In the first quarter of 2021, ESI implemented an Operational policy requiring contingent funding on systematic withdrawal plans for all Brokerage accounts. The decision was made to ensure that payments requested by customers are not missed for insufficient funds. Missed payments for RMD’s or Life Expectancy plans can have negative tax consequences. Perhaps more importantly, some customers on a fixed budget depend on the monthly payments to meet various expenses or obligations. Based on negative feedback from our field regarding the impact of missed payments, the decision was made to institute this policy.
What does this mean for my client?
ESI has been requiring a primary or contingent funding method on plans set up on accounts with mutual fund holdings. If funding is not available through the primary funding method (most often 100% from the core account), the system will automatically make the funding available by liquidating a mutual fund holding. The system will liquidate the position when the plan goes into the “payout phase” (typically 1-2 days before the payment date). The trades placed as part of the plan have a reduced charge ($2.00 per trade, as opposed to $9.00 for a manual trade, and no $3.50 service fee). The $2.00 is charged to the representative of record on the account.
How can I manage the plans if I wish to make cash available for the client?
For existing plans set up prior to this year, ESI Operations currently monitors for insufficient cash 14-days before the run date. If no cash is available, the plan will be modified to add a contingent funding option. If you wish to monitor these accounts, you can use the same Wealthscape report.
Remember, the system will only liquidate a mutual fund if there is insufficient cash. By monitoring the report, you will have 13 days to place a trade to make cash available. The reports in Wealthscape can be scheduled to auto-deliver on a weekly basis to your National Life email address.
Summary:
Plans set up on Brokerage accounts holding mutual funds are now consistent with plans set up directly with a Mutual Fund company. If your client wishes to take $1000/month from their American Funds account, they need to specify which assets will be liquidated to raise cash. You can still provide those instructions on our Periodic Distribution or Systematic Withdrawal Form as well (by completing section B and specifying which assets to liquidate).
Be sure to have this discussion with your client when completing the form, and explain that if no funding method is provided, a contingent funding method will automatically be applied to ensure seamless processing of their payment.
Please contact ESI Brokerage Operations at 1-800-344-7437, Option 1 and then Option 2 with any questions.
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