ERISA is Cool, After All...

Written by: Nick Curabba

Any blogger cool enough to mention rocker Meatloaf, punk band The Clash, and ERISA all in one post deserves credit.  But combine all that, as Jerry Kalish of Retirement Plan blog did, with a link to YouTube, and you hit a pop-culture grandslam.

More substantively, Mr. Kalish's post discusses and links to a recent Watson Wyatt study about the influences that bear on a person's decision about when to retire. The study finds, perhaps not surprisingly, that among other factors, the type of workplace retirement plan a person has could be predictive of retirement timing.  In other words, a person with a vested benefit in a DB plan is more likely to retire than a similarly situated person with just a defined contribution plan.

The Watson Wyatt study is interesting, too, in light of the recent book from Alicia Munnell and Steven Sass of the Center for Retirement Research at Boston College.  As the title suggests, Working Longer: The Solution to the Retirement Income Challenge may have its own ideas about when people will decide to retire in the future. 

Large AND Small 403(b) Plans: Beware of Schedules H and I

Written by: Bob Toth

Practitioners and financial service companies are all well aware of the new ways in which the Form 5500 rules apply to ERISA-covered 403(b) plans for the 2009 plan year, and many are hard at work trying to put together the pieces. There has been a particular focus on trying to figure out how to fulfill the new reporting rules under Schedules A, C and G.

But those are not the only things to worry about.  Take a closer look at Schedules H (Financial Information) and I (Financial Information-Small Plans). 

When thinking about 5500 filings, we tend to think in terms of the filing deadlines. I don't know how many times I have heard in the past year the comment that "we have time," as the first Form 5500 filings for the 2009 plan year won't be due until July 2010. Plenty of time, one would think.  But both Schedule H and Schedule I require the reporting of financial data from the beginning of the year, as well as year-end data.

Logistically, this creates a reporting nightmare for at least one – and maybe many more – specific reason: the "collectability" of data as of the beginning of the first plan year.  Financial information that will need to be reported for large plans as of January 1, 2009 includes hard-to-get data such as consolidated participant loan balances; net assets; benefits payable; contributions receivable and general account values.  In a multi-vendor environment, collecting this will be difficult, at best and impossible at worst.

In a plan funded with individually owned 403(b) contracts, some of this "beginning of the year" data is unlikely to even be collected and stored on a "beginning of the year" basis (if at all) at the individual contract level, and much less so on a consolidated plan reporting level. Imagine trying to reconstruct, in July 2010, the consolidated general account investments from several carriers, each with individually owned contracts. 

This will be a particular problem for large plans, which will need balanced and verifiable audited financials (good luck there). But it will also be a problem for small plans, which will also be required to report net plan values as of the beginning of the year.

There are certainly other concerns lurking here at the intersection of the IRS's new 403(b) regulations and the DOL's decision to apply enhanced disclosure and reporting obligations on ERISA-covered 403(b) plans, but the way this one plays out will be front-and-center. 

White House Orders End-of-Term Reg Slowdown

Written by Nick Curabba

That loud shuffling noise you hear is the sound of federal regulators preparing proposed regulations for publication in the Federal Register in advance of a newly imposed June 1 deadline.  In a May 9 memorandum from White House Chief of Staff Josh Bolten, the heads of all executive departments and agencies are directed to "resist the historical tendency of administrations to increase regulatory activity in their final months," and instead propose no new regulations after June 1.  In an early holiday present to regulators and the regulated alike, the Bolten memo also directs the agency heads to finalize no regulations after November 1, 2008.

There is an exception for "extraordinary circumstances" (a term that is not defined), and the memo is written in an aspirational (no regulations "should" be proposed after June 1) rather than the mandatory tone, but the fact that such a memo was issued at all is notable and will likely curtail some regulatory activity in the second half of this year.  Since the Office of Management and Budget generally has a 30-day opportunity to review regulatory initiatives classified as "significant," the June 1 deadline also means that unless significant proposed regulations have already been submitted to OMB, they will likely not be issued this year.

In the employee benefit space, this means that we could expect to see the Department of Labor's participant disclosure proposed regulations (submitted to OMB for review on May 1) very soon. It also means that the DOL will be pushing very hard to finalize its proposed 408(b)(2) regulations prior to the November 1 cut-off.  Proposed regulations on investment advice (an issue that has been live since the Pension Protection Act was enacted in August 2006), however, have not been sent to OMB and therefore will likely have to wait until next year and a new administration.  At the IRS, several planned regulatory items will either have to be hurried or scrapped until next year. 

The Bolten memo does not specify if the term-end slow-down applies only to formal notice-and-comment regulations, or if it goes further to agency informal guidance.  If the latter, then DOL Field Assistance Bulletins or advisory opinions may also have to soon cease for the year.  If those types of guidance are not covered by the memo, we may be in for a steady stream of notices, revenue rulings, revenue procedures, advisory opinions, FABs, information letters and other pieces of informal guidance as the agencies work through their agendas in the sprint to year's end.

As we noted on this blog last week, the Department of Labor's new FAB 2008-03 provides some guidance on how the notice requirements of the new QDIA regulations work.  In addition to notice provisions, the FAB addressed several other issues and concerns that have been raised by practitioners, plan sponsors and service providers since the regulations were finalized.  We have put together a more in-depth analysis of the guidance, which is available on Baker & Daniels' website here.

Back in February, we blogged about the IRS's odd new requirement to provide redlined plan documents with Cycle C determination letter requests.  It appears that there were more than just Suzanne Wynn and us that thought this new document standard too cumbersome.  During a session at today's ABA Section of Taxation meeting in Washington, D.C., Andrew Zuckerman from the IRS announced that, after receiving some bruising comments from the regulated community and practitioners, the Service has decided to pull back from the redlining brink.  Rather than require the submission of documents showing changes and amendments, Mr. Zuckerman said plans will be "encouraged" to voluntarily submit redlined documents.  Given the awfully large stick the IRS wields, we are curious as to the exact nature of this "encouragement."  Further details are expected to be released by the Service in writing shortly, Mr. Zuckerman said

A Fly in the Ointment: Transparency, Annuity Contracts, and State Insurance Departments

Written by: Jared Danilson

More than four months after the Department of Labor's qualified default investment alternative regulations became effective, the Department last week issued much needed guidance clarifying the rule's application in a number of contexts.  Perhaps most notable for readers of this blog, the Field Assistance Bulletin (FAB 2008-3) contained important guidance on how to deal with the overlapping and seemingly conflicting notice requirements.  The Department also released amended regulatory text, and a fact sheet explaining the guidance.

As we have blogged about before, the Department is in the midst of a separate regulatory initiative to enhance the disclosure of plan fees and expenses that flow to fiduciaries and plan participants.  There appears to be some cross-pollination of efforts here, as the Q-6 indicates that, in the absence of further guidance, in order to meet the notice requirements in the final QDIA regulations, plans must provide information to participants and beneficiaries concerning: (1) the amount and a description of any shareholder-type fees such as sales loads, sales charges, deferred sales charges, redemption fees, surrender charges, exchange fees, account fees, purchase fees, and mortality and expense fees; and (2) the expense ratio for investments the performance of which may be expected to vary over the term of the investment.

Because ERISA and the Code require many different notices to be provided to participants and beneficiaries, Q-7 attempts to streamline and coordinate some of the notification efforts. In Q-7, for instance, the Department clarifies that the QDIA notices may be distributed in accordance with Department of Treasury electronic distribution regulations.  However, when it comes to pass-through investment materials, the Labor Department stops short of endorsing Treasury's rules, indicating instead that the DOL is "currently working on a separate regulatory initiative concerning the broader application of disclosure by electronic means."  This may be a reference to yet-to-be-issued proposed regulations on disclosure to plan participants. Those regulations, which will be the third and last set of disclosure-based rules in the Department's three-step initiative, are currently being reviewed by the Office of Management and Budget, and are expected to be released in proposed form sometime this summer.  

In Q-8 and Q-9, the Department addresses the interaction between the notice requirement in the QDIA regulations and the separate notices required under rules governing qualified automatic enrollment arrangements (QACAs) under Code section 401(k)(13) and eligible automatic enrollment arrangements (EACAs) under Code section 414(w).   According to Q-8, the timing of the separate QACA and EACA notices may -- but are not required to -- be coordinated with the QDIA notice.  The FAB also provides a link to a sample notice created jointly by it and the Internal Revenue Service that sponsors may wish to use to satisfy all notice requirements.  

In Q-9, the Department further explores the timing interaction between the Code's notices and the QDIA notices, concluding that "plan sponsors could easily satisfy" the annual notice requirement for both sets of regulations by providing an appropriate notice at least 30 but no more than 90 days before the beginning of the plan year.  Q-10 clarifies that the notice required under the pre-PPA safe harbor 401(k) plan (i.e. non-automatic enrollment safe harbor plan) can be combined with the QDIA notice as well.

FAB 2008-3 addresses other issues as well, but leaves many other questions unresolved.  It is not clear at this time whether we can expect additional guidance from the Department on QDIAs, or if this FAB is as much as we will get.  In either case, plan sponsors would be well advised, IMO, to carefully review the FAB to be sure they are complying with the QDIA regulations.