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In this article we review 2024 retirement legislation, regulation, and litigation.
Legislation
We discuss the 2025 policy agenda at length in our article New Administration, new Congress. Congress did not pass any significant retirement policy legislation in 2024. We briefly note the following issues that were raised in 2024 and remain on the agenda in 2025:
SECURE 2.0 technical corrections: Congress has since the end of 2023 had a list of technical corrections to SECURE 2.0 that “have to be made” – attached to some “moving” legislation, preferably sooner rather than later.
Congressman Neal’s Automatic IRA proposal: In February 2024 Congressman Neal (D-MA) re-introduced his “auto-IRA/auto-plan” proposal (the Automatic IRA Act of 2024), which would generally require private employers that do not currently maintain a retirement plan to adopt a retirement plan or IRA program, with an automatic contribution feature. While there is considerable Republican opposition to this proposal, it is likely to feature in ongoing retirement policy debates.
403(b) securities law issues: SECURE 2.0 changed Tax Code 403(b) rules to permit the use of collective investment trusts, but certain securities law issues remain. There is bipartisan support for a solution to this issue.
SECURE 3.0 – policymakers are considering issues to address in possible SECURE 3.0 legislation: This could be wrapped into, e.g., 2025/2026 tax legislation.
What to do about expiring Trump tax cuts?As we have noted, many provisions of the 2017 “Tax Cuts and Jobs Act” (TCJA) are set to expire in 2026, generating a tax increase for many individual taxpayers. With the incoming Trump Administration’s commitment to extending/making these tax cuts permanent, Congress may look for “revenue raisers” in the qualified plan system to offset the cost, including further “Rothification” of 401(k) contributions, capping total account balances in qualified retirement savings vehicles, closing the door on back door Roth conversions, and modifications to DB minimum funding rules Finally, we note that, while the TCJA corporate tax cuts (from a top rate of 35% to 21%) are not expiring, an increase in the corporate tax has been advocated by Democrats. With respect to (calendar year) 2024, some of these issues were raised in the President Biden’s 2025 fiscal year budget proposal.
Agencies
We begin our review of 2024 agency activity with two “meta-issues” –
Chevron Doctrine overturned:On June 28, 2024, the Supreme Court issued a decision (Loper Bright v. Raimondo) overturning the Chevron Doctrine, a rule that (since 1984) required federal courts to defer to agency interpretations, e.g., DOL interpretations of ERISA. Chevron is often a feature of litigation challenging DOL regulations, and of litigation applying those regulations in, e.g., participant fiduciary lawsuits. Henceforth, unless Congress has explicitly given an agency authority to interpret a statute, courts will be ultimately in charge of determining what ERISA means in these contexts.
The Supreme Court’s overruling of the Chevron Doctrine will have widespread consequences for our understanding of fiduciary responsibility (a vivid example of this is likely to play out in courts’ consideration of the challenges to DOL’s fiduciary advice rule, noted below) and of the administration of retirement plans. After the Supreme Court’s decision, it will be significantly harder for agencies to change policy by interpreting or reinterpreting the statutes they administer. But with (potentially) 94 federal district courts and 12 courts of appeal, the process of getting to one rule with respect to an issue may be long and not always productive.
Regulatory freeze: President Trump will, on the day he takes office (and as President Biden did in 2021), issue an Executive Order effectively freezing all agency regulatory activity, including at DOL, IRS, and PBGC, pending review by officials of the new Administration.
Below we review regulatory developments in 2024 at DOL’s Employee Benefits Security Administration (EBSA) and at IRS.
EBSA
Fiduciary rule finalized: DOL finalized its fiduciary advice rule “package” on April 23, 2024.Under the final rule, a person would be an ERISA advice fiduciary (and therefore subject to ERISA’s fiduciary standards, critically the prohibition against self-dealing) if: (1) they make an investment recommendation to “[a] plan, plan fiduciary, plan participant or beneficiary, IRA, IRA owner or beneficiary or IRA fiduciary (retirement investor); (2) for a fee/any direct or indirect compensation; (3) in one of the following contexts –
The adviser is in the business of making professional investment recommendations, the recommendation is particularized to the investor being advised, and is (under circumstances indicating, objectively, that it is) intended to be relied on “to advance the retirement investor’s best interest;” or
The person represents or acknowledges that they are acting as an ERISA fiduciary.
The rule also provides that disclaimers of fiduciary status are not dispositive.
Amended PTE 2020-02: Fiduciaries that “have a problem” under the rule (as amended) may use Prohibited Transaction Exemption 2020-02 (and certain other, more limited PTEs), which were also amended. PTE 2020-02 requires advisers and their related financial institution to:
Comply with “Impartial Conduct Standards,” including (1) determine that their recommendation is prudent, (2) not place the adviser/firm interests above those of the advisee, (3) charge only reasonable compensation, and not make any materially misleading statements.
With respect to rollovers, prior to the rollover, provide a description of the bases for their recommendation to engage in the rollover.
Acknowledge fiduciary status and describe the services provided and material conflicts of interest, adopt policies to ensure compliance with the Impartial Conduct Standards, and conduct a “retrospective review” of compliance certified by a senior executive officer.
Pushback: On July 25, 2024, the United States District Court for the Eastern District of Texas, in Federation of Americans for Consumer Choice v. United States Department of Labor, granted plaintiffs’ motion for a stay of the effective date of DOL’s advice fiduciary rule and its related amendment to Prohibited Transaction Exemption 84-24. In doing so, the court found that plaintiffs were likely to succeed on the merits of their challenge to DOL’s new advice fiduciary rule. In the other case challenging the fiduciary rule, American Council of Life Insurers v. United States Department of Labor, on July 26, 2024, the United States District Court for the Northern District of Texas also entered a stay of the effective date of DOL’s 2024 regulation, stating that “the Court fully agrees with the analysis of the first factor [likelihood of plaintiffs’ success on the merits] in the FACC case and fully adopts that reasoning.” That stay also extends to the effective date of DOL’s amendments to PTE 2020-02, which broadly covers fiduciary issues triggered by the 2024 advice fiduciary rule. On September 20, 2024, DOL filed an appeal of these decisions with the Fifth Circuit.
The new Administration will have to decide whether to continue to defend DOL’s 2024 rule in the courts, “go back to the drawing board” and try to craft a rule that has a better chance of surviving a court challenge, or scrap this project in its entirety.
Pension Risk transfer: Under SECURE 2.0, DOL was tasked with reviewing its current annuity purchase guidance (Interpretive Bulletin 95-1, aka the “safest available annuity” guidance) to determine whether it should be amended. DOL delivered its report to Congress in June 2024. Its conclusions were open-ended – “EBSA has not concluded that changes to the Interpretive Bulletin are unwarranted. Further exploration into developments in both the life insurance industry and in pension risk transfer practices is necessary to determine whether some of the Interpretive Bulletin’s factors need revision or supplementation and whether additional guidance should be developed.” And a revision to 95-1 remains on DOL regulatory agenda for 2025. There are also a series of lawsuits challenging certain large risk transfer transactions (see below).
QPAM rules finalized:On April 3, 2024, DOL finalized amendments to its “qualified professional asset manager” (QPAM) class prohibited transaction exemption (PTE). Generally, the QPAM PTE permits a manager of plan assets (if it qualifies as a QPAM) to engage in ‘party in interest’ transactions without violating ERISA, subject to certain conditions. The major change made by the 2024 amendment to the QPAM PTE is an expansion of the misconduct rules, significantly expanding the sorts of misconduct that may result in disqualification of a QPAM. It also provides for a new one-year wind-down period in the event a plan’s QPAM is disqualified, allowing plans a period to arrange for an alternative.
DOL automatic portability proposal: On January 29, 2024, DOL released a proposed regulation implementing SECURE 2.0’s statutory prohibited transaction exemption (PTE) for automatic portability transactions that meet certain conditions. The proposal generally tracks current (temporary) relief.
Retirement Savings Lost and Found implementation – Under SECURE 2.0 DOL is charged with implementing a Retirement Savings Lost and Found. It is currently asking for voluntary cooperation from sponsors to provide the information required to populate the RSLF database. In this regard, we note that DOL recently disclosed that it had been provided access to Form 8955-SSA (“Annual Registration Statement Identifying Participants with Deferred Vested Benefits”), which will provide much of the requested information. Access to Form 8955-SSA had previously been denied by IRS.
GAO studying treatment of participant data: Just as SECURE 2.0 was being passed by Congress, at the end of December 2022, Patty Murray (D-WA) (then) Chair of the Senate Health, Education, Labor & Pensions (HELP) Committee and Robert C. “Bobby” Scott (D-VA) (then) Chair of the House Education and Labor Committee sent a letter to the Government Accountability Office (GAO) requesting that it “examine the need for federal data privacy laws for retirement plans.” There have been reports that the GAO has begun to study these issues, with a report to be issued next year. We note that neither Murray nor Scott are currently chairs of their committees – Murray remains on the HELP Committee, but Bernie Sanders (I-VT) is currently Chair of that Committee, and with Republican control of the House, Representative Foxx (R-NC) is now Chair, and Representative Scott is now Ranking Member of the House Education and Workforce Committee. Nevertheless, while the request for a GAO “examination” of these issues comes from two Democratic leaders in a now-Republican controlled Congress, participant data privacy protection is not necessarily a partisan issue and has some traction in the public at large.
IRS
IRS guidance on student loan matching contributions: On August 19, 2024, IRS released Notice 2024-63, providing guidance under SECURE 2.0 on Qualified Student Loan Payment (QSLP) matching contributions. The guidance covers QSLP qualification requirements, payment certification requirements, ADP testing, and timing of payments/tax year attribution.
IRS final RMD rules: On July 18, 2024, IRS released final required minimum distribution (RMD) rules, together with proposed rules addressing certain supplementary issues. Most significantly, IRS retained its proposed (and controversial) “at least as rapidly” rule, requiring that, where the employee dies after the required beginning date, payments must continue to the beneficiary, even where the 10-year rule (full distribution within 10 years of death) applies. This interpretation applies as of 2025.
IRS guidance on prohibited Pension-Linked Emergency Savings Account anti-abuse rules: On January 12, 2024, IRS released Notice 2024-22, providing guidance with respect to anti-abuse provisions that are not permitted with respect to Pension-Linked Emergency Savings Accounts (PLESAs).
Plan design innovation: IRS Private Letter Ruling would allow choice between 401(k) and health/medical and student loan repayments: On August 23, 2024, IRS released a Private Letter Ruling (PLR) “approving” an arrangement under which a sponsor allows employees to choose to have an employer contribution allocated between a 401(k) plan, a health reimbursement arrangement, a health savings account, and an educational assistance program (providing for, among other things, student loan repayments).
Litigation
Chevron overturned: See above.
Supreme Court agrees to hear case on the pleading standard for claims that recordkeeper fees are “unreasonable”: On October 4, 2024, the Supreme Court granted certiorari (agreed to hear) plaintiff participants’ petition in Cunningham v. Cornell University, asking the court to overturn a Second Circuit decision dismissing plaintiffs’ claim that defendant fiduciaries caused the plan to enter into a prohibited transaction. In this case, the Second Circuit held that, in order to proceed with such a claim, the plaintiffs must not only plead that the plan had entered into a prohibited transaction but that there was no exemption available with respect to that transaction.
Why this case matters to plan sponsors: The issue here – and in the related case of Bugielski v. AT&T Services, Inc. – sounds technical and procedural. But the issue of who has the burden of pleading that (as in these cases) a recordkeeper’s compensation is reasonable (and therefore complies with ERISA’s service provider exemption) or unreasonable (and therefore does not comply) may determine the outcome of many of these cases. And given that the main issue with respect to the availability of the exemption in these cases is the reasonableness of the service provider’s compensation, this case may be viewed as another version of 401(k) fee litigation, focused on the issue of what a plaintiff has to allege to survive a motion to dismiss.
We also note (as perhaps even more significant) that the underlying issue in Buglielski is whether and to what extent a plan fiduciary has a duty to monitor the indirect compensation being paid a service provider, in connection with its obligation to assure that the service provider’s compensation is reasonable.
ESG – Texas district court denies American Airlines motion for summary judgment in ESG case: On June 20, 2024, in Spence v. American Airlines, United States District Court Northern District of Texas held for plaintiff, denying defendants’ motion for summary judgment. The court’s decision covers a number of issues of some urgency for plan sponsors, broadly involving their fiduciary obligations with respect to the voting of proxies by plan investment funds/managers, where those managers are (alleged to be) pursuing ESG (environmental, social, and governance) goals. We note that after the court’s decision on this motion, the parties proceeded to a bench trial that concluded on June 27, 2024. No decision has yet been rendered.
ESG regulation litigation: Plaintiffs in Utah v. Walsh – the 27-“Red State” challenge to DOL’s ESG rule – have filed an appeal in the Fifth Circuit of the lower court’s decision in favor of DOL. We note that this case may be affected by the Supreme Court’s decision overruling the Chevron Doctrine.
Sponsor fiduciaries win two more forfeiture decisions: A number of cases have been brought by plaintiffs claiming that the use of 401(k) plan forfeitures to reduce employer contributions, rather than to reduce participant-paid plan expenses, violates the ERISA fiduciary duty to act solely in the best interests of the plan participants. To date, in these cases, we have three decisions granting defendants’ motion to dismiss – Hutchins v. HP Inc., US District Court for the Northern District of California (June 17, 2024), Naylor v. BAE Systems, Inc., US District Court for the Eastern District of Virginia (September 5, 2024) and Dimou v. Thermo Fisher, US District Court for the Southern District of California (September 19, 2024). And two decisions denying defendants’ motion to dismiss – Perez-Cruet v. Qualcomm Incorporated, US District Court for the Southern District of California (May 24, 2024) and in Rodriguez v. Intuit Inc., US District Court for the Northern District of California (August 12, 2024). With the exception of Naylor (in which the court found that the plan document mandated that forfeitures be used to reduce employer contributions), all of these cases involve plan documents that give the plan sponsor/sponsor fiduciaries discretion to use forfeitures either to reduce employer contributions or to pay plan expenses. Bottom line: the courts are divided on what rule should apply in that circumstance.
Risk transfer: On March 11, 2024, a group of plaintiffs filed a class action – Piercy v. AT&T Inc. et al. – against AT&T and State Street Global Advisors, in connection with the transfer of benefit obligations with respect to approximately 96,000 participants in the AT&T Pension Benefit Plan to Athene. State Street was an advisor with respect to that transaction. The lawsuit represents the first major challenge to a risk transfer of defined benefit plan obligations to a “private equity-backed” insurer. It alleges that, in selecting Athene for this risk transfer, defendants breached their ERISA fiduciary duties of loyalty and prudence and, under DOL Interpretive Bulletin 95-1, their obligation to select the “safest available annuity.” We note that subsequent to the filing of the complaint against AT&T, several additional lawsuits, making similar allegations against other sponsors, have been filed.
TDF fiduciary hygiene: an appropriate IPS; customized benchmarks; and thorough committee minutes: On May 20, 2024, the United States District Court for the Northern District of California dismissed plaintiffs’ complaint in Bracalente v. Cisco Systems, Inc., holding that defendant Cisco did not violate ERISA’s prudence requirement in selecting (and retaining) a suite of BlackRock target date funds as the Cisco 401(k) plan’s qualified default investment alternative (QDIA), notwithstanding that (as plaintiffs alleged) “the BlackRock TDFs had either the worst or second worst three- and five-year returns of the group of Comparator TDFs.” Critical in this decision: an appropriate investment policy statement (IPS) crafted (in part, at least) with a view towards possible litigation; where appropriate, explicit custom benchmarks, especially for the plan’s QDIA-TDFs; adequate committee minutes reflecting review of fund performance and conforming to the standards adopted in the IPS.
House Education and Workforce Committee Chairwoman Foxx targets DOL cooperation with plaintiffs’ law firms: Department of Labor cooperation with plaintiffs’ lawyers in plan fiduciary litigation came to light in a September 11, 2024, Magistrate’s decision in Harrison et al. v. Envision Management et al. (ERISA fiduciary litigation with respect to Envision’s employee stock ownership plan (ESOP)). On November 21, 2024, Representative Virginia Foxx, Chairwoman of the House Committee on Education and the Workforce drew attention to this decision and raised a series of questions about it in a letter to DOL’s Inspector General Larry D. Turner.
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In 2025 we expect to be following developments with respect to (nearly) all of these issues.