The DoL Speaks

May 29, 2007 ( - The Department of Labor was out in force last week, offering insights and seeking input on pending regulations and guidance.

In what Secretary of Labor Elaine Chao  described as the only conference “of its kind to be dedicated solely to issues arising under ERISA Title I,” the DoL Speaks conference in Washington, D.C., certainly lived up to its billing.   The conference was sponsored by the Department of Labor and the American Society of Pension Professionals and Actuaries (ASPPA).

The day-and-a-half session provided attendees a comprehensive view both of what has been provided recently in terms of guidance and/or regulation, as well as previews of upcoming guidance (both in terms of content and timing), in addition to highlighting areas in which regulators have looked, and are still looking, for help from what was often termed “the regulated community.”   In fact, while the DoL clearly was speaking, it was just as clear in the tone of the many presentations that they also are listening.  

Following is a brief summary of some of the highlights from those sessions:

New Legislation

ASPPA Executive Director/CEO Brian Graff noted that, even while the conference was going on, pension legislation continued to move ahead—and that the new war-funding appropriations bill included some technical corrections for the Pension Protection Act of 2006 (PPA), including changes to the coverage elections for multi-employer plans, and airline relief (see ” Texas Air Carriers Catch Up on Federal Pension Relief “).  

403(b) Regs

Thomas Reeder, benefits tax counsel at Treasury, affirmed that Treasury plans to have the final 403b regulations to the assistant secretary to sign by the “end of June.”   Reeder indicated that regulators are sensitive to the implications of having an effective date of 01/01/2008—and at least suggested there may be some latitude in the application of those provisions in the final version (see ” IRS Delays Implementing 403(b) Regs to 2008 “).

Bradford Campbell, acting assistant secretary at the Employee Benefits Security Administration (EBSA) (see " White House Taps Bradford Campbell for EBSA Post "), told conference attendees that there had been an "overwhelming response" to its proposed rule on qualified default investment alternatives (QDIA)—more than 100 comments were received—and that the department is now "sorting through them" (see " DoL QDIA Proposal Prompts 98 Comment Letters ").   "We will move as quickly as possible in compliance with the legislative process" to issue a final rule, Campbell said.   "We are hopeful that it will come out in the not too distant future."   Jeffrey J. Turner, chief, Division of Regulations, Office of Regulations and Interpretations at EBSA, said the DoL was "working more than hard, we're working feverishly" to get the regulations out.   Robert Doyle, director of Regulations and Interpretations for EBSA, noted that the final rule is due out this summer, then cautioned, "More likely late summer." (1)

DoL representatives offered no clue as to whether stable value or money market options will be added to the list of acceptable QDIAs in the final regulations, but acknowledged support for that addition in the comments received.   Regardless, it was noted that plan fiduciaries were not limited to the QDIA menu in their selection of a default option, assuming that it was a prudent choice, though the safe harbor protections obviously wouldn't be extended beyond the options in the final regulations.

As for plan sponsors who currently, or who would like to, manage their own QDIA (the proposed rule restricts them to investments managed by an investment manager defined under ERISA or an investment company registered under the 1940 Act—see " DoL Releases Default Investment Option Safe Harbor "), Erin Sweeney, pension law specialist with EBSA, said the proposed rule did not provide for this option.   She noted, however, that the comments filed on this issue noted that some plan sponsors want to be able to develop and manage a plan asset model investment and want permission to do so, she said.

(1) It was mentioned to me by more than one of the DoL staff that the results of our recent weekly survey on the QDIA menu had been forwarded to them bywww.plansponsor.comreaders (see " SURVEY SAYS: Should There Be a Stable Value QDIA? ")  

Regulators acknowledged that fee reasonableness and transparency were of critical concern.   Campbell said a focus for the Department was how to ensure that participants "are getting the information they need to make decisions" without creating notifications that were "too voluminous."   The goal is illumination, useful information, he said.

It was noted that there were three initiatives under way at present, including an RFI (request for information) on how best to approach those disclosures, issued just last month (see " DoL Asks for Advice on 401(k) Fee Disclosures ").   Additionally, regarding public disclosures via expanded 5500 Schedule C disclosures, it was noted that regulations were expected to be out in the "not too distant future" (see " More Than Meets the Eye ").

In an earlier panel, a senior Democratic staffer noted that a report from the Government Accounting Office (GAO) was expected in the next couple of months, and would focus on fiduciary conflicts of interest with financial advisers and how they recommend money managers.

Lisa Alexander, Division of Coverage, Reporting, and Disclosure, Office of Regulations and Interpretations at EBSA, acknowledged that issues had been raised in comments about the notice requirements, specifically as they applied to newly eligible participants (see  Bill of Goods ).   In those cases, the 30-60 day "reasonable" notice period for the opt-out was a challenge, certainly in cases of rapid, or even immediate, eligibility.   Concerns were also expressed that, if new employees began getting a paycheck, and then two or three paychecks out the 401(k) deferral kicked in, this "drop in paycheck" might trigger requests to opt out.

There is also the issue of a defaulted participant who subsequently provides direction on their investments.   Would such a participant be removed from the category of a defaulted participant to whom annual notices must continue to be provided?   Sweeney said that it wasn't clear that they could be removed from the notice category.

Sweeney also noted that comments had been received regarding an inability to know whether or not an individual participant had been defaulted into a particular fund, or if they had made an affirmative election.   In some cases, records do not exist to make this determination because of changes in recordkeepers, she noted.

The Department of Labor's Employee Benefits Security Administration expected more applications than it has received under its abandoned plan program, according to Alan D. Lebowitz, deputy assistant secretary for Program Operations at EBSA.   Noting that only about 72 applications had been received to date, he said, "Frankly, we expected more based on our research and what we heard from the industry."   Lebowitz said the department put the program together in response to a need identified by the financial services industry (which was frequently "stuck" with these plans, but unable to distribute assets to participants) as well as the DoL (see " DoL Issues Final Rules Regarding Abandoned Plans ").  

As part of a separate panel, Jeffrey J. Turner, chief, Division of Regulations, Office of Regulations and Interpretations at EBSA, said that the Abandoned Plan Program facilitates the termination of, and distribution of benefits from, individual account pension plans that have been abandoned by their sponsoring employers.   It includes procedures and exceptions that permit plan custodians of an abandoned plan to make final distributions to participants and be protected from fiduciary liability, prohibited transactions, and tax qualification and reporting liability.   Turner noted that the Department had established a  Web site with information on the program.

The requirement to electronically file Form 5500 has been extended from January 1, 2008, to January 1, 2009, Joe Canary, deputy director, Office of Regulations and Interpretations for the Department of Labor's Employee Benefits Security Administration, told conference attendees.   The extension means that Form 5500 now will have to be filed electronically for plan years beginning on or after January 1, 2009.   Canary said that working on the implementation of the PPA originally required changes to the Form 5500 for January 1, 2008.   Those changes have to be made within the current ERISA Filing Acceptance System (EFAST) structure as part of the transition to a wholly electronic system, Canary said (see " DoL Makes E-Filing Mandatory for Form 5500 ").   Now, those changes will be implemented as part of EFAST-2, a wholly electronic filing system for the 2009 plan year, Canary said.   As a result, "most people will be dealing with the electronic filing of the Form 5500 requirements in 2010," Canary said.

Canary acknowledged that the people and resources being used to implement the Pension Protection Act changes are the same as those necessary to implement the electronic filing requirement. Canary said it was "going to be very tight" to use the same people and resources at the same time for both.   He also indicated that the Department would deal with 2007 and 2008 changes in the final form 5500 notice document to be published later this year (see " Regulators Unveil PPA Changes to Form 5500 ").  

With regard to the shift to electronic filing, Canary noted that "virtually all" of the comments received acknowledged the value of electronic filing, and expressed support for the move.   However, most comments suggested that implementation be postponed to give filers and service providers time to prepare their own systems and train staff to use the system.

Mortality Tables

John Hanley, director, Legislative and Regulatory Department, Pension Benefit Guaranty Corporation, noted that proposed rules and mortality tables, including substitute mortality tables, had just been published (see " Substitute Mortality Table Proposal Unveiled ").

Fred Wong, senior pension law specialist, Division of Fiduciary Interpretations, EBSA, outlined for the conference the various provisions relating to investment advice in the Pension Protection Act (see " Pension Protection Act Opens New Door to Advice "), and noted that the DoL now has out an RFI on advice   (see " EBSA Asks for a Hand in Developing 401(k), IRA Advice Regs ").       

Lou Campagna, chief of the Division of Fiduciary Interpretation & Regulations, EBSA, spoke about the recent guidance provided on advice via Field Assistance Bulletin 2007-01.   He said the FAB was published in response to questions received on how the fiduciary adviser provisions in the PPA tied in with the stance the DoL has previously articulated with regard to providing participant advice.   Campagna stated that the PPA changed nothing the DoL has previously said on advice, and reiterated the FAB's support for that position (see " DoL Sets Out Fiduciary Adviser Selection/Monitoring Guidelines ").  

He noted that so-called SunAmerica-type advice structures remained valid (see  No Exemption Required? ).   Furthermore, he noted that it had long been the Department's position that plan sponsors/fiduciaries were responsible for the selection/monitoring of the adviser, not the individual advice provided—though he said that circumstances could emerge that might call for a fiduciary to dig deeper into the advice provided.