Possible policy changes at DOL

President-elect Trump has picked a new Secretary of Labor – Andrew Puzder. Mr. Puzder is on record as opposing at least two Obama Administration policy initiatives – the Affordable Care Act and new Department of Labor overtime rules. And some are raising the possibility that he may (if confirmed) target the DOL’s Conflict of Interest regulation. Moreover, President-elect Trump has said that “I will formulate a rule which says that for every one new regulation, two old regulations must be eliminated.”

In prior articles we have discussed how possible changes in the Tax Code supported by a new Trump Administration may affect retirement savings tax incentives. In this article we discuss some issues that have been a focus of the Obama DOL with respect to which the new Trump/Puzder Administration may take a different position.

In some cases, we’ve taken a shot at predicting how a Trump DOL may change DOL’s position. But it should be understood that most of this is pretty speculative. A new head of the Employee Benefit Security Administration (EBSA) has not been named – he or she will certainly have a lot of influence over DOL policy in this area. And most would agree that the Trump Administration may not take a conventional “Republican” view of every ERISA issue.

Finally – this “article” is more or less a survey. Readers may want to focus on the issues that are of particular interest to their company.

Economically targeted investments

We start with economically targeted investments (“ETIs” aka social investing) only because the way that DOL’s treatment of ETIs has zigzagged over the last 22 years is a good illustration of how DOL/EBSA policy positions may change when Administrations change.

DOL has tweaked the rules for ETIs three different times – in 1994 the Clinton DOL issued Interpretive Bulletin (IB) 94–1 “correct[ing] a misperception that investments in ETIs are incompatible with ERISA’s fiduciary obligations.” In 2008, the Bush DOL produced a new IB 2008-1, modifying and superseding IB 94-1, stating that “the Department believes that fiduciaries who rely on factors outside the economic interests of the plan in making investment choices … will rarely be able to demonstrate compliance with ERISA absent a written record demonstrating that a contemporaneous economic analysis showed that the investment alternatives were of equal value.” Then in 2015 the Obama DOL concluded that “IB 2008–01 had unduly discouraged fiduciaries from considering ETIs and environmental, social and governance (‘ESG’) factors under appropriate circumstances ….” And so the Obama DOL issued IB 2015-1 “confirm[ing] the DOL’s longstanding view from IB 94–1 that fiduciaries may not accept lower expected returns or take on greater risks in order to secure collateral benefits, but may take such benefits into account as ‘tiebreakers.’” (Quoting from the introduction to the 2016 Form 5500 revisions, discussed further below.)

All of which is to say that it wouldn’t be unfair for an observer to observe that ERISA treatment, and DOL’s view, of ETIs seems to be somewhat influenced by whether a Democrat or a Republican is running DOL.

ETIs are unlikely to be a top EBSA priority – and, indeed, it’s possible that a Trump Administration would share the Obama Administration’s view of the issue. But it has been a regulatory topic that different Administrations have different views on, and a Trump DOL may once more tweak this rule.

Conflict of Interest regulation

Whether to retain, modify or withdraw DOL’s recently finalized Conflict of Interest regulation (and the attendant “package” of new and modified exemptions) is likely to be a top priority for the new head of EBSA. He or she will have to consider the disruption withdrawing the regulation will cause for sponsors and providers that have already made significant changes in anticipation of its implementation (beginning in April 2017), as well as the disruption that the regulation itself will cause. As of this writing we don’t know what position the new Administration will take, but it will certainly be under pressure to take some position.

Attitude towards the 401(k) fee issue generally

In addition to the specific issue of the fate of the Conflict of Interest rule, the broader issue of DOL’s view of the significance of 401(k) plan fees and what should be done about them may also change under a Trump Administration.

While there are Republicans who have expressed concerns about the issue of 401(k) fees, and there are Democrats who have expressed concerns about the Obama Administration’s approach to it, generally Democrats have been more aggressive on this issue than Republicans have.

The Obama DOL has repeatedly focused on the effect fees have on retirement benefits. From 2009-2012 its focus was fee disclosure, from providers to sponsors and from sponsors to participants. In 2010 it proposed, then in 2011 (amidst significant controversy) withdrew, then in 2015 re-proposed and in 2016 (again amidst significant controversy) finalized its Conflict of Interest rule (discussed above), targeting (in the Administration’s own words) “backdoor payments” and “hidden fees.” Moreover, the Obama DOL has injected the issue of fees into a number of other initiatives, including, for instance, the brokerage window guidance project, the Target Date Fund Tip Sheet and the Pension Protection Act advice regulation.

What will the Trump DOL’s attitude towards 401(k) fees be: a problem to be fixed by aggressive regulation, or an issue better left to the free market?

Form 5500 revision

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. While Form 5500, generally, is intensely technical, these changes have gotten a lot of attention and pushback, and two industry groups, the American Benefits Council (ABC) and the ERISA Industry Committee (ERIC), have separately requested that the agencies withdraw the proposal.

What to do about the proposed Form 5500 revisions is likely to be another top priority for the Trump DOL-EBSA.

State plan initiative

In August 2016, DOL finalized its regulation providing a “path forward” for state private retirement program initiatives. This rule allows employers to provide an auto-enrollment IRA for their employees without triggering ERISA coverage, provided the auto-IRA is implemented pursuant to a state mandate.

The movement to create these auto-IRA programs has taken place in predominantly Democratic states – Connecticut, California, Illinois, Maryland and Oregon. Faced with a patchwork of state auto-IRA requirements, some are suggesting that a federal auto-IRA may be a better alternative. But Republicans have (fairly strenuously) opposed federally mandated auto-IRA programs since 2009.

When the Trump Administration takes over, what approach will they take to this issue? We see three alternatives: (1) Do nothing. (2) Withdraw the regulation authorizing states to move forward with auto-IRAs. (3) Allow any employer to set up an auto-IRA, without regard to whether there is a state mandated program. The latter approach could, among other things, open up the possibility of private providers developing and marketing auto-IRA programs.

“Open” multiple employer plans

Multiple employer plans are non-union plans for 2 or more unrelated employers. Under a DOL regulation, private providers generally can market a MEP only where the provider “is tied to the contributing employers or their employees by genuine economic or representational interests unrelated to the provision of benefits.” This is sometimes called the MEP “nexus” requirement.

In connection with its state plan initiative, DOL also, in November 2015, published an Interpretive Bulletin authorizing states to offer MEPs to any employer in the state, in effect saying that a state has the required “economic and representational interest” with respect to all its citizens.

Many have pushed for the elimination of the MEP nexus requirement, arguing that “Open MEPs” – plans run by private providers, e.g., a financial services company, and offered to all comers – are a way to provide less expensive retirement plan services to smaller employers.

The nexus requirement is (as stated) entirely a creature of regulation – DOL could authorize private-provider Open MEPs tomorrow. It doesn’t because the Obama DOL has concerns about possible abuses by private MEP providers, and those concerns can only be addressed by legislation. There is currently a Congressional proposal to do just that.

A Trump DOL could eliminate the nexus requirement, more or less with the stroke of a pen. There will, however, certainly be opposition to such action, from those who believe that the additional safeguards advocated by the Obama Administration are necessary.

Brokerage windows

In 2012, DOL released FAB 2012-02, a set of Q&As that included a question/answer (Q&A 30) that seemed to indicate the Obama DOL viewed brokerage windows, and particularly brokerage window-only plans, with some concern. FAB 2012-02 Q&A 30 was ultimately revised, and most recently, in 2014, DOL issued a request for information on brokerage windows. This concern about possible brokerage window reporting or fiduciary issues (and possible regulation) will probably recede as a new Administration takes office.

Electronic participant communications

DOL’s electronic disclosure rules (in effect, the format requirements for sponsor communications to participants) are generally considered stricter and less accommodative – and thus more burdensome and more costly – than IRS’s or, for that matter, what has become standard business practice. More than one bill has been introduced in Congress to liberalize ERISA electronic disclosure rules. This is an issue the new Administration could well take a new look at.

Moving ahead with a lifetime income disclosure regulation

DOL has had under consideration since 2013 a regulation requiring that DC plans disclose, in some fashion, the “lifetime income” a participant’s account balance could produce, e.g., the annuity the participant could buy with it. There are also Congressional proposals on this issue. While there are differences over what exactly should be disclosed (e.g., whether a disclosure should be made based on a projection to retirement age of the participant’s account balance), there is broad consensus that some sort of disclosure would be a good idea.

Perhaps a Trump DOL can produce some movement on this project.

Annuity safe harbor

The use of annuities as a distribution option in a DC plan has been considered by many sponsors to be problematic – an annuity investment depends on the annuity carrier’s long-term solvency, so there is, in effect, a long-term tail to the fiduciary risk with respect to the selection of an annuity carrier. If the carrier goes insolvent 20 years in the future, the plan fiduciary may conceivably be held liable for a fiduciary breach under ERISA.

In 2008, DOL issued a regulation providing a “safe harbor” for the selection of a DC annuity provider, but that safe harbor has never been regarded as particularly “safe.” It still requires a thorough and prudent selection process, including a judgment about the capacity of the annuity carrier to pay future annuity commitments.

Adopting a proposal first put forth by the American Council of Life Insurers (ACLI), the Retirement Enhancement and Savings Act (which recently was reported out of the Senate Finance Committee) would address this issue by, generally, deferring to state insurance regulation on the issue of the financial condition of the annuity carrier. A new Administration could adopt that proposal without legislation.

Company stock litigation

An emerging issue in stock drop litigation, post-Fifth Third Bancorp et al. v. Dudenhoeffer, is: under what circumstances should courts allow lawsuits premised on 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?” We discuss this issue in detail in our article Company stock and inside information: DOL’s view.

In an amicus brief in Whitley v. BP, DOL took a pro-plaintiff position, arguing that fiduciaries aware of such inside information could disclose it and could suspend further company stock purchases. With regard to the Dudenhoeffer requirement that such actions not “do more harm than good,” DOL proposed that “[g]iven the ongoing fraud that [BP CEO] Hayward was required to disclose under the securities laws, the plaintiffs have plausibly alleged that a prudent fiduciary could not have concluded that taking the sort of corrective action described above would have caused more harm than good to Plan assets.” The court sided with defendants, rejecting DOL’s view.

Depending on how much control the new Administration wishes to assert over the DOL Solicitor’s Office, it’s possible that a new Administration will take a less pro-plaintiff view of these cases.


While there has been some talk of the Obama Administration “doing something” about de-risking, it actually has done very little. Some of the key issues are under Treasury’s jurisdiction – a technical issue about post-retirement lump sums and the adoption of new mortality tables (which will increase the cost of paying out lump sums).

De-risking presents a set of meta-issues for federal defined benefit plan policy, as some sponsors move DB liabilities out of ERISA coverage and federal pension regulation and onto the books of insurance companies and state insurance regulation. It will be interesting to see whether the Trump Administration will “do something” or simply let this current trend run its course.

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We will continue to follow all of these issues as the new Administration takes over at DOL.