Managing Director
Bridgebay Financial, Inc.
The Department of Labor’s (DOL) Employee Benefits
Security Administration (EBSA) is expected to issue a full range of guidance
and regulations in 2014, some of which have long been under evaluation.
Section 408(b)(2) of ERISA Amendment
EBSA is expected to amend the disclosure provisions
requiring covered service providers to provide a guide that helps fiduciaries
to understand the terminology used in the disclosures, contracts or
arrangements. The guidance is intended
to clarify any potential conflicts of interest, identify the true costs and
understand the disclosures to determine the reasonableness of covered service
provider costs. Often the disclosures
are provided in complex terms and disclosed in complicated documents. EBSA’s notice and amendment to Section
408(b)(2) of ERISA is expected in January, 2014.
QDIA Amendment
The DOL’s qualified default investment alternative
(QDIA) regulation is expected to be amended. Fiduciaries are provided certain
fiduciary protection for participant-directed defined contribution plans
whereby the participant does not select investments to be defaulted to the
plan’s QDIA with the appropriate notices.
EBSA is expected to issue a final rule in March
2014 that amends and increases the level of investment information that must be
disclosed in the required notice to participants and beneficiaries.
The proposed rule-making will amend the
participant-level disclosure regulation under ERISA Section 404a-5 for
information on the QDIA plan option. The
most widely used QDIAs in defined contribution plans include target date and
asset allocation funds. The EBSA issued
a proposed rule in November 2010 and plans to issue its final rule on the
increased participant disclosures in March, 2014.
Defined Benefit Plan Funding Notices
EBSA is expected to finalize rules for annual
funding notices for DB plans. It will
also address summary annual reports for defined benefit plans. The funding rule
was originally proposed in 2010 with the comment period ending in January
2011. EBSA plans to issue a final rule
in March, 2014.
Brokerage Window
EBSA is expected to review the use of brokerage
window-only options by participants in ERISA-covered defined contribution
plans. Most participant-directed plans
offer a specific number of investment choices or menu of investments that are
selected by the plan sponsor through a due diligence process. In contrast, some plans offer a brokerage
window-only as the investment option. In
the case of a brokerage window, the plan sponsor cannot and does not conduct a
due diligence review of all of the potential investments the participant may
choose. A brokerage window may include
an inordinate number of mutual funds, ETFs, stocks and bonds.
EBSA intends to determine and potentially issue
regulatory guidance and establish fiduciary requirements for plan sponsors that
offer the brokerage window-only investment option. The review of this issue will be initiated
through the issuance of a Request for Information from the Industry and plan
sponsors in April, 2014.
Lifetime Income Illustrations
EBSA plans to issue guidelines for lifetime income
illustrations on participants’ retirement account statements in late August,
2014.
Fiduciary
EBSA is expected to issue new definitions for
fiduciary and identifying conflicts of interest. The revised definitions have been under
review for a few years. The proposed
“conflict of interest rule is now expected September, 2014.
Safe Harbor for Selecting Annuity
Providers
The DOL and Department of the Treasury recently
issued a Request for Information (RFI) to elicit information on Lifetime Income
Options for Participants and Beneficiaries in Retirement Plans. The purpose of the RFI is to elicit
information from the financial industry and plan sponsors to determine the
practicality of inducing defined contribution plans to offer a lifetime income
stream throughout retirement through a third party annuity provider or another
contractual arrangement.
In 2008 the DOL had issued a regulation that
established a safe harbor for plan sponsors that met their fiduciary
responsibilities in their selection of an annuity provider.
EBSA is now considering amending the annuity
selection safe harbor based on the RFI responses and may issue a revision in
October, 2014.
