DOL

A final rule titled Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights submitted by the Department of Labor has left the Office of Management and Budget.

The final rule is pursuant in part to Executive Order 14030, which directed the Secretary of Labor to suspend, revise or rescind previous guidance on this matter promulgated during the Trump administration. A proposed rule was published in the Federal Register on October 14, 2021.

The Department of Labor’s Wage and Hour Division has once again released guidance on the definition of “employee.” This October 2022 guidance, in the form of proposed regulations, applies primarily to determinations under the Fair Labor Standards Act (FLSA), but may help in other contexts, such as in determining whether a worker should be covered by a retirement or health plan. Although the new rules are not radically different from previous regulations, there are some important changes.

The Pension Benefit Guarantee Corporation (PBGC) has updated its table titled “Present Value of PBGC Maximum Guarantee” to reflect applicable values for distributions with annuity starting dates during calendar year 2023. The maximum guarantee is expressed as a dollar ceiling on the amount of the monthly benefit that may be paid to a plan participant (in the form of a life annuity beginning at age 65) by the PBGC. The maximum guarantee, which increases each year, is adjusted for benefits commencing at ages other than age 65 in order to make the maximum guarantee equivalent in value regardless of the age at which a participant starts receiving benefits from the PBGC.

The Pension Protection Act of 2006 requires that when the “adjusted funding target attainment percentage” (AFTAP) for a plan is at least 60 percent but less than 80 percent, the plan may not make a distribution in excess of the lesser of

• 50 percent of the amount of the payment that would have been paid if the restriction did not apply, or
• the present value, determined under guidance approved by the PBGC, of the maximum guarantee with respect to the participant under ERISA Section 4022.

The PBGC table is useful in determining the maximum payment for this purpose.

Effective November 2, 2022, the federal prime interest rate increased from 6.25 percent to 7 percent. The prime interest rate is largely determined by the federal funds rate, as set by the Federal Reserve’s Federal Open Market Committee (FOMC). As Department of Labor regulations require a retirement plan loan interest rate to be comparable to interest rates charged by entities that are in the business of lending money in similar circumstances, plan sponsors typically use a benchmark such as the prime rate to set the interest rate on plan loans.

The next FOMC meeting is scheduled for December 14, 2022.

A Department of Labor proposed rule restating the Voluntary Fiduciary Correction Program (VFCP) has left the Federal Office of Management and Budget—suggesting that official release may come soon.

The VFCP is a voluntary enforcement program that allows plan officials to identify and correct certain transactions, such as delinquent participant contributions, sales and exchanges, improper loans, and improper plan expenses. The VFCP was last updated in 2006.

The Department of Labor’s Wage and Hour Division has extended the deadline to comment on its proposed rule titled Employee or Independent Contractor Classification Under the Fair Labor Standards Act (FLSA). The original deadline to comment was November 28, and is now extended to December 13. Initial highlights of the proposal were announced upon its release.

The Pension Benefit Guarantee Corporation has determined premium rates applicable for the 2023 plan year in accordance with indexing rules provided in section 4006 of ERISA. The single-employer plan per-participant flat rate premium for plan years beginning in 2023 is $96, up from $88 in 2022 and more than triple the premium rate in 2007. The single-employer plan variable-rate premium for 2023 increases to $52 per $1,000 of unfunded vested benefits, up from $48 in 2022. The variable-rate premium per participant cap increased to $652 per participant, from $598 in 2022.

The Department of Labor (DOL) Wage and Hour Division has released a proposed rule titled Employee or Independent Contractor Classification Under the Fair Labor Standards Act (FLSA) that is scheduled to be published on October 13, 2022. The Department believes that its proposed rule would reduce the risk that employees are misclassified as independent contractors, while providing added certainty for businesses that engage with individuals who are in business for themselves.

Workers classified as independent contractors may not be afforded the protections of the FLSA. These include payment of federal minimum wage for all hours worked, and entitlement to overtime compensation for hours worked over 40 in a workweek.

The DOL is proposing to discontinue the use of “core factors” and instead return to a totality-of the-circumstances analysis of the economic reality test in which the factors do not have a predetermined weight and are considered in view of the economic reality of the whole activity. The proposal details six specific economic reality factors, but indicates that this should not be an exhaustive list for consideration.

(1) Opportunity for profit or loss depending on managerial skill

(2) Investments by the worker and the employer

(3) Degree of permanence of the work relationship

(4) Nature and degree of control

(5) Extent to which the work performed is an integral part of the employer’s business

(6) Skill and initiative

The Department is also proposing to formally rescind the 2021 Independent Contractor (IC) Rule. The effective date of the 2021 IC Rule was March 8, 2021. On March 4, 2021, the Department published a rule delaying the effective date of the 2021 IC Rule (Delay Rule) and on May 6, 2021, it published a rule withdrawing the 2021 IC Rule (Withdrawal Rule). On March 14, 2022, in a lawsuit challenging the Department’s delay and withdrawal of the 2021 IC Rule, a Federal district court in the Eastern District of Texas issued a decision vacating the Delay and Withdrawal Rules. The district court concluded that the 2021 IC Rule became effective on the original March 8, 2021, effective date.

Comments on the proposed rule must be received by November 28, 2022.

The Office of Management and Budget (OMB) has received a final rule entitled Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights from the Department of Labor (DOL). The OMB’s Office of Information and Regulatory Affairs (OIRA) provides final review of regulatory guidance before its official release.

The final rule is pursuant in part to Executive Order 14030, which directed the Secretary of Labor to suspend, revise or rescind previous guidance on this matter promulgated during the Trump administration. A proposed rule was published in the Federal Register on October 14, 2021.

Effective September 21, 2022, the Federal prime interest rate increased from 5.50 percent to 6.25 percent. The prime interest rate is largely determined by the federal funds rate, as set by the Federal Reserve’s Federal Open Market Committee (FOMC).