Upcoming Impactful Regulations in the Retirement Industry

Big retirement plan legislation is set to be passed fairly soon, attendees of the 2019 Plan Sponsor Council of America (PSCA) Annual Conference heard.

Brigen Winters, principal at Groom Law Group, Chartered, said the Retirement Enhancement and Savings Act (RESA) was the basis for what Congress wanted to accomplish to expand retirement savings opportunities. But the “Setting Every Community Up For Retirement Enhancement Act of 2019,” or SECURE Act, which included provisions of RESA and more was passed by the House Ways and Means Committee less than one week after it was introduced.

In addition to language created to open multiple employer plans (MEPs) and to establish a fiduciary safe harbor for the selection of lifetime income options in defined contribution (DC) plans, Winters noted that the SECURE Act includes a change to the automatic escalation safe harbor from a max of 10% to a max of 15%. In addition, it changes the required minimum distribution (RMD) age from 70 ½ to 72.

Will Hansen, chief government affairs officer at the American Retirement Association (ARA), said he believes RESA may have passed last year if there had been no government shutdown. However, with the SECURE Act now moving, Winters says there is more bipartisan support. It could move forward to the full House of Representatives in the next one to four weeks and then go on to the Senate, who will then tweak it.

Hansen said he believes Senators will pull into the SECURE Act provisions of the Portman/Cardin bill that was introduced in December. He noted that the bill will be reintroduced soon.

Hansen added that an important provision of the legislation is language providing for the ability to match student loan debt payments made by participants. The ARA fears this will cause some participants who are both paying student loans and saving for retirement, especially low income workers, to stop allocating money towards their retirement. The ARA says it is working to get legislation to provide matched student loan payments in average deferral percentage (ADP) testing, so plan sponsors can still pass the exam. 

Regulations

David Levine, principal at Groom Law Group, Chartered, reminded attendees of an executive order issued by President Donald Trump that directed the Department of Labor (DOL) and IRS to look into expanding MEPs. The DOL has since responded with regulations for association retirement plans.

The executive order also wanted regulators to move forward on electronic delivery of retirement plan disclosures. Hanson said Congress has been working for more than a decade on legislation to make e-delivery the default option for disclosures, but he shared that the AARP opposes e-delivery as the default, and as long as it does, legislation will not pass.

Also in that executive order, the president spoke about stretching out life expectancy tables for calculating required minimum distributions (RMDs), to which Levine said the IRS is working on.  

Still ongoing is the problem of missing participants. Levine noted that the DOL has no guidance for finding missing participants, but its investigations with plan sponsors are still ongoing. According to Levine, some plan sponsors are using Section 411 of the Internal Revenue Code, which says if they can’t find a participant, they can just reinstate the account in the retirement plan. But, he said, sometimes DOL investigators are telling plan sponsors that is not enough.

Levine pointed out that the IRS has made self-correction of plan loan failures easier with Revenue Procedure 2019-19. He also said there will be final regulations for hardship withdrawals this year. “Plan sponsors should talk to recordkeepers about changes to their systems,” he told conference attendees.

Finally, Levine discussed the settlement in the Vanderbilt University 403(b) excessive fee lawsuit. Under the terms of the settlement, plan fiduciaries will have to contractually prohibit recordkeepers and other service providers from using plan participant data for the purposes of cross-selling. Levine told all plan sponsors they need to keep in mind who has participant data and how they are using it.

State laws

Hansen then turned to the activity going on in the states that affect retirement plans. “States started acting because nothing was happening on the federal level,” he said.

Illinois and Oregon were the first to pass legislation requiring employers to offer retirement plans to employees. According to Hansen, Illinois amended its corporate tax form with a check box to identify whether an employer offers a retirement plan, but there has been confusion in matching that up with retirement plan records. “This is one example of how state plans will lead to a variety of rules,” he said.

Many states are also introducing their own fiduciary rules; some referencing the DOL fiduciary rule and honing in on retirement products. New Jersey drafted a rule a couple of weeks ago, to which the ARA asked for a carve out for Employee Retirement Income Security Act (ERISA) qualified plans and the state agreed. “State fiduciary legislation really wants to protect individuals when it comes to rollover products,” Hanson said. “If there is no ERISA plan carve out, it could increase costs and confusion for plan sponsors and advisers, and states will probably face lawsuits about ERISA pre-emption.”