December 10, 2015
- Fiduciary Rule Update: Lawmakers Consider Options as House Subcommittee Holds Hearing
- IRS Guidance Seeks to Clarify Plan Administration under Obergefell
Fiduciary Rule Update: Lawmakers Consider Options as House Subcommittee Holds Hearing
Congressional leaders in the U.S. House of Representatives are developing legislation to address concerns about the pending finalization of the U.S. Department of Labor’s (DOL) proposed rule on fiduciary standards.
As described in the Council’s April 14 Benefits Byte, the DOL’s proposed regulations broadly update the definition of “investment advice” by extending fiduciary status to a wider array of advice relationships than is done by the existing rules. The Council has filed numerous comments with EBSA focusing on the impact of the regulations on plan sponsors, noting that the new rules will generate uncertainty, cost and potential liability and force employers to pull back on the educational tools they currently offer to plan participants.
One step policymakers are considering to address concerns about the approach used by the DOL in the proposed rule is to include – in the year-end “omnibus” spending package now being debated by Congress – a provision that would limit the DOL budget in such a way that it is prevented from finalizing the rule before the end of the fiscal year. Lawmakers supporting this option have repeatedly commented that this step is not intended to avoid making any changes to the definition of fiduciary under ERISA but rather to find a consensus approach that addresses concerns about the proposed rule.
The omnibus package sets forth appropriations for the funding of government activities, including executive branch agencies. The temporary government funding measure expires on December 16 (after an short-term extension was passed on December 10) and the omnibus package is therefore considered “must-pass” legislation. President Obama has been vocal about vetoing any measures that would slow or stop the fiduciary rule, but it is unclear if he would jeopardize the omnibus package over this or other policy issues.
As a second step, in recent weeks, a bipartisan group of House of Representatives Members have been working together to draft an alternative to the proposed “best-interest standard” for advisors that is included in the proposed rule. The legislation would be based on a list of legislative principles for the regulation of investment advisors issued in November by lawmakers. A press statement issued by Representatives Phil Roe (R-TN), Richard Neal (D-MA), Peter Roskam (R-IL) and John Larson (D-CT) on December 4 noted the continuing concerns with the approach taken in the Department’s proposed rule and the need for Congress to offer a responsible solution. The statement indicates that the legislation is expected to be introduced very soon.As we reported in the November 5 Benefits Byte, the list of legislative principles was issued after Representatives Roe, Neal, Roskam and Rep. Michelle Lujan Grisham (D-NM) joined to address the DOL rule’s “unintended negative consequences that could harm individuals and families saving for retirement.”
These measures exist in addition to the Retirement Choice Protection Act of 2015 (H.R. 3922), introduced by Representatives Mike Kelly (R-PA) and Sam Johnson (R-TX), which also seeks to add a workable ‘best interest’ standard to the fiduciary rule
Roe’s subcommittee held a hearing on December 2, Principles for Ensuring Retirement Advice Serves the Best Interests of Working Families and Retirees, to examine these issues. In his opening statement, Roe called the DOL proposal “extreme and unworkable” and said it “will impose on financial advisors a host of costly new mandates and burdensome regulations that will have far reaching consequences for those most in need of assistance.”
Rep. Jared Polis (D-CO), the subcommittee’s ranking Democrat, asserted that a stronger fiduciary standard is necessary and expressed confidence that the DOL would make necessary changes to the rule, but suggested that DOL open a supplemental comment period to gather additional input, as long as the proposal remains on track to be finalized before the end of 2016.
The committee heard testimony from the following witnesses:
- Bradford R. Campbell,counsel at Drinker Biddle & Reath LLP and member of the Council’s Policy Board of Directors, told the panel that a lack of access to investment advice costs retirement savers more than $100 billion per year, and the DOL rule would exacerbate the problem. He suggested that Congress should “tap the brakes” on the DOL proposal until it has had an opportunity to thoroughly review the issues and develop its own legislation.
- Rachel A. Doba, president of DB Engineering, LLC, and testifying on behalf of the U.S. Chamber of Commerce, argued that the proposal would be particularly harmful to small businesses.
- Jules O. Gaudreau, Jr., president of The Gaudreau Group Inc., a multi?line insurance and financial services agency, testifying on behalf of the National Association of Insurance and Financial Advisors, said that the DOL proposal “will create barriers to middle and lower income persons receiving financial advice.”
- Marilyn Mohrman-Gillis, managing director for public policy and communications for the Certified Financial Planner Board of Standards, testifying on behalf of the Financial Planning Coalition, said that “a strengthened fiduciary rule … is essential for America’s retirement investors” and urged adoption of the DOL proposal without congressional intervention.
Asked by Rep. Virginia Foxx (R-NC) whether the Obama Administration’s economic impact analysis used the proper methodology, Campbell noted that the oft-cited calculation that the annual cost of conflicted advice is about $17 billion per year is based on a very narrow set of variables and does not take into account the full scope of advisory arrangements. (The Council arrived at a similar conclusion in a recent Benefits Blueprint.) Campbell also noted that the DOL’s estimate of compliance costs is greatly understated.
Rep. Tim Walberg (R-MI) also asked Campbell if the DOL was the proper authority to address perceived conflicts of interest in investment advice. Campbell argued that Congress was the more appropriate venue to resolve such issues, pointing out that when one agency changes its standard, it creates conflicts with standards set forth by other agencies.
Roe, in closing the hearing, warned against putting too much stock in the DOL’s “$17 billion” estimate, which he acknowledged was based on flimsy assumptions. Instead, he suggested that the DOL consider the costs of additional, stringent rules and regulations on employers.
For more information on the fiduciary proposal and possible legislative solutions, contact Diann Howland, vice president, legislative affairs, Jan Jacobson, senior counsel, retirement policy, or Lynn Dudley, senior vice president, global retirement and compensation policy at (202) 289-6700.
IRS Guidance Seeks to Clarify Plan Administration under Obergefell
The Internal Revenue Service (IRS) issued Notice 2015-86 on December 12, providing updated question-and-answer guidance on how the U.S. Supreme Court’s decision in a landmarksame-sex marriage case affects employee benefit plan administration.
As we reported in the June 29 Benefits Byte, in the case of Obergefell v. Hodges, the U.S. Supreme Court determined that the 14th Amendment requires (1) a state’s civil marriage laws to apply to same-sex couples “on the same terms and conditions as opposite-sex couples,” and (2) prohibits a state from refusing to “recognize a lawful same-sex marriage performed in another state on the ground of its same-sex character.”
As Notice 2015-86 states, “because these same marriages have already been recognized for federal tax law purposes … Treasury and the IRS do not anticipate any significant impact from Obergefell on the application of federal tax law to employee benefit plans.” However, because some plan sponsors may alter aspects of their employee benefit plans in response to Obergefell, the IRS is providing guidance for employers on some associated issues in the form of frequently asked questions.
In particular, the IRS specifically clarifies that “a qualified retirement plan is not required to make additional changes as a result of Obergefell,” though a plan is permitted to provide new rights or benefits with respect to participants with same-sex spouses.
With regard to health and welfare plans, “if a health or welfare plan does offer benefits to the spouse of a participant … Obergefell could require changes to the operation of the plan to the extent that the decision results in a change in the group of spouses eligible for coverage under the terms of the plan.” The guidance also addresses the treatment of cafeteria plan elections under Internal Revenue Code Section 125.