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On December 6, 2023, the Office of Management and Budget released the Administration’s Fall 2023 Regulatory Agenda – a summary of current agency regulation projects. In this article we briefly highlight some of the key projects related to retirement policy.
One prefatory note on the “Agency Agenda” genre. The descriptions the agencies provide are often elliptical, we often do not get (or have) a very good idea of what exactly the regulation will do, and the “Action Date” – the agency’s prediction of when, e.g., a proposed regulation will come out or will be finalized – is often (one is tempted to say “in most cases”) inaccurate – the agencies frequently miss their target.
DOL
Retirement Security Rule – Definition of an Investment Advice Fiduciary: On October 31, 2023, the Department of Labor released a “Proposed Retirement Security Rule: Definition of an Investment Advice Fiduciary,” revisions to its Prohibited Transaction Exemption PTE 2020-02 (the advice fiduciary PTE), and revisions to certain other prohibited transaction exemptions. Current status: Comments on the proposal are due by January 2, 2023.
Plan Reporting for Retirement Savings Lost and Found: The SECURE 2.0 Act of 2022 (“SECURE 2.0”) instructs the Secretary of Labor, in consultation with the Secretary of the Treasury, to, within 2 years of enactment, establish an online searchable database, managed by DOL, known as the “Retirement Savings Lost and Found” (RSLF). In connection with the RSLF, plan administrators are required to report information about (among other things) terminating participants with deferred vested benefits. This project will provide rules for those required reports. Current status: Still in the “pre-rule” stage – DOL staff is conducting its “technical review.”
Revision of participant disclosure rules: SECURE 2.0 instructs DOL, Treasury, and the PBGC, after consultation with “a balanced group of participant and employer representatives,” to (within three years) recommend ways to “consolidate, simplify, standardize, and improve” reporting and disclosure requirements. DOL intends to begin this project with stakeholder meetings. The Fall Agenda states that DOL also intends to wrap into this project a review of new disclosure requirements added by SECURE 2.0. Current status: Still in the “pre-rule” stage.
Review of Pension Risk Transfer Interpretive Bulletin 95-1: SECURE 2.0 instructs DOL to review, in consultation with the ERISA Advisory Council, its Interpretive Bulletin 95-1 on annuity settlements (aka “risk transfers”) and report to Congress, before year-end, its findings, “including an assessment of any risk to participants.” Current status: Still in “pre-rule” stage.
Pooled Employer Plan Guidance: This project will generally explore the need for modification of current regulations to accommodate/take account of Pooled Employer Plans (PEPs), authorized by the 2019 Setting Every Community Up for Retirement Enhancement Act (“SECURE 1.0”). Current status: Still in “pre-rule” stage – DOL is meeting with stakeholders.
Emergency Savings Accounts: SECURE 2.0 allows a defined contribution plan sponsor to establish a “pension-linked emergency savings account,” (PLESA) under which non-highly compensated employees could make contributions to, or be auto-enrolled (at a rate of up to 3% pay) in, an emergency savings account “linked” to a DC plan. This project will generally explore the need for modification of current regulations to accommodate/take account of this new account type. Current status: Still in “pre-rule” stage – DOL is meeting with stakeholders.
TREASURY/IRS
SECURE 2.0 will require a lot of IRS regulatory work, as will a number of remaining issues under SECURE 1.0. In this regard, in its Fall Agenda Treasury/IRS have listed three regulatory projects:
Long-Term, Part-Time Employee Rules for Cash or Deferred Arrangements Under Section 401(k): On November 27, 2023, IRS published proposed regulations implementing the long-term part-time employee (LTPTE) rules of SECURE 1.0 (2019) and SECURE 2.0 (2022). Current status: Comments on the proposal are due by January 26, 2024.
Updates to Required Minimum Distribution Rules: Changes to IRS RMD rules required by SECURE 2.0 sections 204 (Eliminating a penalty on partial annuitization), 302 (Reduction in excise tax on certain accumulations in qualified retirement plans), 325 (Roth plan distribution rules), and 327 (Surviving spouse election to be treated as employee). (We note that recently circulated proposed technical corrections included a clarification of the effective dates of SECURE 2.0 changes to the RMD required beginning date. Current status: Target Date for Notice of Proposed Rulemaking – December 2023.
Multiple employer plans (MEPs) and the Unified Plan Rule: Proposed exception to the "unified plan rule” under which the failure by one employer would not affect other employers in the MEP. Current status: Target Date for Final Rule – January 2024.
Other SECURE 2.0 projects did not make the current IRS Fall Regulatory Agenda. “Grab bag” guidance covering some of these issues is expected soon, including possibly, guidance on the SECURE 2.0 employer election to treat employer contributions as “Roth” contributions.
Other qualified retirement plan-related regulation projects:
Additional Rules Regarding Pension Plan Funding and Benefit Restrictions: This project will provide “additional guidance” on determining plan assets/liabilities for funding purposes, the use of funding balances, and underfunded plan benefit restrictions. The interaction of funding balances and benefit restrictions under Pension Protection Act rules is widely regarded as awkward and in some cases as presenting a trap for the unwary. Current status: Target Date for Notice of Proposed Rulemaking – October 2024.
Application of Nondiscrimination Requirements, Backloading Limitations, Certain Plan Termination Rules, Benefit Limitations, and Top Heavy Rules to Statutory Hybrid Plans: With respect to hybrid (e.g., cash balance) plans, IRS will be looking at “the application of the nondiscrimination requirements, the backloading limitations, certain plan termination rules, the benefit limitations, and the top heavy rules.” SECURE 2.0 did include a fix to current IRS treatment of projections under cash balance plans with a variable interest crediting rate (e.g., market based cash balance plans) (see our article Congress Opens the Door for the Retirement Program of the Future). Some issues remain with respect to that change, including the application of Internal Revenue Code anti-cutback rules to plan changes made as a result of the new rule adopted in SECURE 2.0. It’s unclear at this point what other changes to current rules IRS has in mind. Current status: Target Date for Notice of Proposed Rulemaking – May 2024.
Guidance on the Timing of the Use or Allocation of Forfeitures in Qualified Retirement Plans: Current status: Target Date for Final Rule – March 2024.
Nondiscrimination Relief for Closed Defined Benefit Plans: Current status: Target Date for a new proposed regulation – June 2024.
Rules Relating to the Use of Electronic Media to Make Participant Elections and Spousal Consents: Current status: Target Date for Final Rule – May 2024.
Modifications to Rules Regarding Plan-Specific Substitute Mortality Tables: Current status: Notice of Proposed Rulemaking – October 20, 2023.
PBGC
Multiemployer plan withdrawal liability:PBGC proposed rules prescribing multiemployer plan withdrawal liability actuarial assumptions, an issue that has been subject to significant recent litigation, on October 14, 2022. As we understand it, PBGC has informally indicated that it expects to finalize these rules in the first quarter of 2024.
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We will continue to follow these issues.