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On October 31, 2023, the US Department of Labor (“DOL”) unveiled a new proposed regulation titled “Retirement Security Rule: Definition of an Investment Advice Fiduciary” (the “2023 Proposed Rule”) and proposed amendments to several prohibited transaction exemptions (“2023 Proposed PTE Amendments”). With these proposals, the DOL aims to expand the criteria for determining who would be an “Investment Advice Fiduciary” for purposes of Section 3(21) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and force many such “Investment Advice Fiduciaries” to comply with Prohibited Transaction Exemption (“PTE”) 2020-02 for fee and affiliated investment conflicts.

The 2023 Proposed Rule, if finalized, would modify the “Five-Part Test” for determining fiduciary status that has been in effect since 1975. In the preamble to the 2023 Proposed Rule, the DOL stated that the Five-Part Test was no longer suited to address the modern landscape of professional investment advice. In particular, the DOL was concerned that the “regular basis” and “mutual understanding” prongs of the Five-Part Test exclude many circumstances in which a fiduciary of an ERISA plan, plan participant or beneficiary, or IRA owner (each, a “Retirement Investor”) may reasonably assume that they were receiving investment advice based on the Retirement Investor’s best interest.

The 2023 Proposed Rule marks the third attempt since 2010 by the DOL to replace the Five-Part Test. The most recent attempt was an updated regulatory definition of Investment Advice Fiduciary issued on April 8, 2016 (the “2016 Fiduciary Rule”), which was vacated in its entirety by the US Court of Appeals for the Fifth Circuit in 2018. The court’s opinion stated that the 2016 Fiduciary Rule had strayed too far from the common-law definition of the term fiduciary, which turns on the existence of a relationship of “trust and confidence” with the client and does not extend to those who merely sell products to their clients.Continue Reading DOL Releases New Proposed Regulation Regarding Investment Advice Fiduciaries

Since the early days of the COVID-19 pandemic, the country has been under both national emergency and public health emergency orders (the “Emergency Orders”).  Pursuant to these orders, the Departments of Labor, Health and Human Services, and the Treasury (the “Departments”) issued guidance in May 2020 that postponed various deadlines that apply to benefit plans and made other COVID-related changes to health plans while the Emergency Orders are in force (the “Emergency Period”).  After three years, the end has finally come: on January 30, 2023, President Biden announced his intent to end the COVID-19 national emergency and public health emergency effective May 11, 2023, and on Monday, April 10, President Biden signed a congressional resolution immediately ending the national emergency. The ending of the national emergency marks the beginning of the end to several temporary changes to employee benefit plans.Continue Reading The End of the National Emergency Spells Big Changes for Employers

IRA, Roth, 401(k)

With just days to go before the new year, President Biden signed the Consolidated Appropriations Act, 2023, into law on December 29, 2022, which includes the SECURE 2.0 Act of 2022 (“SECURE 2.0”). SECURE 2.0 expands on and, in some cases, modifies changes to the laws governing retirement plans brought about by the Setting Every Community Up for Retirement Act of 2019 (the “2019 SECURE Act”). Key provisions of SECURE 2.0 that amend the Employee Retirement Income Security Act (“ERISA”) and Internal Revenue Code (the “Code”) include a mandatory automatic enrollment and escalation feature for new Section 401(k) and 403(b) plans starting in 2025, updated required beginning dates for taking required minimum distributions, an expansion of the Internal Revenue Service (“IRS”) Employee Plans Compliance Resolution System (“EPCRS”), and more “Rothification” of savings opportunities for retirement plan participants. Plan amendments under SECURE 2.0 are generally required by the last day of the first plan year beginning on or after January 1, 2025 for single-employer plans. SECURE 2.0 also directs the Department of Labor (“DOL”) and IRS to issue various new regulations in accordance with its provisions. This blog post summarizes some of the key features of SECURE 2.0.  Continue Reading SECURE 2.0 – Changes for Retirement Plans

On November 22, 2022, the U.S. Department of Labor (the “DOL”) published a regulation entitled “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” (the “Final Rule”). The Final Rule follows proposed rules regarding ESG investing and proxy voting by plan fiduciaries, issued on October 14, 2021 (the “Proposed Rule”) and amends prior regulations on the same topic issued by the DOL under President Trump in 2020 (the “2020 Rule”).

In the Final Rule, the DOL repeatedly emphasized that the regulation was primarily aimed at removing and remedying the chilling effect on ESG investing by plan fiduciaries created by the 2020 Rule. While the Final Rule takes a more permissive stance on the consideration of climate change and other ESG factors in investment decisions by plan fiduciaries than the 2020 Rule, the DOL cautioned that a plan fiduciary should not subordinate the interests of plan participants and beneficiaries to any collateral benefits (i.e., ESG objectives).

The Final Rule largely tracks the Proposed Rule, with a few notable exceptions summarized below.Continue Reading DOL Finalizes Rule Regarding ESG Investing and Proxy Voting by Plan Fiduciaries

On April 14th, 2021, the Department of Labor (“DOL“) issued cybersecurity guidance to plan sponsor and fiduciaries, recordkeepers and other service providers and participants and beneficiaries of plans regulated by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The guidance is presented in three separate parts: Tips for Hiring a Service Provider with Strong Cybersecurity Practices, Cybersecurity Program Best Practices and Online Security Tips for Participants and Beneficiaries.

Over the past ten years, cybersecurity has become an area of critical importance to plan sponsors, plan administrators and plan participants. With plans holding trillions in assets as well as sensitive participant information, retirement accounts have been attractive targets for cyber-enabled fraud. Plan participants are known to check their retirement account balances less frequently than personal banking, credit card or other financial accounts. As a result, there can be a delay before attacks on retirement accounts are discovered, making tracing and recovery efforts exceptionally difficult. Plans also permit electronic access to funds and rely upon outside service providers, which provide additional access points for breach. There is a growing body of litigation involving participants who have suffered retirement plan losses due to cyberattacks. Bartnett v. Abbott Laboratories, No. 20-cv-02127 (ND Ill., 2020) (motion to dismiss participant suit against plan sponsor and administrator granted, but denied with respect to third party record-keeper); Leventhal v. The MandMarblestone Group LLC, No. 18-cv-2727 (ED PA, 2019) (motion to dismiss suit by plan sponsor and participant against third party administrator denied); and Berman v. Estee Lauder, No. 4:19-cv-06489 (ND CA, 2019) (participant suit against plan sponsor, committee and third party record-keeper settled).Continue Reading U.S. Department of Labor Weighs in on Cybersecurity for ERISA Plans

Plan sponsors and fiduciaries may have spent 2020 scrambling to amend their plans and operating procedures to accommodate breaking COVID-19 guidance, but the Department of Labor’s (“DOL”) and federal courts’ wheels continued to turn, churning out decisions and guidance on a variety of ERISA issues—and plan sponsors and fiduciaries should take note. Included in recent DOL guidance are rules for reviewing and selecting retirement plan investments, voting proxies, and distributing retirement plan notices. Meanwhile, various federal appellate court decisions should lead fiduciaries to review summary plan descriptions (“SPDs”) and the inclusion of single-stock fund investment options in defined contribution plan lineups. The following checklist sets out 2020 developments for plan sponsors and fiduciaries to consider in the new year.
Continue Reading 2021 Plan Sponsor/Fiduciary Compliance Checklist

Proxy Voting

The longstanding view of the Department of Labor (the “DOL”) has been that proxy voting and other shareholder rights held by an ERISA plan are subject to ERISA’s fiduciary duties of prudence and loyalty. Previously, this view was expressed by the DOL in sub-regulatory guidance, such as interpretive and field assistance bulletins. In September of 2020, the DOL published a proposed rule (the “Proposal”) regarding an ERISA fiduciary’s duties with respect to shareholder rights. On December 16, 2020, the Department of Labor published the final regulation (the “Regulation”). Much like the Proposal, the Regulation requires that when a fiduciary decides whether and when to exercise plan shareholder rights, it must act prudently and solely in the interests of participants and beneficiaries and for the exclusive purpose of providing them benefits and defraying the reasonable expenses of administering the plan. However, in the Regulation, the DOL took an approach that is less prescriptive and more principles-based than the Proposal.
Continue Reading Final ERISA Regulations Describe Fiduciary Duties Related to Plan Proxy Voting

Proxy Voting

On September 4, 2020, the U.S. Department of Labor (the “DOL”) issued a proposed rule regarding a plan fiduciary’s duties with respect to shareholder rights appurtenant to shares of stock held by an ERISA plan (the “Proposal”). ERISA requires that a plan fiduciary carry out its duties prudently and solely in the interests of participants and beneficiaries and for the exclusive purpose of providing benefits to participants and beneficiaries and defraying the reasonable expenses of administering the plan.

The DOL originally articulated its position that ERISA’s fiduciary duties extend to the voting rights of stock in an opinion letter published in 1988 (commonly known as the “Avon Letter”). Since that time, the DOL has provided additional sub-regulatory guidance in the form of Interpretive Bulletins and Field Assistance Bulletins. Much like the DOL’s guidance on ESG investing, the DOL’s guidance in this area has shifted in focus with each presidential administration; however, a published regulation, subject to review and comment like the Proposal, would be more difficult to overturn by a future administration if finalized.

The DOL’s previous guidance issued in 2016 generally encouraged the voting of proxies by plan fiduciaries, other than in certain limited circumstances. In contrast, the Proposal warns that a fiduciary can only vote proxies that it prudently determines to have an “economic impact on the plan after the costs of research and voting are taken into account.”
Continue Reading To Vote, or Not to Vote, That is the Question

On May 21, 2020, the US Department of Labor (DOL) and the Employee Benefits Security Administration (EBSA) issued final regulations expanding the use of electronic disclosures for retirement plans. The regulations provide a new safe harbor that will substantially ease the use of electronic delivery by retirement plan administrators to satisfy the disclosure requirements of Title I of the Employee Retirement Income Security Act of 1974 (ERISA). The new regulations were published in the Federal Register on May 27, 2020, and they take effect on July 27, 2020 (though the DOL will not take enforcement action against a plan administrator that relies on the regulations’ new safe harbor before that date).
Continue Reading The DOL Embraces Wider Use of Electronic Notices for ERISA Disclosures

The Department of Labor (together with the Treasury Department) has issued helpful deadline relief for participants and beneficiaries in health, disability, other welfare and pension plans, as well as for plan sponsors and administrators of such plans, during the COVID-19 National Emergency.  The guidance came just in time for plan administrators at risk of missing the deadline for distributing annual funding notices, which was April 29 this year.
Continue Reading DOL Issues COVID-Related Deadline Relief