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DOL Releases New Fiduciary Advice ProposalOn October 31, 2023, the Department of Labor (DOL) released its “Proposed Retirement Security Rule: Definition of an Investment Advice Fiduciary,” along with proposed revisions to Prohibited Transaction Exemptions (PTEs) 2020-02, as well as other fiduciary-advice-related PTEs (i.e., 84-24, 75-1, 77-4, 80-83, 83-1, and 86-128).
If finalized, a new definition of an “investment advice fiduciary” under the Employee Retirement Income Security Act of 1974 (ERISA) would apply, likely resulting in more individuals becoming fiduciaries. Amendments to certain PTEs would provide pathways for fiduciaries to receive otherwise prohibited compensation and fees.
At a high level, the proposed regulation would replace the current “Five- Part Test” for determining fiduciary status with the following. A person would be an ERISA investment advice fiduciary and, therefore, subject to ERISA’s “best interest” standard of conduct, disclosure and reporting if
Recall that under the DOL’s current Five-Part Test, a person is a fiduciary only if he or she satisfies all of the following requirements:
DOL has expressed particular concern about requirements 2, 3 and 4. According to the DOL, these elements “… too often work to defeat legitimate retirement investor expectations of impartial advice and allow some advice relationships to occur where there is no best interest standard.”
Under the proposal, these concerns are addressed in the following ways. First, the “regular basis” rule would change to simply require the advice fiduciary to be in the business of providing advice on a regular basis. Thus, someone in the “advice business” would satisfy this requirement even if the advice in question was a one-time occurrence ( e.g., a recommendation to take a rollover). Second, as to the “mutual agreement or understanding” requirement, the proposed rule would remove this clause and focus on the advisee’s reliance on an advisor’s recommendation as financial advice, and provide that disclaimers by the advisor, “… will not control to the extent they are inconsistent with the person’s oral communications, marketing materials, applicable State or Federal law, or other interactions with the retirement investor.” Finally, “a primary basis” requirement would become, instead, “ … a basis for investment decisions that are in the retirement investor’s best interest.”
What you need to know:
Q4 2023 Retirement Legislative Update
Congress releases SECURE 2.0 technical corrections discussion draft
On December 6, 2023, the Senate’s committee on Health, Education, Labor and Pensions (HELP) and two House committees (Ways and Means and Education and the Workforce) released a “discussion draft” of proposed technical corrections to SECURE 2.0 legislation passed at the end of last year.
The issues addressed – some of which were raised in a May 2023 letter from Congressional leaders to the Department of the Treasury and IRS – are technical and are not intended to change the substance of SECURE 2.0 as passed.
The proposed technical corrections applicable to retirement plans would (if finalized) clarify the
This is, at this point, only a discussion draft – it’s not unlikely that further technical issues (and, in some cases perhaps, non-technical issues) with SECURE 2.0 will be raised.
Retirement Savings for Americans Act would create a government-run plan
U.S. Senators John Hickenlooper (D-CO) and Thom Tillis (R-NC) and Representatives Lloyd Smucker (R-PA) and Terri Sewell (D-AL) introduced HR 6065, the Retirement Savings for Americans Act (RSAA) of 2023. If the bill were to be enacted, it would establish a new savings program, “The American Worker Retirement Plan” (AWRP), which would give eligible workers access to federally-sponsored, portable, tax-advantaged retirement savings accounts. Key features of the AWRP are described below.
While the provisions in the bill have bipartisan support, there is some skepticism in the industry as to whether a government-run retirement savings plan would be in the best interest of investors. Even more reason for business owners who do not offer a retirement plan to consider sponsoring their own workplace retirement plans now before a federally- mandated plan takes form.
Bill would allow employees to participate in 401(k) plans as early as age 18
On November 17, Senator Bill Cassidy (R-LA), the Ranking Member of the Senate Health, Education, Labor and Pensions (HELP) Committee, and Senator Tim Kaine (D-VA), a member of that committee, introduced the Helping Young Americans Save for Retirement Act. If the bill is enacted, the changes would take effect in 2026. While this proposal is unlikely pass as a standalone bill, odds are that it will be considered in the next round of broad-based, bi-partisan retirement policy legislation.
The bill would require 401(k) plan sponsors to allow employees as young as 18 to make contributions. The following conditions also would apply.
Not applicable to part-time employees
The long-term part-time coverage rule that allows an employee to participate if he or she has two years of part-time service of at least 500 hours per year would not apply until age 21.
Nondiscrimination and top-heavy rules would not apply
Plan sponsors could elect to exclude this group of young participants from nondiscrimination testing, including 401(k) actual deferral percentage (ADP) and actual contribution percentage (ACP) testing, and from consideration under the Top-Heavy rules.
Not counted towards the audit requirement for Forms 5500 initially
Sponsors of plans with 100 or more participants must, in connection with filing the Form 5500 annual report, include an audit report of the plan’s financials from an independent qualified public accountant. For purposes of this reporting rule, employees participating solely by reason of this bill would not be taken into account until five years after they first entered the plan. If the bill is enacted, the changes would take effect in 2026. While this proposal is unlikely pass as a standalone bill, odds are that it will be considered in the next round of broad-based, bi-partisan retirement policy legislation.
PBGC Announces 2024 Maximum Benefit Limits
The Pension Benefit Guaranty Corporation (PBGC) has updated its maximum monthly benefit guarantees for 2024 in a table published on its website. For example, a 65-year old whose pension benefit is payable from the PBGC in the form of a straight-life annuity for 2024 would receive a monthly maximum of $7,107.95. The PBGC maximum guarantee is determined using a formula in federal law tied to the Social Security index. The formula provides lower amounts for younger ages because younger people are expected to receive more monthly pension checks over their lifetime. Conversely, amounts are higher for older ages. In addition, amounts are lower for retirees who choose an annuity with survivor benefits.
2023 Forms 5500 Released
The U.S. Department of Labor’s Employee Benefits Security Administration, the IRS and the Pension Benefit Guaranty Corporation recently released informational copies of the 2023 Form 5500, Form 5500-SF, IRS Form 5500-EZ, IRS Form 5558 and their related instructions online. The IRS will release paper copies of the 2023 Form 5500-EZ and its instructions separately and provide the form’s instructions on the agency’s website after January 1, 2024.
The “Changes to Note” section of the 2023 instructions for each of the forms highlights important modifications to the forms, schedules and instructions. The Form 5500 and Form 5500-SF Changes to Note sections include changes related to the following:
Read a fact sheet with details on the 2023 changes.
This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.
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