Outlook 2022 – The Retirement Policy agenda – Highlights
In this article, we briefly consider the 2022 retirement policy legislative, regulatory, and litigation agenda. Most of these issues are carryovers from 2021, and we have discussed them at length elsewhere. We are, therefore, going to keep our preview of 2022 brief, focusing on the “highlights,” and providing links to our prior, more comprehensive treatment.
Build Back Better: Senate Democrats ended 2021 without putting together a 50-vote + President of the Senate majority in favor of the House-passed Build Back Better Act (BBBA). As discussed in our article on the House version of this bill, this legislation has a very limited effect on retirement policy, focused mainly on limiting “mega” IRA and defined contribution plan accounts and certain Roth conversions.
Bipartisan retirement policy reform initiatives: We followed bipartisan retirement policy reform initiatives throughout 2021, the most important of which were SECURE 2.0 (in the House) and Portman-Cardin (in the Senate). We would identify the following as significant proposals that could be incorporated in a 2022 bipartisan bill:
Student loans – plans would be permitted to perform the ADP test separately for those participants receiving matching contributions on loan repayments. (Both SECURE 2.0 and Portman Cardin)
Missing participants – changes to the mandatory distribution/transfer rules for small benefits (associated with the “missing participant” problem) and implementation of a new Retirement Savings Lost and Found. (SECURE 2.0)
Women’s Pension Protection – spousal consent for certain distributions from DC plans generally exempt from the current spousal consent rules. (Senate HELP Committee Chairman Murray’s (D-WA) Women’s Retirement Protection Act) (Some have suggested that this legislation might be combined with making IRS’s temporary (COVID-related) “remote notarization” policy permanent.)
Revised Saver’s Credit – replace the current Saver’s Credit with a low paid “Saver’s Match,” paid to an “applicable retirement savings vehicle” elected by an eligible individual; originally included in, then dropped from, the BBBA. Portman Cardin includes a (somewhat) similar provision.
Automatic Contribution Plan:House Ways and Means Committee Chairman Neal (D-MA) also included in the original BBBA bill a proposal for a federal Automatic Contribution Plan rule, which would have required all but the smallest employers to adopt an automatic contribution retirement arrangement. This proposal was subsequently dropped from the BBBA, although many Democrats remain committed to this project. This proposal did not have bipartisan support in the House, but it could conceivably be included in 2022 retirement policy legislation.
Outlook: With Democrats in the Senate unable to (thus far) muster a voting majority in the Senate for the BBBA, and focused on other (contentious) issues, it is unclear at this point how productive the 2022 Congressional legislative session will be. Even if there is no retirement policy legislation (as such), it is still possible, as in the past, that changes to, e.g., the qualified plan rules, will be made to raise revenues for unrelated purposes.
Fiduciary rule re-proposal: The Department of Labor is working on a re-proposal of its fiduciary advice regulation. As described by DOL:
This rulemaking would amend the regulatory definition of the term fiduciary set forth at 29 CFR 2510.3-21(c) [the “five-part test”] to more appropriately define when persons who render investment advice for a fee to employee benefit plans and IRAs are fiduciaries within the meaning of section 3(21) of ERISA and section 4975(e)(3) of the Internal Revenue Code. 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.
DOL’s 2016 Fiduciary Rule was vacated by the Fifth Circuit. The preamble to its 2020 fiduciary advice prohibited transaction exemption, however, reinterpreted the “old rule” (that is, the five-part test) to incorporate many of the concepts introduced in its (vacated) 2016 Fiduciary Rule. If DOL follows through with another proposal, it is likely to further tighten rules on those “advising” 401(k) plan participants (particularly when those participants are considering rolling money out of a plan to an IRA) and IRA holders.
ESG/Proxy voting regulation project: In its Fall 2021 Agenda, DOL indicated it will analyze comments on its proposed ESG/Proxy voting regulation by March 2022. If that is any guide, we may expect finalization perhaps as early as this Summer. With a non-enforcement policy in place, and a clearly more favorable DOL/Administration disposition towards ESG investment and sponsor-fiduciary shareholder involvement, the need for a final regulation is, to some extent, less urgent.
Lifetime income disclosure illustrations regulation project: In August 2020, DOL released an interim final rule (IFR) describing how this “lifetime income disclosure” was to be calculated, requiring (among other things) that the sponsor assumes that the participant is age 67 (or her actual age if older) on the statement date. There was at least one very controversial element of the IFR – no interest/earnings credit pre-age 67 – on which DOL got a lot of pushback. We would also note that increases in CPI (at 7% on the year through December 2021) may cause DOL to revisit its decision not to take into account inflation in the lifetime income calculation. In its Fall 2021 Agenda, DOL indicated it expects to finalize the IFR in February 2022. Finally, we note that (currently) the first mandatory lifetime income disclosure statements would have to be issued (by DC plans allowing participants to choose investments from a fund menu) no later than the quarterly statement for the second calendar quarter of 2022 (ending June 30, 2022).
Possible risk transfer project: One issue that is said to be getting attention at DOL is a possible revision of risk transfer/annuity settlement guidance for DB plans (e.g., a revision Interpretive bulletin 95-1). Risk transfers may, in the context of rising interest rates and improved plan funding, be more attractive to some sponsors (especially those with frozen, “legacy” plans). It’s possible that this may emerge as a regulatory issue in 2022.
Multiemployer plans: In July 2021, PBGC published an interim final regulation (IFR) with respect to a new Special Financial Assistance (SFA) Program under the American Rescue Plan Act of 2021 (ARPA). In its Fall 2021 Agenda, PBGC indicated that it expects to finalize this IFR in January 2022. In addition, PBGC has hinted that it is considering a regulation to instruct multiemployer plan actuaries on how to determine whether their choice of a discount rate to be used in withdrawal liability calculations satisfies ERISA. Such regulation could clarify withdrawal liability calculation rules post-Sofco (discussed below).
The litigation “highlight” of 2022 will likely have been the (unanimous) January 24, 2022, the decision by the Supreme Court in Hughes v. Northwestern, rejecting the Seventh Circuit’s reliance on the availability of lower cost alternatives as a defense to claims that the cost of certain funds and of plan recordkeeping was unreasonably high. The court remanded the case to the Seventh Circuit for consideration under the rule in Tibble v. Edison, that a fiduciary has an obligation to remove imprudent investments. In doing so, it observed that the application of the ERISA duty of prudence is “context specific” and that “the circumstances facing an ERISA fiduciary will implicate difficult tradeoffs, and courts must give due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise.” We expect that fiduciary prudence litigation in 2022 will turn in part on lower courts’ interpretation of what that language means.
Other emerging litigation issues include: 401(k) plan fiduciary liability for fund “underperformance” (and in this regard see our 2022 article on the Intel litigation); litigation with respect to cybersecurity breaches and with respect to the use (e.g., by providers) of plan participant “data;” and, with respect to multiple employer plans, which entities (employers? providers? both?) may be sued and for what.
With respect to multiemployer (Taft-Hartley) plans, as a result of Sofco Erectors’ successful challenge to the Segal Blend in the 6th Circuit, we expect to see more challenges to low discount rates being used in determination of multiemployer pension plan withdrawal liability.