How To Know Your Mutual Fund Account History

Transcription

1 Mutual Fund Issues Mutual Fund Accounts Retirement Accounts (IRAs) Tami Salmon Senior Associate Counsel Investment Company Institute (ICI) Representing State Governments That Actively Find Owners While Protecting Forgotten Funds Until Claimed

2 ICI Data There are approximately 7,637 mutual funds, including 632 money market funds, which hold $13.4 trillion in assets million individuals own mutual funds. 94% of mutual fund owners are saving for retirement. Of these, 65% own IRAs and 78% own employer-sponsored direct contribution plan accounts. 91% of households owning mutual fund shares own them in workplace retirement plans, IRAs, and other tax-advantaged accounts. Mutual funds account for $4.4 trillion, or 26%, of the $17.9 trillion held in retirement accounts. Source ICI Fact Book (2012) 2

3 Mutual Fund Account Ownership Records Mutual Fund Records Held by Transfer Agent Charles Schwab Merrill Lynch Wells Fargo Hartford Insurance State Pension Plan Individual Shareholders 3

4 Lost Mutual Fund Shareholders Federal Law: SEC Rule 17Ad-17 under the Securities Exchange Act of 1934 Lost Securityholders Applies to all SEC-registered transfer agents RPO Standard trigger for determining who is lost Duty to search information database twice (between 3-12 months; 6-12 months) at no charge to the lost shareholder Annual reporting to SEC on Form TA-2 No Federal Escheatment Dodd-Frank Act Revisions Subjects broker-dealers to Rule 17Ad-17 Adds missing securityholder provisons SEC proposed rules in March 2011; awaiting adoption 4

5 Lost Mutual Fund Shareholders, cont. Mutual Fund Records Held by Transfer Agent Charles Schwab Merrill Lynch Wells Fargo Hartford Insurance State Pension Plan Individual Shareholders Mutual funds are only responsible for handling the reporting and escheatment of shares in those accounts that are held directly with them. Intermediaries are responsible for handling shares held in a brokerage account. Indeed, mutual funds typically have no contact with the intermediary s customers. 5

6 Retirement Accounts There are a variety of investment options for persons saving for retirement including: Traditional IRAs Roth IRAs 401(k) plans 403(b) plans 457 plans The common denominator of the above investment options is that they provide tax-advantaged savings for retirement subject to conditions set forth in the Internal Revenue Code. Tax penalties may be assessed on persons violating these conditions. 6

7 Retirement Accounts, cont. Employer-sponsored retirement plans may be either: A defined benefit (DB) plan, which provides a specified monthly benefit at retirement. As of last year, $2.4 trillion was held in DB plans; or A defined contribution (DC) plan, which does not promise a specific benefit amount. Instead, the value of a participant s account depends on how much is contributed and how well the investments perform. Examples of these are 401(k), 403(b), and 457 plans. As of last year, $4.5 trillion was held in DC plans. 7

8 Retirement Accounts, cont. Both DB and DC plans are covered by the Employee Retirement Income Securities Act (ERISA). Compliance with ERISA is overseen by the U.S. Department of Labor (DOL). According to the DOL, ERISA preempts the escheatment of ERISA plans. (The same is not true of non- ERISA retirement plans, such as IRAs.) 8

9 Traditional and Roth (Non-ERISA) Retirement Accounts Traditional IRA (1974) Income Limits: None Contribution Limits: $5000-$6000 Taxation: Contributions may be taxdeductible; distributions are taxed Required Minimum Distributions: Imposed at age 70½ based on an IRS worksheet and the account holder s life expectancy range is from 27.4 years at age 70 to 1.9 years at age 115 or older!!! Roth IRA (1997) Income Limits: Imposed based on account holder s modified gross income ($10,000-$183,000) Contribution Limits: same Taxation: Contributions are taxed; distributions are not taxed provided seasoning period of five years has lapsed and distributions are for retirement or disability Required Minimum Distributions: None 9

10 ICI Retirement Data (Year End 2011) $17.9 trillion was held in retirement accounts. Of this, $4.4 trillion (26%) was held in mutual funds. Direct benefit plans held $2.4 trillion of these assets. Direct contribution plans held $4.5 trillion IRAs held $4.9 trillion (27%). Of this, $2.2 trillion was held in mutual funds. 46 million households own at least one IRA. 31% of IRA-owning households own 2 IRAs, 15% own 3. Source ICI Fact Book (2012) 10

11 Escheatment of Traditional IRAs Escheatment Trigger: RMD?? As previously noted, holders of a traditional IRA must begin receiving their required minimum distributions (RMD) at age 70½; Because of this, many state laws treat the RMD year as the trigger date for escheatment for shareholders who have not taken an RMD; However, it is up to a shareholder to determine which of its IRA accounts it will take its RMD from a shareholder may total the RMD for each of its IRAs and take the total from a single IRA. 11