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 2024-02
Dubbed 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
- treatment of employer matching or nonelective contributions as Roth contributions
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.
Established in 1996, the attorneys at The Wagner Law Group provide boutique-style services in ERISA, PBGC, employment law, and more for clients nationwide. www.wagnerlawgroup.com
This article is intended for general informational purposes only, and it does not constitute legal, tax, or investment advice from The Wagner Law Group.
Adcock Financial Group
H. Brian Adcock
311 W. Fletcher Avenue
Tampa, FL 33612
813-935-4091
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Adcock Financial Group is a member firm of PartnersFinancial. Kestra IS and Kestra AS are not affiliated with Adcock Financial Group or PartnersFinancial. Kestra IS and Kestra AS do not provide tax or legal advice. Please access the following site to review form CRS, Reg BI and relevant disclosures. www.kestrafinancial.com/disclosures
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.
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