Things I Worry About (10): FINRA Enforcement and Senior Investors (2)


best interest, IRA, reg BI, rollovers, SEC
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Key Takeaways

  • FINRA’s 2025 Annual Regulatory Oversight Report 2025-annual-regulatory-oversight-report.pdf included a focus on issues related to retirees and senior investors.
  • The Report provides guidance to broker-dealers about the priorities of FINRA in its regulation, supervision and enforcement programs for broker-dealers. In other words, it is one of FINRA’s ways of telling the regulated community that it should be paying particular attention to certain issues.
  • Consistent with my focus on retirement plans and retirees, I searched the Report for references to retirement, rollovers, elderly and senior investors. As expected, FINRA did have a lot of concern about those subjects. Here is what I found.
  • While the FINRA Report only directly applies to broker-dealers, the issues and concerns apply to investment advisers as well, but the regulator in that case is the SEC.

This article is a sequel to my last one on FINRA’s 2024 Annual Regulatory Report Things I Worry About (9).

Among other things, FINRA is focusing on services and recommendations by broker-dealers and their registered representatives to retirees, senior investors and investors with diminished capacity.  To state the obvious, the regulator is concerned about the aging of the Boomers in real time.

The Report discusses the application of Regulation Best Interest (Reg BI) to rollover recommendations. Here is what it says in the section on Failure to Comply with the Compliance Obligation:

Failing to have written policies and procedures reasonably designed or enforced with respect to account recommendations, for example, by:

  • not being reasonably designed to address recommended transfers of products between brokerage and advisory accounts or rollover recommendations;…

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Things I Worry About (9): FINRA Enforcement and Senior Investors (1)


best interest, IRA, reg BI, rollovers, SEC
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Key Takeaways

  • FINRA’s 2024 Annual Regulatory Oversight Report 2024 FINRA Annual Regulatory Oversight Report | FINRA.org included a focus on issues related to retirees and senior investors.
  • The Report provides guidance to broker-dealers about the priorities of FINRA in its regulation, supervision and enforcement programs for broker-dealers. In other words, it is one of FINRA’s ways of telling the regulated community that it should be paying particular attention to certain issues.
  • Consistent with my focus on retirement plans and retirees, I searched the Report for references to retirement, rollovers and senior investors. As expected, FINRA did have concerns about those subjects. Here is what I found.

Among other things, FINRA is focusing on services and recommendations by broker-dealers and their registered representatives to retirees, senior investors and investors with diminished capacity.

The Report has one part that specifically focuses Reg BI’s application to plan-to-IRA  and IRA-to-IRA transfer recommendations. Here is what it says. The bolding is mine.

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Things I Worry About (8): DOL Investigations and Unsuspecting Plan Sponsors (2)


best practices, DOL, fiduciary
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Key Takeaways

  • The Employee Benefit Security Administration (EBSA) of the US Department of Labor (DOL) recently released its Fact Sheet: EBSA Restores Nearly $1.4 Billion to Employee Benefit Plans, Participants, and Beneficiaries: ebsa-monetary-recoveries.pdf
  • One of the targets of their investigation is “missing participants”. The DOL refers to that program as the “Terminated Vested Participant Benefits Payments”. Impressively, the EBSA recovered $429,200,000 for participants under that program in the 2023-2024 fiscal year.
  • Plan sponsors/fiduciaries and their advisors would be well-advised to determine whether they have “missing participants” and, if so, take steps outlined by the DOL to address the issue.

As explained in my last post, Things I Worry About (7), the DOL’s EBSA has a number of programs that can restore benefits to plans and participants. Those include:

  • Civil investigations.
  • Criminal investigations.
  • Informal complaint resolutions.
  • Correction programs.

The issue of “missing participants” comes up in civil investigations. In those investigations the DOL examines whether a plan has former employees who left their accounts in the plan and whether the plan continues to provide the legally required disclosures and to ensure that the participants are aware of their benefits. I put “missing participants” in quotes because the definition I broader than it appears. There isn’t a legal definition, but the practical definition is that it is a former employee who left the employment of a plan sponsor, but did not take a distribution of his or her benefits. If plan communications (e.g., emails, mail, disclosures) are sent to a former employee who has benefits in the plan and it appears that the communications were received, the former employee is not “missing.” But, if the emails and mailings are kicked back as undeliverable, the participant is missing.

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ERISA Moments Ep. 31: The Trump Administration Policies for Retirement Plans


ERISA

Take a quick dive into the exciting world of ERISA with Faegre Drinker benefits and executive compensation attorneys Fred Reish and Brad Campbell. In this quick-hit series of updates, Fred and Brad offer a high-level view of current trends and recent ERISA developments. See the newest episode, The Trump Administration Policies for Retirement Plans,  on the Spotlight on Benefits blog.

Watch the video on the Spotlight on Benefits blog.

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Things I Worry About (7): DOL Investigations and Unsuspecting Plan Sponsors


DOL, fiduciary
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Key Takeaways

  • The Employee Benefit Security Administration (EBSA) of the US Department of Labor (DOL) recently released its Fact Sheet: EBSA Restores Nearly $1.4 Billion to Employee Benefit Plans, Participants, and Beneficiaries: ebsa-monetary-recoveries.pdf
  • The Fact Sheet describes the different EBSA programs that can recover money for participants, and the numbers are impressive.
  • However, the Fact Sheet also has specific lessons for plan sponsors, fiduciaries and advisors.

The DOL’s EBSA has a number of programs that can restore benefits to plans and participants. Those include:

  • Civil investigations.
  • Criminal investigations.
  • Informal compliant resolutions.
  • Correction programs.

Civil investigations is the program that most concerns plan sponsors; however, criminal investigations are the most dramatic and can most severely impact the lives of “bad actors.” Last year the EBSA’s criminal investigation resulted in 161 guilty pleas or convictions. The bad acts go far beyond any mistakes that plan sponsors or fiduciaries could reasonably make. Think in terms of embezzlement and theft.

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ERISA Moments Ep. 30: DOL Investigations: Priorities for 2025


ERISA

Take a quick dive into the exciting world of ERISA with Faegre Drinker benefits and executive compensation attorneys Fred Reish and Brad Campbell. In this quick-hit series of updates, Fred and Brad offer a high-level view of current trends and recent ERISA developments. See the newest episode, DOL Investigations: Priorities for 2025,  on the Spotlight on Benefits blog.

Watch the video on the Spotlight on Benefits blog.

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Things I Worry About (6): Automatic Enrollment (5) and PEPs


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

  • The SECURE Act 2.0 required that “new” 401(k) and private sector 403(b) plans automatically enroll their eligible employees, but not until plan years beginning after December 31, 2024…just days ago.
  • “New” plans include most that were established on or after the enactment date of SECURE 2.0—December 29, 2022. “Old” plans—those adopted before the enactment date—are not required to automatically enroll.
  • However, it was not clear whether an “old” single employer plan that joined a “new” (post-enactment) PEP would be considered a new plan or an old plan. In fact, the IRS had issued some guidance that strongly suggested that it would be considered a new plan—which would mean that it would need to automatically enroll its eligible participants.
  • The IRS has just issued a proposed regulation on the SECURE 2.0 provision on automatic enrollment. The proposal provides that the “old” plan would continue to be considered an “old” plan even after joining a “new” PEP.

SECURE 2.0 was enacted on December 29, 2022. Among its provisions is a requirement that “new” 401(k) plans and private sector 403(b) plans must automatically enroll their eligible employees, but not until the first plan year beginning after December 31, 2024 (the “applicable date”). Since most participant-funded and participant-directed plans, such as 401(k)s and 403(b)s, operate on a calendar year, this article discusses the effective date as if it were for the 2025 calendar year…in other words the automatic enrollment requirement would apply beginning with the first payroll in January 2025.

The IRS previously issued Notice 2024-2 which suggests that, if a pre-enactment (“old”) 401(k) or private sector 403(b) plan joined (or, in IRS speak, merged into) a post-enactment (“new”) pooled employer plan, or PEP, the old plan would be treated as a new plan and would need to begin automatically enrolling its eligible employees. That presented a problem for plan sponsors of old plans who were considering joining a new PEP. Some simply didn’t want to automatically enroll their employees. Others who had rich matching formulas were worried about the cost. In any event, the Notice created a problem for many employers when considering joining a newly established PEP.

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The 401(k) Christmas Song


General

As some of you all know, I have asked ChatGPT to write lyrics for retirement songs…because I co-host a podcast on retiring. However, this time I asked it to write a Christmas carol, and it did. Enjoy! Also, regardless of what holy day you honor, or if you don’t honor any holy day, I wish you the very best for these holidays and for the new year!

(Verse 1)
Oh, the snow is falling, the lights aglow,
The joy of saving starts to show.
Each dollar tucked away with care,
For future days we’ll soon share there.

(Chorus)
Save in your 401(k), oh, what a gift today!
A brighter future’s on its way,
For a life of joy and play. Continue reading The 401(k) Christmas Song →

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Things I Worry About (5): Long-Term, Part-Time Employees (1)


401(k), 403(b), plan sponsors, SECURE Act
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Key Takeaways

  • SECURE Act 1.0 required that long-term, part-time (LTPT) employees be allowed to defer into 401(k) plans beginning January 1, 2024 for calendar year plans. However, plan sponsors are not required to contribute for them.
  • LTPT employees for SECURE 1.0 are those who have worked at least 500 hours a year for three consecutive years, but didn’t satisfy a plan’s regular eligibility provisions.
  • SECURE Act 2.0 reduced the three-year requirement to two years and extended the requirement to private sector 403(b) plans. The 2.0 change applies in January 2025 for calendar year plans. As a result, if the new two-year requirement is satisfied, those LTPT employees must be allowed to defer into the plans for the first payroll in January 2025.
  • My concern is that plan sponsors—and particularly small plan sponsors (e.g., private schools with 403(b) plans)—may inadvertently fail to satisfy these qualification rules and put their plans in jeopardy.

The SECURE Act (“SECURE 1.0”) included a provision that required sponsors of 401(k) plans to include their long-term, part-time, or LTPT, employees in their plans for purposes of deferring part of their compensation into the plan. Plan sponsors are not required to contribute for those LTPT participants (e.g., matching contributions) even if they do for “regular” participating employees,  but they may.

For purposes of SECURE 1.0, a part-time, or PT, employee is an employee who works at least 500 hours a year, but not enough to satisfy the plan’s regular eligibility provisions. A long-term employee is a PT employee who satisfies the requirement for three consecutive years. The first contingent of qualifying LTPT employees must have been allowed to defer in January of 2024. (For purposes of this article, I’m assuming that plans are on a calendar year.)

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SEC 2025 Examination Priorities: Retirees and Rollovers


IRA, rollovers, SEC
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Key Takeaways

    • Over 11,000 people are reaching age 65 every day and most have retired or are contemplating retirement.
    • Many of those retirees will rollover money from retirement plans, including 401(k) plans, into IRAs.
    • The IRA investments will need to provide sustainable retirement income for the lifetimes of those retirees, with regular withdrawals to pay for their costs of living.
    • Many retirees will receive advice from broker-dealers and investment advisers who are subject to SEC regulation and examinations.
    • To compound matters, many of those retirees will, in due course, suffer from diminished cognitive abilities, reducing their ability to evaluate the advice they are being given.
    • The cumulative effect of these factors is that the SEC is focusing on advice to retirees and older investors, as reflected in the 2025 Examination Priorities.

The SEC’s Division of Examinations issued its 2025 Exam Priorities a few months ago. 2025-exam-priorities.pdf

Many articles have been written about those priorities, but none—at least that I have seen—have addressed the focus on retirees, older investors and rollovers. This article fills that gap.

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