Industry & Regulatory News

Industry & Regulatory News

SEC Proposes Requirements for Investment Advisor Outsourcing

The Securities and Exchange Commission (SEC) has released a proposed rule to prohibit investment advisers from outsourcing certain services or functions without first meeting due diligence and ongoing monitoring requirements related to the “covered function”. A covered function is a function or service that is

  • necessary to provide advisory services in compliance with federal securities laws, and
  • if not performed or performed negligently, would be reasonably likely to cause a material negative impact on the adviser’s clients or on the adviser’s ability to provide investment advisory services.

The SEC is providing examples of potential covered function categories an adviser may wish to consider in the amendments they are proposing to Form ADV, Section 7.C of Schedule D. Covered functions listed would include: Adviser/Subadviser; Client Services; Cybersecurity; Investment Guideline/Restriction Compliance; Investment Risk; Portfolio Management; Portfolio Accounting; Pricing; Reconciliation; Regulatory Compliance; Trading Desk; Trade Communication and Allocation; and Valuation.

The proposal would also require advisers to obtain reasonable assurances that a third party recordkeeper will meet four standards which address the third party’s ability to

  • adopt and implement internal processes for making and/or keeping records that meet recordkeeping rule requirements applicable to the books and records being maintained on behalf of the adviser;
  • make and/or keep records that meet all of the requirements of the recordkeeping rule applicable to the adviser;
  • provide access to electronic records; and
  • ensure the continued availability of records if the third party’s relationship with the adviser or its operations cease.

Comments should be received on or before 30 days after publication in the Federal Register or December 27, 2022, whichever is later.  

October 27 2022

Industry & Regulatory News

House Proposal Would Modify Fiduciary Investment Selection Requirements

Representative Greg Murphy (R-NC), along with co-sponsor Representatives Carol Miller (R-WV), David Schweikert (R-AZ), and Lloyd Smucker (R-PA) have introduced HR 9198, the Safeguarding Investment Options for Retirement Act.

The bill would require plan fiduciaries to base investment decisions on only pecuniary factors. A fiduciary is not prohibited from considering an investment option that promotes nonpecuniary benefits so long as participant interests are not subordinated to other objectives or additional financial risks related to nonpecuniary factors. Additionally, such investment cannot be a default investment for the plan. The term pecuniary factor means a factor that a fiduciary prudently determines is expected to have a material effect on the risk and return of an investment based on appropriate investment horizons consistent with the plan’s investment objectives and the funding policy established under ERISA.

The bill would further amend the Internal Revenue Code to require that if a trust contains investment options with nonpecuniary factors, such trust shall also include investment options based solely on pecuniary factors in order to be qualified.

October 26 2022

Industry & Regulatory News

Deadline Extended for Comments on DOL Proposal Updating Employee Classification Under FLSA

The Department of Labor’s Wage and Hour Division has extended the deadline to comment on its proposed rule titled Employee or Independent Contractor Classification Under the Fair Labor Standards Act (FLSA). The original deadline to comment was November 28, and is now extended to December 13. Initial highlights of the proposal were announced upon its release.

October 25 2022
DOL

Industry & Regulatory News

IRS Releases 2023 Cost-of-Living Adjusted Retirement Savings Limitations

The IRS has issued Notice 2022-55, which contains the 2023 cost-of-living increases for qualified retirement plan dollar limitations on benefits and contributions under the Internal Revenue Code (IRC).

  • Annual additions under IRC Section (Sec.) 415(c)(1)(A) for defined contribution plans: $66,000 ($61,000 for 2022)
  • Annual additions under IRC Sec. 415(b)(1)(A) for defined benefit plans: $265,000 ($245,000 for 2022)
  • Annual deferral limit (402(g) limit) for 401(k), 403(b), and 457(b) plans: $22,500 ($20,500 for 2022)
  • Catch-up contributions to 401(k), 403(b), and 457(b) plans: $7,500 ($6,500 for 2022)
  • Annual deferral limit for SIMPLE IRA and SIMPLE 401(k) plans: $15,500 ($14,000 for 2022)
  • Catch-up contributions for SIMPLE IRA and SIMPLE 401(k) plans: $3,500 ($3,000 for 2022)
  • IRC Sec. 401(a)(17) compensation cap: $330,000 ($305,000 for 2022)
  • Highly compensated employee (HCE) definition income threshold: $150,000 ($135,000 for 2022)
  • Top-heavy determination key employee definition income threshold: $215,000 ($200,000 for 2022)
  • SEP plan employee income threshold for benefit eligibility: $750 ($650 in 2022)
  • Taxable wage base (TWB), as noted in a prior announcement, increases to $160,200 for 2023 from $147,000; used in some integrated allocation formulas
  • Qualifying longevity annuity contract (QLAC) amount excludible from required minimum distribution determinations: $155,000 ($145,000 for 2022)

IRA Contribution and Taxpayer Contribution Credit Amounts

Annual limitations for IRA contributions, deductibility for those who are active participants in employer plans, and those seeking an income tax credit for retirement saving contributions, have slightly different indices that are used for determining cost-of-living adjustments (COLAs) in employer plans. The limitations for 2023 are as follows.

  • Traditional and Roth IRA contributions: $6,500 ($6,000 for 2022)
  • Traditional and Roth IRA catch-up contributions: $1,000 (not subject to COLA increases)
  • IRA deductibility phase-out for single taxpayers participating in employer plans rises to $73,000 - $83,000 (was $68,000 - $78,000)
  • IRA deductibility phase-out for married joint filing taxpayers participating in employer plans rises to $116,000 - $136,000 (was $109,000 - $129,000)
  • IRA deductibility phase-out for married with spouse an active participant in an employer plan rises to $218,000 - $228,000 (was $204,000 - $214,000)
  • Roth IRA income limitations for determining maximum contribution for married joint filers: phase-out range rises to $218,000 - $228,000 (was $204,000 - $214,000)
  • Roth IRA income limitation for determining maximum contribution for single filers and heads-of-households: phase-out range rises to $138,000 - $153,000 (was $129,000 - $144,000)

 

Taxpayers who make contributions to IRAs or deferral-type employer-sponsored retirement plans of up to $2,000 may be eligible for a special income tax credit (the “saver’s credit”) of 10, 20, or 50 percent of the amount contributed, depending on their income.

For joint filers, the maximum adjusted gross income level for

  • the 50 percent tax credit is $43,000;
  • the 20 percent tax credit is $47,500; and
  • the 10 percent tax credit is $73,000.

 

For head of household filing status, the maximum adjusted gross income level for

  • the 50 percent tax credit is $32,625;
  • the 20 percent tax credit is $35,625; and
  • the 10 percent tax credit is $54,750.

 

For all other filing statuses, the maximum adjusted gross income level for

  • the 50 percent tax credit is $21,750;
  • the 20 percent tax credit is $23,750; and
  • the 10 percent tax credit is $36,500.

 

October 21 2022
IRS

Industry & Regulatory News

IRS Releases 2023 Inflation-Adjusted Amounts for Health and Welfare Benefits

The IRS has issued Revenue Procedure 2022-38, which contains cost-of-living adjustments for taxable years beginning in 2023 for over 60 tax provisions, including the following health and welfare benefits.

Cafeteria Plans

The dollar limitation under Internal Revenue Code Section (IRC Sec.) 125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements is $3,050, up from $2,850 for 2022. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $610, up from $570 for 2022.

Qualified Transportation Fringe Benefit

The monthly limitation under IRC Sec. 132(f)(2)(A) for the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $300, up from $280 for 2022. The monthly limitation under IRC Sec. 132(f)(2)(B) for the fringe benefit exclusion amount for qualified parting is $300, up from $280 for 2022.

Qualified Small Employer Health Reimbursement Arrangement

To qualify as a qualified small employer health reimbursement arrangement under IRC Sec. 9831(d), the arrangement must provide that the total amount of payments and reimbursements for any year cannot exceed $5,850 or $11,800 for family coverage, up from $5,450 or $11,050 for family coverage for 2022.

For additional information on the 2023 inflation-adjusted limits for other tax provisions, see Rev. Proc. 2022-38.

October 19 2022

Industry & Regulatory News

IRS Announces Applicable Federal Rates for November 2022

The IRS has issued Revenue Ruling 2022-20, which contains the applicable federal rates (AFR) for November 2022. These rates are used for such purposes as calculating distributions from retirement savings arrangements that meet the requirements for substantially equal periodic payments (a 10 percent early distribution penalty tax exception), also referred to as “72(t) payments.”

October 18 2022

Industry & Regulatory News

IRS Issues Yield Curves and Segment Rates for DB Plan Calculations

The IRS has issued Notice 2022-54, which contains updated guidance on factors used in certain defined benefit (DB) pension plan minimum funding and present value calculations. Updates include the corporate bond monthly yield curve, the corresponding spot segment rates for October used under Internal Revenue Code Section (IRC Sec.) 417(e)(3), and the 24-month average segment rates under IRC Sec. 430(h)(2). IRC Sec. 417 contains definitions and special rules for minimum survivor annuity requirements in DB plans. IRC Sec. 430 addresses minimum funding standards for single-employer DB plans.

October 18 2022

Industry & Regulatory News

Hardship Distributions May Be Permitted for Illinois Severe Storms and Flooding

The Federal Emergency Management Agency (FEMA) has issued a disaster declaration for severe storm and flooding in Illinois, beginning October 14, 2022.

Employers with qualified retirement plans may allow participants to take hardship distributions if

  • they have incurred expenses and losses because of a FEMA-declared disaster, and
  • their principal residence or place of employment at the time of the disaster is located in an area designated by FEMA as eligible for individual disaster assistance.

 

If the employer permits hardship distributions for expenses and losses related to a federally declared disaster, participants can check fema.gov/locations to determine if they are located in a disaster area designated for individual assistance.

The IRS may also issue relief related to this disaster for certain tax-related deadlines. Additional information can be found at irs.gov/newsroom/tax-relief-in-disaster-situations and will be announced here if such relief is granted.

October 18 2022

Industry & Regulatory News

PBGC Posts 2023 Premium Rates

The Pension Benefit Guarantee Corporation has determined premium rates applicable for the 2023 plan year in accordance with indexing rules provided in section 4006 of ERISA. The single-employer plan per-participant flat rate premium for plan years beginning in 2023 is $96, up from $88 in 2022 and more than triple the premium rate in 2007. The single-employer plan variable-rate premium for 2023 increases to $52 per $1,000 of unfunded vested benefits, up from $48 in 2022. The variable-rate premium per participant cap increased to $652 per participant, from $598 in 2022.

October 17 2022

Industry & Regulatory News

Mental Health Matters Act Passes House, Referred to Senate HELP Committee

H. R. 7780, the Mental Health Matters Act, introduced by Representative Mark DeSaulnier (D-CA) in May, has passed the House and has been referred to the Senate Committee on Health, Education, Labor & Pensions. As previously announced, the bill contains a group health plan provision that would amend ERISA Section 502(a) to expand the type of remedy permitted by a civil action brought by the Secretary, a plan participant or beneficiary, or a plan fiduciary to include readjudication of claims and payment of benefits in accordance with plan terms.

Included in the Mental Health Matters Act is a proposal to amend ERISA to provide that any mandatory predispute or coerced postdispute arbitration clause, class action waiver, representation waiver, or discretionary clause with respect to a plan is unenforceable. The bill would also amend ERISA to prohibit any such clause or waiver from being included in a plan document or other agreement with participants. These provisions were originally introduced under H.R. 7740 and announced.

October 17 2022