March 30, 2020 | BLOG POST | By Tom Wiedecker
“We could certainly slow the aging process down if it had to work its way through Congress.”
--Will Rogers
Will Rogers was a clever fellow and at times his comments about the pace of government were spot on. Occasionally, however, mandates and regulations do move quickly—and that’s what happened to the fund industry with the passage late last year of the SECURE Act. Though elements of the new law had been bouncing around for years and it was initially passed by the House last spring, the legislation looked to be stalled in the Senate. However, the bill was ultimately attached to fast track budget legislation that was quickly passed by the Senate and then signed by the president on Dec. 20.
It was an outcome that caught some in the fund industry a bit flat footed. In a comment letter to the IRS seeking relief,[1] the Investment Company Institute noted the “extremely short window before the date of the change” and suggested that administrators would have difficulty making changes in time to comply. “It is likely,” the ICI letter warned, “that some individuals will receive distributions from a plan or IRA in 2020 intended as RMDs under the prior rule and/or that an IRA provider will inadvertently provide an RMD notice for 2020 even though an RMD will not be due for that year.”
The IRS ultimately realized the impact on the industry and issued a notice granting relief to institutions that are unable to stop their recordkeeping systems from cranking out inaccurate RMD notices to investors. In many cases, some significant cleanup required, as administrators will, before April 15 (now July 15), need to notify those who received faulty notices that they don’t, in fact, need to take an RMD.
It’s times like these that we’re glad that we have designed a system that is adaptable to such time sensitive changes. Modern platforms overcome some of the challenges commonly found in legacy systems. The recent events around the SECURE Act highlight the need for rapid technology deployment to address such regulatory and compliance mandates. Advance notice and long lead times are greatly appreciated and fit well into structured plans; however, the world we work is not always accommodating. The winners will be those that stay ahead of trends as a standard practice and have the capacity to pivot, adapt and address the surprises. The core technology platform can be an enabler or an obstacle. We’re successful, in part, due to our design leveraging industry standards including Microsoft Windows, SQL Server and sophisticated stored procedures on high powered, on-premise or hosted technology infrastructure.
Although specifics and timing of such events cannot be precisely predicted, the ability to respond should be a key consideration when designing mission critical systems. The ability to adapt to the unexpected absolutely reduces the impact to your business and those that have put their trust in you. The test of the industry’s adaptability may come with the COVID-19 virus, which has had a serious impact on the world and the financial services industry. If the government or the financial services industry identifies any modifications to existing operations, how long will it take for you to respond?