Compliance August 20, 2019

Corrections Made to ‘One-Bad-Apple’ Rule Proposal for MEPs

In July, the IRS proposed regulations that would provide an exception, if certain requirements are met, to the application of the “unified plan rule,” what the industry refers to as the “one-bad-apple rule,” for MEPs.

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The IRS has made language changes to its Notice of Proposed Rulemaking (NPRM) relating to the tax qualification of plans maintained by more than one employer.

These plans, maintained pursuant to section 413(c) of the Internal Revenue Code (IRC), are often referred to as multiple employer plans, or MEPs. The proposed regulations would provide an exception, if certain requirements are met, to the application of what the regulations call the “unified plan rule,” and what the industry refers to as the “one-bad-apple rule.” This rule can lead to the disqualification of an entire MEP thanks to one employer’s mistake. It applies for a defined contribution MEP in the event of a failure by an employer participating in the plan to satisfy a qualification requirement or to provide information needed to determine compliance with a qualification requirement.

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The exception generally would be available to the plan if one participating employer causes and is unable or unwilling to correct a qualification failure. It would also be available if the participating employer fails to comply with the Section 413(c) plan administrator’s request for information about a qualification failure that the Section 413(c) plan administrator reasonably believes might exist. For the exception to the unified plan rule to apply, certain actions are required to be taken, including, in certain circumstances, a spinoff of the assets and account balances attributable to participants who are employees of such an employer to a separate plan and a termination of that plan.

The IRS says that, as published, the NPRM contains errors which may prove to be misleading and need to be clarified.

Comments on the IRS proposal are still due October 1.
Compliance August 20, 2019

Upset in FINRA Board Large Seat Election

Board of Governors candidate-by-petition Chris Flint has defeated the FINRA-preferred candidate Andrew Duff.

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FINRA has concluded its annual meeting of firms and has announced the results of its Board of Governors election, including in the contested large firm category.

In the vote of eligible member firms, Chris Flint, president and CEO of ProEquities Inc., defeated Andrew Duff, former board chair at Piper Jaffray & Co. and current first-term member of the FINRA Board.

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In the lead-up to the election, PLANADVISER spoke with both candidates about their hopes and expectations for serving on the Board. Both emphasized their ability to leverage 20-plus years of industry experience. Both also said they are in the prime of their careers in the financial services space, so they have a strong personal interest in seeing that the FINRA Board remains a fair, effective and efficient self-regulatory institution.

Flint’s message of bringing a “retail-oriented voice” to the FINRA Board has in the end prevailed among voting firms. It also stands to reason that he benefited from the strong endorsement of several influential membership organizations in the financial services industry, including the Financial Services Institute (FSI) and the Bank Insurance and Securities Association (BISA). These are considered, respectively, to be among the leading advocacy organizations for the independent financial advice channel and the bank-based financial advice channel.

Some weeks ago, Dale Brown, CEO of FSI, noted that Flint’s candidacy represented the first time both the independent and bank-based industry associations have jointly endorsed the same candidate in a contested FINRA Board election. It was also the first time in BISA’s history for endorsing any FINRA Board candidate—let alone, a candidate challenging the incumbent.

Now, reflecting on Flint’s victory, Brown says he is proud to see this outcomes—and he expects great things from Flint.

“We were proud to endorse Chris and work hard to help bring his commitment to investor protection and fresh perspectives to the FINRA Board,” Brown says. “One of our top goals is to make the value of the independent model to investors better understood by all stakeholders. Having now helped our third petition candidate secure a FINRA Board seat in the last four years, we’re more confident than ever that strong progress is being made toward this goal.”

Readers may recall that current large firm FINRA Board member Jim Nagengast, chief executive of Securities America Financial Corp., won a seat by defeating the FINRA-preferred candidate in a special election last year. Nagengast also had earned FSI’s endorsement.

In terms of what he will prioritize as a FINRA Board member, Flint has emphasized the importance of collaboration with the Securities and Exchange Commission (SEC) during the rollout of the newly finalized Regulation Best Interest. He has also suggested he will push for “less regulation through enforcement,” based on the argument that one-off enforcement actions are not the best way to approach the transformational changes that some parties may feel are needed within financial services.

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