Washington Perspective, June 2006

Update on Pension Reform Legislation

House and Senate negotiators on the pension bills missed their self-imposed Memorial Day deadline without reaching final agreement on a pension bill. The optimistic goal is to work out remaining issues in the first two weeks of June, pass the conference agreement and send it to the President before the next Congressional recess for July 4^th. At the least, they hope to reach agreement on the tough defined benefit issues so that staff can draft language over the July 4^th recess. However, it is possible that due to continuing delays, a final bill will not emerge until a “lame duck” session after the November elections. [more details]

Conversions for Roth IRAs Become Law in New Tax Bill

On Wednesday, May 17, 2006, President Bush signed the Tax Increase Prevention and Reconciliation Act of 2005, which includes a provision that would eliminate the income limitations for Roth IRA conversions. Other major provisions in the bill extend the current reduced tax rates on capital gains and dividends and increases the threshold for those obligated to pay an alternative minimum tax. [more details]

Military Personnel Now Able to Count Combat Zone Pay for IRA Contributions

On May 29, 2006, President Bush signed the “Heroes Earned Retirement Opportunities Act” (H.R. 1499), which allows military personnel to include combat zone compensation in the determination of allowable individual retirement account contributions. [more details]

Nominations

President Bush Nominates Goldman Sachs CEO Henry Paulson to be the next Treasury Secretary

President Bush went to Wall Street to tap Henry Paulson, Goldman Sachs chief as the new Treasury secretary. “He has a lifetime of business experience; he has an intimate knowledge of financial markets and an ability to explain economic issues in clear terms,” Bush said. [more details]

President Bush Nominates Long-time Aide to Senate Banking Committee Chairman Shelby

On June 1, 2006, President Bush nominated Kathleen Casey to fill one of the three Republican spots on the Securities and Exchange Commission, replacing Cynthia Glassman, who announced earlier this week that she did not intend to serve a second term. Casey’s nomination is expected to be confirmed by the Senate with bi-partisan support. [more details]

Regulatory Issues

Update on Redemption Fees

The redemption fee rule was adopted by SEC in March 2005 and requires fund firms to collect trading records from broker-dealers, and other intermediaries such as retirement plan administrators that use omnibus recordkeeping. Firms must review to safeguard against market timing. ICMA-RC is using the industry standard put forth by ICI and SPARK as a model and is starting to execute the information sharing agreements with fund companies whose shares we make available.

The Investment Company Institute (ICI) and funds firms are urging the SEC to delay the Oct. 16 compliance deadline for the new rule. Our sense is that the deadline will be postponed but the SEC has not announced a decision to delay.

IRS Announces New Split Tax Refund Initiatives — Includes IRA Option

While the details are still being worked out, the IRS announced that it will create a new program to allow taxpayers who use direct deposit for their income tax refunds to divide the funds in up to three financial accounts, including IRAs. For additional details see the [IRS press release]

SEC Partners with Securities Organization

Chairman Chris Cox announced that the SEC and the North American Securities Administrators Association is launching a joint national initiative to protect senior from investment fraud and the sales of unsuitable securities. The SEC will hold a Seniors Summit later this summer and we understand that it will be a roundtable event designed to explore investor protection issues that are unique to seniors. Some of the focus will be on retirement products, such annuities and IRAs, that are marketed to seniors. The intent is to make sure that seniors have the necessary education and disclosure they need to make informed financial and investment decisions. For more information on the initiative, see the [SEC press release]