Compliance December 12, 2019

Proxy Voting Update on DOL Agenda

The DOL is aiming to "modernize fiduciary practices related to the voting rights associated with ERISA plan investments and harmonize those regulations with the requirements of other regulators.”

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A look at the Department of Labor’s (DOL)’s fall regulatory agenda reveals a planned notice of proposed rulemaking on proxy voting.

In April, the White House issued an executive order on the evolving topic of proxy voting and environmental, social and governance investing programs being put into practice by retirement plans subject to the Employee Retirement Income Security Act (ERISA). In the order, the Trump Administration says its intent is to “promote energy infrastructure and economic growth.”

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In its agenda, the DOL says: “This deregulatory action would modernize fiduciary practices related to the voting rights associated with ERISA plan investments and harmonize those regulations with the requirements of other regulators.”

On August 21, the Securities and Exchange Commission (SEC) issued an interpretive release titled “Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers,” directed at all advisers registered under the Investment Advisers Act of 1940. The SEC focused on three broad categories of Adviser Act compliance as to proxy voting activity: 1) when and to what extent the act applies; 2) the standard of conduct that applies to advisers who engage in proxy voting activities; and 3) the responsibilities of advisers who utilize the services of third-party proxy voting services.

The last the industry heard about guidance for plan fiduciaries in regards to proxy voting by employee benefits plans was in 2018. In a previous discussion with PLANSPONSOR, David Levine, principal with Groom Law Group, explained that the DOL’s Field Assistance Bulletin 2018-01 (issued under the Trump Administration) puts a new spin on the earlier and more legally significant Interpretive Bulletin 2016-01, in which the Obama Administration directed the DOL to operate under the assumption that proxy voting and shareholder engagement can be consistent with a fiduciary’s obligation under ERISA.

The new Trump-inspired spin, in essence, says that the DOL primarily characterized proxy voting and shareholder activism activities as permissible under ERISA because they typically do not involve a significant expenditure of funds, Levine explained. In other words, with President Trump in charge, the DOL now operates under the assumption that it is not always appropriate for retirement plan fiduciaries to routinely incur significant expenses and to engage in direct negotiations with the board or management of publicly held companies with respect to which the plan is just one of many investors.

In its regulatory agenda, the DOL says the goal of its notice of proposed rulemaking “would be to protect the interests of participants and beneficiaries by: (1) addressing practices that could present conflicts of interest associated with proxy advisory firm recommendations; (2) ensuring that proxy voting decisions are based on best information; and (3) ensuring that proxy voting decisions are solely in the interest of, and for the exclusive purpose of providing plan benefits to, participants and beneficiaries.”

Plan sponsors may not know what to do with proxy statements and a request for voting from one of the investments held in their ERISA plans. Michael A. Webb, vice president, Cammack Retirement Group, says it is not a requirement that the plan vote each proxy, and a number of factors, including the expense related to properly reviewing and voting the proxy, should generally be considered. Typically, the plan’s trustee is the one who votes the proxy.

Webb suggests that plans should vote the proxy in a manner consistent with their investment policy in general or the statement of proxy voting policy contained within the plan’s investment policy, in particular. “Proxies can be complicated, and if there is any doubt as to who should be voting the proxy, as well as the procedures that govern the manner in which the proxy should be voted, outside counsel with specific expertise in such matters should be consulted,” he says.

Data & Research December 12, 2019

Facts You Haven’t Learned About HSAs

One overlooked benefit of HSAs is that people can actually spend money on qualified health care expenses out of pocket and then reimburse themselves tax-free via the HSA once they enter retirement. 

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Fi360 and HSA Bank hosted an informational webinar for retirement plan advisers focused on the evolving topic of health savings accounts (HSAs).

Shelby George, CEO of Perspective Partners, hosted the webinar, which featured HSA Bank Senior Vice Presidents Kevin Robertson, John Young and Ann Brisk.

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According to the trio of HSA experts, the landscape for these important investment accounts has reached a tipping point. Certain groups have been early adopters of HSAs—the innovators. But according to the HSA Bank team, the evolution of HSAs has moved from an initial period of innovation to a period of mainstream adoption.

Today, nearly one in four people in employee benefit plans qualifies to own an HSA, the experts said, and many Americans find themselves in “consumer driven health plans.” The HSA experts said employers are making such plans more attractive from the perspective of employees because such plans have proven effective in helping employers control health care costs—and so employers want employees to accept and favor such plans. They said the evidence is clear that the promotion of consumerism in health care helps to reduce costs for everyone, employers and employees, and promotes the prudent use of health care services.

The experts noted the HSA industry has started to see explosive growth, in part because a greater portion of HSA assets are being invested. Between deposits and investment growth, the HSA marketplace stands at some $60 billion, a figure that could grow as high as $90 billion or $100 billion in just the next few years.

The experts pointed to various HSA facts that can help advisers promote health care savings even more effectively. For example, people might not understand is that HSA assets can be used by retirees to pay for Medicare premiums, as well as long-term care premiums, on a tax-free basis.

Another major benefit of HSAs is that people can actually spend money on health care out of pocket during their career and then reimburse themselves tax-free via the HSA once they enter retirement. This means that, if a person spent $50,000 on care in their lifetime before retirement and has maintained the proper paperwork and documentation, then in retirement, they can reimburse themselves for those expenses, tax free, and then use the reimbursed income for any purpose. The experts also noted that the money in an HSA is not factored into Medicare means testing.

According to the HSA experts, advisers tend to have a lot of technical questions about things like, what happens if a person dies with HSA assets. There are a lot of complicated answers for the complex questions, so they recommended that advisers seek out expert resources to learn from. Oftentimes, CPAs will know this information, and there are many highly detailed written resources. 

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