Retirement Industry Hustles to Keep Up With DOL’s Rules Tsunami
DOL agency to be busy through fall on new rules
Retirement industry in wait-and-see mode
Big-ticket proposed rules and guidance from the U.S. Labor Department’s benefits agency this summer are bumping up against a tight schedule to get finalized and are making heads spin inside the retirement and benefits industry.
The Employee Benefits Security Administration rolled out proposals this summer impacting all players in the retirement space. That includes regulations on fiduciary responsibilities, pooled employer retirement plans, benefits plans with environmental, social, and corporate governance (ESG) focused funds, lifetime retirement income disclosures, and electronic disclosure requirements—a lot of action for a small agency.
The agency on Monday released another proposed rule limiting fiduciaries’ abilities to vote proxies or exercise other shareholder rights impacting a retirement plan.
“It’s almost been like a perfect storm of activity that’s occurred,” said Tim Rouse, executive director of the SPARK Institute, a nonprofit, member-driven organization for the retirement plan industry.
Even before these proposals, EBSA and the IRS “had their hands full” implementing the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, said Chantel Sheaks, executive director of retirement policy for the U.S. Chamber of Commerce. President Donald Trump signed that measure into law last year, and it took effect in January. The SECURE Act rewards employers for expanding retirement programs, gives account holders more time to grow their nest eggs, and makes it easier for unrelated businesses to pool their resources in group plans. Both agencies had to craft guidance for the changes.
“There was a lot that needed to be done by the agencies to really, fully implement the SECURE Act. They were on track and then Covid hit. So these agencies who don’t have a lot of staff, on top of their regular workload and handling the virus stimulus bills, had a lot to do,” Sheaks said.
EBSA’s policy work reflects the agency’s commitment to completing the regulatory agenda, as well as meeting congressional mandates under the SECURE Act and the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act, an agency spokesperson said.
Darren Shuler, an attorney with King and Spalding who works on Employee Retirement Income Security Act litigation, said the proposed fiduciary rule’s introduction pitched “a curve ball” for practitioners. The agency published a proposed regulation that would reinstate the 1975 test for investment advice for fiduciaries under ERISA and expand the class of financial professionals able to qualify for relief from prohibited transactions.
“If I had to pick a regulation that was most important to my clients it would be the proposed fiduciary rule,” he said. It’s unclear how EBSA’s standards will work with the Securities and Exchange Commission’s best interest rule requiring broker-dealers to disclose potential conflicts of interest to retail investors.
Regulatory Agenda
In the first three years of the Trump administration, EBSA hadn’t done much in the retirement space and focused on health. “Now, toward the end of this term, they’ve done a fair amount of work on the retirement side,” said Michael Kreps, who specializes in issues relating to public policy and fiduciary responsibility with Groom Law Group.
The agency kicked off its summer of action with guidance allowing sponsors of defined contribution plans to incorporate private equity into diversified investments. The letter, published at the start of June, was sent to the Groom Law Group.
Later that month, EBSA issued a notice of proposed rulemaking for pooled employer plans, giving small or medium-sized businesses the opportunity to join together in a retirement plan. This rule was mandated by the SECURE Act and allows pooled plan providers to start operating plans beginning Jan. 1, 2021.
The agency followed that move with proposed guidelines for retirement programs with ESG-focused funds on June 23.
In July, a final rule became effective that would allow providers to transition to a primarily electronic disclosure for participants to reduce physical mailing and printing—a move many retirement industry stakeholders applauded.
EBSA recently issued an interim final rule that would allow plan administrators to show participants equivalents of their retirement savings as monthly income under two options: as a single life income stream or a separate income stream that factors in a survivor benefit. That rule, called the lifetime disclosure rule, has a 60-day comment period before being finalized.
Employers, providers, and participants are busy trying to absorb and respond to each new rule within the allotted comment period, said Aliya Robinson, senior vice president of retirement and compensation policy for the ERISA Industry Committee (ERIC).
Given there are still big questions over the regulatory framework for many of these rules, Sheaks and others said that until a final rule is issued, many organizations will hold off on planning for new changes.
Timetable Risks
The lifetime disclosure and the pooled employer rules are mandated by Congress under the SECURE Act and are unlikely to be changed by the next presidential administration. But other rules governing fiduciary responsibility and ESG funds, even if finalized and put on the books, could be reinterpreted or scrapped altogether if a new administration were to enter the White House in January—a concern playing in the mind of several practitioners as the agency rushes to finish.
“We are submitting comments to the extent necessary during meetings with the administration and with Capitol Hill, but I think that’s as much as we can do before the election,” said Robinson. Practitioners will need to rethink their game plan if there’s a new administration, Robinson said.
Shuler took bigger issue with what he said was a short time frame for commenting.
The public comment period allows outsiders to weigh in on new rules from a federal agency. The agency is supposed to read each comment, absorb the concerns shared with the administration, and address them in some way before issuing a final rule. EBSA issued the proposed rule for pooled employer plans in August—giving the public just 30 days to comment.
The agency believes commenters were given an appropriate amount of time to comment, according to the agency’s spokesperson. The department expects to complete its regulatory work on schedule.
Most of the same organizations in the benefits space want to comment on each rule, putting a lot of strain on practitioners, Shuler said.
“I think, for a lot of my clients, unless they have very well-formed thoughts on what a certain set of rules will mean, it’s very difficult to process that and to formulate any conclusion on how important or unimportant a rule may be,” Shuler said.
To contact the reporter on this story: Jaclyn Diaz in Washington at jdiaz@bloomberglaw.com
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