The DOL’s Regulatory Agenda and a New Fiduciary Rule


best interest, DOL, fiduciary, IRA, rollovers
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UPDATE: On August 8, I posted this blog article in contemplation of the DOL sending a new fiduciary proposal package to the Office of Management & Budget (OMB) in the White House. One month later, to the day, the receipt of the DOL’s proposed fiduciary rule and prohibited transactions was posted on the OMB’s website. In reviewing my blog article, I think it was spot on in predicting key elements of the fiduciary rule and the exemptions. However, that is still based on my crystal ball, since the changes new proposals won’t be known until they are vetted by the OMB and published in the Federal Register—probably 45 to 60 days from now. As this article suggests, the fiduciary proposal will likely say that rollover recommendations are fiduciary advice and that rollover recommendations to annuities will be subject to more stringent standards.

Key Takeaways

  • The anticipated DOL proposed fiduciary regulation could be sent to the Office of Management & Budget (OMB) in a matter of weeks.
  • The proposal will likely say that a rollover recommendation to a participant in an ERISA governed retirement plan is a fiduciary act.
  • The DOL will also likely propose amendments to prohibited transaction exemptions (PTEs), including to PTE 84-24, the exemption used for fiduciary rollover recommendations into individual annuity contracts.

The DOL has not appealed the decision in the Florida Federal District Court that vacated its fiduciary “re-interpretation.” That re-interpretation, in effect, said that ongoing investment advice to a rollover IRA could be connected to the rollover recommendation to a participant such that the “regular basis” prong of the 5-part fiduciary test would be satisfied. For context, the DOL had previously said that, if a person was not already a fiduciary to a plan, a recommendation to a participant to rollover his or her benefits was a standalone recommendation and therefore did not satisfy the regular basis prong of the 5-part test.

The re-interpretation tried to connect the recommendation to the plan (that is, for the participant to rollover to an IRA) to subsequent investment advice to the rollover IRA and, in that way, to conclude that the rollover recommendation was part of a regular basis advice arrangement. However, the Court held that the “regular basis” test is applied separately to the plan and the IRA and advice to the two could not be connected.

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The SECURE Act 2.0: The Most Impactful Provisions #14 — Automatic Portability for IRA Force-outs


fiduciary, IRA, prohibited transaction, rollovers, SECURE 2.0
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Key Takeaways

  • Current law permits plans to force out distributions of accounts with less than $5,000 in benefits if a departed employee does not affirmatively elect to receive his or her benefits. (That amount is increasing to $7,000 in 2024.)
  • The “force-out” amounts must be rolled over into an IRA if the account balance is at least $1,000.
  • SECURE 2.0 permits the provider of the IRAs that receive the forced-out amounts to continuously reach out to recordkeepers to determine if the IRA owner has begun participating in a plan that is recordkept by a participating recordkeeper and, if so, to transfer the IRA amounts to the IRA owner’s account in the new plan.
  • The provider of the IRAs must act as a fiduciary for that purpose and therefore must act in the best interest of the IRA owner.
  • The provider can collect a reasonable fee from the force-out IRA for those services and the fee will not be considered a prohibited transaction.

The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022.

SECURE Act 2.0 has over 90 provisions, some major and some minor; some mandatory and some optional; some retroactively effective and some that won’t be effective for years to come. One difference between SECURE Act 2.0 and previous retirement plan laws is that many of 2.0’s provisions are optional . . . that is, plan sponsors are not required to adopt the provisions, but can adopt them if they decide that the change will help their plans and participants. This series discusses the provisions that are likely to be the most impactful, either as options or as required changes.

This article is about an effort by Congress to protect the benefits of former employees with small account balances who have been forced out of plans into default rollover IRAs.

Continue reading The SECURE Act 2.0: The Most Impactful Provisions #14 — Automatic Portability for IRA Force-outs →

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Most Popular Insights for Summer 2023


SECURE 2.0

Each calendar quarter, I post approximately 12 articles on my blog. This quarterly digest provides links to the most popular posts during the past three months so that you can catch up on what you missed or re-read them.

The SECURE Act 2.0: The Most Impactful Provisions #9 — Roth Treatment for Catch-up Contributions for Higher Compensated

Prior to the SECURE Act 2.0 all older participants, regardless of compensation level, could deduct their catch-up contributions. However, under the new law — beginning in 2024 — participants who earn more than $145,000 will only be able to make Roth catch-up contributions. As a result, those catch-up contributions will be taxable to those participants, but the contributions will not be taxable when withdrawn, and if held for the qualifying period, the earnings will not be taxable either.

The Secure Act 2.0: The Most Impactful Provisions #10 — Moving 529 Assets to a Roth IRA

Prior to the SECURE Act 2.0, if a 529 plan beneficiary did not use all of the funds for qualified education expenses (for example, the beneficiary graduated without using all of the funds in the 529), the options for withdrawal were not particular attractive. However, under the new law, those “excess” funds can be transferred to a Roth IRA for the 529 beneficiary, subject to certain limitations. As a result, contributions can now be made to 529 plans with the knowledge that, if not all of the funds are used for education of the beneficiary, the excess funds can be transferred to a Roth IRA for that beneficiary (and the other options, such as transferring the money to a 529 for a different beneficiary remain available).

The Secure Act 2.0: The Most Impactful Provisions #13 — Starter 401(k) Plans and Safe Harbor 403(b) Plans

Most employees who work for large and mid-sized employers have the opportunity to defer money from their paychecks into a savings-based retirement plan. That is not the case with many small employers, though, where large numbers of employees for firms that do not offer plans. However, savings-based plans are critical for employees to obtain financial security in retirement. There are studies that show that employees who can defer into retirement plans will save much more for retirement than those who do not have access to plans. Based on surveys, small employers do not offer plans because they are worried about the cost and administrative complexity of setting up and operating plans. To allay that concern, Congress created, in SECURE 2.0, a new type of plan that is simple and low cost.

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Rollovers, Regulation, Litigation: Where Are We and What’s Next?


fiduciary, prohibited transaction, rollovers
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Key Takeaways

  • The recent decisions on the DOL’s interpretation of fiduciary status are significant but limited in scope. Fiduciary status for plan-to-IRA rollover recommendations, standing alone, has been vacated. But other important transactions, such as IRA transfers, have not.
  • Also, where an advisor is a fiduciary to a plan or participant, and then recommends a rollover, the DOL will likely take the position that the rollover recommendation is a fiduciary act, necessitating the use of PTE 2020-02.
  • In addition, the SEC’s guidance on rollover recommendations by investment advisers and broker-dealers is closely aligned with the DOL’s, particularly on the best interest process, and the relevant plan information, needed to engage in a best interest process.

Let’s take a break from my SECURE 2.0 series of articles to discuss what is going on with the DOL’s fiduciary rule.

The Past

As background, in the preamble to Prohibited Transaction Exemption (PTE) 2020-02, the DOL re-interpreted the 5-part test in its regulation defining fiduciary status for nondiscretionary investment advice. The most significant part of the reinterpretation was the DOL position that recommendations to participants to take distributions from their retirement plans and to rollover to IRAs could be connected to subsequent investment advice to the rollover IRAs to satisfy the “regular basis” prong of the 5-part test.

Under that theory most rollover recommendations would be fiduciary recommendations, which in turn would require satisfaction of the conditions in PTE 2020-02 to obtain relief from the resulting prohibited transaction. (The prohibited transaction is the receipt of compensation from the rollover IRA.)  Among other things, the PTE requires a best interest process that includes comparison of the investments, expenses and services in the plan and the IRA, in light of the needs and circumstances of the participant.

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The DOL’s Fiduciary Interpretation and the Florida Court Decision


DOL, fiduciary, IRA, rollovers
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In 2020, the Department of Labor (DOL) issued its Prohibited Transaction Exemption (PTE) 2020-02 to provide an exemption to most prohibited transactions resulting from nondiscretionary fiduciary advice to retirement plans governed by either ERISA or the Internal Revenue Code, or both, as well as nondiscretionary fiduciary advice to IRAs.

The DOL’s Fiduciary Interpretation and Prohibited Transaction Exemption

In the preamble to the PTE, the DOL expanded its view of the nature of the advice that would result in fiduciary status. One of those expanded interpretations was that, in a rollover context, IRAs and plans should be viewed as having a continuous connection because they are retirement assets on a continuum. More specifically, the DOL said that, if an advisor has been providing investment advice on a regular basis to an IRA and then recommends that the IRA owner make a rollover to the IRA, the plan-to-IRA rollover recommendation would be connected to the advice to the IRA that had been provided on a regular basis and, as a result, the advisor would be a fiduciary for the rollover recommendation. Similarly, if an advisor made a plan-to-IRA rollover recommendation and then provided investment advice to the rollover IRA on a regular basis, the advisor would be a fiduciary for the rollover recommendation because the rollover recommendation and the advice to the rollover IRA would be on a continuum. (For the purposes of this article, “advisor” includes broker-dealers and investment advisers, and their representatives, and insurance agents.)

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The SECURE Act 2.0: The Most Impactful Provisions #13 — Starter 401(k) Plans and Safe Harbor 403(b) Plans


401(k), 403(b), SECURE 2.0
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Key Takeaways

  • Most employees who work for large and mid-sized employers have the opportunity to defer money from their paychecks into a savings-based retirement plan. That is not the case with many small employers, though, where large numbers of employees work for firms that do not offer plans.
  • However, savings-based plans are critical for employees to obtain financial security in retirement. There are studies that show that employees who can defer into retirement plans will save much more for retirement that those who do not have access to plans.
  • Based on surveys, small employers do not offer plans because they are worried about the cost and administrative complexity of setting up and operating plans.
  • To allay that concern, Congress created, in SECURE 2.0, a new type of plan that is simple and low cost: “Starter” 401(k)s and “Safe Harbor” 403(b)s. The purpose of this new plan design is to encourage small employers to set up plans that enable their workers to save for retirement through deductions from their paychecks.

The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022.

SECURE Act 2.0 has over 90 provisions, some major and some minor; some mandatory and some optional; some retroactively effective and some that won’t be effective for years to come. One difference between SECURE Act 2.0 and previous retirement plan laws is that many of 2.0’s provisions are optional…that is, plan sponsors are not required to adopt the provisions, but can adopt them if they decide that the change will help their plans and participants. This series discusses the provisions that are likely to be the most impactful, either as options or as required changes.

This article is about an effort by Congress to extend plan coverage for workers at smaller employers by creating a new and straightforward type of low-cost plan:  the Starter 401(k) and Safe Harbor 403(b).

Continue reading The SECURE Act 2.0: The Most Impactful Provisions #13 — Starter 401(k) Plans and Safe Harbor 403(b) Plans →

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The SECURE Act 2.0: The Most Impactful Provisions #12 — Multiple Employer 403(b) Plans


403(b), SECURE 2.0
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Key Takeaways

  • The SECURE Act 1.0 gave us Pooled Employer Plans, PEPs, for qualified plans.
  • SECURE Act 2.0—effective for plan years beginning after December 31, 2022—extends PEPs and MEPs to 403(b) plans.
  • While the legal effective date is already here, I haven’t yet seen any 403(b) MEPs or PEPs in the marketplace. So, the ”practical effective date” may be the 2024 plan year.

The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022.

SECURE Act 2.0 has over 90 provisions, some major and some minor; some mandatory and some optional; some retroactively effective and some that won’t be effective for years to come. One difference between the SECURE Act 2.0 and previous retirement plan laws is that many of 2.0’s provisions are optional…that is, plan sponsors are not required to adopt the provisions, but can adopt them if they decide that the change will help their plans and participants. This series discusses the provisions that are likely to be the most impactful, either as options or as required changes.

This article discusses the continuing extension of 401(k) concepts to 403(b) plans, specifically the SECURE Act 2.0 provisions for 403(b) PEPs and MEPs. This probably reflects the growing awareness of the higher costs in the 403(b) market, especially for smaller and midsized plans.

Continue reading The SECURE Act 2.0: The Most Impactful Provisions #12 — Multiple Employer 403(b) Plans →

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The SECURE Act 2.0: The Most Impactful Provisions #11 — The Saver’s Match for Low Income Workers


SECURE 2.0
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Key Takeaways

    • In the past, and for the next few years, the Internal Revenue Code provides for a nonrefundable tax credit for low-paid individuals who make plan, IRA or ABLE contributions. Unfortunately, that credit was seldom claimed on tax returns, possibly because of a lack of awareness among low-paid taxpayers.
    • However, under SECURE Act 2.0—beginning in 2027—the tax credit will become refundable, but not to the individuals. Instead, the Federal government will deposit matching contributions into the IRAs and plan accounts of those individuals.
    • The administrative complexity of depositing the Federal matches into those IRAs and plan accounts is significant. Nonetheless, it is an effort by Congress to help the lowest paid workers in the country–or at least to help those who make enough money to contribute into their IRAs and plans.
    • However, for workers who don’t earn enough to have disposable income to put into their IRAs or plans, this change doesn’t address their circumstances.

The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022.

SECURE Act 2.0 has over 90 provisions, some major and some minor; some mandatory and some optional; some retroactively effective and some that won’t be effective for years to come. One difference between the SECURE Act 2.0 and previous retirement plan laws is that many of 2.0’s provisions are optional…that is, plan sponsors are not required to adopt the provisions, but can adopt them if they decide that the change will help their plans and participants. This series discusses the provisions that are likely to be the most impactful, either as options or as required changes.

This article discusses the provision that is, in my opinion, the most unique in SECURE 2.0. It is one of the mandatory provisions, but it doesn’t become effective until 2027, probably because of the considerable changes needed to implement and administer the provision. Section 103 of SECURE 2.0 creates a “Saver’s Match” for low-income workers to be funded by the Federal government.

Continue reading The SECURE Act 2.0: The Most Impactful Provisions #11 — The Saver’s Match for Low Income Workers →

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The SECURE Act 2.0: The Most Impactful Provisions #10 — Moving 529 Assets to a Roth IRA


IRA, SECURE 2.0
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Key Takeaways

  • Prior to the SECURE Act 2.0, if a 529 plan beneficiary did not use all of the funds for qualified education expenses (for example, the beneficiary graduated without using all of the funds in the 529), the options for withdrawal were not particularly attractive.
  • However, under the new law, those “excess’ funds can be transferred to a Roth IRA for the 529 beneficiary, subject to certain limitations.
  • As a result, contributions can now be made to 529 plans with the knowledge that, if not all of the funds are used for the education of the beneficiary, the excess funds can be transferred to a Roth IRA for that beneficiary (and the other options, such as transferring the money to a 529 for a different beneficiary remain available).

The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022.

SECURE Act 2.0 has over 90 provisions, some major and some minor; some mandatory and some optional; some retroactively effective and some that won’t be effective for years to come. One difference between the SECURE Act 2.0 and previous retirement plan laws is that many of 2.0’s provisions are optional…that is, plan sponsors are not required to adopt the provisions, but can if they decide that the change will help their plans and participants. This series discusses the provisions that are likely to be the most impactful, either as options or as required changes.

This article discusses one of the optional provisions that is available beginning next year, 2024. While most of my posts are about retirement plans and related issues, this is more of a financial planning matter, but it does include a retirement aspect, that is, a Roth IRA.

Continue reading The SECURE Act 2.0: The Most Impactful Provisions #10 — Moving 529 Assets to a Roth IRA →

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Most Popular Insights for the First Quarter 2023


401(k), SECURE 2.0

Each calendar quarter, I post approximately 12 articles on my blog. This quarterly digest provides links to the most popular posts during the past three months so that you can catch up on what you missed or re-read them.

  • The SECURE Act 2.0: The Most Impactful Provisions (#1 — Automatic Plans)

    The SECURE Act 2.0 has over 90 provisions and one of the most impactful provisions in the new requirement to automatically enroll and automatically increase deferrals to new 401(k) and 403(b) plans. “New” 401(k) and 403(b) plans must be automatically enrolled, with automatic deferral increases, no later than the plan year beginning after December 31, 2024 (e.g., 2025 for calendar year plans). Any plan “established” on or after December 29, 2022, is considered a new plan.

  • The SECURE Act 2.0: The Most Impactful Provisions (#2 — Student Loan Matches)

    Some provisions in SECURE Act 2.0 are optional, where plan sponsors can adopt the provision in their discretion. Many of those provisions are opportunities to make plans more attractive or beneficial to employees. One such optional provision in the ability to match student loan repayments, which should be attractive to employers who hire college graduates.

  • The SECURE Act 2.0: The Most Impactful Provisions (#4 — Optional Treatment of Employer Contributions as Roth Contributions)

    The SECURE Act 2.0 permits plan sponsors to give participants the options of receiving employer contributions on a Roth basis. This provision is effective on the date of enactment, December 29, 2022. However, the option may not be as attractive as it first appears, since the matching and nonelective contributions must be fully vested when made.

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