIF
ICI Begs IRS To Extend 90-24 deadline
I'll reprint the entire letter - keep in mind I don't necessarily support it, just an FYI.
Scott Dauenhauer, CFP, MSFP, AIF
September 12, 2007
Mr. W. Thomas Reeder
Benefits Tax Counsel
Department of the Treasury
1500 Pennsylvania Ave., NW, Room 3120
Washington, DC 20220
Re: Final Regulations Under Code Section 403(b)
Dear Mr. Reeder:
The Investment Company Institute1 appreciates this opportunity to comment on the final regulations governing 403(b) arrangements issued in July. We commend the Department of the Treasury and Internal Revenue Service for undertaking a comprehensive review and codification of the guidance issued under Code section 403(b) over the last 40 years. On behalf of Institute members, who offer investments and provide services to 403(b) participants,2 we write to request a delayed effective date with respect to one aspect of the regulations - the elimination of transfers and exchanges made pursuant to Revenue Ruling 90-24. We also seek certain additional guidance on several issues relating to the regulations.
Table of Contents
Extension of Rev. Rul. 90-24 Transfers
Additional Guidance
1. Reporting and Withholding for Exchanges
2. Accumulated Benefit
3. Significance of September 24, 2007 and Grandfathering
4. Orphaned Accounts
Extension of Rev. Rul. 90-24 Transfers
The final regulations make significant changes to the ability of participants to transfer their investments, as previously permitted under Revenue Ruling 90-24. Under a grandfather rule, the new rules for contract exchanges, which include certain plan provision requirements and an information sharing agreement, do not apply to contracts received in an exchange on or before September 24, 2007 (60 days after publication of the regulations). While we appreciate the goals that underlie the decision of the Treasury and IRS to eliminate unfettered transferability, 60 days does not provide enough time for providers, employers, and participants to react to this major policy change. Providers of 403(b) investments have designed their systems around this transferability and individuals have grown to rely on it. We urge the Treasury and IRS to extend the deadline until December 31, 2008 to coincide with the general applicability date of the regulations.
Participants and employers in the education field are particularly disadvantaged by the timing of this change. Most schools start their school year mere weeks before the change takes effect, and the resources needed to explain the new rules to participants will be limited at this critical time. As a result, participants may be blindsided by the abrupt cut off of their ability to move assets to investment choices not offered by their employer.
As employers and service providers analyze the new regulations, they must make decisions about how to proceed once the new rules go into effect, including whether to permit exchanges or transfers as part of their plan or business model. Many considerations enter into these decisions and providers need more time to fully understand the regulations and their implications for providers and employers.3 As described below, our members already have identified several issues as having immediate relevance during the transition period beginning after September 24, 2007. More generally, providers that determine to continue to permit transfers from existing contracts after September 24, must be given ample time to develop systems to track the transfers (for reporting purposes) and develop any new forms necessary for approving the transfer. Providers also need time to train processors, who must be able to comprehend the subtle differences between transfers, exchanges, rollovers and taxable distributions.
We urge you to consider the practical realities facing sponsors, providers and participants as they adapt to the new 403(b) landscape by delaying the effective date of the new transfer rules until December 31, 2008.
Additional Guidance
Although the final regulations are extremely helpful in codifying prior guidance and providing certainty with respect to many areas of 403(b) plan operation, we believe additional guidance in several areas would help employers and service providers meet the requirements of the regulations. In the short period of time since the final regulations were published, Institute members have identified several points that would benefit from immediate clarification. Many of these issues relate to the uncertain landscape after September 24, 2007 and are further evidence of the need for an extension of that deadline. As the new rules are put into practice in the coming months, we may communicate additional issues on which guidance is needed.
1. Reporting and Withholding for Exchanges
For contract exchanges taking place between September 24, 2007 (or such later date specified in future guidance) and January 1, 2009, the transferring vendor may not know whether the information sharing agreement and/or other required documentation will be in place by January 1, 2009, the compliance date of the regulations. This has significant implications for a vendor's reporting and withholding obligations. For all exchanges under the new rules, including exchanges after January 1, 2009, we request confirmation that a transferring vendor may rely on the employer's representation that the exchange will be legitimized by either an information sharing agreement or the requisite plan and contract provisions, as the case may be. 4 If the transferring vendor receives no such representation, the vendor must determine how to report the transaction and whether to withhold income taxes on the amount distributed or transferred. Guidance would be helpful particularly on whether the transaction should be reported on Form 1099-R, and if so, how it should be coded. If a new code is provided, systems must be reprogrammed to accept the new code.
2. Accumulated Benefit
One of the requirements for a qualifying contract exchange or plan-to-plan transfer is that the participant's accumulated benefit immediately after the exchange or transfer be at least equal to the accumulated benefit immediately before the exchange or transfer (satisfaction of Code section 414(l)(1) is deemed sufficient). Mutual fund redemptions from 403(b)(7) custodial accounts may involve contingent deferred sales charges or redemption fees (which apply in a variety of contexts and are disclosed to investors). Similarly, some mutual funds involve front-end charges. Vendors would like comfort that these types of charges, which are otherwise permissible and serve legitimate purposes, would not violate the accumulated benefit restrictions in §1.403(b)-10(b).
3. Significance of September 24, 2007 and Grandfathering
We request confirmation that the date of September 24, 2007 (or such later date specified in future guidance) relates solely to the elimination of the current transfer rules under Rev. Rul. 90-24 and the grandfathering of transfers and exchanges made on or before that date. There is confusion surrounding whether certain other new rules might apply immediately after September 24, 2007, rather than on January 1, 2009. For example, certain verbal statements made by representatives of the IRS and Treasury after release of the final regulations imply that employer authorization requirements under the final regulations apply to distributions taken from non-grandfathered accounts after September 24, 2007.5 In addition, further guidance on what it means for a contract to be grandfathered would be helpful. For example, it is unclear whether distributions from grandfathered contracts will be subject to employer approval once the distribution rules become applicable. Similarly, there have been verbal indications that loans from grandfathered accounts will require an information sharing agreement. These interpretations are not expressly stated in the regulations and appear to be inconsistent with the notion of grandfathering.
4. Orphaned Accounts
Guidance on how the regulations apply to so-called "orphaned" accounts will be most helpful. Particularly when the employer no longer exists, the employer authorization requirement will be impossible to meet. Similarly, where the individual account-holder is no longer employed by the sponsoring employer and the vendor does not know the identity of that employer, compliance will be difficult. One option for dealing with orphaned accounts is to roll over the accounts into IRAs during the transition period, but providers would like comfort that this would entail no adverse consequences to participants.
* * *
The Institute appreciates your consideration of these matters. We would be happy to discuss any of the issues raised in this letter at your convenience. Please contact the undersigned at 202/326-5821 if you have any questions.
Sincerely,
Elena Barone
Assistant Counsel - Pension Regulation
cc: William Bortz, Department of the Treasury
Robert Architect, Internal Revenue Service
John Tolleris, Internal Revenue Service
Lisa Mojiri-Azad, Internal Revenue Service
ENDNOTES
1 ICI members include 8,803 open-end investment companies (mutual funds), 671 closed-end investment companies, 457 exchange-traded funds, and four sponsors of unit investment trusts. Mutual fund members of ICI have total assets of approximately $11.140 trillion (representing 98 percent of all assets of U.S. mutual funds); these funds serve approximately 93.9 million shareholders in more than 53.8 million households.
2 According to Institute estimates, $363 billion (53 percent) of 403(b) assets were invested in mutual funds as of December 31, 2006. The U.S. Retirement Market, 2006, Research Fundamentals, Vol. 16, No. 3, Investment Company Institute (July 2007).
3 Some providers may determine that they are bound to permit exchanges under existing contracts. We note that under state law, annuity contracts may be required to provide for ongoing transfers. Providers must have time to evaluate how the new requirements interact with their existing contract and state insurance law obligations.
4 Clarification would be helpful on whether the information sharing agreement requirement applies in all cases, or only to exchanges to outside vendors. The regulations are written in a way that applies this requirement to any exchange treated as being "within the same plan." Staff have suggested orally, however, that it applies only to exchanges to outside vendors. If the information sharing agreement does not apply to vendors "approved" by the plan (in which case information sharing presumably would be reflected in the service agreement or plan document), then it would be helpful to clarify what constitutes an approved vendor. For example, approved vendors could include only accounts to which salary deferrals may be directed, or additionally, accounts to which deferrals are not permitted, but that are designated in the plan document as "approved vendors" for exchanges.
5 Applying these rules earlier than January 1, 2009 would create significant compliance burdens, particularly when a third party has been used as a clearinghouse for remitting contributions and the account was never linked to an employer. It will take some time for providers to identify the correct employers.
Scott Dauenhauer, CFP, MSFP, AIF
September 12, 2007
Mr. W. Thomas Reeder
Benefits Tax Counsel
Department of the Treasury
1500 Pennsylvania Ave., NW, Room 3120
Washington, DC 20220
Re: Final Regulations Under Code Section 403(b)
Dear Mr. Reeder:
The Investment Company Institute1 appreciates this opportunity to comment on the final regulations governing 403(b) arrangements issued in July. We commend the Department of the Treasury and Internal Revenue Service for undertaking a comprehensive review and codification of the guidance issued under Code section 403(b) over the last 40 years. On behalf of Institute members, who offer investments and provide services to 403(b) participants,2 we write to request a delayed effective date with respect to one aspect of the regulations - the elimination of transfers and exchanges made pursuant to Revenue Ruling 90-24. We also seek certain additional guidance on several issues relating to the regulations.
Table of Contents
Extension of Rev. Rul. 90-24 Transfers
Additional Guidance
1. Reporting and Withholding for Exchanges
2. Accumulated Benefit
3. Significance of September 24, 2007 and Grandfathering
4. Orphaned Accounts
Extension of Rev. Rul. 90-24 Transfers
The final regulations make significant changes to the ability of participants to transfer their investments, as previously permitted under Revenue Ruling 90-24. Under a grandfather rule, the new rules for contract exchanges, which include certain plan provision requirements and an information sharing agreement, do not apply to contracts received in an exchange on or before September 24, 2007 (60 days after publication of the regulations). While we appreciate the goals that underlie the decision of the Treasury and IRS to eliminate unfettered transferability, 60 days does not provide enough time for providers, employers, and participants to react to this major policy change. Providers of 403(b) investments have designed their systems around this transferability and individuals have grown to rely on it. We urge the Treasury and IRS to extend the deadline until December 31, 2008 to coincide with the general applicability date of the regulations.
Participants and employers in the education field are particularly disadvantaged by the timing of this change. Most schools start their school year mere weeks before the change takes effect, and the resources needed to explain the new rules to participants will be limited at this critical time. As a result, participants may be blindsided by the abrupt cut off of their ability to move assets to investment choices not offered by their employer.
As employers and service providers analyze the new regulations, they must make decisions about how to proceed once the new rules go into effect, including whether to permit exchanges or transfers as part of their plan or business model. Many considerations enter into these decisions and providers need more time to fully understand the regulations and their implications for providers and employers.3 As described below, our members already have identified several issues as having immediate relevance during the transition period beginning after September 24, 2007. More generally, providers that determine to continue to permit transfers from existing contracts after September 24, must be given ample time to develop systems to track the transfers (for reporting purposes) and develop any new forms necessary for approving the transfer. Providers also need time to train processors, who must be able to comprehend the subtle differences between transfers, exchanges, rollovers and taxable distributions.
We urge you to consider the practical realities facing sponsors, providers and participants as they adapt to the new 403(b) landscape by delaying the effective date of the new transfer rules until December 31, 2008.
Additional Guidance
Although the final regulations are extremely helpful in codifying prior guidance and providing certainty with respect to many areas of 403(b) plan operation, we believe additional guidance in several areas would help employers and service providers meet the requirements of the regulations. In the short period of time since the final regulations were published, Institute members have identified several points that would benefit from immediate clarification. Many of these issues relate to the uncertain landscape after September 24, 2007 and are further evidence of the need for an extension of that deadline. As the new rules are put into practice in the coming months, we may communicate additional issues on which guidance is needed.
1. Reporting and Withholding for Exchanges
For contract exchanges taking place between September 24, 2007 (or such later date specified in future guidance) and January 1, 2009, the transferring vendor may not know whether the information sharing agreement and/or other required documentation will be in place by January 1, 2009, the compliance date of the regulations. This has significant implications for a vendor's reporting and withholding obligations. For all exchanges under the new rules, including exchanges after January 1, 2009, we request confirmation that a transferring vendor may rely on the employer's representation that the exchange will be legitimized by either an information sharing agreement or the requisite plan and contract provisions, as the case may be. 4 If the transferring vendor receives no such representation, the vendor must determine how to report the transaction and whether to withhold income taxes on the amount distributed or transferred. Guidance would be helpful particularly on whether the transaction should be reported on Form 1099-R, and if so, how it should be coded. If a new code is provided, systems must be reprogrammed to accept the new code.
2. Accumulated Benefit
One of the requirements for a qualifying contract exchange or plan-to-plan transfer is that the participant's accumulated benefit immediately after the exchange or transfer be at least equal to the accumulated benefit immediately before the exchange or transfer (satisfaction of Code section 414(l)(1) is deemed sufficient). Mutual fund redemptions from 403(b)(7) custodial accounts may involve contingent deferred sales charges or redemption fees (which apply in a variety of contexts and are disclosed to investors). Similarly, some mutual funds involve front-end charges. Vendors would like comfort that these types of charges, which are otherwise permissible and serve legitimate purposes, would not violate the accumulated benefit restrictions in §1.403(b)-10(b).
3. Significance of September 24, 2007 and Grandfathering
We request confirmation that the date of September 24, 2007 (or such later date specified in future guidance) relates solely to the elimination of the current transfer rules under Rev. Rul. 90-24 and the grandfathering of transfers and exchanges made on or before that date. There is confusion surrounding whether certain other new rules might apply immediately after September 24, 2007, rather than on January 1, 2009. For example, certain verbal statements made by representatives of the IRS and Treasury after release of the final regulations imply that employer authorization requirements under the final regulations apply to distributions taken from non-grandfathered accounts after September 24, 2007.5 In addition, further guidance on what it means for a contract to be grandfathered would be helpful. For example, it is unclear whether distributions from grandfathered contracts will be subject to employer approval once the distribution rules become applicable. Similarly, there have been verbal indications that loans from grandfathered accounts will require an information sharing agreement. These interpretations are not expressly stated in the regulations and appear to be inconsistent with the notion of grandfathering.
4. Orphaned Accounts
Guidance on how the regulations apply to so-called "orphaned" accounts will be most helpful. Particularly when the employer no longer exists, the employer authorization requirement will be impossible to meet. Similarly, where the individual account-holder is no longer employed by the sponsoring employer and the vendor does not know the identity of that employer, compliance will be difficult. One option for dealing with orphaned accounts is to roll over the accounts into IRAs during the transition period, but providers would like comfort that this would entail no adverse consequences to participants.
* * *
The Institute appreciates your consideration of these matters. We would be happy to discuss any of the issues raised in this letter at your convenience. Please contact the undersigned at 202/326-5821 if you have any questions.
Sincerely,
Elena Barone
Assistant Counsel - Pension Regulation
cc: William Bortz, Department of the Treasury
Robert Architect, Internal Revenue Service
John Tolleris, Internal Revenue Service
Lisa Mojiri-Azad, Internal Revenue Service
ENDNOTES
1 ICI members include 8,803 open-end investment companies (mutual funds), 671 closed-end investment companies, 457 exchange-traded funds, and four sponsors of unit investment trusts. Mutual fund members of ICI have total assets of approximately $11.140 trillion (representing 98 percent of all assets of U.S. mutual funds); these funds serve approximately 93.9 million shareholders in more than 53.8 million households.
2 According to Institute estimates, $363 billion (53 percent) of 403(b) assets were invested in mutual funds as of December 31, 2006. The U.S. Retirement Market, 2006, Research Fundamentals, Vol. 16, No. 3, Investment Company Institute (July 2007).
3 Some providers may determine that they are bound to permit exchanges under existing contracts. We note that under state law, annuity contracts may be required to provide for ongoing transfers. Providers must have time to evaluate how the new requirements interact with their existing contract and state insurance law obligations.
4 Clarification would be helpful on whether the information sharing agreement requirement applies in all cases, or only to exchanges to outside vendors. The regulations are written in a way that applies this requirement to any exchange treated as being "within the same plan." Staff have suggested orally, however, that it applies only to exchanges to outside vendors. If the information sharing agreement does not apply to vendors "approved" by the plan (in which case information sharing presumably would be reflected in the service agreement or plan document), then it would be helpful to clarify what constitutes an approved vendor. For example, approved vendors could include only accounts to which salary deferrals may be directed, or additionally, accounts to which deferrals are not permitted, but that are designated in the plan document as "approved vendors" for exchanges.
5 Applying these rules earlier than January 1, 2009 would create significant compliance burdens, particularly when a third party has been used as a clearinghouse for remitting contributions and the account was never linked to an employer. It will take some time for providers to identify the correct employers.
Wednesday, September 12, 2007
DANVILLE MAN PLEADS GUILTY TO MULTIMILLION DOLLAR FRAUD SCHEME - Update on other Belly Up TPA's
Just to give you an update on Plan Compliance Group and "Bill" Reimers......
He pled guilty on March 23rd to bilking investors and school districts out of $7 million dollars. His sentencing will be on October 26th. He could get up to 20 years on each of 7 counts.
Plan Compliance Group was a Third Party Administrator of 403(b) plans in California.
In addition, Hal Hopkins of Flagship Admin, a TPA out of Ohio plead guilty to 39 Felony counts and will have a sentencing hearing on November 19th.
On Yet another TPA that went bankrupt and stole customer funds, NEBSOnline, the former CEO Bruce Kosinski became ill and died on March 13, 2007. He is the second person from the company to die since the company went under, the first, the CFO committed Suicide. The bankruptcy dissolution is still underway, but almost finished.
That is the update on the three TPA's that have gone belly up and stolen district money in the past three years.
Bottomline - Districts need to be more careful with whom they choose as a TPA.
Scott Dauenhauer, CFP, MSFP, AIF
He pled guilty on March 23rd to bilking investors and school districts out of $7 million dollars. His sentencing will be on October 26th. He could get up to 20 years on each of 7 counts.
Plan Compliance Group was a Third Party Administrator of 403(b) plans in California.
In addition, Hal Hopkins of Flagship Admin, a TPA out of Ohio plead guilty to 39 Felony counts and will have a sentencing hearing on November 19th.
On Yet another TPA that went bankrupt and stole customer funds, NEBSOnline, the former CEO Bruce Kosinski became ill and died on March 13, 2007. He is the second person from the company to die since the company went under, the first, the CFO committed Suicide. The bankruptcy dissolution is still underway, but almost finished.
That is the update on the three TPA's that have gone belly up and stolen district money in the past three years.
Bottomline - Districts need to be more careful with whom they choose as a TPA.
Scott Dauenhauer, CFP, MSFP, AIF
Monday, September 10, 2007
IRS to Non-Profits: Take Charge of Retirement
Decent article on the upcoming reg changes. Nothing new.
Scott Dauenhauer, CFP, MSFP
Scott Dauenhauer, CFP, MSFP
Friday, September 07, 2007
Nonprofit workers face retirement-plan deadline - Money Magazine
Penelope Wang of Money Magazine interviewed Dan Otter and yours truly the other day and wrote an excellent article on what educators need to do immediately - evaluate your current 403(b) and think about switching it.
Read the article, you'll be better for it.
Scott Dauenhauer, CFP, MSFP, AIF
Read the article, you'll be better for it.
Scott Dauenhauer, CFP, MSFP, AIF
Tuesday, September 04, 2007
Shift 403(b) assets by Sept. 24, or else
Good overview of what teachers need to do RIGHT NOW.
David Ranii
"Now is the time for teachers and nonprofit employees with 403(b) retirement plans to assess their investments.
Right now.
On Sept. 24, new Internal Revenue Service regulations take effect that make it more difficult for employees to shift the assets in their 403(b) accounts from one provider of mutual funds and other investments -- such as Fidelity Investments or Charles Schwab -- to another without suffering a tax penalty."
Follow the title link for the rest of the article.
Scott Dauenhauer, CFP, MSFP, AIF
David Ranii
"Now is the time for teachers and nonprofit employees with 403(b) retirement plans to assess their investments.
Right now.
On Sept. 24, new Internal Revenue Service regulations take effect that make it more difficult for employees to shift the assets in their 403(b) accounts from one provider of mutual funds and other investments -- such as Fidelity Investments or Charles Schwab -- to another without suffering a tax penalty."
Follow the title link for the rest of the article.
Scott Dauenhauer, CFP, MSFP, AIF
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