PANC 2013: Regulatory Update

Speaking to attendees of the 2013 PLANADVISER National Conference in Orlando, Florida, David C. Kaleda, a principal at Groom Law Group Chartered, said there has been some juggling and reprioritizing after the decision in United States v. Windsor, in which the high court found unconstitutional the federal government’s policy not to recognize same-sex marriages. He noted that the Treasury has issued a revenue ruling saying the “state of celebration” will define who is married for federal tax purposes, but the Department of Labor (DOL) will take some time to issue its guidance since it will have to coordinate with other agencies for its rules.

However, the industry has seen “tips” from the DOL for plan fiduciaries regarding target date funds (TDFs). (See “DOL Offers Tips on TDFs”) Kaleda said most items are already in practice, but advisers should take note of the DOL’s hint to at least ask whether custom TDFs are right for a plan.

The agency also issued an advisory opinion this year about revenue sharing (see “Certain Revenue Sharing Payments Not Plan Assets”). Basically, the agency decided that payments held as bookkeeping entries and not assets in a trust are not plan assets.

Kaleda said the industry should also take note of the DOL’s settlement with ING regarding correcting plan errors (see “ING Settles with DOL on Processing Error Policy”). The lesson to be taken from that case: if a recordkeeper corrects a recordkeeping error in order to make participants whole, and a gain is made by assets when correcting that error, the recordkeeper needs to disclose to plan sponsors what they do with that gain.

The industry is still anticipating the DOL’s re-proposal of its definition of fiduciary. Advisers are anxious, and they should be, Kaleda contended, noting that the agency now refers to this rule as “the conflict of interest rule – investment advice” on its regulatory agenda. The Securities and Exchange Commission is also considering standardizing its rules for registered investment advisers (RIAs) and broker/dealers, so the question is, when the DOL definition comes out, will it be aligned with the SEC rules?

Kaleda said he believes the DOL will also use the Government Accountability Office (GAO) report about rollovers (see “Solutions Exist for Easier Plan-to-Plan Rollovers”) to argue why they need additional rules about rollover advice.

However, there will be another comment period when the redefinition is issued, and Kaleda expects there will also be hearings, so there will be no final rule for about another year.

Finally, Kaleda noted the industry is still waiting on guidance about TDF disclosures, and he expects the DOL’s rules will be similar to SEC rules about how these funds are presented. Kaleda said he also believes the industry will see a standard format guide for 408(b)(2) service provider disclosures.

Even though it is distracted by the DOMA ruling, “I have no doubt enforcement will be a DOL focus,” Kaleda concluded.