White House Action Puts Obama Retirement Rules in Limbo

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Sean Forbes and David B. Brandolph

The Department of Labor’s fiduciary rule may have come to an impasse less than three days after President Donald Trump moved into the Oval Office.

White House Chief of Staff Reince Priebus instructed federal agencies Jan. 20 to freeze all pending regulations, an action that calls into question whether the fiduciary rule will move ahead as planned under former President Barack Obama. The rule requires financial advisers to act in their clients’ best interest when giving retirement advice.

The memo applies, among other things, to rules that have been finalized but are not yet effective. Here’s the catch: The fiduciary rule was finalized last April and became effective on June 7, 2016, but it isn’t applicable until April 10, 2017.

So does the memo impact the fiduciary rule? Maybe, maybe not.

“The memo could arguably be read as applying to the fiduciary rule if the rule is treated as not having yet ‘taken effect,’” Allison E. Wielobob, counsel at Sutherland, Asbill & Brennan LLP in Washington, told Bloomberg BNA. “So whether the memo impacts the rule depends how precise they meant to be with their language,” said Wielobob, who was on the staff of the Office of Regulations and Interpretations of the DOL’s Employee Benefits Security Administration before joining Sutherland.

“There seem to be legitimate arguments supporting the idea that the DOL’s fiduciary rule both would and wouldn’t be frozen by the memo,” Andrew L. Oringer, a partner with Dechert LLP in New York and co-chair of the firm’s ERISA and executive compensation group, told Bloomberg BNA.

One possibility focuses on the fact that the DOL fashioned the rule as being effective before it actually becomes applicable, he said. Some have suggested that the department did so precisely to prevent an incoming administration that opposed the rule from taking this kind of action to stop the rule in its tracks, Oringer said. The counterargument, Oringer said, is that “because the rule doesn’t yet apply, it therefore isn’t effective and is frozen under the memo’s terms.”

Oringer said he hopes the administration will clarify the rule’s status or its intentions for the regulations.

EBSA Retirement Proposals on Hold

During President Obama’s last week in office, the DOL’s Employee Benefits Security Administration issued a proposed rule (ZRIN:1210-ZA26) that would add an exemption to the fiduciary rule for sellers of fixed annuity products. That proposed rule is now on hold, along with the EBSA’s proposal to modernize the Form 5500. The form is used by most private employers to report on their pension and health benefit plans.

Other EBSA proposed rules that Priebus’s memo would put on hold include:

  •  an exemption from reporting and disclosure requirements for apprenticeship and training programs notices and top hat plan statements (RIN:1210-AB62),
  •  an amendment of the abandoned plan program regulations to determine whether and how to expand the scope of individuals entitled to be a “qualified termination administrator” (RIN:1210-AB47), and
  •  adoption and amendment of the Voluntary Fiduciary Correction Program (RIN:1210-AB64).

Brakes on IRS, PBGC Proposals

The administration’s directive would presumably put a halt, at least temporarily, to a number of proposed rules issued by the Internal Revenue Service and Pension Benefit Guaranty Corporation.

Among those are IRS proposed regulations (RIN:1545-BN05) that would amend the definitions of qualified matching contributions (QMACs) and qualified nonelective contributions (QNECs). Under the proposal, issued Jan. 17, employer contributions to a plan could qualify as QMACs or QNECs if they satisfy applicable nonforfeitability and distribution requirements at the time they are allocated to participants’ accounts.

Another IRS proposed rule updating the mortality tables plans use to calculate the present value of benefits would also be delayed from moving forward. The new tables, proposed Dec. 28, would reflect the longer life expectancy of plan participants for lump-sum benefit calculations and were also to be used by plan sponsors to calculate how they fund their pension plans. The proposed rule would require sponsors to use the updated tables for plan years beginning on or after Jan. 1, 2018.

Minimum present value requirements for pension plans under federal law that would be amended and updated under a house-cleaning proposal issued by the Internal Revenue Service would also be delayed.

The proposed rule (REG-107424-12), issued Nov. 23, would update final rules the Treasury Department issued in September that allow defined benefit plan participants the option of taking both an annuity and a lump-sum payment from their plan when they retire. A hearing on the proposal had been scheduled for March 7.

Missing Participants Expansion Affected

The memo would also have implications for two major rules nearing finalization by the PBGC, which insures defined benefit plans.

One is a proposed rule (RIN:1212-AB13) that would expand the agency’s existing missing participants program, which seeks to find people who are owed benefits from single-employer plans that have shut down. The expanded program would cover multiemployer plans that actually close out and no longer exist, as well as terminated individual account defined contribution plans, such as 401(k)s.

A proposed rule on multiemployer plan mergers (RIN:1212-AB31) would also be affected. That rule is intended to help plans that are in “critical and declining” status to merge with or transfer their assets and liabilities to healthier plans to prevent—or, in some cases, merely postpone—insolvency.

To contact the reporters on this story: Sean Forbes in Washington at sforbes@bna.com; David B. Brandolph in Washington at dbrandol@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

For More Information

The administration's memo is at http://src.bna.com/lAb.

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