Uncategorized May 7, 2018

DOL Announces Enforcement Policy Changes After End of Fiduciary Rule

For the period from June 9, 2017, until after regulations or exemptions or other administrative guidance has been issued, the agency will not pursue prohibited transactions claims against investment advice fiduciaries who are working diligently and in good faith to comply with the impartial conduct standards for transactions that would have been exempted in the BIC Exemption and Principal Transactions Exemption.

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The 5th U.S. Circuit Court of Appeals has vacated the entire Department of Labor (DOL) fiduciary rule.

The DOL says, in response to this, it has issued Field Assistance Bulletin (FAB) 2018-02 announcing a temporary enforcement policy related to the DOL’s rule defining who is a “fiduciary” under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 (IRC), and the associated prohibited transaction exemptions, including the Best Interest Contract Exemption (BIC Exemption), the Class Exemption for Principal Transactions In Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (Principal Transactions Exemption), and certain amended prohibited transaction exemptions (collectively PTEs).

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The DOL says it understands that financial institutions, advisers, and retirement investors may have questions regarding the investment advice fiduciary definition and related exemptive relief following the court’s order. It intends to provide appropriate guidance in the future. At this point, however, the DOL is aware that some financial institutions may be uncertain as to the breadth of the prohibited transaction exemptions that remain available for investment advice fiduciaries following the court’s order. The uncertainty about fiduciary obligations and the scope of exemptive relief could disrupt existing investment advice arrangements to the detriment of retirement plans, retirement investors, and financial institutions. Further, some financial institutions have devoted significant resources to comply with the BIC Exemption and the Principal Transactions Exemption and may prefer to continue to rely upon the new compliance structures.

Based upon these concerns, the DOL has concluded that financial institutions should be permitted to continue to rely upon the temporary enforcement policy, pending its issuance of additional guidance. The DOL says it is convinced that this temporary enforcement relief is appropriate and in the interest of plans, plan fiduciaries, plan participants and beneficiaries, IRAs, and IRA owners.

So, for the period from June 9, 2017, until after regulations or exemptions or other administrative guidance has been issued, the agency will not pursue prohibited transactions claims against investment advice fiduciaries who are working diligently and in good faith to comply with the impartial conduct standards for transactions that would have been exempted in the BIC Exemption and Principal Transactions Exemption, or treat such fiduciaries as violating the applicable prohibited transaction rules. Investment advice fiduciaries may also choose to rely upon other available exemptions to the extent applicable after the 5th Circuit’s decision, but the DOL will not treat an adviser’s failure to rely upon such other exemptions as resulting in a violation of the prohibited transaction rules if the adviser meets the terms of this enforcement policy.

The agency says it is evaluating the need for other temporary or permanent prohibited transaction relief for investment advice fiduciaries, including possible prospective and retroactive prohibited transaction relief. The DOL will consider any applications for additional relief.
Compliance May 7, 2018

Upcoming Mid-Term Elections Could Create Push to Move Forward Retirement Plan Agendas

David Levine, principal at Groom Law Group, said there is a real chance of a big impact on the retirement plan agenda if Republicans take losses in the mid-terms, so he expects a huge push to pass everything they can before then.

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Mid-term elections are coming up, and some lawmakers may view this as a time to push retirement plan agenda items through before changes occur in Congress, while the result of the elections could change some of the focus for retirement plan legislation.

Brigen Winters, principal at Groom Law Group, told attendees of the Plan Sponsor Council of America (PSCA) 71st Annual National Conference that Congressman Kevin Brady (R-Texas), chairman of the House Ways and Means Committee is talking about a primary agenda item being tax reform, with a focus on making individual tax rate cuts that sunset in 2025 permanent. “It is likely to bring with it changes in the retirement space. Brady talked about wanting the committee to dig in to make the retirement and other savings process simpler and consolidating different types of plans,” he said.

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Winters noted that there will be no budget bill this year, so nothing will become active, but it will give the House an opportunity to put its imprint on future budget legislation.

David Levine, principal at Groom Law Group, said plan sponsors should care because whoever is in power after the mid-term elections, Republicans or Democrats, will just drag out the old bill. It creates a baseline, and if there is any more effort to grab at the retirement space, some on both sides will agree, he said.

On the fiduciary rule, Levine told attendees that after the 5th Circuit vacated the rule, the Department of Labor (DOL) has not appealed, and state attorney generals and others tried to jump in and appeal, but were unsuccessful, so the retirement industry is back to the old rule. He said all plan sponsors can do is ask service providers if they are going to act as fiduciaries. Many providers have already rewritten their business models, and plan sponsors should ask what, if anything, providers will be changing.

The DOL has just issued a temporary enforcement policy.

Winters added that the DOL could ask for Supreme Court review, and has until June to do so. However, he said, “We don’t think there is a good basis for them to do so; there is no conflict between circuits.”

For distributions, Levine pointed out the DOL rule said those giving advice and not receiving compensation were not fiduciaries, but that has changed, so plan sponsors need to go back to the education model and reframe from giving direct advice. Plan sponsors should understand what service providers are doing on their distribution advice models, and monitor what is going on about advising on rollovers.

Steve McCaffrey, senior counsel of National Grid U.S., a subsidiary of National Grid UK, a global gas and electric utility, and the PSCA board chairman, suggested plan sponsors listen to provider call center conversations to make sure what information/advice is given and that call center scripts are being followed.

The Retirement Enhancement and Saving Act (RESA) has been reintroduced in Congress. Winters noted that it includes a proposal for pooled employer plans, or open multiple employer plans (MEPs), a proposal to require lifetime income estimates at least annually on participants’ retirement plan statements; a fiduciary safe harbor for the selection of lifetime income providers for retirement plans; limits on stretch IRAs that allow beneficiaries to take out retirement plan assets over their lifetime; a proposal to allow more time for participants who terminate with an outstanding loan to rollover the loan and pay it off without it being a deemed distribution; as well as other proposals that would affect nondiscrimination rules, the automatic enrollment safe harbor default rate and the treatment of 403(b) custodial accounts upon plan termination.

According to Winters, the House has been reluctant to push RESA through. It has raised some opposition to the stretch IRA and illustrations of lifetime income disclosures proposals. In addition, Congressman Orrin Hatch (R-Utah) is retiring and there will be a new chairman of the Senate Finance Committee. Winters said RESA will have a bigger chance of being passed if there is a change in control of the House or Senate after the mid-term elections: however, “Hatch may feel that pushing through RESA would be a good-bye gift.”

Winters also said if there is a change in control of one or both houses of Congress, the fiduciary rule could come back into focus, and there probably won’t be an agreement on the multiemployer pension plan crisis: Democrats will push back.

Levine said there is a real chance of a big impact on the retirement plan agenda if Republicans take losses in the mid-terms, so he expects a huge push to pass everything they can before then.

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