The Securities and Exchange Commission is proposing a new rule under the Investment Advisers Act of 1940 that would require registered investment advisers to satisfy specific requirements if they outsource certain services or functions. The Proposed Rule (Rule 206(4)-11) imposes due diligence and monitoring obligations for the engagement and retention of service providers and includes changes to Form ADV and to the recordkeeping requirements under Rule 204-2. Investment advisers should become familiar with the Proposed Rule to ensure timely compliance, if it is adopted.
Reporting and Disclosure
Sponsors of group health plans received welcome relief from Congress and regulatory agencies which should make health plan administration and reporting less burdensome. The relief comes in the form of a permanent extension of certain Affordable Care Act reporting deadlines, a temporary reprieve from new prescription drug reporting requirements, and a two-year continuation of the ability to offer telehealth and remote care services under HSA-compatible high deductible health plans.
Congress recently approved some of the most sweeping changes to retirement plans in decades. The Consolidated Appropriations Act of 2023 includes the SECURE 2.0 Act of 2022. SECURE 2.0 makes numerous changes to qualified retirement plans, 403(b) plans, 457(b) plans, individual retirement accounts, and other employee benefits. The changes are designed to enhance access to retirement savings, preserve income, and lessen administrative burdens.
Employers will need to modify certain aspects of plan administration and make decisions about which optional plan provisions to adopt. This post provides an overview of the most relevant provisions of SECURE 2.0 and their effective dates. We will provide more detailed discussion of SECURE 2.0 and its implications in subsequent posts.
The SECURE Act added a new disclosure requirement for sponsors of defined contribution plans that becomes effective this year. Plan sponsors of ERISA-covered defined contribution plans must provide participants with a lifetime income disclosure (at least annually) which estimates the monthly income that a participant’s account balance could produce if paid in the form of a qualified joint and survivor annuity or single life annuity stream of payments, rather than a lump-sum.
For participant-directed plans, the initial lifetime income disclosures must be incorporated into benefit statements no later than June 30, 2022. For plans under which participants do not direct the investment of their account, the disclosures must be on the statement for the first plan year ending on or after September 19, 2021. For most plans, this will be October 15, 2022.
Investment consultants and other service providers who advise plan participants and fiduciaries about rollovers and investment choices received another reprieve from new rules governing that advice. But the reprieve is only temporary; those consultants and advisors must be prepared to comply by February 1, 2022.
The deadline to send a new COBRA notice required under the American Rescue Plan Act of 2021 (“ARPA”) is approaching quickly. Employers and COBRA administrators will need to send those notices no later than September 15, 2021, to satisfy that obligation.
On February 12, 2021, the Department of Labor issued a press release confirming that the new fiduciary investment advice guidelines under Prohibited Transaction Exemption 2020-02 will go into effect on February 16, 2021. The Department also confirmed that the temporary enforcement relief provided by Field Assistance Bulletin 2018-02 will remain in place until December 20, 2021.
The Biden administration previously issued a memo to regulatory agencies suspending new regulations issued during the waning days of the Trump administration. The purpose of the suspension is to provide the incoming administration with the opportunity to review those regulations. As a result, there was some question whether the Exemption would become effective.
On December 15, 2020, the Department of Labor finalized its new guidelines for fiduciary investment advice. Prohibited Transaction Exemption 2020-02 both clarifies the circumstances under which financial institutions and investment professionals are considered “fiduciaries” under ERISA and the Internal Revenue Code, and also establishes a new framework under which such fiduciaries may provide services and receive compensation.
The preamble to the final Exemption provides the Department’s long-awaited final interpretation of when investment advice – such as a recommendation to roll over retirement plan assets to an IRA (or between IRAs) – creates a fiduciary relationship under ERISA or the Code. The substantive terms of the Exemption allow investment advisers who are fiduciaries to receive compensation and engage in principal transactions that would otherwise violate prohibited transaction rules.
The Exemption applies to SEC- and state-registered investment advisers, broker-dealers, banks, insurance companies, and their employees, agents and representatives that are investment advice fiduciaries under the newly interpreted “five-part” test of fiduciary status. It imposes certain conditions to protect the interests of retirement plans, participants, beneficiaries, and IRA owners. The Exemption is set to become effective February 16, 2021, absent a delay by the Biden Administration. Thus, employers will need to be aware of the Exemption and its conditions in their engagement of (and interactions with) plan service providers.
The Department of Labor (DOL) has now finalized its October 2019 proposal (described in our previous blog) to create a new “safe harbor” for the electronic distribution of ERISA-required notices and disclosures. The final regulation establishes a new, voluntary safe harbor for retirement plan administrators who want to use electronic media, as a default, to furnish covered documents to participants and beneficiaries, rather than providing paper documents through mail or hand delivery. The new safe harbor permits electronic delivery by either (i) posting covered documents on the plan sponsor’s website, if appropriate notification of internet availability is furnished to the participant’s electronic address, or (ii) sending the documents directly to the participant’s electronic address, with the covered document either in the body of the e-mail or as an attachment thereto. Although the final rule is not effective until 60 days after its publication in the Federal Register, the DOL has indicated that it will not take any enforcement action against a plan administrator that relies on the safe harbor before that date.
The Department of Labor’s Employee Benefits Security Administration issued guidance on April 28, 2020, providing temporary, coronavirus-related relief from many deadlines and requirements under ERISA. Notably, the guidance relaxes the standards for employers to provide notices electronically, and affords significant latitude to COBRA qualified beneficiaries for electing, and paying for, COBRA continuation coverage.