BENEFITS BYTE

February 4, 2004
BB 04—14

In this issue:

  • Task Force Issues Report Supporting Mandatory Redemption Fee
  • President's Fiscal Year 2005 Budget Includes Health-Related Tax Initiatives
  • Savings Proposal Comparison Chart Now Available

Task Force Issues Report Supporting Mandatory Redemption Fee

The Omnibus Account Task Force, convened by the National Association of Securities Dealers (NASD) at the request of the Securities and Exchange Commission (SEC), filed a report with the SEC on January 30 which appears to support imposition of a mandatory redemption fee to combat market timing abuses. The SEC is scheduled to discuss the issue at a meeting on February 11.

The report, which aims to explore the issues rather than make firm recommendations, indicates that Task Force members generally support:

  • a mandatory redemption fee assessed at the intermediary (recordkeeper or third party administrator (TPA)) level, based only on positions held through the intermediary;
  • exceptions to the fee for small trades (trades where the fee would not exceed $50 was advocated by one member);
  • that funds and their transfer agents should have access to some information on investor trading activity to, at a minimum, audit whether intermediaries are applying the rules properly; and
  • that the SEC establish a uniform redemption fee and holding period that would trigger application of the fee.

Task Force members failed to reach consensus regarding:

  • the length of the holding period (some favored one to five business days while others advocated as many as 30 to 90 days);
  • whether different accounts with the same intermediary should be aggregated for purposes of accessing the fee;
  • the appropriateness of exempting certain transactions (including a number of retirement plan transactions) from the fee;
  • whether the fee should be assessed on a Last-in, First-Out (LIFO) or First-In, First-Out (FIFO) basis; and
  • the specifics of reporting customer transactions to mutual fund transfer agents by intermediaries. (This could be used to impose redemption fees on a cross-intermediary basis or allow funds to eject shareholders that engage in abusive short-term trading.)

The Task Force also mentions the possibility of the industry (or a third party provider) maintaining a central repository to which funds, transfer agents and/or intermediaries could report investors who have been denied trading privileges as a result of market timing activity. The report appears to recognize the difficulties a redemption fee regime will impose on retirement plans and participants but does not make an outright recommendation to exempt these transactions. For more information, contact Jan Jacobson, Council director, retirement policy, at (202) 289-6700.

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President's Fiscal Year 2005 Budget Includes Health-Related Tax Initiatives

On February 2, President Bush released his Fiscal Year 2005 budget proposal including many of the same health-related initiatives included in previous years. The President is once again proposing a refundable income tax credit for the cost of health insurance purchased by individuals under age 65. The maximum credit would be $1,000 for an adult and $500 for a child and $3,000 total for a family. The credit, which is available only for individuals who are not covered by an employer plan or a public assistance plan, would phase out completely for individuals with annual incomes of $30,000 and families with annual incomes of $60,000.

The President's budget also proposals an above-the-line tax deduction for high deductible insurance premiums for individuals not covered by employer plans or public assistance plans or who are otherwise not eligible to contribute to a Health Savings Account (HSA). An above-the-line tax deduction is also proposed for long-term care insurance policy premiums. The deduction would be available to taxpayers who purchase long-term care insurance individually or pay at least 50 percent of the cost of employer-provided long-term care coverage.

Unlike previous years, the FY 2005 plan did not include a flexible spending account (FSA) rollover provision despite widespread bipartisan support for a $500 rollover of FSA funds. Administration officials say that despite the omission from the budget plan, the FSA rollover remains a health care priority for the Bush Administration. The Council will continue to promote FSA rollover legislation (S. 1450/H.R. 1177). For more information, see the Treasury Department's General Explanations document or contact Maria Ghazal, Council director, health policy, at (202) 289-6700.

Savings Proposal Comparison Chart Now Available

As we reported in the February 2 Benefits Byte, the Bush Administration's budget proposal for Fiscal Year 2005 includes the President's proposals for Lifetime Savings Accounts (LSAs), Retirement Savings Accounts (RSAs) and Employer Retirement Savings Accounts (ERSAs), similar to those proposed last year. The Council has now made available a chart, prepared by the Benefits Group of Davis and Harman, comparing these new proposals to last year's proposals and to current law.

For more information, contact Jan Jacobson, Council director, retirement policy, at (202) 289-6700.

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The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.