An estimated one-quarter of the nation's individual retirement accounts are now resting in savings and loans.
This isn't surprising. People for whom IRAs represent a substantial sum don't want to fool around with it. People for whom it's minimal find it, says one executive, "too small to fool around with." So they choose simplicity and security over the potential yields of brokerage accounts and various funds.
What is surprising is the trouble and aggravation they suffer just putting money into these simple accounts and taking it out--"hidden" charges, rules changed midterm and misinformation about when and how they can remove their money.
First, they're annoyed that there are annual fees at all on such accounts--commonly $7.50 to $10 in California, for example. They're often told that most of it is for an outside trustee/administrator who reports any withdrawals to the Internal Revenue Service, with the rest covering "set-up" or "processing" at the S&L. Given the account's inactivity, and the understanding that S&Ls use the money to earn more interest than they pay out, this seems to consumers like salesmen charging to write up an order--and charging annually no less.
Some also find the fee unexpected--and certainly unadvertised. "We filled out all the forms," a California housewife says, "and then were told it's $7.50 per year per account. The disclosure statements only say there may be a fee, which is not what I call disclosure."
All in all, disclosure seems a problem. According to IRS rules, IRA vendors must disclose a plan's tax effects, possible penalties, rules of participation and cancellation and methods of calculating earnings, plus some "projection of the growth in value."
But that "projection" can be fictional, "assuming" a contribution of only $1,000 a year and a hypothetical interest rate--much easier for the institution than doing real calculations with the particulars of the account actually being set up. It's the consumer's responsibility, says the pertinent IRS publication, to "look for" such undisclosed specifics as "How much are the fees? What is the interest rate and how is it figured? How much will you have in your account when you are ready to retire?"
S&Ls may even change account rules midterm, adding charges or canceling benefits. Home Federal Savings in San Diego, for example, offered long-term accounts allowing additional deposits (but no withdrawals) during the term--a boon to IRA customers who already foresee, says a San Diego man, "finding at age 59 that you have IRAs for every year all over town."
He, for one, took Home Federal's 10-year, 14.854% fixed-rate IRA, contributing the maximum $2,000 in both 1982 and 1983. But, when he tried in January, 1984, to make that year's contribution, he was told that "the account now prohibited further contributions, and the $4,000 already tied up was all I could accumulate until 1992." Another customer couldn't even complete his 1983 contribution: he made an initial deposit that April but was turned away when he came back in July with the balance.
Home Federal says its disclosure statement noted that additional deposits were allowed only "from time to time and with the consent of the association"--a consent withdrawn when 14.854% on increasing balances looked costly. "When interest rates changed," says a spokesman, "we changed the offer."
Consumers also think that S&Ls make it "as hard as possible for you to leave them" when accounts mature, says one woman. "They said IRS rules wouldn't let them give it to me. They had to send it to the new place I'd chosen or there'd be a penalty."
Actually, the IRS permits consumers one "rollover" of IRA assets a year, allowing them 60 days to move the funds somewhere else. However, says an IRS spokesman, "it may be reported as withdrawn, and you may be called in to prove you rolled it over."
Institution-to-institution transfers, however, don't count: Neither the one-a-year limit nor the 60-day rule apply. Perhaps the industry is only being protective in suggesting the "more carefree way" of moving funds, says Gloria Sewall, retirement programs manager for the California Savings & Loan League.
Actually, she adds, "many complaints involve how long it takes to process an IRA withdrawal." The consumer above was told that her transfer could take 30 days, given the forms, releases and requests for funds that the two trustees had to exchange. Even simple withdrawals, with no outside trustee involved, can take three days--and that's an ideal, says California Federal Savings Vice President Cheryl Aronoff in Los Angeles. But what seems slow processing, she says, is more likely a matter of consumers "having omitted their account number, address, or signature that they don't want withholding. Or they ask for the wrong paper work or give us a certificate that hasn't matured."
Furthermore, say S&L insiders, anyone feeling sour about IRA handling at S&Ls--fees, rules or red tape--can always try a bank, brokerage house or insurance company. S&Ls may then seem inexpensive, straightforward and efficient.