Compliance February 28, 2023

EBSA Head Says Disclosure, SECURE 2.0, ESG Are Key Priorities

EBSA’s Lisa Gomez identified upcoming regulatory priorities related to SECURE 2.0 and the importance of effective disclosure at a conference hosted by the NIRS.

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Lisa Gomez

Lisa Gomez, the assistant Secretary of Labor for the Employee Benefits Security Administration, addressed the National Institute on Retirement Security’s Retirement Policy Conference on Tuesday. She highlighted some of the items on EBSA’s short-term agenda: standardizing disclosure language and issuing guidance on the SECURE 2.0 Act of 2022.

Gomez emphasized the importance of “effective” disclosure and said it will be a “theme” for EBSA going forward. EBSA intends to issue standardized language on unspecified disclosures to make them easier to read for participants both so that disclosure documents are more likely to be read and understood and so that participants changing employers do not have to adjust as much to new formatting or jargon. Gomez did not lay out a timeline or provide specific examples.

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SECURE 2.0, passed on December 29, 2022, contains many provisions for which EBSA will have to issue or amend regulatory guidance. In particular, Gomez named employee stock ownership plans, auto-portability, various reporting and disclosure changes and the qualified personal asset manager exemption.

She also noted that EBSA had to reopen the comment period for the Voluntary Fiduciary Correction Program proposal, first issued in November 2022, after Section 305 of SECURE 2.0 required EBSA to accept certain plan loan errors corrected under the IRS’ Employee Plans Compliance Resolution System as also satisfying the VFCP requirements.

Lastly, Gomez quipped that EBSA has been “spending a lot of time on ESG.” She explained that she is not able to comment at length, since EBSA’s proposed ESG rule, which would permit ESG considerations in retirement plans, is the subject of ongoing litigation, a reference to two separate lawsuits challenging the legality of the rule.

 

Compliance February 28, 2023

IRS Proposes Rules That Require Retirement Forfeitures Be Used in 12 Months

A new IRS proposal formalizes guidelines on how plan administrators should manage and use retirement plan forfeitures.

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The Internal Revenue Service proposed new rules on Monday formalizes the timing and use of forfeitures in qualified retirement plans by plan sponsors.

The proposal would more clearly define how plan administrators should handle money forfeited by participants when they leave an employer before the end of a vesting schedule, when they die or when other factors result in funds going back to the plan sponsor. While the rule likely will not change how plan advisers and administrators are currently operating, it would make those processes clearer, says R. Randall Tracht, an attorney with Morgan Lewis specializing in retirement plans and the Employee Retirement Income Security Act.

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“The IRS has long been of the view that the Internal Revenue Code’s tax-qualification rules and requirements generally do not permit defined contribution plans to carry over unused and unallocated forfeitures from year to year,” Tracht says. “The IRS regularly expressed this position in the course of retirement plan audits, but, until now, the IRS had not issued formal regulations setting forth their position.”

In its proposal, the IRS said some defined contribution plan administrators place forfeited funds into a “plan suspense account” in which the money is held before being put to use. The proposed regulations would “generally require” that plan administrators use forfeitures no later than 12 months after the close of the plan year in which the forfeitures happened.

The proposal also specifies the uses for defined contribution plan forfeitures, which are to pay reasonable plan administrative expenses, reduce employer contributions or increase benefits for plan participants.

“Plan sponsors will want to review their plan terms and check with the plan’s recordkeeper to consider whether any changes to the plan’s terms or recordkeeping processes may be desirable,” Tracht says.

The proposed rules are effective for plan years beginning on and after January 1, 2024, and include a transition rule that deems pre-2024 forfeitures to have been incurred in the first plan year beginning on or after January 1, 2024, according to Tracht. This will allow plans time to comply with the new rules.

The IRS said that the proposed regulations are “not expected to require changes to plan terms or plan operations, or otherwise have a significant impact on plans or plan sponsors.” It did say, however, that it is seeking comment from smaller plans and plan sponsors to discuss the “impacts these proposed regulations may have.”

The agency will take public comments online or by mail until May 30 and will set a date for a public hearing if requested.

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