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What’s Waiting for Lisa Gomez?

Regulatory Agencies

Now that the U.S. Senate has confirmed Lisa Gomez to serve as Assistant Secretary for the Department of Labor’s Employee Benefits Security Administration (EBSA), a lengthy to-do list awaits her attention.  

Since the start of the Biden administration, Ali Khawar has been serving as Acting Assistant Secretary for EBSA, taking on those responsibilities and serving as its point person, but those duties will now shift to Gomez in the coming days and weeks.

Regulatory Agenda Awaits

In fact, there are a number of hot-button regulatory guidance projects that have either been proposed and are still pending, or they are in the pre-rule stage and EBSA is reviewing next steps. Those key retirement-based items on EBSA’s regulatory agenda include the following.

Fiduciary guidance (RIN: 1210-AC02). EBSA’s regulatory agenda still shows plans to revisit the definition of fiduciary. According to the project description, the rulemaking would amend the regulatory definition of the term fiduciary to “more appropriately define when persons who render investment advice for a fee to employee benefit plans and IRAs are fiduciaries within the meaning of section 3(21) of ERISA and section 4975(e)(3) of the Internal Revenue Code.” The description further notes that the amendment “would take into account practices of investment advisers, and the expectations of plan officials and participants, and IRA owners who receive investment advice, as well as developments in the investment marketplace, including in the ways advisers are compensated that can subject advisers to harmful conflicts of interest.” EBSA also plans to evaluate available prohibited transaction class exemptions and propose amendments or new exemptions to ensure consistent protection of employee benefit plan and IRA investors.

The agenda shows a December target date for release of a Notice of Proposed Rulemaking, but that date may slip, due to timing issues and getting Gomez up to speed. Other factors could include new lawsuits that were filed against the current guidance.

While the Biden-led DOL had let the Trump-era changes that initiated a new prohibited transaction exemption for offering investment advice go into effect, two lawsuits were filed against those changes—one by the Federation of Americans for Consumer Choice Inc., which seeks to vacate the fiduciary rule as expressed in PTE 2020-02  and a second by the American Securities Association arguing that the guidance did not properly follow the Administrative Procedures Act. 

At this point, it's not clear what impact those suits may have on the Biden Administration’s thinking in terms of proceeding with new guidance—whether it delays the process or has the opposite effect and encourages EBSA to press on. Meanwhile, this past July 1, advisors were required to start documenting in writing why a rollover recommendation is in a participant’s best interest under PTE 2020-02.  

ESG guidance (RIN: 1210-AC03). Unlike the fiduciary guidance, the DOL did pull back on the Trump-era rules, announcing that it would not enforce the changes. Subsequently, the DOL released proposed guidance in October 2021 (Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights)   in relation to ESG considerations and proxy voting, and the ARA submitted comments in December. 

In the meantime, DOL has requested information on whether the department should take action to protect retirement savings from risks associated with climate changes, on which the ARA also weighed in,  contending that the DOL should not call out climate-related risks for special attention. The regulatory agenda shows a December 2022 target date for release of a final rule, but whether that timing slips is also unclear. It’s also worth noting that ESG has become a hot-button political topic in recent weeks.

Crypto Concerns

Gomez also will likely step into the current debate surrounding the DOL’s warning in March cautioning plan fiduciaries about having cryptocurrency in a DC plan investment lineup and Fidelity’s decision to move forward with a new “digital assets” capability for 401(k) plans.  The crypto debate has recently induced legislation to be introduced in Congress and a suit to be filed against the DOL, contending that the department’s attempt to restrict the use of cryptocurrency in DC plans is “arbitrary and capricious” and in violation of the Administrative Procedure Act. 

To date, Acting Assistant Secretary Khawar has been the public face in defending the DOL’s decision to issue the guidance cautioning plan fiduciaries to exercise extreme care before they consider adding a cryptocurrency option. That public-facing role will now likely switch to Gomez, who will be expected to weigh in on the matter, which has not only the attention of the DOL, but that of the plaintiffs’ bar

Lifetime income illustrations (RIN: 1210-AB20). Interim final regulations took effect in September 2021 and sponsors of participant-directed DC plans were required to provide lifetime income illustrations to participants in their plans no later than with the second quarterly benefit statements of 2022. For nonparticipant-directed DC plans, sponsors must provide lifetime income illustrations on the annual pension benefit statement for the 2021 calendar year by Oct.15, 2022. Despite these deadlines, a final rule has not yet been issued, and the agenda still shows an Aug. 2022 target date for release

Other Stuff

PEP guidance (RIN: 1210-AC10). According to the regulatory agenda, the DOL is still considering whether to issue additional guidance concerning pooled employer plans under the SECURE Act. This item is still listed as being in the pre-rule stage with the DOL consulting with stakeholders on the need for additional guidance.

Form 5500 revisions (RIN 1210-AB97). This regulatory action would implement SECURE Act and related changes to Form 5500; a principal focus of this project relates to section 202 of the SECURE Act, which requires implementation of a consolidated annual report for certain groups of similar plans.  The DOL in May released updated forms for plan years beginning on or after 2022, but noted that it is continuing to review certain aspects of its September 2021 proposal, including the defined contribution group (DCG) reporting and related audit issue. The agenda shows potential for additional guidance in 2023. 

Form 5500 revamp (RIN: 1210-AC01). According to the agenda, this is more of a longer-term project to improve the Form 5500 series. The agenda notes that this is part of a strategic process between the DOL, Treasury and PBGC to modernize the Form 5500 process and requirements. The regulatory agenda shows that the DOL intends to issue proposed guidance by March 2023.

PTE procedures (RIN: 1210-AC05). In March, the DOL announced proposed amendments to its procedures governing the filing and processing of Prohibited Transaction Exemption (PTE) applications and the public comment period closed at the end of May. But after much criticism by various industry stakeholders, DOL reopened the comment period on the proposed amendment and held a hearing in mid-September. The agenda shows that the Department currently is engaged in the process of reviewing comments. 

Proposed Amendment to the QPAM Exemption: While not on the regulatory agenda, the DOL published a proposed amendment to PTE 84-14 (the QPAM Exemption) on July 27, 2022, with a 60-day comment period; it later extended the comment period to Oct. 11. The proposed amendment would expand the types of misconduct that disqualify plan asset managers from using the exemption and seeks to clarify that foreign convictions would disqualify firms from utilizing the QPAM. The ARA had requested a longer extension, noting that the modifications under the proposed amendment are significant. Moreover, the conditions of the amended PTE 84-14 would largely overhaul the relationship between plan sponsors and their advisors, the ARA noted.