2020 Promises to Be Challenging Year for Compliance

2020 Promises to Be Challenging Year for Compliance

Financial advisors and broker-dealers will face a flurry of new compliance rules in 2020, including measures passed as part of the Setting up Every Community for Retirement (SECURE) Act signed into law in mid-December.

The SECURE Act was part of Further Consolidated Appropriations Act of 2020, a year-end spending bill. 

The SECURE Act includes a number of measures that will affect retirement savers. It also allows savers to use distributions from tax-free 529 savings plans to pay for apprenticeship programs and up to $10,000 in student loan payments. It’s clear that the measures will give rise to questions over the coming months, and it’s likely that more federal guidance will be needed to resolve outstanding issues. 

The Act will eliminate the “stretch” provision for most, but not all, non-spouse beneficiaries of inherited IRAs and other retirement accounts. Prior to the new law, non-spouse designated beneficiaries could take distributions throughout their lives.  But now, for those who inherit retirement accounts in 2020 and beyond will have only 10 years to take the money. There are no other distribution requirements, so designated beneficiaries will have some flexibility with distributions. However, certain “see-through” trusts that are created to serve as beneficiaries of retirement accounts may no longer be able to receive annual distributions under the new law. 

The Act also will allow savers continuing to earn income to continue making contributions to IRAs after the age of 70 ½, and requirement minimum distributions will now begin at 72 instead of 70 ½. However, only around 20% of retirees take less than the RMD, so the changes aren’t likely to impact those who already withdraw more than the law requires. 

Regulation Best Interest will require brokerage firms to disclose, but not eliminate firm-level conflicts. The Financial Industry Regulatory Authority, which will enforce Reg BI, held a conference on the new rule in mid-December in Washington DC, as firms and regulators will have much to do to be in compliance by June 30. 2020. However, there are two pending lawsuits, one brought by seven states and the District of Columbia, and the other brought by XY Planning Network, which could put that date in peril. Some compliance professionals believe that there is a good chance the suits will delay implementation. 

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For more on other pending regulations, including a new fiduciary rule from the Department of Labor, please see:
Secure Act, Fiduciary Rules Set Up a Doozy of a Compliance Year | ThinkAdvisor

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