New Department of Labor Regs Coming Our Way
Never let it be said that the U.S. Department of Labor (DOL) is sleeping on the job. Currently, the agency has several important initiatives on its regulatory agenda for 2015/2016 that will affect various qualified retirement plan providers in different yet significant ways.
Some of these are in the Final Rule stage, while others have just begun moving through the Proposed Rule stage. In this two-part series, PenChecks Trust will offer an overview of what’s on the DOL/EBSA agenda and the potential impact of each new regulation.
In this blog, we’ll look at those in the Proposed Rule stage, starting with the one that everyone’s talking about.
Conflict of Interest Rule – Investment Advice
This is the big one that already has the financial industry lobby facing off against the White House, DOL and AARP. To reduce conflicts of interest, the proposed reg would amend the regulatory definition of the term “fiduciary” as set forth at 29 CFR 2510.3-21(c). It would more broadly define the term as “those persons who render investment advice to plans and IRAs for a fee within the meaning of §3(21) of ERISA and §4975(e)(3) of the Code.”
The amendment would take into account current practices of investment advisors, the expectations of plan sponsors and participants, and IRA owners who receive investment advice. It would also consider changes that have occurred in the investment marketplace and in the ways advisors are compensated.
How will this impact IRA advisors? For now it’s too early to tell. The financial industry lobby wields a lot of power and influence, so the reg could change significantly before reaching the Final Rule stage. But as AARP recently told Tiger Woods, “It’s better to be over 50 than over par.” So don’t underestimate the effectiveness of AARP’s lobbyists either, especially when they have the backing of the White House.
Pension Benefit Statements
As you may recall, §508 of the Pension Protection Act of 2006 (PPA) amended §105 of ERISA to require plans that are subject to ERISA to automatically provide participants and certain beneficiaries with individual pension benefit statements. As part of the proposed initiative, the DOL will explore whether, and how, an individual benefit statement should and could present a participant’s accrued benefits in a defined contribution plan. For example, in addition to presenting the benefits as an account balance, the benefits statement might also present them as a lifetime income stream of payments.
Revision of Form 5500 Series and Related Regulations under ERISA
This reg is part of a long-term strategic project with the IRS and Pension Benefit Guarantee Corp to modernize and improve the Form 5500 Annual Return/Report of employee benefit plans. As part of this project, these agencies will focus on three key areas:
- Modernizing the financial and other annual reporting requirements on the Form 5500
- Making the information on Form 5500 more data mineable
- Enhancing the IRS’s ability to collect employee benefit plan data that best meets the needs of changing compliance projects, programs, and activities
Fiduciary Requirements for Disclosure in Participant-Directed Individual Accounts Plans – Timing of Annual Disclosure
This rulemaking would amend 29 CFR §2550.404a-5 by making a technical adjustment to the timing requirement for annual disclosure. The amendment would provide plan administrators with flexibility as to when they must furnish annual disclosures to participants and beneficiaries.
As noted, these initiatives are all in the proposed stage, so a lot can happen between now and when (or in some cases, if) they make it to the Final Rule stage. Overall, the trend appears to be towards more disclosure for retirement plans and more oversight by increasing the ability of government agencies to gather and analyze the data.
Stay tuned for our next blog, which will examine current initiatives that have reached the Final Rule stage.
Mike McWherter,JD, Chief Compliance Officer