Benefits Bryan Cave

Benefits BCLP

Legal Updates

Main Content

DOL FAQs Guide Compliance Efforts during Fiduciary Rule Transition Period

June 6, 2017

Categories

The Department of Labor has issued guidance in the form of Frequently Asked Questions to help firms and their advisers impacted by the Fiduciary Rule know what is expected on and after June 9, 2017, on and after January 1, 2018, and during the period between (the “Transition Period”).  We’ve outlined a few of the highlights below:

As of June 9, 2017, firms and their advisers must comply with the “Best Interest Contract Exemption” and the “Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs”.  However, fewer conditions must be met to comply with these exemptions during the Transition Period.

As described fully in the Fiduciary Rule, the “impartial conduct standards” generally require fiduciaries to make recommendations that are prudent, loyal, and free from material misrepresentation and to receive only reasonable compensation for such recommendations.  The impartial conduct standards do not apply to PTE 84-24 until January 1, 2018 but apply to PTEs 75-1, 77-4, 80-83, 83-1, and 86-128 on and after June 9, 2017.

The DOL reassured firms implementing new compensation systems which will not be in place by June 9, 2017, that their advisers may still satisfy the impartial conduct standards – by, for example, disclosing that a certain recommended investment benefits the adviser more than another investment.

Of specific interest to plan sponsors is Question 12.  There, the DOL outlines three types of communications a plan (including its representatives and an interactive tool) has with a participant

What a Difference an “H” Makes…Again

Health Care ReformAfter weeks of “will they or won’t they” that rivals some of the great TV sitcom near romances for suspense (even though it was considerably shorter), House Republicans passed the American Health Care Act (“AHCA”) just before going on recess (more information on the bill here and here).   As with the version that was released in early March, this is designed to meet the Republicans’ promise to “repeal and replace” the ACA.  As before, in many respects, the AHCA is less “repeal and replace” and more “retool and repurpose,” but there are some significant changes that could affect employers, if this bill becomes law as-is.

Below is a brief summary of the most important points (many of which may look familiar from our prior post on the original iteration of the AHCA . Where we did not make any substantive changes from our prior post, we have indicated those with the words “No change”):

  • Employer Mandate, We Hardly Knew You (No change). The ACA employer play or pay mandate is repealed retroactive to January 1, 2016, so if you didn’t offer coverage to your full-time employees, then this is the equivalent of the Monopoly “Get out of Jail Free” card.
  • OTC Reimbursements Allowed from HSAs and FSAs, Without a Prescription (No change). This goes back to the old rules that allowed these reimbursements. This would begin in 2018.
  • Reduction

Avoiding Beneficiary Befuddlement

Challenges AheadRetirement plans are complicated creatures to administer so it perhaps is not surprising that the process of determining the beneficiary of a deceased participant can present its own set of challenges and, if things go awry, expose a plan to paying twice for the same benefit.

These risks were recently highlighted in an 11th Circuit Court of Appeals decision decided in the aftermath of the Supreme Court case of Kennedy v. Plan Administrator for DuPont Savings and Investment Plan.  In that 2009 decision, the Supreme Court ruled that a beneficiary designation naming a spouse had to be given effect even though the spouse had subsequently waived her interest in any of her husband’s retirement benefits in a divorce agreement.

In the 11th Circuit case, Ruiz v. Publix Super Markets, the question was whether a deceased participant’s prior designation of her niece and nephew as beneficiaries would trump the participant’s considerable efforts to change that designation shortly before her death.  In deciding the case upon Publix’s motion for summary judgment, the Court assumed as true statements from the deposition of Arlene Ruiz, the partner of the deceased participant, who was asserting a right to the benefits as the newly intended beneficiary of Ms. Ruiz.  According to the deposition, Ms. Ruiz spoke with a Publix representative who advised her that the beneficiary designation could be changed if the participant wrote a letter and delivered

Worried About the Fiduciary Rule? Don’t Be…Yet!

March 21, 2017

Categories

Worried About the Fiduciary Rule? Don’t Be…Yet!

March 21, 2017

Authored by: benefitsbclp

Pen Marking Days on a CalendarThe Department of Labor (DOL) released Field Assistance Bulletin 2017-01 on March 10, 2017, which outlines a temporary enforcement policy related to its final fiduciary rule.

Background

On February 3, 2017, President Trump directed the DOL to re-examine the final rule’s impact. As a result, on March 2, 2017, the DOL opened a 15-day comment period (which ended last Friday) on a proposed 60-day delay of the rule’s effective date, from April 10, 2017 to June 9, 2017.

Simultaneously, the DOL opened a 45-day comment period on the substance of the actual rule. This second comment period affords the DOL with an opportunity to review comments before June 9, 2017 (the proposed delayed effective date). At such point, the DOL could allow the final rule to take effect, propose an additional extension in order make amendments to the rule based on the comments received or withdraw the rule.

With the final rule’s current effective date quickly approaching and no indication on whether a delay would occur, there was growing uncertainty among members of the retirement services industry about how to proceed. For example, if the DOL doesn’t announce its decision to delay implementation of the rule until after April 10, 2017, a “gap” would exist between April 10, 2017 and the date the DOL actually issues the final rule delaying the implementation.  The other issue is that

IRS Views on Self-Certification of Financial Hardship

IRS Views on Self-Certification of Financial Hardship

March 15, 2017

Authored by: Richard Arenburg and Denise Erwin

DesolationIn today’s virtual world, we suspect most plan sponsors rely upon the self-certification process to document and process 401(k) distributions made on account of financial hardship. The IRS has recently issued examination guidelines for its field agents for their use in determining whether a self-certification process has an adequate documentation procedure.  While these examination guidelines do not establish a rule that plan sponsors must follow, we believe most plan sponsors will want to ensure that their self-certification processes are consistent with these guidelines to minimize the potential for any dispute over the acceptability of its practices in the event of an IRS audit.

The examination guidelines describe three required components for the self-certification process:

(1)        the plan sponsor or TPA must provide a notice to participants containing certain required information;

(2)        the participant must provide a certification statement containing certain general information and more specific information tailored to the nature of the particular financial hardship; and

(3)        the TPA must provide the plan sponsor with a summary report or other access to data regarding all hardship distributions made during each plan year.

The notice provided to participants by the plan sponsor or TPA must include the following:

(i)         a warning that the hardship distribution is taxable and additional taxes could apply;

(ii)        a statement that the amount of the distribution cannot

Fiduciary Rule Under Review – Delayed Applicability Date

In a prior post, we covered President Trump’s order directing the Department of Labor to review the new regulation and, as it deems appropriate, to take steps to revise or rescind it.  The Employee Benefits Security Administration (“EBSA”) has taken the first step in response to that order by proposing a 60 day delay in the applicability date. The final rule had an applicability date of April 10, 2017.  Likewise, the prohibited transaction exemptions (“PTEs”) included in the final rule, such as the Best Interest Contract Exemption, had an applicability date of April 10, 2017.

In light of the President’s prior order, EBSA has released the text of a proposed rule, to be published on March 2, 2017, delaying the applicability date of the final rule and the PTEs by 60 days.  EBSA noted that there were only 45 days until the rule and the PTEs became effective and said that it felt it needed more time to perform the analysis required by the President’s order.

EBSA is inviting comments on the proposal to extend the applicability date of the final rule and PTEs.  Comments must be submitted quickly; the comment period will end 15 days after publication.

Just Push Pause: Revisiting Proposed Regulations

On January 20, 2017, President Trump signed an executive order entitled “Regulatory Freeze Pending Review” (the “Freeze Memo“).  The Freeze Memo was anticipated, and mirrors similar memos issued by Presidents Barack Obama and George W. Bush during their first few days in office.  In light of the Freeze Memo, we have reviewed some of our recent posts discussing new regulations to determine the extent to which the Freeze Memo might affect such regulations.

TimeoutThe Regulatory Freeze

The two-page Freeze Memo requires that:

  1. Agencies not send for publication in the Federal Regulation any regulations that had not yet been so sent as of January 20, 2017, pending review by a department or agency head appointed by the President.
  2. Regulations that have been sent for publication in the Federal Register but not yet published be withdrawn, pending review by a department or agency head appointed by the President.
  3. Regulations that have been published but have not reached their effective date are to be delayed for 60 days from the date of the Freeze Memo (until March 21, 2017), pending review by a department or agency head appointed by the President. Agencies are further encouraged to consider postponing the effective date beyond the minimum 60 days.

Putting a Pin in It: Impacted Regulations

We have previously discussed a number of proposed IRS regulations which have not yet been finalized.  These include the proposed regulations to

Fiduciary Rule Under Review – Update

On Friday, President Trump issued an order directing the Department of Labor to review the new regulation to determine whether it is inconsistent with the current administration’s policies and, as it deems appropriate, to take steps to revise or rescind it.

The long awaited Fiduciary Rule expanded protection for retirement investors and included a requirement that brokers offering investment advice in the retirement space put clients’ interests first.  Financial institutions that either implemented, or were rapidly completing, their compliance efforts to comply with the Fiduciary Rule will need to assess the impact of this order on these efforts.  Notwithstanding many earlier reports that the rule would be delayed 180 days, the date on which the rule was to take effect (April 10, 2017) has not been delayed.  However, it is anticipated that a delay will be forthcoming, making the decision whether or not to proceed with further compliance efforts a difficult one.  Many of those institutions may choose to implement only certain aspects of the Fiduciary Rule, while delaying complying with other aspects of that rule, pending the results of the DOL review.

Some have speculated that regardless of whether the Fiduciary Rule is finally made effective, compliance with the Fiduciary Rule could become the new “best practice” model; however, it is unlikely that financial institutions will voluntarily assume most of the obligations and resulting exposure of serving retirees in a fiduciary capacity.

Penalty Amounts Adjusted Again!

Penalty Amounts Adjusted Again!

January 27, 2017

Authored by: benefitsbclp

PenaltyLast week, the Department of Labor (DOL) released adjusted penalty amounts which are effective for penalties assessed on or after January 13, 2017, whose associated violations occurred after November 2, 2015.  You might remember that these penalties were just adjusted effective August 1, 2016 (also for violations which occurred after November 2, 2015); however, the DOL is required by law to release adjusted penalties every year by January 15th, so you shouldn’t be surprised to see these amounts rise again next year.

All of the adjusted penalties are published in the Federal Register, but we’ve listed a few of the updated penalty amounts under the Employee Retirement Income Security Act of 1974 (ERISA) for you below:

General Penalties

  • For a failure to file a 5500, the penalty will be $2,097 per day (up from $2,063).
  • If you don’t provide documents and information requested by the DOL, the penalty will be $149 per day (up from $147), up to a maximum penalty of $1,496 per request (up from $1,472).
  • A failure to provide reports to certain former participants or failure to maintain records to determine their benefits remained stable at $28 per employee.

Pension and Retirement

  • A failure to provide a blackout notice will be subject to a $133 per day per participant penalty (up

Now You Can Be Up to Your QNEC in Forfeitures

Money in basket. Isolated over whiteOn January 18, 2017, the IRS issued proposed regulations allowing amounts held as forfeitures in a 401(k) plan to be used to fund qualified nonelective contributions (QNECs) and qualified matching contributions (QMACs). This sounds really technical (and it is), but it’s also really helpful.  Some plan sponsors of 401(k) plans use additional contributions QNECs and/or QMACs to satisfy nondiscrimination testing.  Before these proposed rules, they could not use forfeitures to fund these contributions because the rules required that QNECs and QMACs be nonforfeitable when made (and also subject to the same distribution restrictions as 401(k) contributions).  If you have money sitting in a forfeiture account, then by definition it was forfeitable when made, so that money couldn’t possibly have been used to fund a QNEC or QMAC.

The proposed regulations provide that amounts used to make these contributions must satisfy the vesting requirements and distribution requirements applicable to 401(k) contributions when they are allocated to participants’ accounts rather than when they are contributed to the plan.  The regulations are only proposed, but the IRS has said taxpayers may rely on them.  If the final regulations turn out to be more restrictive, then those restrictions will only apply after the regulations are finalized.

Going forward, plan sponsors wishing to apply amounts held in forfeiture accounts to fund QNECs and QMACs under the 401(k) plan should

The attorneys of Bryan Cave Leighton Paisner make this site available to you only for the educational purposes of imparting general information and a general understanding of the law. This site does not offer specific legal advice. Your use of this site does not create an attorney-client relationship between you and Bryan Cave LLP or any of its attorneys. Do not use this site as a substitute for specific legal advice from a licensed attorney. Much of the information on this site is based upon preliminary discussions in the absence of definitive advice or policy statements and therefore may change as soon as more definitive advice is available. Please review our full disclaimer.