What's Going On in Washington?
Exploring current ERISA and DOL areas of interest
In a significant move by the Department of Labor (DOL), new regulations are being rolled out that may impact your ERISA compliance and retirement plan administration. Learn how these changes could influence your retirement plan, discover Washington's initiatives, and prepare your company effectively.
Retirement Security Rule effective date stayed indefinitely
On July 25 and 26, 2024, two different federal courts in Texas ruled that the DOL likely overstepped its authority in redefining what is considered fiduciary investment advice under ERISA and the Internal Revenue Code. The new DOL regulation, the “Retirement Security Rule,” was to be effective September 23, 2024, and was meant to replace the DOL’s five-part test that has been in place since 1975. The courts stayed the effective date indefinitely while the lawsuits play out. The lawsuits against the DOL were brought by insurance professionals who strongly opposed being held to a fiduciary standard in dealing with plan sponsors and also with plan participants when they would rollover their assets from plans to IRAs.
The two Texas courts found that the Retirement Security Rule and its package of prohibited transaction exemptions violated the Administrative Procedures Act as well as a 2018 5th Circuit opinion that invalidated the DOL’s previous attempt to redefine investment advice. Specifically, the courts found that for investment advice to be governed by ERISA’s fiduciary duties, there needs to be an expectation of trust and confidence between the investment professional and the client. The DOL’s new rule, in violation of this standard, would have brought one-time sales transactions under a fiduciary standard, a consequence the courts found to be improper.
From here, the DOL is likely to appeal the rulings. The November presidential elections will be consequential as to whether any DOL appeal will be allowed. And even if it is allowed, the DOL faces an uphill battle in front of the 5th Circuit and the US Supreme Court, if they would agree to hear this dispute. In the meantime, the 1975 five-part test for fiduciary investment advice remains the law of the land.
IRS Notice 2024-02Dubbed the “Grab Bag” notice, the IRS released a Q&A style notice to provide additional guidance on 12 of the 90 new provisions added by SECURE 2.0 of 2022.
Notable provisions affecting section 401(k) and section 403(b) retirement plans include:
- expanding automatic enrollment and auto-escalation features
- credit for small employer startup costs
- de minimis financial incentives for contributing to a plan
- terminally ill distributions exception
- changes in accrual rule compliance for cash balance plans
Notice 2024-02 clarifies the requirements for each provision, including the effective date, limitations, and exceptions.
ERISA class actions - Group Health Plans
Fiduciary governance for health and welfare benefit plans has not always been a focus of plan sponsors, despite ERISA's fiduciary standards applying equally. However, a recent court case, known as the Lewandowski v. Johnson & Johnson case, highlights alleged breaches of fiduciary duties for high fees paid to service providers.
To provide fee transparency, the Consolidated Appropriations Act of 2021 amended ERISA to require certain service providers to disclose fees to employer-sponsored group health plans, similar to retirement plans. Though the Lewandowski case is still early, it reminds employers to review their ERISA duties and ensure strong processes and procedures.
Cybersecurity
Cybersecurity remains a top priority for DOL. In a recent speech at the National Association of Plan Advisors summit, Employee Benefits Security Administration’s (EBSA) Assistant Secretary, Lisa Gomez emphasized the need for better protection of retirement plan data. Safeguarding assets and participant information is a fiduciary duty under ERISA, requiring compliance with the "prudent expert" standard. This includes staying updated on cybersecurity practices, training personnel, and monitoring operations. EBSA’s guidance, "Cybersecurity Program Best Practices," highlights the importance of addressing cybersecurity risks in plan administration.
The landscape of retirement plan regulation and ERISA compliance is undergoing significant changes. These updates aim to enhance fiduciary responsibilities, expand exemptions, and clarify requirements affecting retirement plans. While these changes bring forth new challenges, they also offer opportunities for plan sponsors to work alongside a trusted retirement plan advisor to improve and ensure the security and efficacy of retirement savings.
This is a special edition written by The Wagner Law Group. This article is intended for general informational purposes only, and it does not constitute legal, tax, or investment advice from The Wagner Law Group.
©401(k) Marketing, LLC. All rights reserved.
Privacy Policy | Disclosures | Cookie Preferences | Do Not Sell or Share My Personal Information
Advisory services offered through Allworth Financial, a Registered Investment Advisor | Disclosures | Privacy Policy
Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. Check the background of this firm on FINRA's BrokerCheck.
HMRN Insurance Agency, LLC license #0D34087
1Barron’s 2024 Top 100 RIA Firms. Barron's© magazine is a trademark of Dow Jones L.P. The ranking of independent advisory companies is based on assets managed by the firms, growth, technology spending, succession planning, and other metrics.
2 Retention Rate Source: Allworth Internal Data, FY 2022
3 The NBRI Circle of Excellence Award is bestowed upon NBRI clients meeting one or both of the following criteria: Total Company score at or above the 75th percentile of the NBRI ClearPath Benchmarking Database and/or improvement of five (5) or more benchmarking percentiles in Total Company score over the previous survey.
4 As of 7/1/2024, Allworth Financial, an SEC registered investment adviser and AW Securities, a registered broker/dealer have approximately $22.5 billion in total assets under management and administration.
5 InvestmentNews 2020 and 2021 Best Places to Work for Financial Advisers. The ranking reflects survey responses and scores completed by both employers and employees. Employers report their organization’s workplace policies, practices, and demographics. Employees complete a survey designed to measure the employee experience.
6 2021 Value of an Advisor Study / Russel Investments
7 Ranked 9th Top Wealth Managers By Growth in Assets in the U.S. from RIA Channel, 2022. RIA Database and RIA Channel are registered trademarks owned by Labworks, LLC.
8 USA Today Best Financial Advisory Firms 2024. The ranking is based on the growth of the companies’ assets under management (AUM) over the short and long term and the number of recommendations they received from clients and peers.
9 NBRI Best in Class Ethics 2023. The Best in Class level is bestowed upon clients performing at or above 90 percentile of the NBRI ClearPath Benchmarking Database.
✢ Scott Hanson, Investment Advisor 2005, 25 most influential people in the financial services industry. The ranking reflects 25 people who Investment Advisor magazine believes have had or will have the greatest influence on the financial services industry.
✼Pat McClain, InvestmentNews 2014, Invest in Others Community Service Award, presented to an advisor who has made an outstanding impact on a community through managerial contributions to a non-profit organization.
†Financial Times, FT 300 Top Registered Investment Advisers, June 2019. The ranking reflects six areas of consideration including the company's years in existence, industry certifications of key employees, AUM, asset growth, SEC compliance record and online accessibility and calculates a numeric score for each company.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.