DOL, IRS Guidance and Enforcement May Change Under Executive Orders

Two executive orders could lead to more formal guidance and a halt on enforcement without proper guidance in place, attorneys from Groom Law Group explain.

According to a Groom Law Group Benefits Brief, on October 9, President Donald Trump signed two executive orders that will likely impact guidance and enforcement in the retirement and health arenas.

The first is an Executive Order on Promoting the Rule of Law Through Improved Agency Guidance Documents, and the second is an Executive Order on Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication. The Groom attorneys explain that these Executive Orders build on recent memoranda adopted by individual executive agencies. These agency memoranda generally limit sub-regulatory guidance with the force and effect of law and signal that agencies should not bring enforcement actions absent an act violating a regulation that was subject to notice and comment or the text of a statute.

The attorneys say the Executive Orders are consistent with a Department of Justice (DOJ) memorandum from November 16, 2017, that announced an administration-wide policy against issuing guidance documents “that purport to create rights or obligations binding on persons or entities outside the Executive Branch,” the Benefits Brief says. The DOJ expanded its stance in early 2018 by limiting itself from using enforcement actions to convert agency guidance into binding rules. For the DOJ, guidance documents themselves can no longer provide the basis for proving violations of applicable law.

The Department of Treasury’s Policy Statement adopted on March 5, reiterates that sub-regulatory guidance does not have the effect of law and cannot be used to modify existing legislative or regulatory rules. The Department of Labor (DOL) did not issue a similar policy statement.

However, the DOL’s Employee Benefits Security Administration (EBSA) recently underwent a reorganization that some say will stem its practice of issuing sub-regulatory guidance and lead to more regulatory guidance. According to Michael Kreps, attorney with Groom Law Group in Washington, D.C., “There have been some public statements by DOL officials that they would like to help the industry by issuing more guidance and opening up a process that has been dormant for a while.”

The Guidance Executive Order adopts the policy that “agencies may impose legally binding requirements on the public only through regulations and on parties on a case-by-case basis through adjudications, and only after appropriate process, except as authorized by law or as incorporated into a contract.” It defines “guidance documents” broadly as “an agency statement of general applicability, intended to have future effect on the behavior of regulated parties, that sets forth a policy on a statutory, regulatory, or technical issue, or an interpretation of a statute or regulation,” but not including rules promulgated pursuant to notice and comment rulemaking and certain other rules, decisions and internal guidance.

The Guidance Executive Order imposes new procedural requirements on all agencies issuing certain types of guidance documents. Notably, existing sub-regulatory guidance must undergo review by the Office of Management and Budget (OMB). Further, any guidance document that an agency seeks to have remain in effect will need to be included in a single, searchable and indexed database on that agency’s website.  Agencies are also required to amend or finalize regulations that set forth procedures for issuing guidance documents themselves.

As a result of the Guidance Executive Order, the public will likely have a greater opportunity to petition an agency for changes to or the removal of a particular guidance document while the regulatory agencies will have less opportunity to respond to stakeholders by way of sub-regulatory guidance (which is generally not subject to notice and comment under the Administrative Procedure Act). The Groom attorneys say the new procedural requirements for significant guidance documents do not appear to apply to written agency responses to inquiries concerning compliance. That likely includes EBSA advisory opinions, IRS private letter rulings, and non-enforcement letters issued by the Securities and Exchange Commission.

The Enforcement Executive Order requires agencies, when taking administrative enforcement actions or engaging in adjudication, to “establish a violation of law by applying statutes or regulations.” An agency can only apply standards of conduct that have been publicly stated in a manner that would not cause “unfair surprise.”

Further, an agency must publish a guidance document in advance in the Federal Register or in the searchable database on the agency’s website if it wishes to cite the document for the legal applicability of a statute or regulation in an enforcement action or adjudication, the Benefit Brief states. 

This issue of taking enforcement actions when no standards of conduct exist has come up regarding the DOL’s perceived aggressive enforcement regarding missing retirement plan participants. In a public statement sent to the IRS and DOL, the Plan Sponsor Council of America (PSCA), a part of the American Retirement Association (ARA), said “there have been numerous reports of aggressive DOL enforcement activity, and sometimes inconsistent positions taken by DOL auditors, regarding how plan sponsors are handling missing participants. We have heard concerns from our plan sponsor members that they have been or may be subjected to enforcement actions even though the DOL and IRS have not issued comprehensive guidance on missing participants that provide a clear roadmap for compliance.”

“In the benefits context, it will be interesting to watch whether EBSA shifts its enforcement priorities to align with the policy of the Executive Orders,” the Groom attorneys say in the Benefits Brief. They also say there is a risk that all agency pronouncements will move more slowly if agencies are forced to show that the benefits of their sub-regulatory pronouncements outweigh their costs.

The Benefits Brief points out that Executive Orders remain in effect only as long as the President elects to retain them, so “a subsequent administration could rescind, modify, or reinterpret” them.