The Department of Labor (DOL)'s 2016 projects include updates to pending projects relating to retirement accounts with revised estimated deliverable dates. Learn about these key projects and what they may mean to plan sponsors and their employees. We will continue to monitor the progress of these projects and communicate developments.
The DOL has aligned many of their resources to work on the fiduciary rule re-proposal. As a result, several existing project deliverable dates have been pushed out or changed to "undetermined" status. These dates are estimated deliverable dates, and there is no requirement that the DOL meet these dates. That said, it is rare for the DOL to issue regulations sooner than projected, so these dates tend to represent the earliest the DOL expects to release the regulation or guidance. For details, visit the DOL project website.
Our Point of View
DOL released final fiduciary rule
The DOL published the final fiduciary rule, also referred to as the "Conflict of Interest-Investment Advice" rule on April 6, 2016. The final rule will be effective early June 2016, with an initial applicability date of April 10, 2017. The rule is extensive, as was the proposed rule, and therefore retirement service providers are using this time to thoroughly review and assess impact. For more information and related DOL resources, visit the DOL's dedicated website, and read the Merrill Lynch message on complying with the Rule.
Revision of Form 5500 - DOL status: Estimated release 1Q 2016
The agenda includes a project to revise Form 5500, which will focus in part on investment information reported by employer-sponsored plans. Previously, July 2015 was estimated for release of a proposed rule.
The DOL seems to be trying to collect additional data related to investments in retirement plans. This is consistent with their focus in recent years and months on expanded disclosure of fees to plan sponsors and participants, as well as expanded participant disclosure requirements. It is also in line with the DOL Open Brokerage Window project as the DOL attempts to better understand the underlying investments in employer sponsored plans and the possible need for additional disclosure or regulation.
Benefit statements/lifetime income disclosure – DOL status: Estimated release November 2016
DOL is working on a project to implement the benefit statement requirement added by the Pension Protection Act of 2006. DOL has indicated it might also require a lifetime income disclosure on benefit statements. This was previously targeted for July 2015 release.
Having a real sense of how well and for how long individuals' retirement savings can support them is essential. We currently provide Plan Sponsors and participants with access to retirement planning tools that enable them to project their potential income in retirement inclusive of other assets, other retirement savings and other anticipated expenses in retirement. We feel that supplying these tools presents a more useful and holistic picture of retirement readiness. DOL-mandated calculation on participant statements can only take into account the funds currently in a participant account which provides a very limited estimation of retirement readiness. Additionally, providing a projected balance on a participant statement could be misunderstood to be a guarantee of a future balance which would be incorrect and potentially dangerous for participants and Plan Sponsors alike.
State-Run Retirement Plans Guidance – DOL status: Issued December 2015 and ongoing
The DOL released an Information Bulletin on State Run Retirement Marketplaces, State Run prototype plans, and State Run Open Multiple Employer Plans (MEP)s. They also release a proposed rule for a safe harbor State Run Auto IRA Program. No timing is given on next steps or when the proposed Auto IRA safe harbor would be released, but as this project has been specifically mentioned by President Obama, we expect that DOL will attempt to issue final rules before the end of the administration.
Brokerage windows – DOL status: Next action to be determined
In August 2014, the DOL released a request for information ("RFI") relating to brokerage windows in defined contribution plans. The public comment period closed November 19, 2014.
DOL received 38 comment letters from a mix of individuals, financial service firms and industry associations. DOL has been reviewing the comments they received in response to the RFI but have not yet indicated an estimated date for any further action. We continue to be supportive of the open brokerage window option in plan design and we will continue to monitor for any updates or changes. The open brokerage window option enables plan participants the opportunity to diversify their investments and make decisions regarding how and where their money is invested without creating an overly extensive and complex investment menu for all participants. DOL should carefully consider the comments received to help ensure any guidance they may propose does not introduce additional controls or reporting requirements that make brokerage windows an overly costly or burdensome plan design option going forward.
Target date funds (TDFs) – DOL status: Next action to be determined
DOL had reopened comments regarding its target date fund disclosure proposal—that comment period closed July 3, 2014.
We believe that target date funds are an important option when developing plan investment menus. The SEC has not updated the estimated new proposal release date related to TDF disclosure guidance, which still reflects October 2015. We will continue to watch this carefully.
Annuity selection safe harbor – DOL status: Next action to be determined
DOL has indicated they will release a proposal to amend its rules for fiduciaries when making annuities available as a distribution option in a defined contribution plan.
We believe it is important to provide individuals with several distribution options that help enable them to spend down their retirement savings without running out of retirement savings in their lifetime. Providing Plan Sponsors with guidance in choosing annuity options for their plan investment menu can be helpful, but should not be mandated.
408(b)(2) guide or summary – DOL status: Next action to be determined
DOL received comments this past year on their proposed rule, and indicated that they planned a release of a final rule implementing a "guide" requirement to the 408(b)(2) service provider disclosure in September 2015. Nothing has been released to date, and when the project plan was updated in November 2015, the status was changed to "next action to be determined."
We continue to believe this DOL project is unfounded and an unnecessary expense of time, money and resources for financial service firms. The DOL has a proposal in search of a problem which is further evidenced by the proposal's inclusion of a focus group to determine if Plan Sponsors find current disclosures confusing. The DOL should withdraw and re-propose only when and if there is an evident need of additional disclosures, which will run into hundreds of thousands of dollars in costs that could be better spent on plan design innovation for a problem that has no evidence of existence.
This summary is accurate as of February, 2016. Any changes made by the DOL would impact our viewpoint. We will continue to monitor the DOL projects that impact retirement accounts for updates and changes.