Jodi Epstein, a partner in Ivins, Phillips & Barker’s employee benefits practice, and David Levine, principal at Groom Law Group, Chartered, explain retirement-related developments in Washington, D.C., and state capitals across the U.S. at the PLANSPONSOR National Conference in Washington, D.C.
The first topic discussed was the status of the fiduciary rule. In March, the 5th Circuit Court of Appeals, in New Orleans, vacated the fiduciary rule in a 2-1 decision. Levine said the Securities and Exchange Commission (SEC) is confronting some of the same issues through its own “Regulation Best Interest. The SEC’s release of a thousand-page conflict of interest rulemaking package, applying to all brokers and investment advisers whether they serve retirement plans or retail clients, is being hailed as a victory by some and a deep disappointment by others; either way, it’s the start of another long chapter in the epic industry battle over federal conflict of interest regulations.
Plan sponsors need to be clear on whether their recordkeeper is acting as a fiduciary. “Whichever role they are playing is OK,” says Levine, “but it is the plan sponsor’s role to monitor [it] and keep track of how many participants they are counseling, for possible litigation purposes.”
Epstein discussed how the Tax Cuts and Jobs Act of 2017 has inadvertently eliminated the use of hardship withdrawals in many situations involving the repair of damage to a principal residence in safe harbor plans. In addition, being considered is elimination of the six-month suspension of participant deferrals when taking a hardship withdrawal. Epstein said, “Hopefully the Treasury will issue some guidance on the topic. In the meanwhile, if need be, plan sponsors should amend their plan documents to reflect changes once they are set.”
Another unintended consequence of last year’s tax bill was a new definition of the term “compensation.” For instance, company reimbursement for moving expenses is now considered compensation while it had not been in the past. Plan documents must be amended to reflect changes such as these; plan sponsors can get such amendments from protocol books.
When it comes to the long list of examples of retirement reform legislation circulating around Congress, Epstein and Levine said they are most closely following the effort to expand access to so-called “open multiple employer plans,” or open MEPs. Both also warned that there is some increasing chatter on the Hill to the effect that another round of tax reform could be high on the agenda for the remainder of the year—and, as a part of this, there could be another round of debate about the “Rothification” of 401(k) plans.
Another topic discussed in the industry is environmental, social and governance (ESG) investments and whether plan sponsors should use these funds on their plan menu. In a new Field Assistance Bulletin (FAB), the DOL clarified how ESG investment considerations should be made under the Employee Retirement Income Security Act (ERISA), if ESG policies are included in investment policy statements (IPSs) and when choosing qualified default investment alternatives (QDIAs).
According to Epstein, the concept has been around for a long time and there has been competing guidance. “This guidance has not changed anything but instead set a new, less positive tone. ESG is used most often in government plan and nonprofit plans if it fits with their missions. But, as with all plan investments, Epstein says, “plan sponsors need to care about returns and be prudent in their decisions.”
Levine cautioned that the Department of Labor (DOL) and IRS auditors are diving deep into plan sponsor policies on missing participants. He said, they have upped their investigations on the retirement side.
As the DOL stopped its letter-forwarding service to help locate missing plan participants, in 2012, both attorneys stressed that it is up to plan sponsors to have a specific process in place and to show evidence of their efforts to find participants no matter what the process. Both the IRS and the Pension Benefit Guaranty Corporation (PBGC) are also on the missing participants trail. “You need to have a process for finding beneficiaries, as well,” Levine noted. “We highly recommend rechecking your fiduciary breach insurance coverage, to see whether it covers this topic because it should.”