Exploring current ERISA and DOL areas of interest
In a significant move by the Department of Labor (DOL), new regulations are being rolled out that may impact your ERISA compliance and retirement plan administration. Learn how these changes could influence your retirement plan, discover Washington's initiatives, and prepare your company effectively.
Retirement Security Rule expands fiduciary definition
Effective September 23, 2024, a new DOL regulation, the “Retirement Security Rule,” redefines when a person is a fiduciary under ERISA and the Internal Revenue Code. This rule replaces the DOL’s five-part test that has been in place since 1975. The new fiduciary definition focuses on whether a communication with a retirement investor could reasonably be viewed as an individualized recommendation intended to advance the investor’s interests.
Under the Retirement Security Rule, a person will be an investment advice fiduciary for purposes of ERISA if:
· the provider makes an investment recommendation to a retirement investor;
· the recommendation is provided for a fee or other compensation, such as commissions; and
· the financial services provider holds itself out as a trusted adviser by:
o specifically stating that it is acting as a fiduciary under Title I or II of ERISA; or
o making the recommendation in a way that would indicate to a reasonable investor that it
is acting as a trusted adviser making individualized recommendations based on the
investor's best interest.
The Retirement Security Rule will close the loophole for one-time advice. A financial services provider will be a fiduciary with respect to a recommendation to roll over assets from a workplace retirement plan to an IRA if every element of the fiduciary definition is satisfied.
New and expanded exemptions
The Retirement Security Rule package from the DOL also finalized amendments to several existing exemptions, most notably PTE 2020-02 and PTE 84-24, which also apply to the management of conflicts of interest with respect to advice.
· PTE 2020-02 is broadly available for advice concerning the wide universe of investments
recommended to retirement investors.
· PTE 84-24 is tailored for use by independent insurance agents. It is intended to facilitate their
ability to make best interest recommendations under their business model.
More entities will likely be fiduciaries and must update disclosures, policies, and procedures to comply with PTEs. Transitional relief is available in the first year. The Retirement Security Rule remains controversial and is expected to face various legal challenges.
IRS Notice 2024-02
Dubbed the “Grab Bag” notice, the IRS released a Q&A style notice to provide additional guidance on 12 of the 90 new provisions added by SECURE 2.0 of 2022.
Notable provisions affecting section 401(k) and section 403(b) retirement plans include:
· expanding automatic enrollment and auto-escalation features
· credit for small employer startup costs
· de minimis financial incentives for contributing to a plan
· terminally ill distributions exception
· changes in accrual rule compliance for cash balance plans
· treatment of employer matching or nonelective contributions as Roth contributions
Notice 2024-02 clarifies the requirements for each provision, including the effective date, limitations, and exceptions.
ERISA class actions - Group Health Plans
Fiduciary governance for health and welfare benefit plans has not always been a focus of plan sponsors, despite ERISA's fiduciary standards applying equally. However, a recent court case, known as the Lewandowski v. Johnson & Johnson case, highlights alleged breaches of fiduciary duties for high fees paid to service providers.
To provide fee transparency, the Consolidated Appropriations Act of 2021 amended ERISA to require certain service providers to disclose fees to employer-sponsored group health plans, similar to retirement plans. Though the Lewandowski case is still early, it reminds employers to review their ERISA duties and ensure strong processes and procedures.
Cybersecurity
Cybersecurity remains a top priority for DOL. In a recent speech at the National Association of Plan Advisors summit, Employee Benefits Security Administration’s (EBSA) Assistant Secretary, Lisa Gomez emphasized the need for better protection of retirement plan data. Safeguarding assets and participant information is a fiduciary duty under ERISA, requiring compliance with the "prudent expert" standard. This includes staying updated on cybersecurity practices, training personnel, and monitoring operations. EBSA’s guidance, "Cybersecurity Program Best Practices," highlights the importance of addressing cybersecurity risks in plan administration.
The landscape of retirement plan regulation and ERISA compliance is undergoing significant changes. These updates aim to enhance fiduciary responsibilities, expand exemptions, and clarify requirements affecting retirement plans. While these changes bring forth new challenges, they also offer opportunities for plan sponsors to work alongside a trusted retirement plan advisor to improve and ensure the security and efficacy of retirement savings.
This is a special edition written by The Wagner Law Group.
Established in 1996, the attorneys at The Wagner Law Group provide boutique-style services in ERISA, PBGC, employment law, and more for clients nationwide. www.wagnerlawgroup.com
This article is intended for general informational purposes only, and it does not constitute legal, tax, or investment advice from The Wagner Law Group.
