Employee Benefits Law Report

The “final” countdown: DOL fiduciary rule still applies June 9, 2017

Much has been written to speculate what may become of the Department of Labor’s (DOL) fiduciary rule. Recently, the DOL issued a FAQ confirming that the new fiduciary rule will become effective June 9, 2017. Transition exemptions that were previously announced also will go into effect on that date. The DOL also issued non-enforcement guidance that should help mitigate the risk of litigation against fiduciaries who make a good faith attempt to comply with the new rule and applicable prohibited transaction exemptions during the transition period ending on Jan. 1, 2018.

The phased implementation can seem confusing. The bottom line is that many advisers who may not have been fiduciaries in the past will become fiduciaries starting on June 9, 2017. That includes advisers who give recommendations to ERISA plan participants to rollover their accounts to IRAs. Based on common compensation practices, they may need to adhere to requirements of a prohibited transaction exemption starting on that date as well. Until further notice is given, additional requirements (anti-conflicts policies, disclosures, and representations and warranties) for an exemption will apply beginning on Jan. 1, 2018.

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Will the DOL continue to make ESOPs a compliance priority?

One question that has been on the minds of plan sponsors is how aggressive the Department of Labor (DOL) under President Trump will be compared to that of President Obama. In recent years, the DOL made a priority of investigating ERISA fiduciary issues, with a particular focus on employee stock ownership plans (ESOPs). After the DOL delayed the effective date of the ERISA fiduciary rule, some commentators speculated as to whether the DOL would scale back its priority on reviewing and auditing ESOPs. A recently filed case (Acosta v. Reliance Trust Co., Inc. , E.D.N.C., No. 5:17-cv-00214, complaint filed 5/4/17), however, suggests that the DOL may continue to make a priority out of investigating potential abuses in ESOP transactions. As such, employers who are considering the adoption of the ESOP should be mindful of putting together an experienced team to guide them through the fiduciary issues. In particular, it is critical for the trustee of an ESOP to hire an independent appraiser that has not performed a preliminary ESOP feasibility study for the company, and the trustee and other fiduciaries of the ESOP should be engaged with the due diligence process.

As background, ERISA fiduciaries have a duty to act solely in the best interest of plan participants and beneficiaries. Continue Reading

ERISA fiduciary rule delayed to June 9, 2017, with bonus transition relief through 2017

Today (April 7, 2017), the Department of Labor (DOL) published in the Federal Register a final rule delaying the new ERISA fiduciary rule until June 9, 2017. Everyone expected a comprehensive 60-day delay to the rule, including the related Best Interest Contract Exemption (BICE) and other prohibited transaction exemptions (PTE). But, in welcome news to many, the rule also provided a significant transition period until 2018 for the more onerous requirements of the BICE, PTE 84-24 and other prohibited transaction exemptions. Here is a quick run-down of the more significant aspects of the delay: Continue Reading

Hurry up and wait: ERISA fiduciary rule delayed

While it took longer than many expected, the Department of Labor (DOL) issued a proposed rule that would provide a 60-day delay to the application of the new fiduciary rule and related prohibited transaction exemptions. As we reported in our previous blog, the rule was set to impose new fiduciary obligations on those who provide participant investment advice, which would have a trickle-down effect on the sponsors of qualified retirement plans in which those individuals participate. In anticipation of the original April 10, 2017 applicability date, many service providers and plan sponsors have already taken significant steps towards compliance.

While the proposed delay is welcome news for many, it does not provide any real guarantees on the fate or future of the fiduciary rule. The comment period for the proposed delay ends on March 17, 2017. After the DOL receives comments, it will likely issue a final regulation that will delay the fiduciary rule for a period of time while the DOL continues to decide whether to pursue revisions, or even a complete revocation, of the fiduciary rule. In other words, final guidance delaying the fiduciary rule would likely not be issued until fairly close to the original April 10, 2017 applicability date. And any substantive changes to the rule would likely come at an even later date. This puts service providers and plan sponsors in the uncomfortable position of having to continue on their current course to compliance, while taking a parallel path focused on influencing the final structure (or possibly complete revocation) of the rule.

To be continued…

2017’s fiduciary rules are near. Are plan sponsors ready?

In the plan sponsor and financial adviser community, as 2016 gives way to 2017, all eyes will be on the Department of Labor’s (DOL) fiduciary rule. As we blogged previously, the new rule will impose many new obligations on advisers, and plan sponsors also will have to be mindful of how these changes affect their relationships with their advisers. We have seen some articles that speculate that the new administration may delay or weaken, if not repeal, these new regulations. As we publish this blog, there already has been a bill introduced in the new Congress to delay the effective date of these rules for two more years. Yet, we believe that whether the new rules are delayed, weakened, or left intact is largely irrelevant. The attention that the new rule has received has created such a focus and interest on fees, conflicts of interest, and the value that financial advisers provide to their clients that plan sponsors need to demonstrate now more than ever why the services their advisers provider are in the best interest of their participants.

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IRS issues proposed Code Section 409A regulations clarifying many nonqualified deferred compensation plan issues

The Internal Revenue Service (IRS) recently published proposed regulations under Internal Revenue Code Section 409A. The proposed regulations clarify 19 policy items addressed in the final regulations published in 2007 and also in proposed income inclusion regulations published in 2008. These clarifications generally are not surprising, and we do not expect that employers will need to take any immediate action in response to these proposed regulations. This blog will highlight some of the clarifications that we believe employers may find particularly interesting. In a future blog, we will describe a related set of proposed regulations that the IRS also published under Code Section 457 that affect only tax-exempt and governmental employers. Continue Reading

Final fiduciary rule creates implications for plan sponsors and financial advisers

After a drawn out and controversial regulatory review process, the United States Department of Labor (DOL) on April 6, 2016, issued final guidance that expands the definition of a “fiduciary” under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code regarding persons or entities that render investment advice for compensation, received directly or indirectly, with respect to assets held in retirement plans or individual retirement accounts (IRA). This rule replaces the original fiduciary rules that were adopted in 1975 shortly after ERISA was enacted, and reflects the DOL’s belief that the retirement industry has evolved significantly since then considering the explosive growth in participant-directed 401(k) plans and in IRA’s nationwide. The rule extends the fiduciary standard contained in ERISA to investment advisers who until now have not been required to adhere to those standards or to contend with ERISA’s related prohibited transaction rules. While the final rule retains the basic structure and approach as the DOL’s proposed rule, which was released in 2015, the final rule includes significant changes and clarifications that the DOL hopes will make the rule more useable and will reduce compliance burdens. The scope of the DOL’s revisions suggests the agency carefully considered the extensive comments received in response to the proposed rule.

The final rule could threaten common arrangements that financial advisers have with ERISA-covered plans and IRAs under ERISA’s fiduciary duty rules or under related prohibited transaction rules. To provide relief, the DOL also released several related pieces of guidance, including:

  1. The final form of the new best interest contract exemption (BICE).
  2. An amendment to and a partial revocation of Prohibited Transaction Exemption 84-24.
  3. A mendments to Class Exemptions 75-1, 77-4, 80-83 and 83-1.

Upon the satisfaction of express conditions, the BICE provides conditional relief for common conflicted compensation arrangements, including commissions and revenue sharing, that advisers historically have received in connection with rendering investment advice. The BICE is available to both plans and IRAs and provides needed relief from the otherwise applicable prohibited transaction provisions in ERISA that would otherwise apply if a participant is deemed to be a fiduciary. The BICE outlines the steps to be taken in order to gain relief (as covered below, those necessary steps have been significantly streamlined in the final rule). The other pieces of guidance are aimed at allowing certain broker-dealers, insurance agents and other vendors that act as investment fiduciaries to continue to receive various forms of conflicted compensation that otherwise may be prohibited under ERISA.

While the final rule is aimed primarily at financial advisers, it also affects plan sponsors considerably. Plan sponsors need to review and understand the nature of the relationships they have with their advisers, including whether their advisers should be considered ERISA fiduciaries and whether the fees they pay their advisers are reasonable. Failure to do so could subject the plan sponsors to potential ERISA fiduciary violations. Moreover, plan sponsors should expect to receive new disclosures and amended contracts from their advisers. Continue Reading

U.S. Supreme Court invalidates Vermont health care reporting law Under ERISA preemption doctrine

The United States Supreme Court ruled on March 1, 2016 in Gobeille v. Liberty Mutual Insurance Company that a Vermont state statute that requires health care plans to file informational report with the state is preempted by ERISA to the extent it is intended to apply to self-funded plans. Writing on behalf of the Court in a 6-2 ruling, Justice Anthony Kennedy noted that reporting, disclosure and record-keeping are central to and an essential part of ERISA’s regulatory scheme and thus concluded that ERISA preempted state efforts to impose other reporting obligations.

ERISA expressly preempts any state laws insofar as they may now or hereafter relate to any employee benefit plan. The Court has over the years established principles for dealing with preemption. Under a threshold standard, where either a state law acts immediately and exclusively upon ERISA plans or the existence of ERISA plans is essential to the law’s operation that law will be preempted. Under an alternative test, the Court has ruled that ERISA preempts state laws that have an “impermissible connection” with ERISA plans (i.e., this test focuses on state laws that attempt to govern a central matter of plan administration or that interfere with nationally uniform plan administration). This second alternative was at issue in the Gobeille case. Continue Reading

IRS previews qualified plan determination letter changes in new guidance

The Internal Revenue Service (IRS) issued guidance on Jan. 4, 2016, that clarifies certain implications of its previously announced changes to the employee plans determination letter program. These clarifications, announced in Notice 2016-03 (Notice) are necessary to cover open issues raised from prior guidance that in effect shuts down the determination letter program for most amendments to individually designed plans.

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IRS Notice 2016-4 extends due dates for 2015 information reporting under the ACA

The IRS yesterday released IRS Notice 2016-4, which extends the due dates for certain 2015 information reporting under the Affordable Care Act (“ACA”). This notice relates to due dates for the 2015 information reporting requirements (i.e., both furnishing to individuals and filing with the IRS) for insurers and self-insuring employers. Specifically, Notice 2016-4 extends the due date for (a) furnishing to individuals the Form 1095-B, Health Coverage, and the Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, and (b) filing with the IRS the Form 1094-B, Transmittal of Health Coverage Information Returns, the Form 1095-B, Health Coverage, the Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and the Form 1095-C, Employer-Provided Health Insurance Offer and Coverage. The extension for the Forms 1094-B and Form 1095-B is from February 1, 2016, to March 31, 2016, and the extension for the returns submitted to the IRS is from February 29, 2016 to May 31, 2016 (if not filing electronically) and from March 31, 2016 to June 30, 2016 (if filing electronically). That being said, the IRS indicates it is prepared to accept filings of the information returns on Forms 1094-B, 1095-B, 1094-C, and 1095-C beginning in January 2016 and is encouraging employers and other coverage providers to furnish statements and to file the information returns as soon as they are ready (of course, the IRS always says that). Employers or other coverage providers that do not comply with these extended due dates are subject to penalties imposed under the ACA for failure to timely furnish and file, and so these extended deadlines must be taken seriously.

Final regulations issued by the IRS in 2014 specified the deadlines for information reporting required by the ACA. Generally, those regulations provide persons providing minimum essential coverage to individuals during a calendar year must file with the IRS information returns on or before the following February 28 (March 31 if filed electronically) and must furnish to the individuals identified on the return a written statement on or before January 31 following that calendar year. Since in 2016, the January 31 and February 28 due dates fall on weekend days; in 2016 these two due dates were supposed to February 1 and February 29, respectively (yes, 2016 is a leap year). The IRS designated Form 1094-B and Form 1095-B to meet the requirements of the regulations. In addition, the regulations generally require applicable large employers to file with the IRS information returns on or before February 28 (March 31 if filed electronically) of the year following the calendar year to which it relates and to furnish to full-time employees a written statement on or before January 31 following that calendar year. For this purpose, the IRS designated Form 1094-C and Form 1095-C as transmittal forms to meet the requirements of the regulations. The preambles to the final regulations state that for 2015 coverage the IRS will not impose penalties on reporting entities that can show that they have made good faith efforts to comply with the information reporting requirements, and that this relief applies only to furnishing and filing incorrect or incomplete information and not to a failure to timely furnish or file a statement or return. The preambles also note that generally the penalties may be waived if a failure to timely furnish or file a statement or return is due to reasonable cause (i.e., the reporting entity demonstrates that it acted in a responsible manner and the failure is due to significant mitigating factors or events beyond the reporting entity’s control).

This news, while perhaps a bit tardy, should be very useful for many.