United States: Year-End Update From The DOL

Last Updated: December 29 2014
Article by Larry A. Ruff

The Department of Labor (DOL) keeps a full plate on their retirement regulatory agenda and research projects each year. Now that the end of 2014 is closing, the DOL recently provided some insight of where they stand on some of these items. In early November, the ERISA Advisory Council presented their final recommendations of this year's research projects. The DOL also provided a bit of an update, too, in regards to their retirement regulatory agenda at this meeting.

ERISA Advisory Council

The ERISA Advisory Council consists of 15 members appointed by the Secretary of Labor. Three members represent employee organizations, three represent employers and three others represent the general public. The remaining six members each come from a different field of expertise. One member each comes from insurance, corporate trust, actuarial counseling, investment counseling, investment management and accounting.

Every year the Council decides on three or four issues to research that focus on topics important to ERISA administration. This past year the Council focused on two topics relevant to the retirement world and one non-retirement related topic. The retirement topics, discussed here, concern facilitating lifetime plan participation and outsourcing of employee benefit plan services.

Facilitating Lifetime Plan Participation — Trends show there has been a recent movement of participant assets out of retirement plans, and into retirement accounts not covered by ERISA, such as IRAs or other savings accounts, or as plan distributions. The Council examined some of the factors leading participants to leave their assets in or move them out of the plan.

Although more recent trends are beginning to show a desire among plan sponsors' to prevent leakage in their plans, the Council found a reluctance by some employers to provide guidance to terminating employees due to confusion or fear about incurring fiduciary liability. The Council recommended that the DOL "provide education and outreach to participants and plan sponsors on the considerations and benefits to participants of retaining assets within the employer-sponsored system."

Among "education and outreach" suggestions were for the DOL to develop model communication materials for employers to give to employees. The Council also suggested the DOL provide plan sponsors with guidance regarding certain plan design features which might encourage balances to stay in the plan. One example cited was to allow the continuation of loan repayments after separation from employment. The DOL requested the Council to consider developing such model communications in its next year of activity.

Outsourcing of Employee Benefit Plan Services — Management and administration of employee benefit plans is increasingly complex. Through outsourcing, plan sponsors can gain access to expertise and technology, achieve economies of scale and reduce costs. In addition, there appears to be an emerging trend toward outsourcing functions that have traditionally been exercised by plan sponsors. There also have been trends towards using multiple employer plan (MEP) structures as a mechanism to "outsource" the provision of retirement plan benefits.

For both plan sponsors and outsourcing service providers, a key question is the allocation of legal responsibilities and risk for activities of the service provider on behalf of the plan. As of today, there is no uniform analytical framework for understanding outsourcing, particularly in the context of fiduciary services.

In regards to the outsourcing project, the Council recommended the following:

  • Educate plan sponsors on current industry practices, including the kinds of services and providers available and common practices for contracting for those services;
  • Clarify the legal framework under ERISA for delegating responsibility to service providers to lessen confusion about fiduciary liability;
  • Update existing guidance on insurance coverage and ERISA fidelity bonding; and
  • Facilitate the use of MEPs as a way of encouraging the formation of benefit plans.

DOL Regulatory Update

At the November meeting, the DOL reported that the request for information on brokerage windows will close on November 19. This project grew out of Q&A guidance issued by the DOL in 2012. The project stems from the interplay of the participant fee disclosure regulations and brokerage windows in the Q&A, which the DOL eventually withdrew. The DOL indicated that there are no particular next steps in mind other than to review the comments and proceed from there.

They also stated that the comment period on a proposed regulation to require electronic submission of notices and statements for top hat plans and apprenticeship and training plans is still open and will close December 29. Generally, top hat plans are pension plans for select groups of management or highly compensated employees. Under the current law, these plans, as well as apprenticeship and training plans, file paper statements and notices with the DOL.

Lastly, the DOL said they are continuing to work on their proposal to redefine the "fiduciary" definition with an expected completion in January 2015. That is consistent with their prior reports. This long-delayed proposal would amend the DOL's rules to expand the scope of advisory activities deemed to be "investment advice" subject to fiduciary rules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Larry A. Ruff
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