According to Jodi Epstein, partner at Ivins Phillips & Barker, and David Levine, principal and co-chair of the plan sponsor practice at Groom Law Group, it is a challenging time to be a retirement plan fiduciary.
However, as the pair discussed during a panel at the 2022 PLANSPONSOR National Conference in Orlando, it is also an exciting time to be working on retirement plans, based on the legislative and regulatory outlook for the retirement planning industry. According to Epstein and Levine, there is significant room for optimism about the passage of helpful reforms.
Still Waiting for Regulations
As the panel spelled out, the retirement industry is still working to interpret and put into practice prior reforms that were established under the Setting Every Community Up for Retirement Enhancement Act, affectionately known as the SECURE Act. One of the main regulations the industry is watching for, Epstein said, involves the SECURE Act’s requirement that certain part-time workers be made eligible for retirement benefits.
As of the start of 2021, the SECURE Act defines these workers as employees who in each of the past three consecutive years worked between 500 and 999 hours. As such, the first year that any long-term, part-time employee may enjoy mandatory eligibility is 2024, although plans can allow entry earlier.
According to Epstein and Levine, it is important for plan sponsors to track the hours worked by their part-time staffers, so that they can be in a good position for compliance with the part-time eligibility rules by the time 2024 arrives. This is particularly important in cases where a plan sponsor is moving between recordkeeper vendors, making an acquisition or experiencing another potentially disruptive business event.
Employees who are required to be covered by the SECURE Act’s expansion may receive, but are not required to receive, matching employer contributions. Furthermore, they can be excluded for nondiscrimination testing purposes.
“There are still some places where we hope to get clarifying guidance, but, for now, the bottom line for employers is to prepare for 2024 by starting in 2021 to track part-time employees’ hours,” Levine said.
SECURE 2.0 Raises Questions
As Epstein and Levine explained, there are provisions in a new legislative framework, the Securing a Strong Retirement Act, which is referred to by some in the industry as SECURE 2.0, that could impact the part-time eligibility rules. Namely, the proposal currently envisions reducing the eligibility window from three years to two, which could further complicate plan sponsors’ efforts to comply with any forthcoming regulations. There is also the possibility that the rules around required minimum distributions could again be modified, with the expectation being that the RMD age could be pushed back to 75, though this is far from given at this stage in the legislative process.
“There is a whole lot in SECURE 2.0 and all the related bills floating around,” Levine said. “In English, the legislative package is about making things better by creating new plan features and new levels of access to the retirement plan system. It is also important to note that the House has passed its version of the legislation by a wide margin, but the Senate is continuing to work on two parallel pieces of legislation. All is yet to be cobbled together, and so we are in a wait-and-see posture with our clients.”
Other features of the legislation package would provide support to workers with student loans by allowing employers to match their loan repayments with retirement account contributions, and there are provisions aimed at simplifying the fiduciary process involved in the provision of guaranteed lifetime income options within DC plans.
Epstein explained that many of the provisions in the legislative package enjoy substantial bipartisan appeal. More challenging is the fact that some parts of the bill will “cost revenue,” meaning they are not budget neutral and may require new tax revenues, which always makes legislation more difficult to pass in a closely divided Congress.
The Regulatory Front
Levine and Epstein said retirement plan fiduciaries should expect a busy year in terms of the development of regulations that impact institutional investors and retirement plans.
For example, in May, the Securities and Exchange Commission extended the comment period on its proposal to make key rule amendments that would require domestic or foreign registrants to include certain climate-related information in its registration statements and periodic reports, such as on the Form 10-K. Examples of the information to be disclosed by securities issuers include climate-related risks and their actual or likely material impacts on the registrant’s business, strategy and outlook. Other information to be disclosed includes the registrant’s governance of climate-related risks and relevant risk management processes, as well as the registrant’s greenhouse gas emissions.
Levine and Epstein said they expect the final version of the regulation to closely resemble the proposal.
According to the attorneys, the SEC’s leadership has clearly signaled its intention to work to improve ESG-related disclosures, and they can be expected to factor ESG themes into multiple rulemaking actions. Since its original proposal, the SEC has already followed up on the broad ESG disclosure package with two additional regulations, one aimed at mandating similar types of disclosures on the part of registered investment advisers and fund managers and the other restricting and regulating the use of the ESG label in fund names.