Looking back and looking forward: retirement policy at the beginning of 2017

In this article we review, briefly, some of the most significant 2016 retirement policy developments and then consider what will be on the 2017 agenda.

Legislation 2016 – gridlock

In the context of a divided government, no significant retirement policy legislation actually passed Congress in 2016. The most significant bill to make any legislative progress was Senator Hatch’s (R-UT) Retirement Enhancement and Savings Act of 2016, unanimously approved by the Senate Finance Committee on September 21, 2016. It included a number of provisions affecting both defined contribution and defined benefit plans, including: a path forward for open MEPs; fixing the DC annuity fiduciary safe harbor; addressing the nondiscrimination issues presented by closed groups; and requiring lifetime income disclosure in DC plans.

With a new Congress in 2017, this (and other 2016) legislation will have to be re-introduced. And there is a question as to whether, with a new Administration and a new policy agenda, some of the issues addressed by it may be resolvable through regulation.

Regulation 2016 – most significantly, the Conflict of Interest regulation

In April, DOL finalized its Conflict of Interest rule “package,” targeting “conflicted advice.” It’s not an exaggeration to say that this new set of rules was the most significant 2016 change to the regulation of retirement plans.

The rule (1) re-defined who is an “investment advice fiduciary” under ERISA, expanding those situations in which giving investment advice to an employee benefit plan, plan fiduciary, participant, or IRA owner makes the advice-giver an ERISA fiduciary; and (2) significantly changed what sorts of advice may be given, to whom and in what circumstances. It extended ERISA’s fiduciary rules to IRAs and to advice about distributions, and the accompanying Best Interest Contract Exemption imposed significant new compensation and disclosure standards on “conflicted” advisers.

State-mandated Auto-IRAs

Certain states continued their efforts to implement programs requiring private employers that do not sponsor a retirement plan to provide their employees an auto-enrollment, payroll deduction IRA. California, Illinois and Oregon are close to implementation, and Connecticut and Maryland passed legislation in May 2016 beginning the implementation process. These states have generally conditioned implementation on a determination that the program not create an ERISA retirement plan. In August, DOL finalized a regulation providing a “path forward” for these programs, specifying the conditions under which they would be exempt from ERISA coverage.

Frozen DB plans

At the end of 2015, IRS published a proposed regulation addressing the issue of the application of Tax Code nondiscrimination rules to frozen DB plans. That proposal was criticized by some for not providing adequate relief for many plans with this sort of nondiscrimination problem. In April 2016, IRS announced its intention to withdraw the sections of that proposal that would have changed the rules applicable to qualified supplemental executive retirement plans. Then, on September 19, it extended its temporary relief with respect to frozen DB plan nondiscrimination issues through 2017. Finally, on September 21, the Senate Finance Committee unanimously approved the Retirement Enhancement and Savings Act of 2016 (discussed above), which included more general relief.

Proposed revised Form 5500

In July 2016, the Department of Labor, Internal Revenue Service and Pension Benefit Guaranty Corporation jointly proposed extensive revisions to ERISA Form 5500 (Annual Report). Some aspects of this revision have been supported by sponsors and providers, but many others – including a requirement for significantly more detail on plan assets and additional compliance questions – have been criticized as burdensome and problematic.

Litigation 2016 – 401(k) plan fees and company stock

The primary focus of ERISA litigation in 2016 continued to be 401(k) plan fees and company stock.

With respect to 401(k) plan fees, in 2016 we saw several lawsuits targeting passive investment funds, claiming (among other things) that sponsor-fiduciaries should have “gotten a better deal” by using either a cheaper index fund or a collective trust or separate account. Also new in 2016, challenges to the reimbursement of sponsor direct expenses, the use of a flat recordkeeping fee in the context of a declining plan population and certain Financial Engines payments to plan providers.

With respect to fee litigation, in addition to discussing specific cases, we also provided an article discussing the challenge 401(k) plan fiduciaries face when they are confronted with the need to make a change in, e.g., the plan fund menu or plan providers, when there is the possibility that the fact of that change or the things they say about it may be used against them in a fiduciary lawsuit.

With respect to company stock litigation, the Supreme Court’s 2014 decision in Fifth Third Bancorp et al. v. Dudenhoeffer has fundamentally changed the legal analysis of stock drop cases, replacing the (old) “presumption of prudence” standard with what might be called a “presumption that the market price is fair” standard. Since Dudenhoeffer, the stock drop lawsuits that have been getting the most traction with courts generally involve claims that plan fiduciaries were aware of inside information on the basis of which they could have reasonably concluded that the company stock’s market price was “artificially inflated.” In the latest cases on this this issue, however, courts seem generally to be siding with sponsor-fiduciaries.

PBGC premiums

PBGC premium increases (most recently increased in the Bipartisan Budget Act of 2015, enacted at the end of 2015) have caused many DB plan sponsors to search for ways to reduce their premium obligation. We have performed an extensive survey on PBGC premiums and have found a number of plan sponsors have overpaid. Our study identifies different strategies that sponsors may consider to reduce premiums.


Sponsor decisions to de-risk DB plans, e.g., by paying out lump sums to terminated vested participants or transferring plan liabilities to an insurer, are generally driven by market conditions (most significantly, interest rates), tax and regulatory issues (including, e.g., PBGC premiums and the (future) adoption by IRS of new mortality tables) and, of course, their own goals (e.g., with regard to capital structure).

We provided an article in March discussing the effect of interest rates and mortality assumptions on the cost of de-risking.

The election

The biggest story of 2016 – for the nation as whole, but also for retirement savings policy – was, of course, the November election. We provided several articles in November and December on its consequences for retirement savings policy, reviewing possible individual and corporate tax reform proposals and discussing how a Trump DOL may be different from the current Obama DOL.


Obviously, as 2017 begins we are in a dynamic situation. With Republicans (for the moment at least) in control of both Congress and the White House, there is a prospect of an end to legislative gridlock. Here are the questions we have as we wait for the Trump Administration to begin:

Will there be a rush by the Obama Administration to wrap-up current regulatory projects? In this regard, in December, DOL finalized a rule permitting certain cities to adopt mandatory auto-IRA rules, and IRS proposed new mortality tables reflecting the Society of Actuaries 2014 update.

Who will be the key Trump Administration Retirement policy officials? We have provided a brief article reviewing the key positions.

Will the Trump Administration repeal/reconsider Obama Administration regulations? In 2009, the in-coming Obama Administration ordered the reconsideration of certain Bush Administration regulation projects. There has been a lot of speculation that the in-coming Trump Administration may do something similar, especially with respect to the Conflict of Interest rule and proposed revisions to From 5500.

Will we get comprehensive tax reform legislation and how will it affect the retirement savings “tax deal?” With the Republicans in control of both Congress and the White House, there is a possibility that we will get a tax bill in 2017 that will significantly change (1) individual income tax rates, (2) investment taxes (including, e.g., capital gains and dividend tax rates and the Medicare Net Investment Income tax), and (3) the taxation of corporations. These changes are likely to have a meaningful effect on the retirement savings tax deal. This project is, however, very much a moving target. We have discussed the possible implications of these changes in our recent articles on individual and corporate tax reform proposals.

Will the Trump Administration change retirement savings policy to help finance infrastructure legislation? President-elect Trump has been outspoken about his commitment to moving major federal infrastructure legislation. During President Obama’s second term there has been broad bipartisan support (unusual in the gridlocked Congress) for infrastructure spending – in 2015 Congress passed the Fixing America’s Surface Transportation (FAST) Act, providing for $305 billion in infrastructure spending over five years. The problem for President-elect Trump and pro-infrastructure policymakers – in a time of tight budget constraints – is how to pay for what is likely to be expensive legislation. In the last four years, Congress has often looked to raise revenues from retirement policy changes – most often, raising PBGC premiums and relaxing DB funding rules. Will Congress and the new President once again, in 2017, change retirement policy (one is tempted to say, “raid the DB plan system”) to pay for infrastructure? Could they get even more creative, considering (perhaps) financing the infrastructure fund that Mr. Trump has talked about with retirement savings?

What will be the Trump Administration retirement policy agenda? The Obama Administration focused on 401(k) plan fees, a federal Auto-IRA and an expanded Saver’s Credit. What will be the Trump Administration’s approach to these and other issues, such as Open MEPs (which the Obama Administration supported only with significant caveats), electronic participant communications (which the Obama DOL was reluctant to allow) and revision of Form 5500?

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We will continue to follow these issues.