The NAGDCA Board conducts an annual visit to
Washington D.C. to hold meetings with various regulatory agencies and offices of
governmental officials. The purpose of these meetings is to present NAGDCA’s
annual legislative priorities and discuss issues that may impact administration
of our plans. This year’s meetings took place April 3-4, 2017. Our legislative
priorities were streamlined around a theme of asset consolidation within
governmental plans, including in particular responding to the growing popularity
of “Roth” retirement saving.
may not be familiar with how Roth has evolved as a savings option. It began
with the Roth Individual Retirement Account (IRA), named after Senator William
Roth from Delaware (its chief architect), which was created by Congress in
1997. The first Roth IRA contributions were permitted in 1998. Initially the
Roth IRA limit was set at $2,000; that limit has increased, along with limits
for Traditional IRAs, to the current $5,500 for those below age 50, and $6,500
for those age 50 or older.
to the Investment Company Institute (ICI), as of year-end 2016, approximately
21.9 million, or one quarter, of U.S. households, held assets in Roth IRAs,
compared to 32.1 million, or one third, of U.S. households holding Traditional
IRAs. Total Roth IRA assets as of year-end 2016 were estimated by ICI to be
approximately $660 billion, compared to $6.7 trillion in Traditional IRAs.
ability to save Roth dollars in a defined contribution plan was established when
then President Obama signed the Small Business Jobs Protection Act of 2010. The
bill included provisions that, beginning January 1, 2011, allowed governmental
defined contribution plans to offer a Roth contribution feature.
As more plan sponsors have incorporated this option
and Roth savings have grown, certain disparities in how Roth assets are treated
have revealed themselves. As a result, NAGDCA supports legislative changes to
place Roth and pre-tax assets on an equal footing. NAGDCA’s proposed
legislative improvements related to Roth savings include:
- Permitting Rollovers of Roth IRAs into Defined Contribution Plans - Current law permits traditional IRAs to be rolled into
a defined contribution plan, but not Roth IRAs; NAGDCA proposes permitting Roth
IRA rollovers so that participants can consolidate their Roth assets within
their (typically lower cost) defined contribution accounts.
- Elimination of Required Minimum Distribution (RMD) Rules for Roth Balance in Defined Contribution Plans - Presently
contributory Roth assets in 401(k), 457 and 403(b) plans are subject to
Required Minimum Distribution (RMD) rules at age 70½. Roth IRA assets, however,
are not subject to RMD rules. This creates an incentive for those
participants looking to avoid RMD distributions to roll their assets out of
defined contribution plans and into generally higher-cost Roth IRAs. NAGDCA
proposes equalizing the treatment of all Roth assets relative to the RMD rule in
order to eliminate this rollover incentive.
- Permitting Roth Assets for Purchase of Service Credit - Presently
contributory Roth defined contribution assets are not permitted to be used for
purchase of service credit with a defined benefit plan, while pre-tax
contributory assets can be used for this purpose. NAGDCA’s proposed legislative
change would place both pre-tax and Roth assets on equal footing with respect
to purchase of service credit.
Should these proposed changes be enacted, our plan
participants will have even greater flexibility for utilizing Roth assets to
enhance their retirement readiness. The NAGDCA Board will monitor legislative
developments closely and advise our members as we move forward.
the meantime, it may be helpful for plan sponsors and industry providers to
review their participant behaviors and preferences relative to Roth savings.
This information may be helpful if an opportunity for legislative advancement
Benchmarking – Perspectives in Practice
responses are due May 1! All government primary members have been sent an email
with the survey link and your login information. If you need to have it resent,
please contact Carly Miller at firstname.lastname@example.org.
encourage all plans, small and large, to complete the survey. For plans that
responded last year, prior year data will be show upon logging in.
that respond will receive complimentary access to the online benchmarking tool
and will be entered into a drawing for a free membership (value $600).
participation helps NAGDCA build powerful trend data about DC plans!
N. Caple Scholarship
for the 2017 scholarship program are
currently being accepted. The deadline to apply is May 8.
ANC Foundation, in partnership with the International Foundation for Retirement
Education (InFRE), developed the criteria for the scholarship. To be
considered, applicants must be enrolled as a full-time student at a university
or college, be a junior or senior, be enrolled to continue university studies
for the following semester, and be a U.S. citizen.
scholarships commemorate the lifework of Arthur N. Caple, former Executive
Director of the State of Maryland Supplemental Retirement Plans and NAGDCA Past
President, who passed away in 2004.
additional information about the scholarship program, please visit the ANC Foundation.
NAGDCA Leadership and Media Awards Nominations
Now Being Accepted
NAGDCA Leadership Awards will recognize best in class in the following six categories:
further information or to nominate a government member for a NAGDCA Leadership
NAGDCA Media Award recognized a member of the media for outstanding coverage of
pension and retirement issues in newspapers, magazines, newsletters, or
research reports. For more information or to make a nomination, click here.
All award applications are due Friday, May 19,
won’t want to miss the upcoming Legislative Webinar on May 23 at 2 p.m.
ET. This webinar will highlight NAGDCA's legislative priorities and offer
a debrief from the Board's visit to Capitol Hill. Click here to register today!
would like to thank the sponsors of the 2017 NAGDCAST series. Without
their support these events would not be able to take place.
Sponsorship opportunities are available for the 2017 NAGDCAST series; bundled
conference sponsorships include webcast sponsorship! If you are interested in
sponsoring the 2017 NAGDCAST series, please click here or contact Carly
Miller at email@example.com.
Board Visit to The Hill
Executive Board traveled to Washington, D.C. April 3-4. They met with
key officials from the Departments of the Treasury and Labor as well as
majority and minority tax counsel for the House Committee on Ways and Means,
majority tax counsel for the Senate Committee on Finance, and staff for
Senators Cardin (D-MD) and Enzi (R-WY) and Representative Tiberi (R-OH). The
Board also met with Congressman Richard Neal (D-MA).
the meetings, the Executive Board discussed NAGDCA’s priorities including the following:
- Create more portability by allowing participants of 457(b), 401(k),
401(a) and 403(b) plans to elect to roll assets from Roth IRAs to these plans and by permitting non-spousal beneficiaries to roll assets to 457(b), 401(k),
401(a) and 403(b) Plans.
- Create more equal treatment by exempting designated Roth contributions
from the required minimum distribution rule.
- Create more flexibility by eliminating the “First Day of the Month”
requirement in 457(b) plans.
A copy of NAGDCA's legislative priorities letter can be found here.
Callan Associates-DC Trends Survey
of the most helpful services that NAGDCA provides is the opportunity for plan
sponsors to learn how their peers are governing their plans. While each plan is
different, and correctly designed to suit the needs of each unique population,
plan sponsors routinely face similar challenges, and have the opportunity to
learn from their peers.
help facilitate that peer learning, Callan Associates has surveyed a mixture of
government and private sector DC plans each year for the past ten years. The
newly published results of that survey yield insights as to how plans are
tackling a range of common challenges. The survey has data from plans
representing over $100 billion in assets and more than one million
participants, and tracks trends over multiple years.
survey findings include:
use of automatic contribution escalation increased markedly over the past year
(63% in 2016 versus 46% in 2015). Caps on automatic contribution escalation
have also markedly increased (27% in 2016 from 19% in 2015).
half (47%) of plan sponsors reported making a fund change due to
performance-related reasons. This is the highest in the survey’s history. Large
cap equity was the most commonly replaced fund.
date funds: Plan
sponsors that took action with their target date fund in 2016 most commonly
cited evaluating target date suitability (67%) as the most prevalent course of
market funds: Largely
in response to money market reforms going into effect, 64% of respondents have
changed to a different money market fund or eliminated their money market fund
believe the Department of Labor’s 2016 Definition of a Fiduciary Rule will
primarily impact the plan’s printed materials, website, and other educational
materials (43%) and communication regarding plan rollovers (43%). (The survey
was conducted before the Trump administration took office.)
Along with the data in our quarterly Callan DC
Index™ and Target Date Index™, this survey paints a detailed picture of the
challenges and opportunities that are top of mind for DC plan sponsors this
Tactical Asset Allocation
Perspectives on Tactical Asset Allocation
in Portfolio Construction, a research brief from ICMA-RC, examines the role tactical asset
allocation can play in structuring a portfolio.
The paper describes six common quantitative
signals that can be used to tactically structure an investment portfolio:
- "Fed Model" signals
- business cycle/macroeconomic signals
- fundamental-valuation signals
- momentum signals
- sentiment signals
- seasonal signals
One example of a hypothetical
tactical asset allocation model is one that ICMA-RC researched and developed in
2011. The hypothetical model stays fully invested at all times and shifts asset
allocations between an investment that replicates the S&P 500 and
investments in 30-year U.S. Treasury Bonds. The allocation was limited to these
two assets based on the organization’s belief that continuous investment in
long-duration assets better meets the needs of retirement investors with a long
time horizon than a “market timing” model where the investor is in and out of
This model takes multiple factors
into consideration, including a “Fed Model” type calculation, medium- and
short-term indicators, and a seasonal component. It was tested using available
data going back for more than 14 years and then monitored without change to the
model going forward for five years. The returns from this model were favorable
in both the back-test and monitoring period after the model was developed.
The research brief recognizes
that there is no guarantee that a particular manager will be successful in
obtaining positive excess returns; and there is evidence that in the aggregate,
tactical strategies may add only limited value. In addition, the authors share,
"... like other active strategies, tactical models give investors the
opportunity to seek returns that 'beat the market.'"
See the research brief at this link.
This article is intended for educational purposes only
and is not to be construed or relied upon as investment advice. ICMA-RC does
not offer specific tax or legal advice and shall not have any liability for any
consequences that arise from reliance on this material. It is recommended that
you consult with your personal financial adviser prior to implementing any new
tax or retirement strategy. AC: 33175-0417-0000
The Senate has confirmed most of President Trump’s
cabinet. His original choice for Secretary of Labor had to withdraw his
nomination. The new nominee is Alexander
Acosta who is currently the dean at Florida International University College of
Law. Previously, he had served in the
Department of Justice as a US Attorney.
Meanwhile, there have been very few nominations for
assistant secretary positions, including the Assistant Secretary for Tax
Policy. While this may mean that new
priorities may not be set for some time, there are still efforts underway in
the Departments. The NAGDCA board recently
met with the Department of the Treasury to discuss NAGDCA’s legislative
Republicans do not have 60 seats in the Senate. This will make it more difficult to pass
legislation, but it is not impossible. 60 votes are needed to cut off debate on
legislation. However, legislation can be
passed via reconciliation and which requires only a simple majority of 51
votes. There are strict rules for what
can included in a reconciliation bill, but it is likely that most of tax reform
can be passed through this process.
In the House of Representatives legislation can pass
with a simple majority of 218 votes. Tax legislation must originate in the
House. That makes it more likely that
proposals will start being released soon and it is possible that they will be
based on previous proposals.
Before Congress can pass tax reform through
reconciliation it must first complete health care reform. Health reform is being moved through the 2017
budget process. Before it can move tax
reform through the 2018 budget process, Congress must complete the 2017
The NAGDCA Executive Board recently held its annual
Washington visit to discuss legislative priorities. Over two days, NAGDCA met with House
Committee on Ways & Means Ranking Member Richard Neal (D-MA), key staff
from the Department of the Treasury, Majority and Minority Tax Counsel to the
Senate Committee on Finance, Majority and Minority Tax Counsel to the House
Committee on Ways & Means, and staff for Senators Enzi (R-WY) and Cardin
(D-MD) and Representative Tiberi (R-OH).
Senators Enzi and Cardin are members of the Senate Committee on Finance and
Representative Tiberi (R-OH) is a member of the House Committee on Ways &
NAGDCA’s priorities include the National Retirement
Security Week resolution. The staff for
Senators Enzi and Cardin said the resolution would be reintroduced in the
fall. Other priorities include allowing
non-spousal beneficiaries to roll assets into Roth 457 plans, exempting Roth
contributions from required minimum distributions, allowing rollovers for Roth
government defined contribution plans and elimination of the 457(b) first day
of the month requirement.
Congress is currently funded under a Continuing
Resolution (CR) that is set to expire on April 28th. Both parties would like to avoid a government
shutdown, so it is likely that when Congress returns from their Easter recess a deal will be consummated to keep the
President Trump introduced his “skinny budget” last
month, but it was only meant as a blueprint for a more detailed budget that has
not yet been released. The skinny budget
did not contain any provisions that pertained to NAGDCA and we await a more
complete budget proposal to be released later this year.
Trump has indicated that he has interest in tax reform, but no proposals have
been released and it is not known if he has interest in pensions as part of tax
reform. Health care reform is also still
being discussed, and it will have an effect on any pending tax reform
legislation as many of the tax cuts that are being considered would have been
paid for with cuts to health programs, specifically Medicaid.
NAGDCA Hill meetings Congressional staff indicated that tax reform legislation
will be introduced this year. However, there
is no time frame on when it will be introduced or what will be included in the legislation.