The NotSoNew Math of Teresa Ghilarducci’s ‘New’ GRA Proposal

New Year’s is generally a time for fresh starts and new ideas — but that didn’t dissuade Prof. Teresa Ghilarducci from repackaging some old ideas — and some questionable math — in a recent New York Times oped.

Ghilarducci’s issue with the current private system are numerous (and well chronicled), but in the Times piece she sums their design flaws as being “individually directed, voluntary and leaky.” She (and her new collaborator Hamilton James, president and chief operating officer of Blackstone, a money management firm) finds “individualized” retirement accounts deficient in that they allow people to withdraw money before they retire (and are thus “restricted” in her view to investments suitable to that purpose, liquid stocks and bonds). Her GRAs, on the other hand, would be overseen by an “independent federal agency,” with workers — and employers — required to contribute a mandatory minimum of 1.5% of their pay (or contract). She’d do away with the current tax deduction for retirement savings, and in its place substitute a $600 refundable tax credit “to pay for
the contributions of households below median income.”

To be fair, these points do appear to be a bit of a twist on previous versions of the GRA proposal, which called for mandatory employer and worker contributions of 2.5% each and a $600 matching contribution from the federal government for every worker.

‘Freeing’ Employers

Ghilarducci allows that employers won’t like paying “more,” though she says that her program would “free” them from “administrating and worrying about providing retirement plans if they don’t offer a 401(k) or pension,” and goes so far as to claim that they will also benefit because “…a nation of financially secure retirees would preempt
higher corporate taxes.” What she doesn’t say is that they might well also choose to be “spared” the financial obligation of all those current matching employer contributions (as would the accounts of current 401(k) participants who receive them).

She solves the investment “problem” of these individualized accounts with “lowfee
diversified retirement portfolios” created and overseen by “a board of professionals who would be fiduciaries appointed by the president and Congress and held accountable to investors.” How this would be accomplished isn’t explained, but she claims that “the fees and investments would be much less prone to corruption because the managers’ income would not depend on the investments, the fees would be disclosed, and the accounts separated from government funds and owned by the individuals.” This pooling will allow for the program’s guaranteed return of about 3% to be “essentially costless,” according to Ghilarducci, who admits that that figure is about half the expected return on stocks over the long term.

The Math

However, if the current system, in Ghilarducci’s assessment anyway, falls so far short of what is needed, one might well wonder how in the world that gap could be closed by a 3% mandatory contribution (employer and employee), and a 3% return. While making every worker put something aside would certainly improve the lot of those who currently lack a retirement savings program at work, the vast majority of those who do have access make contributions larger, and receive employer matches much larger, than the levels articulated in the oped. Moreover, we all know that a contribution level, even a mandatory contribution level, of 3% is almost certainly going to fall short of the needs of middle and upperincome individuals. Ghilarducci admits in the oped that, “Three percent is not an adequate saving rate, it is a starting base.” So perhaps that new mandatory contribution level won’t remain at that level for very long.

Nor can it come from the impact of eliminating leakage; previous research by the nonpartisan Employee Benefit Research Institute (EBRI) based on actual administrative data proves that while leakage has an impact on retirement savings, eliminating it would not be “enough.” Granted, by requiring an annuity payout, the GRA purports to offer an outcome that “lasts,” but how could it possibly be “enough”?

No, based on previous iterations of the GRA proposal, this only way the math on this program “works” (and “works” seems a generous description) lies in the pooling of the accounts, euphemistically called “risk sharing” in previous descriptions. The oped
makes a glancing reference to what this means, noting that the GRA “builds until retirement age, then pays out a supplemental stream of income until that person and his or her beneficiary die.” Said another way, like Social Security, these contributions are mandatory, but if you die “early,” they stay with the pool.

It’s difficult to provide a comprehensive assessment of a complicated proposal that would upend the nation’s current retirement system based on nothing more than an oped,
but this GRA proposal in large part seems structurally consistent with Ghilarducci’s previous proposals; she basically cuts out the employer and wipes out the pretax
treatment for 401(k) contributions, while effectively replacing the private system with a federal Social Security supplement that offers a guaranteed (but small) return on those funds, and some kind of notional account in which the individual saver’s interest ends with their (and in more recent proposals their beneficiary’s) death.

If the proposal itself has a certain déjà vu sense to it, what makes it a bit scarier this time is the voice that Ghilarducci is reported to have within the campaign of presidential aspirant Hillary Clinton.

That said, while these GRA accounts might be called “guaranteed,” the only thing that really seems to be worthy of that name is the negative impact it would have on the current system and the retirement security of the savers who are depending on it.

By: Nevin E. Adams

From: NAPA Net, January 5, 2016

IRS Takes Aim at Participant Loans

A key IRA audit issue for retirement plans: participant loan documentation.  Generally, plan loans are tax-free if the total doesn’t exceed the smaller of $50,000 or 50% of the borrower’s account balance.  And most loans must be paid back in full within five years, but loans used to purchase or construct a principal residence can have a longer repayment period.  Among the documents that plans must retain are the loan application, an executed plan note and the repayment history, IRS says.  To get a plan loan to help buy a main house, the borrower must submit paperwork evidencing the planned purchase before the loan is ok’s.  IRS is looking at this closely.

From: The Kiplinger Tax Letter, May 2015

Investing with Your IRA is Allowed

You can have your IRA invest in a firm in which you serve board.  Doing so isn’t a prohibited transaction, a district court says to an investor who had his IRA buy a 5% stake in a company and who subsequently joined its board.  After the director went bankrupt, a creditor tried to grab the funds from the IRA, claiming that the director had engaged in a prohibited transaction with the account.  But the court said using the IRA to buy a minority stake is allowed (Nolte, D.C., Va.).

From: The Kiplinger Tax Letter, May 2015

Advisers are Part of the ESOP Team

When considering an employee stock ownership plan, employers should consult their adviser — and  a host of other professionals, too. “You have to put a team together. It’s a highly technical environment,” says John Carnevale, president and CEO of Sentinel Benefits and Financial Group. “They’re not complicated once you know how to do them, but they’re special. They’re different from a standard 401(k) plan.”

The first step is to have a business appraiser determine the company’s worth, Carnevale says. An attorney is needed to handle the legal aspects of the ESOP and a third-party administrator takes care of the bookkeeping and accounting, he says.

The multitude of moving parts is what makes ESOPs complicated, Carnevale says. An owner is selling their business, employees are buying stock and a qualified retirement plan is being set up. “You’re doing a lot of things at the same time,” he says. That can lead to unforeseen problems. “Go slowly,” Carnevale says. “Make sure you understand the whole thing before you do it.”

There are successes and failures when it comes to ESOPs, Carnevale says, and engagement is a key factor. “You get out of it what you put into it,” he says. “For the right people, it’s a great deal. For the wrong people, you should avoid it.”

Why should a benefit adviser be concerned with whether a client chooses an ESOP or sells to another business owner? The latter could result in a loss of that client.

When a business is sold, the employees are folded into their new employer’s benefits plan and the acquirer’s adviser has a larger client while the other adviser loses a client. The adviser might not be the only one who loses that client — their former accountant, lawyer, bank, etc., might have all shared that client.

If the business was located in a small town and the new employer moves it, that could have a tremendous impact on the residents, says Dan Zugell, senior vice president at Business Transition Advisors, Inc. “That could devastate a local community,” he says. Selling to the employees instead of an outside buyer helps keep those jobs, Zugell says.

It’s also a main reason business owners choose ESOPs, along with the tax incentives. “It’s more about legacy and the workforce,” says Loren Rodgers, executive director of the National Center for Employee Ownership.

Advisers are also needed when an employee leaves the company and sells their stock. Typically, individuals roll that money into an IRA, and they need assistance, Zugell says.

There are an estimated 7,000 ESOPs covering 13.5 million employees, according to the NCEO, and Rodgers anticipates 2014 and 2015 will be strong years for ESOPs once he sees the data, which is based on Form 5500 filings. The number of plans has dropped but the number of participants has increased due to ESOPs acquiring other companies, Rodgers says. “There’s been a big uptick in the number of acquisitions that involve ESOPs,” he says.

A business owner must weigh the benefits against the cost of setting up an ESOP. Those benefits can far outweigh the cost if implemented properly, Zugell says.

How can a business owner know if it’s the right fit? “Talk to more than one person when you want to do an ESOP,” Carnevale Says.

Source: Employee Benefit Adviser

15 Reasons You Might Get Audited

Ever wonder why some tax returns are eyeballed by the Internal Revenue Service while most are ignored? Short on personnel and funding, the IRS audited only 0.86% of all individual tax returns in 2014. And the 2015 audit rate will definitely fall even lower as the agency’s resources continue to shrink. For example, funding for enforcement in the IRS’s current budget is 5% less than last year. So the odds are pretty low that your return will be picked for review. And, of course, the only reason filers should worry about an audit is if they are fudging on their taxes.

That said, your chances of being audited or otherwise hearing from the IRS escalate depending upon various factors, including your income level, the types of deductions or losses claimed, the business in which you’re engaged and whether you own foreign assets. Math errors may draw IRS inquiry, but they’ll rarely lead to a full-blown exam. Although there’s no sure way to avoid an IRS audit, these 15 red flags could increase your chances of unwanted attention from the IRS.

Source: http://www.kiplinger.com/slideshow/taxes/T056-S011-irs-audit-red-flags/index.html

Be Wary of Advice to Do an IRA Rollover

Be Wary of Advice to Do an IRA Rollover

By ELEANOR LAISE

If you have a 401(k) from a previous job, you’ve likely been urged to “take control of your retirement savings.” The upshot of this ubiquitous Wall Street marketing message: To keep retirement savings on track, you should roll 401(k)s from former employers into a shiny new IRA. Yet in their race to capture IRA rollover money, financial-services firms may be trampling investors’ best interests, according to regulators and consumer advocates. Both the Securities and Exchange Commission and the Financial Industry Regulatory Authority have made examining firms’ rollover IRA sales practices a top priority for 2014. The moves follow a 2013 report from the U.S. Government Accountability Office finding that 401(k) participants “are often subject to biased information and aggressive marketing of IRAs” when seeking help with their plans. Among regulators’ top concerns: Rollover IRA sales pitches may persuade workers retiring or changing jobs to roll 401(k) money into higher-cost IRA investments. And investors may not recognize the conflicts of interest that can color rollover advice. IRAs are now the biggest repository of retirement savings, holding $6.5 trillion, and rollovers added $324 billion to these accounts in 2013, according to Cerulli Associates. Yet workers shifting from 401(k)s to IRAs are leaving highly regulated plans where employers must act in participants’ best interests for a less-regulated market where brokers are generally not required to put investors’ interests first. “When you roll over into an IRA, you’re absolutely in the Wild West,” says Anthony Webb, senior research economist at the Center for Retirement Research at Boston College. One sign of the intense competition to attract 401(k) participants’ rollover dollars: Several major brokerage firms are offering $600 or more in cash and a pile of free trades to customers who roll over to an IRA. Such offers “should tell you something about how big their financial incentive is” to capture rollovers, says Barbara Roper, director of investor protection at the Consumer Federation of America. Here are key considerations to help you decide whether to keep your money with your old employer, move it into a new  employer’s 401(k) or roll it into an IRA.

  • Read the fine print on ‘no fee’ IRAs. In its investigation, the GAO contacted 30 401(k) service providers, most of which offered their own IRA products. Seven of the 30 claimed that their IRAs were free and failed to clearly explain that investors could still pay investment-and-transaction-related fees. To be sure, participants in small 401(k) plans chockfull of pricey investment options may slash their fees by moving to low-cost funds in an IRA. But large  employers tend to offer low-cost institutional funds that may not be available to individuals through IRAs. Review your plan’s annual fee disclosure, and search for your employer plan at BrightScope.com to determine whether your plan’s fees are on the high or low end. And before rolling to an IRA, be sure you understand any annual account fees as well as fees for investment options, trades and account termination. For participants in 403(b) plans—often employees of public schools—fees connected to an IRA rollover can bite particularly hard. Much of the money in these plans is invested in variable annuities that carry steep surrender charges, says Dan Otter, owner of 403bwise .com. The charges can take a big chunk out of 403(b) balances that are withdrawn within a certain time period. In such cases, “the smartest decision might be to let it sit, and only roll over money that’s no longer subject to the surrender charge,” Otter says.
  • Understand conflicts of interest. About 28% of 401(k) participants say their plan provider is their primary source of retirement advice, according to Cerulli. Yet these providers have clear incentives to steer 401(k) participants into their own IRA products, generating additional fees. GAO’s investigation found that 401(k) call center representatives who had virtually no information about callers’ financial situation still urged the savers to roll to an IRA.  The GAO’s report urged the U.S. Labor Department to require that plan service providers disclose their financial interest in participants’ rollover decisions and to clarify when providers must act in participants’ best interests. Labor is expected to propose a new fiduciary rule that will address the issue in January. When seeking rollover advice, Otter suggests investors turn to a fee-only certified financial planner.
  • Weigh investment options. Many savers are attracted to IRAs because they off era broad universe of investments rather than an employer plan’s limited menu. But when it comes to investment options, more is not always better. Many older 401(k) participants, for example, invest in stable-value funds designed to protect principal and deliver steady returns—and it may be tough to find equivalent investments outside an employer’s plan. And numerous studies have shown that retirement savers have better investment outcomes when presented with a more limited menu of options. Many 401(k) menus present a “reasonable selection of good options instead of a huge selection of good, bad and indifferent options,” Roper says.
  • Consider rolling to a new employer’s plan. Depending on plan fees and investment options, it may make sense for job-changers to roll over to their new employer’s 401(k). (Again, check out your new plan on BrightScope and review its latest fee disclosure.) But in the GAO’s investigation, just one of the 30 plan providers contacted offered help rolling over to a new 401(k) plan. And participants may face other hurdles when attempting to roll balances to a new employer’s plan. Some plans, for example, impose waiting periods lasting weeks or months before accepting 401(k) balances from other plans. What’s more, employer plans are not required to accept rollovers from other company plans. Ask your new employer plan’s administrator whether this option is available—and if it is, be prepared to navigate the paperwork required by your old and new employers on your own. “If you’re doing a 401(k)-to-IRA rollover, you have a broker-dealer there to hold your hand,” Webb says. “If you’re doing a 401(k)-to-401(k) rollover, you’ve probably got the new employer’s HR department, not holding your hand, but slapping it.”

From Kiplinger’s Retirement Report

August 2014

5 STEPS TO BETTER RETIREMENT PLAN FIDUCIARY COMPLIANCE DOL, IRS SCRUTINY INCREASES AWARENESS OF RESPONSIBILITIES

As a busy retirement plan sponsor, you’ve probably heard a fair amount about fiduciary compliance and are aware that laws and regulations have recently changed, further emphasizing the importance of fiduciary compliance. Here’s a list of five areas to review to ensure you’re meeting your fiduciary responsibilities:

1. Confirm you’re sharing all required information with your plan participants. You are responsible for ensuring that participants receive information about the investment options they have to choose from. This responsibility has been broadened recently to include investment and plan administration costs. Most recordkeepers are modifying their reports and websites to include this information, so it’s not necessary to prepare a set of plan cost reports to distribute. It is, however, your responsibility to monitor your recordkeeper to make sure they intend to share this information.
You may also want to check with your investment adviser to verify that the investment fund information you share with new employees is up-to-date. Ensuring that participants receive enough information on plan investments to make appropriate investment decisions helps you comply with section 404(c) of ERISA. Complying with section 404(c) provides you with protection from participant lawsuits related to the investment choices that they make.

2. Make sure the investment committee meets regularly to discuss items relevant to the plan. There are a number of good reasons to have an investment committee, one of which is that you’re not required to make retirement plan decisions alone. The most common fiduciary compliance mistakes include not having an investment committee in the first place, and having an investment committee but not holding any meetings.

Ideally, you should have an odd number of members on your investment committee. Typically, the senior financial, operations and human resources people belong on this committee. Most investment committees meet on a quarterly basis. Quarterly meetings are often attended and led by your investment adviser, since you should be spending the majority of your meeting time reviewing investment fund performance and costs. Additional items you should discuss at these meetings include administration, procedures, plan design, fiduciary compliance, document maintenance, overall plan costs and vendor reviews and evaluations.

3. Have documentation, including minutes, of all meetings. If your investment committee met quarterly in 2011 but no meeting minutes exist to document the meeting, did the committee really meet? Internal Revenue Service and Department of Labor officials might feel that a lack of meeting minutes indicates that the committee actually never met. Record the decisions that
were made during each committee meeting and document the process of how decisions were reached.

Similarly, if you held an employee education session this year and distributed a lot of important information about your plan, remember to keep copies of all handouts and an employee sign-in sheet in your files. This sort of documentation will help authenticate your compliance with section 404(c) in the event you end up with a participant lawsuit related to your investment funds.

4. Follow the proper procedures when making decisions about the plan. The investment committee is required to act with care, skill, prudence and diligence. The committee also needs to make decisions that conform to the terms of the plan documents. Following these decision-making criteria will help your company avoid lawsuits, dispel the notion of favoritism and demonstrate an objective, logical decision-making process.
Even if the decision is made to maintain the status quo, it’s important to document in your meeting minutes the due diligence and logic that led to not making a change. Also keep in mind that any decisions you make need to be in the sole interest of plan participants.

5. Monitor costs. It’s never been more clear that the DOL expects you to closely monitor all costs associated with your retirement plan. Recent changes in the law have made it easier for you to do so by requiring that more information about costs be shared with you. It’s your duty to verify that all of the fees that are charged to your plan are reasonable. The fees you pay don’t have to be the lowest and can even be above average, as long as they are reasonable.

Source: http://ebn.benefitnews.com/news/robert-lawton-fiduciary-compliance-401k-erisa-2727068-1.html?zkPrintable=true

Five Myths About Retirement – It’s Likely to Cost More Than You Think It Will

By Tom Lauricella

May 24, 2014

It’s not all golf and grandchildren.

Many people spend years planning for retirement and think they have it all figured out, until they actually retire.

Here are a few areas where retirees don’t know as much as they think they do.

1. You’ll probably retire earlier than expected.

Sounds like a good thing, but it’s not. Among the most critical variables determining the size of a retirement nest egg is how many years money is saved before withdrawals start. These days, many financial plans assume delayed retirement, and to a large degree it’s happening.

But not by as much as some have planned. Some 22% of workers say that they expect to wait until age 70 to retire, according to the most recent survey by the Employee Benefit Research Institute. But only 9% of retirees actually retired at that age, the survey found.

Meanwhile, EBRI has found that a sizable number of retirees leave the workforce earlier than planned for negative reasons. In the group’s 2014 survey, 49% retired early, but 61% of them said it was because of a health problem or disability. Many others are forced out of a job by changes at their company.

And for some early retirees, it was health problems of a spouse or other family member that led to leaving a full-time job.

By contrast, 26% of the early retirees told EBRI they had retired early because they could afford to.

For those who had banked on working longer to save more, “it means having to start drawing on their investments sooner than they had expected,” says Judy Ward, a senior financial planner at T. Rowe Price Group. In addition, it may mean signing up for Social Security sooner than planned, which can result in a smaller monthly benefit.

2. It’s not easy to get back into the workplace.

Meanwhile, retirees often find it hard to find new work. Roughly two-thirds of retirees say they plan to work in retirement, but just 27% report actually doing so, EBRI says. In part, the same dynamics that make it harder for older workers in general to find jobs also hinder retirees.

“Forced unemployment typically means they will seek re-employment comparative to the same job skills,” says Catherine Seeber, senior financial adviser at Wescott Financial Advisory Group in Philadelphia. “The problem is, they aren’t equipped to compete with the younger, more socially savvy job seeker, and employers aren’t eager to ‘pay the price’ for the experience.”

For some, the very health issues that prompted early retirement in the first place limit their ability to work.

3. You’ll regret buying that second home.

A dream of some retirees is to buy a second home to live in part time, and eventually sell their primary home. The advice from advisers: don’t. “Our experience with the second home has generally been that they are expensive, a hassle and a mistake,” says Neil Hokanson, a financial adviser in Solana Beach, Calif. “Clients could stay at the Ritz-Carlton when they go to their second-home area for far less, and with none of the hassle of frozen pipes, neighbor disputes, volatile housing values.”

That challenge gets magnified as retirees age and become less able to take care of one house, never mind two.

 4. Medicare doesn’t cover what you think it does.

It’s no secret that health costs are a major burden, but many people wrongly assume that once they pass 65, Medicare will be there to deal with the problem.

Not even close. Traditional Medicare, the federal health insurance program, covers on average just 48% of an enrollee’s health costs, according to the Kaiser Family Foundation.

There are routine costs Medicare generally doesn’t cover, such as eyeglasses and hearing aids. Dental care, where it’s easy to rack up bills totaling thousands of dollars for a root canal, isn’t covered. Retirees still have to pay deductibles, which when dealing with a chronic or serious illness can quickly run up the tab.

The biggest problem: Medicare doesn’t cover the cost of a long-term-care facility or of home health-care aides. Shirley Whitenack, an elder-care attorney in Florham Park, N.J., says many retirees need a Medicare supplemental insurance policy, otherwise known as Medigap.

According to Kaiser, the average Medigap premium was $2,200 a year in 2010. But premiums vary by age. At 80, beneficiaries paid 52% more than 65-year-olds. “It is important to budget the cost of a Medigap policy in the retirement years,” Ms. Whitenack says. Even then, she notes, Medigap policies won’t cover nursing-home care.

5. Your budget is unrealistic.

A major part of retirement planning is figuring out how much money you’ll need. This usually focuses on generating the income needed to sustain a particular standard of living. Many people work on the assumption that they will spend less when they’re no longer working.

It’s true lower taxes and the end of retirement-account contributions usually reduce income needs. But many advisers say retirees don’t account for the general rise in out-of-pocket spending, especially when retirees are young and healthy.

“They have more time to go out, shop and travel,” says Heather Locus, a financial adviser at Balasa Dinverno Foltz, in Itasca, Ill. The risk then becomes putting a hole in a nest egg that can’t be repaired.

The key, she says, is building extra room into the budget. “We try to offset this by helping our clients get a good idea of their spending the past few years before retirement and then adjusting for increased travel or hobby expenses.”

And then later in life, they allow for higher medical costs in a plan, she says.

Source: http://www.wsj.com/articles/five-myths-about-retirement-1400976997

SEC to Focus on Savings in Retirement

Agency will look at whether investments, IRA rollovers are suitable or in clients’ best interest.

The Securities and Exchange Commission will be watching out for investors saving for retirement this year as it examines investment advisers and brokers, the agency said in its annual priority list.

The regulator will explore risks associated with increasingly popular alternative investments designed to generate high yields amid low interest rates “as investors are more dependent than ever on their own investments for retirement,” the letter states.

The emphasis on retirement savings comes as droves of baby boomers exit the workforce with nest eggs built in 401(k) plans and individual retirement accounts. The SEC’s focus on this group helps to illustrate the activities it is targeting, such as reverse churning, sales practices, suitability determinations and the use of alternative and fixed-income investments.

“No one can argue with protecting retirees,” said Todd Cipperman, principal at Cipperman Compliance Services. “It’s the mom-and-apple pie of regulation.”

This year’s priority letter – at four-and-a-half pages – is less than half the size of last year’s letter. It is designed to warn advisers what to expect on exams.

“The SEC is focusing more on what is truly a new priority, what they put ahead of other areas,” said Daniel Bernstein, director of research and development at MarketCounsel, a compliance consulting firm.

In addition to retirement savers, the letter highlights the themes of market-wide risk and the use of data analytics to target illegal activity.

Topics that don’t appear in this year’s list include custody, conflicts of interest, and marketing and communication, among others.

As it did last year, the SEC is targeting investment advisers who are dually registered as brokers and have the ability to address clients either as an adviser charging a fee on assets or as a broker charging commissions on trades. The agency doesn’t want investors paying a fee in a wrap account when the adviser is doing little trading on their behalf.

“Where an adviser offers a variety of fee arrangements, we will focus on recommendations of account types and whether they are in the best interest of the client at the inception of the arrangement and thereafter, including fees charged, services provided and disclosures made about such relationships,” the letter states.

Another SEC priority is protecting investors when they make decisions on what to do with money in a company retirement account when they leave their employer.

“We will assess whether registrants are using improper or misleading practices when recommending the movement of retirement assets from employer-sponsored defined contribution plans into other investment and accounts, especially when they pose greater risks and/or charge higher fees,” the letter states.

The SEC is trying to stop advisers who have only their own bottom line in mind on rollovers.

“They’re focusing on reps that are selling whether [or not] it’s in a client’s best interest or is suitable,” Mr. Bernstein said.

Elsewhere in the letter, the SEC said that it would continue to utilize “significant enhancements in data analytics” to identify advisers “with a track record of misconduct and examine firms that employ them.”

In a conference call with reporters, Andrew Bowden, director of the SEC Office of Compliance Inspections and Examinations, said a new effort in 2015 will be to examine registered investment companies that have never been examined before.

The initiative targets about 100 fund complexes created before 2014. The SEC will try to exam about 25 “within a reasonable period,” Mr. Bowden said. “Early summer is when we’ll get out and begin those [exams].”

This year, the SEC also is reviewing the supervision of branch offices. Mr. Bowden said the agency will use data analytics to determine which problems to target. For example, sales data on structured products collected at the home office could indicate the “magnitude and velocity” of sales in branches.

“It can be driven by individuals or the particular activity in that branch,” Mr. Bowden said.

The SEC notes that the unusually short and easy-to-read letter “is not exhaustive.”

Financial advisers should be prepared for more topics if they are examined.

“As my social studies teacher used to say, ‘The test will include the whole chapter,’ ” Mr. Cipperman said.

From: Investment News, January 2015

http://www.investmentnews.com/article/20150113/FREE/150119975/sec-puts-emphasis-on-retirement-savers-in-2015-exam-priorities