Asked what the biggest developments have been since the passing of the Pension Protection Act 10 years ago, David Levine, principal with Groom Law Group, Chartered, cited the use of target-date funds (TDFs) as the qualified default investment alternative (QDIA). Levine was speaking at the 2016 PLANADVISER National Conference “Washington Insights” session.
“TDFs have evolved to focus on demographics and different risk tolerance issues,” Levine said. In addition, “the movement towards auto-everything will continue.”
As to what legislation Congress might actually pass in the near term, Levine said we are overdue for new legislation. One possibility that has support from both sides of the aisle is open multiple employer plans (MEPs), he said. Three others are enhancements to automatic enrollment, further clarification on loans and assistance for the small plan market.
The states have been making three major efforts in the retirement plan arena, Levine said. First, some are running their own open MEPs. However, they are subject to the Employee Retirement Income Security Act (ERISA), and states generally do not want to be subject to lawsuits under ERISA, he said. Second, the Department of Labor (DOL) has said that states can offer individual retirement accounts (IRAs), and while they do not permit employer contributions, they are positive because they are “a way to get people into the system and provide an opportunity for small employers.”
Third, some states are offering exchanges whereby sponsors can pick from various vendors, he said.
NEXT: Changes to Form 5500
Another significant development at the DOL are changes to Form 5500 that will take effect in 2020, Levine said. “They will require more break out on investments and participant fee disclosure,” he said. “This will allow the DOL to do extreme data scraping and the DOL and others to file lawsuits—so it is a very big deal. And the problem is that the data will not include subjective information” as to why a plan chose a service or a fund with a particular fee, he said. Added to this, “DOL investigations will have more critiques on fees. They are going to second guess everything,” he said.
Over at the Securities and Exchange Commission (SEC), there will be changes to Form ADV, he said. “The SEC is asking a lot of questions about target-date funds, managed accounts, separate accounts and qualified default investment alternatives. They are looking for conflicts of interest, such as whether your compliance officer has an improper relationship with anyone else. It is very similar to what the DOL is doing, and the SEC and the DOL do talk to each other.”
The Internal Revenue Services’ (IRS) decision to end its individually designed plans determination letter program will “be a big deal for complex plans and advisers who offer individualized plans,” as it will no longer grant exemptions, he said. “Advisers will no longer be able to say that individualized plans are compliant. Instead, we will see lawyers and advisers give opinions of whether such plans are appropriate, or whether pre-approved is best.”
In sum, Levine reminded the retirement plan advisers in attendance that the litigation landscape is “constantly changing,” making it incumbent on advisers to document the reasons and the process behind their decisions.