Industry & Regulatory NewsFinancial Freedom Act Proposed in Senate
May 10, 2022 – Senator Tommy Tuberville (R-AL) has introduced the Financial Freedom Act, legislation aimed at prohibiting the Department of Labor (DOL) from restricting the types of investments that plan participants can choose through participant directed accounts and self-directed brokerage accounts. The bill is in response to regulatory guidance released by the DOL and announced in March.
Industry & Regulatory NewsWashington Pulse: U.S. House Passes Significant Retirement Bill
The U.S. House of Representatives passed the Securing a Strong Retirement Act of 2022 (SSRA) by a 414-5 vote on March 29, 2022. H.R. 2954 (also commonly referred to as “SECURE 2.0”) contains over 50 retirement plan provisions—nearly double the number as the original Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The U.S. Senate is expected to take up a similar bipartisan bill later this year, which could result in the need for a conference committee to reconcile differences between the two bills.
Industry & Regulatory NewsComment Period for Prohibited Transaction Exemption Guidance Extended
The Department of Labor’s Employee Benefit Security Administration has announced the extension of the public comment period for proposed amendments to procedures governing the filing and processing of prohibited transaction exemption applications. The comment period was initially set to expire on April 14, 2022, but has been extended an additional 45 days through May 29, 2022.
The agency has received multiple requests from interested parties to grant additional time to develop and submit comments. Details of the proposal were previously announced and can be found here.
Industry & Regulatory NewsProtecting America’s Retirement Security Act Approved by Committee
The House Committee on Education and Labor approved by a 29-21 party line vote to release the Protecting America’s Retirement Security Act without amendments to the House floor for consideration. The bill contains the following retirement plan proposals.
- Requires the Department of Labor, within two years of enactment, to explore how disclosure requirements for participant directed individual account plans can be improved to enhance participants’ understanding of fees and expenses and their cumulative effect on savings over time
- Amends the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code to require spousal consent and notarization for all distributions, with certain exceptions
- Amends ERISA and the Internal Revenue Code to require eligible employees who are not participating in the plan to be re-enrolled at least every 3 years for any automatic contribution arrangement that becomes effective after December 31, 2024
Industry & Regulatory NewsDOL Issues Compliance Release on Cryptocurrencies
The Department of Labor (DOL) has issued Compliance Assistance Release 2022-01 pertaining to the use of cryptocurrencies as plan investments in 401(k) plans. In it, the DOL cautions fiduciaries to exercise extreme care before considering the addition of cryptocurrency options in a plan’s investment menu and elaborates that the failure to remove an imprudent investment option from a menu of options is a breach of fiduciary duty.
The DOL expresses concerns about significant risks and challenges related to fraud, theft, and loss due the following factors
- Speculative and volatile investments due to early stage of development
- Ability for participants to make informed investment decisions due to the unique nature of cryptocurrencies and lack of investor knowledge
- Custodial and recordkeeping concerns related to the asset not being held in a trust or custodial account but rather, stored as “lines of computer code in a digital wallet”
- Valuation concerns with reliability and accuracy, citing disagreements by experts
- Evolving regulatory environment that could result in unlawful transactions or inadequate disclosures
The DOL intends to conduct an investigative program aimed at plans that offer participant investments in cryptocurrencies and related products—including those within brokerage windows and take “appropriate action” to protect the interests of plan participants and beneficiaries.
Industry & Regulatory NewsDOL Releases Proposed Rule Updating Davis-Bacon Regulations
The Department of Labor’s (DOL’s) Wage and Hour Division has released a proposed rule Updating the Davis-Bacon and Related Acts Regulations. The DOL indicates that the proposal is the most comprehensive review of the Davis-Bacon Act regulations in 40 years.
The Davis-Bacon Act generally requires payment of locally prevailing wages under direct federal contracts and for covered contractors and their subcontractors. The employer’s obligation can be met by paying the applicable prevailing wage entirely as cash wages or by a combination of cash wages and employer-provided bona fide fringe benefits—including pension and health benefits.
All comments must be received within 60 days of the rule being posted in the Federal Register. While the Wage and Hour Division solicits comments from across the construction industry, it encourages all stakeholders to participate in the process.
Industry & Regulatory NewsDOL Final Rule on SECURE Act Group of Plan Reporting at OMB
Final regulations entitled, Implement SECURE Act and Related Revisions to Employee Benefit Plan Annual Reporting on the Form 5500, issued by the Department of Labor’s Employee Benefits Security Administration (EBSA), have been received by the federal Office of Management and Budget (OMB). The OMB’s Office of Information and Regulatory Affairs (OIRA) provides final review of regulatory guidance before its official release.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act included a provision that would allow employers sponsoring defined contribution plans that have the same trustee, administrator, fiduciaries, plan year, and investment options, to file one common Form 5500 beginning in 2022. Proposed guidance was issued last fall under a larger guidance package, with details shared in a Washington Pulse.
Industry & Regulatory NewsDOL Issues Proposed Rule on Prohibited Transaction Exemption Procedures
The Department of Labor (DOL) has released a proposal that would supersede the Department’s existing procedure governing applications for exemptions from the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. The Secretary of Labor is authorized to grant such exemptions and provide procedures for relief. Highlights of the proposal suggest substantially stricter standards and additional criteria for obtaining prohibited transaction relief, if implemented.
The DOL emphasizes that it will apply a high level of scrutiny to any retroactive exemption—including ensuring that no participants were harmed—and suggests contacting the agency before engaging in the transaction. Any information provided to the Office of Exemption Determinations, including during the pre-submission process, becomes part of an administrative record that is open for public inspection.
The DOL states that a previously issued exemption is not determinative of whether a future exemption would be approved under the same fact pattern. The DOL also proposes additional requirements in the application for exemption, several of which are highlighted below.
- The reason(s) for engaging in the exemption transaction
- Any material benefit that a party involved in the exemption transaction may receive because of the transaction
- The costs and benefits of the exemption transaction to the affected plan(s), participants, and beneficiaries—including quantification of those costs and benefits, if possible
- A detailed statement that describes possible alternatives to the exemption transaction and why the applicant did not pursue those alternatives
- A description of each conflict of interest or potential instance of self-dealing that would be permitted if the exemption is granted
- A statement that the transaction will be in the best interest of the plan and its participants and beneficiaries
- A statement that all compensation received, directly or indirectly, by a party involved in the exemption transaction will not exceed reasonable compensation within the meaning of ERISA and the Internal Revenue Code
- All statements made to the DOL, the plan, or, if applicable, the qualified independent fiduciary or qualified independent appraiser cannot be materially misleading at the time the statements are made
- A statement whether any prior transactions have occurred between the plan or plan sponsor and a party involved in the exemption transaction
The proposal modifies the definition of a qualified independent appraiser. It also addresses contractual obligations, prohibits indemnifications, and requires detailed information regarding relationships with any party or its affiliates (including past engagements) in an effort to determine independence. Similarly, the proposal expands requirements of qualified independent fiduciaries by prohibiting indemnifications, requiring fiduciary liability insurance sufficient to cover damages resulting by a breach of the independent fiduciary, and certifying that the exemption transaction complies with impartial conduct standards and the independent fiduciary has no conflicts of interest that could affect their judgement.
Under the proposal, applicants would have a duty to promptly notify the DOL of any material changes to representations made during the application process or after approval of the exemption, including disclosing whether a participating party in the exemption is the subject of an investigation or enforcement action. The changes would apply 90 days following receipt of a final rule in the Federal Register. Comments on the proposed rule must be submitted to the DOL by April 14, 2022.
Industry & Regulatory NewsCOVID-19 Relief Extended for Another Year
In March 2020, the President declared a national emergency effective March 1, 2020, due to the COVID-19 outbreak. The national emergency was extended for one year until February 28, 2022. On February 18, 2022, the President once again extended the national emergency until February 28, 2023.
The extended national emergency provides relief to health and welfare plans related to the following.
- COBRA notices (i.e., employer and employee), payment, and election
- HIPAA special enrollment requests
- Claims and appeals request and claims perfection
As clarified in Notice 2021-01, the Department of Labor, the Internal Revenue Service, and the Department of Treasury explained the disregarded period applies on a person-by person basis and cannot exceed one year, as follows:
- one year from the date an individual was first eligible for relief, or
- 60 days after the announced end of the National Emergency.
Employers should continue to monitor deadlines pursuant to prior guidance.
Industry & Regulatory NewsDOL Requests Comments on Actions Needed to Protect Retirement Savings from Climate Change Risks
The Department of Labor has published a Request for Information (RFI) seeking what actions, if any, the department should take to protect retirement savings from risks associated with climate change. According to a DOL news release, the RFI follows President Biden’s Executive Order on Climate-Related Financial Risk, which directs the department to identify actions it can take under ERISA and other relevant laws to safeguard the life savings and pensions of U.S. workers and families from threats of climate-related financial risk. The DOL previously issued a proposed rule “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights”, however the RFI deals with a broader set of questions than the proposed rule and is a different initiative. The RFI’s comment period will run for 90 days after publication in the Federal Register.