Compliance Year in Review

As 2024 winds down, it is a good time to reflect on what happened this year in retirement compliance and what could be forthcoming in 2025.

To start, the Department of Labor, the plaintiff class action lawyers and the IRS have been busy, to say the least. Meanwhile, the election of Donald Trump and a Republican majority in both houses of Congress will certainly make 2025 eventful.

The Courts

David Kaleda

In 2024, federal courts again stymied the DOL’s attempt to redefine “investment advice” when providing investment recommendations to plans covered by the Employee Retirement Income Security Act, to plan participants, to IRA beneficiaries and to others.

The DOL promulgated its final Retirement Security Rule in April with the intent of making more financial services providers fiduciaries for purposes of ERISA and the prohibited transaction provisions of Section 4975 of the Internal Revenue Code. However, in July, two U.S. district courts—those for the Northern District of Texas and the Eastern District of Texas—indefinitely delayed the rule’s effective date, which was to begin in September.

The courts’ opinions signal the DOL is not likely to convince them it has the authority to define “investment advice” as set forth in the rule. Additionally, it seems unlikely that the DOL under Trump will fight for the survival of the rule.

Plaintiffs’ Bar

The plaintiffs’ class action bar continues to unearth ERISA breach of fiduciary duty and prohibited transaction claims to bring against ERISA plan fiduciaries.

This year saw several federal district courts address whether a plan sponsor or other plan fiduciary violates ERISA when they exercise discretion to use plan forfeitures to pay plan expenses, rather than allocating such amounts to plan participants. While some courts dismissed these claims on the basis that the plan participants failed to state a valid legal claim under ERISA, others denied such motions.

These latter cases will continue to move through the courts and have led some fiduciaries to change their plan language and procedures related to forfeitures and, possibly, other amounts (for example, revenue credits).

Chevron Overturned

As I detailed in PLANADVISER earlier this year, the Supreme Court issued its decision in Loper Bright Enterprises v. Raimondo, which could have a substantial impact on the DOL and other regulators.

In Loper Bright, the court overruled its position from the 1984 case Chevron v. Natural Resources Defense Council Inc., in which it held that deference should be given to a regulator’s interpretation of a statute when the statutory language is vague and Congress’ legislative intent is not clear. The Loper Bright decision could lead to more judicial scrutiny of the DOL’s regulations, like the stayed Retirement Security Rule and its regulation addressing environmental, social and governance considerations in investing and shareholder engagement. Other regulators engaged in benefits, such as the Department of the Treasury, may also be impacted.

Treasury and IRS Activity

Treasury and the IRS had a busy year issuing final regulations, proposed regulations and guidance related to the implementation of changes to the tax code and ERISA caused by the Setting Every Community Up for Retirement Enhancement Act of 2019 and the SECURE 2.0 Act of 2022.

Some of those provisions will allow participants to have increased access to their savings and otherwise help them use their retirement plan to meet their financial and other wellness needs, not just save for retirement. Such provisions include, for example, the use of in-plan emergency savings accounts.

In other cases, Congress indicated that plans should require or encourage participation by lower-paid and younger workers in 401(k) and similar plans. For example, the Internal Revenue Code now requires that more long-term, part-time employees be allowed to make employee contributions to a workplace defined contribution plan sooner and now allows employees to receive employer matching contributions connected to student loan payments. The IRS issued guidance related to these provisions.

The IRS in May also issued Private Letter Ruling 202434006, which allows the applicant’s employees to elect whether employer contributions should be paid (i) to a defined contribution retirement plan, (ii) to a health savings account, (iii) towards student loan payments or (iv) to a retiree health reimbursement arrangement. This indicates that other firms may consider the same approach. 

New Leadership

In short, 2024 was an interesting year. Given the results of the presidential and Congressional elections, we should expect 2025 to have even more twists and turns. Undoubtedly, we will see the DOL once again revisit its ESG regulation. Additionally, we should expect at least a softening of the DOL’s stance on allowing investments in digital assets through a participant’s retirement plan brokerage window.

Given the Republican majority—albeit a slim one—in Congress, we should expect members of Congress to introduce legislation intended to support Trump’s agenda with regard to these and other issues.

Trump appears to be ready to hit the ground running. It should be a busy year for advisers.

David C. Kaleda, principal, Groom Law Group, Chartered.