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DOL/IRS/PBGC Spring 2023 Regulatory Agenda
July 5, 2023
On June 13, 2023, the Office of Management and Budget released the Administration’s Spring 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 – is often (one is tempted to say “in most cases”) inaccurate – the agencies frequently miss their target.
DOL
Conflict of Interest in Investment Advice: We discussed DOL’s new Fiduciary Advice regulation project (renamed “Conflict of Interest in Investment Advice”) in our article Advice fiduciaries – DOL’s view. Quoting the Agenda description of it:
The amendment would take into account practices of investment advisers, and the expectations of plan officials and participants, and IRA owners who receive investment advice, as well as developments in the investment marketplace, including in the ways advisers are compensated that can subject advisers to harmful conflicts of interest. In conjunction with this rulemaking, EBSA also will evaluate available prohibited transaction class exemptions and propose amendments or new exemptions to ensure consistent protection of employee benefit plan and IRA investors.
Per the last sentence, this regulatory project is also likely to include a revision of a number of key Class Prohibited Transaction Exemptions.
Current status: DOL expects to have a proposal out by August 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: “Prerule” stage – DOL is meeting with stakeholders.
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 Agenda states that DOL also intends to wrap into this project a review of new disclosure requirements added by SECURE 2.0, e.g., new lump sum window disclosures, and a requirement that DOL study the utility of its fee disclosure regulations.
Current status: “Prerule” stage – DOL is meeting with stakeholders.
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.” Somewhat controversially, DOL has asked the ERISA Advisory Council not to study this issue.
Current status: “Prerule” stage – DOL is meeting with stakeholders.
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: “Prerule” 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,” 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: “Prerule” 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, Treasury/IRS have agenda-ed several regulatory projects:
SECURE 1.0 and 2.0 Act Modifications to Certain Rules Governing 401(k) Plans and 401(m) Plans:
Proposed regulations implementing SECURE 1.0 sections:
102 - Increase in 10 percent cap for automatic enrollment safe harbor after first plan year.
103 - Rules relating to election of safe harbor 401(k) status.
109 - Portability of lifetime income options.
112 - Qualified cash or deferred arrangements must allow long-term employees working more than 500 but less than 1,000 hours per year to participate.
113 - Penalty-free withdrawals from retirement plans for individuals in case of birth of child or adoption.
116 - Treating excluded difficulty of care payments as compensation for determining retirement contribution limitations.
205 - Modification of nondiscrimination rules to protect older, longer service participants.
Proposed regulations implementing SECURE 2.0 changes “with respect to sections 401(k) and 401(m).” This (SECURE 2.0 changes to 401(k) and 401(m)) picks up a massive amount of regulatory work, including implementing SECURE 2.0 provisions with respect to matching contributions for student loans, emergency savings, Rothification, Saver’s Match, changes to catch-up limits, starter 401(k), and modification to 401(k)/(m) safe harbors.
Current status: Target Date for Notice of Proposed Rulemaking – December 2023.
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). Current status: Target Date for Notice of Proposed Rulemaking – June 2023.
Long-Term, Part-Time Employee Rules for Cash or Deferred Arrangements Under Section 401(k): Proposed regulation implementing section 112 of SECURE 1.0 and certain related provisions of the SECURE 2.0 Act. Current status: Target Date for Notice of Proposed Rulemaking – December 2023.
MEPs and the Unified Plan Rule: Proposed regulations permitting a “group of plans” to report on a single 5500. Current status: Target Date for Final Rule – June 2023.
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 presenting a trap for the unwary.
Current status: Target Date for Notice of Proposed Rulemaking – December 2023.
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 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 – December 2023.
Nondiscrimination Relief for Closed Defined Benefit Plans: Current status: Target Date for Final Rule – December 2023.
Rules Relating to the Use of Electronic Media to Make Participant Elections and Spousal Consents: Current status: Target Date for Final Rule – May 2024.
Three projects related to DB plan mortality assumptions:
Update Mortality Tables for Determining Present Value Under Defined Benefit Pension Plans: Current status: Target Date for Final Rule – June 2023.
Modifications to Rules Regarding Plan-Specific Substitute Mortality Tables: Current status: Target Date for Notice of Proposed Rulemaking – June 2023.
Modifications to Rules Regarding Plan-Specific Substitute Mortality Tables: Current status: Target Date for Notice of Proposed Rulemaking – June 2023.
PBGC
Multiemployer plan withdrawal liability:Rule prescribing multiemployer plan withdrawal liability actuarial assumptions, an issue that has been subject to significant recent litigation. Target Date for Final Rule – July 2023.
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We will continue to follow these issues.