Regulations Governing Retirement Savings Bonds

SUMMARY: Currently, the Bureau of the Fiscal Service (Fiscal Service) of the United States Department of the Treasury (Treasury), issues nonmarketable, electronic retirement savings bonds to an individual retirement account (IRA) custodian designated by Fiscal Service to act as a custodian for Roth IRAs under Treasury's my RA(R) program. In this Final Rule, Treasury offers nonmarketable, electronic retirement savings bonds for certain retirement savings programs established by states or certain of their political subdivisions (states). The bonds will be issued to a trustee or custodian (custodian) of a Roth IRA or traditional IRA designated by a state under its retirement savings program (whether or not the program provides for automatic enrollment). Interest will be earned at a rate available to federal employees invested in the Government Securities Investment Fund (G Fund) of the federal Thrift Savings Plan.

This offering does not affect the terms of retirement savings bonds issued to the custodian of Treasury's retirement savings program, my RA(R), which are held in participants' Roth IRAs. More information on my RA(R) is available at www.myra.gov.

EFFECTIVE DATE: This Final Rule is effective January 19, 2017.

FOR FURTHER INFORMATION CONTACT:

Technical information: Gregory Till, my RA Bureau Director, at (202) 622-6970 or [email protected].

Legal information: Elizabeth Spears, Senior Counsel, at (304) 480-8647 or [email protected].

SUPPLEMENTARY INFORMATION: Approximately one third of private-sector employees in the United States lack access to a retirement savings plan through their employers. /1/ To fill this gap, several states are establishing or considering establishing programs that will encourage employees to save for their retirement, including through individual retirement accounts into which employees are automatically enrolled and through other approaches (collectively referred to here as Auto-IRAs, whether or not they use automatic enrollment). /2/ Under an Auto-IRA program, employee contributions are deposited into an IRA and invested in accordance with the design of the Auto-IRA program and the wishes of the participant. Generally, it is expected that an Auto-IRA program will offer a safe and low-cost investment option as an alternative to a risk-bearing diversified investment, such as a target date fund. In order to assist states in offering savers the option of a principal-protected investment, Fiscal Service will offer retirement savings bonds to state Auto-IRA programs. Fiscal Service reserves the right, however, to decline to issue retirement savings bonds to state Auto-IRA programs on a case-by-case basis, based on considerations such as the structure and reasonableness of associated fees, plans to control fees and expenses, whether participants have reasonable access to their funds, and oversight of providers designated to operate state Auto-IRA programs.

FOOTNOTE 1 National Compensation Survey, Bureau of Labor Statistics (July 2016), Employee Benefits in the United States-- March 2016 (http://www.bls.gov/news.release/pdf/ebs2.pdf). These data show that 66 percent of 114 million private-sector workers have access to a retirement plan through their employers. By extension, approximately 34 percent of the 114 million private-sector workers (39 million) do not have access to a retirement plan through work. END FOOTNOTE

FOOTNOTE 2 The Department of Labor has published regulations relating to state payroll deduction savings programs. 81 FR 59464 (Aug. 30, 2016) and 81 FR 92639 (Dec. 20, 2016). END FOOTNOTE

II. Section-by-Section Analysis

Subpart A--General Information

Section 347.0 Offering of securities. This section is amended to offer retirement savings bonds to Auto-IRA custodians for certain state retirement savings programs.

Section 347.1 Applicability. This section is amended to include the Auto-IRA custodians for state retirement savings programs under this part.

Section 347.2 Official agencies. This section clarifies that Fiscal Service is responsible for issuing retirement savings bonds to the Auto-IRA custodians and that states are responsible for administering their own Auto-IRA retirement savings programs.

Section 347.3 Definitions. Several new definitions, including "Auto-IRA," "state Auto-IRA program," "IRA," "Custodian," "State," and "Auto-IRA custodian" have been added for ease of reference in Subpart C--Auto-IRA Programs and minor changes have been made to some existing definitions.

Subpart B--Treasury's Retirement Savings Program

Miscellaneous changes have been made to the sections pertaining to retirement savings bonds issued to the custodian of Treasury's retirement savings program, my RA(R), which are held in participants' Roth IRAs. These changes, which were made to accommodate revised definitions and other minor or technical revisions, do not affect the terms of these bonds. See, e.g., SUBSEC 347.10 through 347.16.

Subpart C--Auto-IRA Programs

Section 347.30 Plan requirements for State Auto-IRA programs. Subsection (a) of this new section specifies that retirement savings bonds will be issued to Auto-IRA custodians for certain state Auto-IRA programs, and that no other registrations under Subpart C are permitted. As defined in SEC 347.3, an Auto-IRA custodian is "an entity designated by a state (including, for the purpose of these regulations, certain political subdivisions of states) to act as the trustee or custodian for Auto-IRAs, in the form of Roth IRAs or traditional IRAs, for or opened on behalf of participants in a state Auto-IRA program." Subsection (b) lists topics that must be addressed by documentation that programs are required to provide and certify to Fiscal Service annually. The documentation must address: (1) Administration of retirement savings bonds, (2) account monitoring, (3) ability to transfer proceeds, (4) IRA withdrawals, (5) consumer protection, (6) state Auto-IRA program costs of administration, (7) oversight of Auto-IRA custodian, (8) pooling prohibitions, (9) default investments, and (10) consumer education. The Commissioner of the Fiscal Service may use the documentation, among other purposes, in exercising any of the rights reserved under SEC 347.37, which includes the right to require information addressing additional topics. Subsection (c) provides for a successor Auto-IRA custodian, if needed.

Section 347.31 Crediting of retirement savings bond. This new section requires each bond issued to an Auto-IRA custodian to be credited to an individual's IRA under a state Auto-IRA program.

Section 347.32 Annual additions to retirement savings bond. This new section provides that the initial contribution and additions to a bond on behalf of a participant are subject to the annual contribution limits provided under the Internal Revenue Code and regulations, and that the total value of a retirement savings bond held by an Auto-IRA custodian in an IRA on behalf of any participant cannot exceed $15,000.00.

Section 347.33 Individual additions to retirement savings bond. This new section authorizes Fiscal Service to establish minimum amounts for initial and additional contributions to a retirement savings bond.

Section 347.34 Payment (redemption). Under this new section, an Auto-IRA custodian is responsible for making certain certifications as a condition of the issuance and redemption of a retirement savings bond. Subsection (a) explains how the Auto-IRA custodian will request that Fiscal Service make payment on matured retirement savings bonds as well as those that have been fully or partially redeemed. Under subsection (b), Fiscal Service will make payment on any bonds that it calls for redemption without the Auto-IRA custodian having to make a request. Under SEC 347.37(4), the Commissioner of the Fiscal Service may exercise discretion to call the bonds for redemption. This might occur for a variety of reasons, including, for example, in the event that a state Auto-IRA program changed significantly such that ongoing use of retirement savings bonds is no longer consistent with these regulations, or in the event that a state Auto-IRA program might have failed to comply with program instructions identified by Fiscal Service or might have failed to provide or comply with documentation required pursuant to SEC 347.30. Subsection (b) clarifies how bonds called for redemption will be paid, which is in the same manner as bonds submitted for redemption under subsection (a).

Section 347.35 Computation of interest. This new section provides that the interest rate on the retirement savings bonds will track the annual percentage rate on securities in the Government Securities Investment Fund (G Fund) in the Thrift Savings Plan for federal employees and that interest will cease at maturity or call.

Section 347.36 Maturity. This new section provides that the maturity dates for the retirement savings bonds may differ for each bond. The longest possible maturity is 30 years (an original maturity period of 20 years and an extended maturity period of 10 years). A bond will mature at the earlier of 30 years from the date the bond is first issued to the Auto-IRA custodian on behalf of the participant or when its value reaches $15,000.00.

--This is a summary of a Federal Register article originally published on the page number listed below--

Final rule.

CFR Part: "31 CFR Part 347"

RIN Number: "RIN 1530-AA13"

Citation: "82 FR 6244"

Federal Register Page Number: "6244"

"Rules and Regulations"