Monday, December 23, 2013

Retirement Plan Guidance is on EBSA’s Gift List for 2014

The Department of Labor’s Employee Benefits Security Administration (EBSA) recently released an update to its guidance agenda, including a number of priorities that can be expected to affect retirement plans.  Clearly there are some surprises in this updated priorities document and perhaps some reason for concern as well.
The most anxiously awaited EBSA guidance are the regulations defining when an advisor, service provider, or other person may be considered a fiduciary in their dealings with a plan or retirement account.  Of course, it is not just the defining, but the duties and obligations that accompany that role, that will matter.  We were surprised to learn that EBSA has now targeted the month of August, 2014, for issuance of these re-proposed regulations.  The expectation over many months has been “imminent,” based on EBSA comments.  But, in every instance, there has been a delay and a resetting of expectations.   

Perhaps the August 2014 target is an indication that new Secretary of Labor Thomas Perez is not completely comfortable with the expansive dimensions these regulations reportedly will have, as formulated under the guiding hand of Assistant Secretary Phyllis Borzi.  Or, given the widely held belief that Secretary Perez is one of President Obama’s more liberal cabinet members, caution and industry sensitivity may not be the motive at all.  Possibly the new August target is nothing more than a fail-safe reset of expectations intended to avoid the embarrassment of another missed deadline.  Hopefully the delay will result in a workable regulation that corresponds to what the SEC will be doing, that protects retirement plan participants and provides and will temper what many have feared will be regulatory overreach and a potential threat to IRA owners’ continued access to advisory services.
Another item on the guidance plan, with a much closer April, 2014, target date, is “standards for brokerage windows” in individual account type plans, such as 401(k) plans.  A brokerage window within a plan investment suite offers participants what can be virtually limitless investment options.  Readers will recall that Field Assistance Bulletin (FAB) 2012-02R gave us EBSA’s assurance that the very detailed investment disclosures required for a plan’s designated investment alternatives (DIAs) under fee disclosure regulations would not apply to investments chosen under a brokerage window.  For that reason many were surprised to see this on EBSA’s regulatory agenda. 

However, the agency did warn in FAB 2012-02A that it would be unacceptable for a plan to offer only a brokerage window in order to avoid the need for any DIA disclosures.  EBSA cited “…ERISA Section 404(a)’s general statutory fiduciary duties of prudence and loyalty,” noting that “…fiduciaries may have duties under ERISA’s general fiduciary standards apart from those in the [fee disclosure] regulation,” and that the agency would “… determine how best to assure compliance in a practical and cost effective manner, including, if appropriate, through amendments of relevant regulatory provisions.” 
The FAB’s reference to “amendments of relevant regulatory provisions” sounds ominously like we could see a reopening of what most thought was a closed chapter in the fee disclosure drama.  “Brokerage Windows II” is a sequel we might not want to see.  

One item the industry will welcome seeing EBSA revisit is the current regulations that plans must follow when selecting a safe annuity for plan participants or beneficiaries at payout time.  A reasonable safe harbor, one that does not require a plan administrator to be both a psychic and a Harvard economist when selecting a safe annuity, has been sorely needed.  Existing regulations are next to impossible to confidently meet.  This IS good news.
Also worthy of comment is the distant timeline—again, August, 2014—for proposed regulations on including lifetime income projections on participant benefit statements.  Given the detail in EBSA’s advanced notice of proposed rulemaking in May of 2013, and the August, 2013, close of the public comment period, coupled with the urgency EBSA seemed to attach to the issue, this distant timing is a little surprising.  Perhaps the answer lies in the kind and quantity of public comments the agency received on its very complex proposal.  Time will tell.

As each of looks forward to unwrapping something special on Christmas Eve or Christmas Day, it appears we can also look forward to EBSA unveiling some gifts of its own in 2014.