Compliance June 26, 2024

House Republican Appropriations Proposal Would Cut EBSA and Block Fiduciary Rule

The budget bill is unlikely to pass in its current form.

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Republican members of the House Committee on Appropriations proposed a spending bill for fiscal year 2025 that would cut the Department of Labor’s budget and completely defund key administration priorities. The proposal passed the Labor, Health and Human Services, Education, and Related Agencies Subcommittee of the House Appropriations Committee Thursday morning.

The budget bill would completely defund the application by the DOL of several new policies and rules. The budget would include no money to apply or enforce the DOL’s new independent contractor definition, which makes it easier for workers to be classified as employees. It would also not appropriate funding for a rule clarifying that retirement plans governed by the Employee Retirement Income Security Act may use prudent environmental, social and governance considerations in making plan investment decisions. The budget also would not earmark any money for the Retirement Security Rule, which expands fiduciary duties for firms providing certain advice or recommendations to retirement plans on topics including account rollovers, annuities, and plan investment menu design.

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House Republicans previously tried to defund the independent contractor and ESG rules during last year’s budget negotiations and were unsuccessful.

The bill recommends DOL receive a discretionary spending total for the fiscal year that begins October 1 of $10.5 billion, which would be a cut of $3 billion from 2024 levels and $4.6 billion less than the White House’s budget request in March. The Employee Benefit Security Administration would receive $181.1 million under the House GOP proposal. EBSA in April requested a budget of $205.7 million for fiscal 2025.

Other divisions of the DOL are targeted in the House GOP proposal. It would reduce funding for the Wage and Hour Division and the Occupational Safety and Health Administration by $75 million and would defund a new rule lowering the permissible amount of silica dust to which miners can be exposed before corrective action is required. The House GOP bill would also completely defund the DOL Women’s Bureau.

The bill will be considered during a committee mark-up hearing tomorrow.

Products & Services June 26, 2024

Technology Integration ‘Linchpin’ for In-Plan Retirement Income

Middleware providers that offer annuity incorporation and portability across retirement plan recordkeeping platforms will play a key role in uptake, says DCIIA research group.

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Getting in-plan retirement income options to take hold will in large part rely on the technology making it possible, according to a recent recordkeeping survey by the Defined Contribution Institutional Investment Association’s Retirement Research Center.

RRC found that recordkeepers are working on implementations of the SECURE 2.0 Act of 2022 to make annuity-driven retirement income options available on their platforms. However, the work will require them to “develop and code high amounts of new software to provide” different solutions, according to the researchers.

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How that technology implementation goes, including middleware providers, will play a “force multiplier” role in making annuity-backed options available and portable, the research group wrote, which included representatives of middleware providers, such as Micruity and SS&C Technologies, along with recordkeepers, asset managers and consultancies.

“Middleware providers allow for connectivity between product provider and multiple recordkeepers, but different recordkeepers could use different middleware providers for that connectivity,” RRC wrote by emailed response. “Middleware, technology companies will work together to connect the products and recordkeepers so that products can be portable even if one RK’s primary connectivity is with a different technology/middleware provider.”

According to the survey, most recordkeepers are now offering proprietary retirement income products, with 53% leveraging external providers, 47% using strategic partners and 39% using both.

Plan Sponsor Demand

Technology integration will be a “linchpin” in enabling the solutions to work at scale, but the top driver for recordkeepers is ultimately plan sponsor demand, according to the findings.

Plan sponsor demand was the primary driver for recordkeepers to adopt solutions at 86%, as followed by technology requirement at 57% as matched by 57% waiting to see how offerings evolve.

Researchers also noted, however, that plan sponsors are considering retirement income against the loss of plan assets via rollover and withdrawals.

The highest driver of recordkeeper prioritizing implementation of retirement income is also plan sponsor demand at 82% as matched by internal strategy decisions, according to the report. That was followed by:

  • 71% technical support
  • 71% regulatory landscape
  • 65% participant demand
  • 59% consultant demand
  • 18% solution manufacturers

Currently, 61% of recordkeepers surveyed offer at least one annuity (33% offer only one and 28% offer two or more) and 39% do not offer any annuities. Among those offering annuities, 39% offer an annuity with a guaranteed lifetime withdrawal benefit, or GLBW, 33% offer an income annuity—single premium immediate annuity, deferred income annuity, or qualified longevity annuity contract—and 22% offer a fixed annuity.

In terms of nonguaranteed solutions, 94% offer a fixed dollar withdrawal, 76% offer a fixed percentage, 65% offer life expectancy distributions and 18% offer interest or dividend-only distributions.

Make it Simple

Finally, the participant experience will be a focus area for recordkeepers. Eighty-two percent of them prioritize that experience when making a decision on whether to include or exclude income solutions, according to RRC.

“Across the board, practitioners aim for a streamlined, well communicated, and simplified experience for participants,” the researchers wrote. “A well-rounded retirement income program provides resources and regular touchpoints to guide the final income activation decision.”

Current participant fees and exemption of those fees for retirement income products were also topics of interest for the recordkeeper. At the moment, roughly half or more recordkeepers charge for withdrawals from nonguaranteed investments from their retirement accounts, depending on the type.

But 61% of recordkeepers would consider exempting fees if the distribution was being made through a packaged retirement income solution.

In this case, recordkeepers “would be more open to waiving distribution fees if the plan/participant is already paying for the packaged solution by the [recordkeeper]/provider,” the research team wrote by email. “Since the [recordkeeper] would already be making money on the solution, they could forgive the distribution fee.”

RRC’s “Retirement Income Solutions: Recordkeeper Study” surveyed 18 recordkeepers with plan assets ranging from $1.2 billion to more than $300 billion and plan pools ranging from 225 to 400,000-plus plans.

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