FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION Legislative and Regulatory Update Robert Holcomb Executive Director Legislative and Regulatory

FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

Legislative and Regulatory Update

Robert HolcombExecutive Director

Legislative and Regulatory Affairs


Discussion topics

Regulatory Agenda

Defense of Marriage Act

Legislative Initiatives

Deficit reduction

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Regulatory Agenda – Benefit Statements

DOL conducting survey on participant preferences for benefit statements.

On May 7, 2013 the DOL issued an Advance Notice of Proposed Rulemaking seeking public comment on lifetime income disclosure guidance they are considering, including:

– Whether the inclusion of lifetime income projections on participant statements should be mandated.

– What should be included on the statement.– Should a safe harbor be provided, and if so, how should it be structured.

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Regulatory Agenda – Fiduciary Definition

Re-proposal due in July 2013 per regulatory agenda

Focus on conflicted advice

Will address distribution guidance and rollovers

Expected to simultaneously publish proposed prohibited transaction exemptions for comment

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Regulatory Agenda – Fee Disclosure

On May 7, 2012 DOL issued Field Assistance Bulletin 2012-02 containing FAQ’s on participant fee disclosures.

– Raised questions and concerns regarding brokerage accounts in plans

– Additional guidance received on July 30 revising stance on brokerage accounts

FAQ’s expected on sponsor level disclosure.

DOL intends to propose regulations on summary format for sponsor level disclosure.

Final target date fund disclosure regulations will amend participant disclosure rules.

Still expecting additional guidance on electronic delivery.

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Regulatory Agenda – Target Date Funds

In February, the DOL's Employee Benefit Security Administration issued tips for fiduciaries on target date funds (TDFs)

– Establish a process for comparing and selecting TDFs

– Establish a process for the periodic review of selected TDFs

– Understand the asset allocation and how it changes over time (i.e. the glide path)

– Review the fund’s fees and investment expenses

– Inquire about whether a custom or non-propriety date fund would be a better fit

– Develop effective employee communications

– Take advantage of available sources of information to evaluate the TDF

– Document the process

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Defense of Marriage Act (DOMA)

The Defense of Marriage Act was enacted in 1996, containing three sections:– Section 1: Title

– Section 2: Provides that one state does not have to recognize a “same-sex” marriage from another state

– Section 3: Defines “marriage” for federal law purposes (including for employee benefits) to mean only “a union of a man and a woman”

On June 26, the U.S. Supreme Court officially struck down Section 3 of DOMA as being unconstitutional. Section 2 remains law.

Currently 12 states and the District of Columbia recognize same-sex marriage: Connecticut, Delaware, District of Columbia, Iowa, Maine, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, and Washington.

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Defense of Marriage Act (DOMA)

Potential qualified plan implications include:– Spousal consent to non-spouse beneficiary designation

– Qualified joint and survivor annuity (QJSA) and qualified pre-retirement survivor annuity (QPSA) annuity provisions

– Required minimum distribution rules related to spouses (e.g. ability of spouse to defer a death benefit until the participant would have attained age 70 ½,)

– Eligible rollover distributions

Two possible approaches for defining spouse:– Look to the state of residence (state of domicile) to determine if the marriage is

recognized– Look to see if the couple was married in a state that recognizes same-sex

marriage (state of celebration).

On August 29, the Department of the Treasury issued guidance affirming the state of celebration approach.

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Legislative Initiatives – Pension Reform

Introduced by Richard Neal (D-MA).

Pension reform provisions – Allows portability of lifetime income investments in certain situations

– Allows electronic communication of participant disclosures on an “opt out” basis

– Exempts account balances under $100,000 from minimum distribution rules

– Removes the 10% cap on automatic contribution escalation program from the automatic enrollment safe harbor

– Requires plans to cover employees with three years of at least 500 hours of service per year

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Legislative Initiatives – Pension Reform

Introduced by Senator Orin Hatch

Establishes a new type of State and local government "defined benefit" plan in which the government would purchase annuity contracts.

Similar pension reform provisions to the Neal Bill, with the addition of guidance on electronic delivery.

Transfer authority for IRA-related prohibited transaction issues from the U.S. Department of Labor (DOL) to the Department of the Treasury, including the definition of a fiduciary.

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Legislative Initiatives – Mandatory Savings

On July 27, 2012 Senator Tom Harkin released a report entitled: “The Retirement Crisis and a Plan to Solve It”.

The report proposed creation of USA Retirement Funds. – Primarily applies to employers who do not sponsor a plan

– Privately managed pooled funds

– Required employer contributions

– Employees could opt-out of contributions

– Distributions in form of lifetime income stream

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Deficit reduction

Congress is considering tax reform in 2013– The House of Representatives has formed 11 tax reform working groups to evaluate tax

reform initiatives

Proposals that may affect retirement plans include:

– Reduction of caps on contributions

– Dollar limit on itemized deductions

– Mandate that some portion of savings be Roth Contributions

– Value of deductions and exclusions limited to 28%

– Absolute dollar limit on aggregate retirement savings

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Deficit reduction

The Administration sent its proposed fiscal year 2014 budget to Congress on April 10

Several items would impact retirement savings– Limit of 28% on the value of itemized deductions for certain tax preference items

Retirement plan contributions and employer-sponsored health insurance would be subject to the 28% limit

– Cap on accumulated retirement plan savings Proposed cap based on amount needed to fund $205,000 joint and survivor benefit at

age 62. Would apply to all retirement savings (DC, DB and IRA’s)

– Use of “chained” CPI to determine cost of living adjustments

– Automatic deduction IRA for employees not covered by an employer-sponsored plan

– Increase in PBGC premiums

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Disclosures

This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

Publications referenced in this material are presented for general educational purposes only. JPMorgan and its affiliates did not receive any compensation or consideration for referencing these titles. The opinions and information presented in these titles do not necessarily reflect the opinions of JPMorgan Chase & Co. and its affiliates.

J.P. Morgan Asset Management is the marketing name for the investment management businesses of JPMorgan Chase & Co. and its affiliates worldwide. Those businesses include, but are not limited to J.P. Morgan Chase Bank, N.A., J.P. Morgan Investment Management Inc., Security Capital Research and Management Incorporated and J.P. Morgan Alternative Asset Management, Inc.

IRS Circular 230 Disclosure: JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with JPMorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

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FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION Legislative and Regulatory Update Robert Holcomb Executive Director Legislative and Regulatory