Friday, January 3, 2014

2014 Outlook for Regulatory Updates for Employer Retirement Plans

Barbara Williams, CFA,
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.

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.