Defined benefit plan

The SEC has issued a proposed rule that would require publicly traded companies to include certain climate-related disclosures in their registration statements and periodic reports, such as the annual Form 10-K.

The proposed rule would in part require disclosure about the following.

• The registrant’s governance of climate-related risks and relevant risk management processes.
• How any climate-related risks identified by the registrant have had or are likely to have a material impact on its business and consolidated financial statements.
• How any identified climate-related risks have affected or are likely to affect the registrant’s strategy, business model, and outlook.
• The impact of climate-related events (such as severe weather and other natural conditions) and transition activities on the line items of a registrant’s financial statements and estimates used in financial statements.

The rule would also require disclosures about direct greenhouse gas admissions and indirect emissions from purchased electricity or other forms of energy, as well as disclosure of greenhouse gas emissions from upstream and downstream activities in its value chain if material or if the registrant has set an emissions target. Accelerated filers would be required to include an attestation report from an independent attestation service provider covering emission disclosures.

A fact sheet provides an overview of requirements and the applicable phase-in period—depending on the type of registrant and type of emission disclosure required. The comment period will remain open for the longer of 1) 30 days after publication in the Federal Register, or 2) 60 days after the date of issuance and publication on sec.gov.

The IRS has issued Notice 2022-14, which contains updated guidance on factors used in certain defined benefit (DB) pension plan minimum funding and present value calculations. Updates include the corporate bond monthly yield curve, the corresponding spot segment rates used under Internal Revenue Code Section (IRC Sec.) 417(e)(3), and the 24-month average segment rates under IRC Sec. 430(h)(2). IRC Sec. 417 contains definitions and special rules for minimum survivor annuity requirements in DB plans. IRC Sec. 430 addresses minimum funding standards for single-employer DB plans.

The Department of Labor (DOL) has released a proposal that would supersede the Department’s existing procedure governing applications for exemptions from the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. The Secretary of Labor is authorized to grant such exemptions and provide procedures for relief. Highlights of the proposal suggest substantially stricter standards and additional criteria for obtaining prohibited transaction relief, if implemented.

The DOL emphasizes that it will apply a high level of scrutiny to any retroactive exemption—including ensuring that no participants were harmed—and suggests contacting the agency before engaging in the transaction. Any information provided to the Office of Exemption Determinations, including during the pre-submission process, becomes part of an administrative record that is open for public inspection.

The DOL states that a previously issued exemption is not determinative of whether a future exemption would be approved under the same fact pattern. The DOL also proposes additional requirements in the application for exemption, several of which are highlighted below.

• The reason(s) for engaging in the exemption transaction
• Any material benefit that a party involved in the exemption transaction may receive because of the transaction
• The costs and benefits of the exemption transaction to the affected plan(s), participants, and beneficiaries—including quantification of those costs and benefits, if possible
• A detailed statement that describes possible alternatives to the exemption transaction and why the applicant did not pursue those alternatives
• A description of each conflict of interest or potential instance of self-dealing that would be permitted if the exemption is granted
• A statement that the transaction will be in the best interest of the plan and its participants and beneficiaries
• A statement that all compensation received, directly or indirectly, by a party involved in the exemption transaction will not exceed reasonable compensation within the meaning of ERISA and the Internal Revenue Code
• All statements made to the DOL, the plan, or, if applicable, the qualified independent fiduciary or qualified independent appraiser cannot be materially misleading at the time the statements are made
• A statement whether any prior transactions have occurred between the plan or plan sponsor and a party involved in the exemption transaction

The proposal modifies the definition of a qualified independent appraiser. It also addresses contractual obligations, prohibits indemnifications, and requires detailed information regarding relationships with any party or its affiliates (including past engagements) in an effort to determine independence. Similarly, the proposal expands requirements of qualified independent fiduciaries by prohibiting indemnifications, requiring fiduciary liability insurance sufficient to cover damages resulting by a breach of the independent fiduciary, and certifying that the exemption transaction complies with impartial conduct standards and the independent fiduciary has no conflicts of interest that could affect their judgement.

Under the proposal, applicants would have a duty to promptly notify the DOL of any material changes to representations made during the application process or after approval of the exemption, including disclosing whether a participating party in the exemption is the subject of an investigation or enforcement action. The changes would apply 90 days following receipt of a final rule in the Federal Register. Comments on the proposed rule must be submitted to the DOL by April 14, 2022.

The Pension Benefit Guaranty Corporation (PBGC) has issued updated interest rate assumptions for benefit payments in terminating single-employer defined benefit (DB) pension plans. Specifically, these interest assumptions are for benefit payments with valuation dates in the second quarter of 2022, and apply to plans insured by PBGC.

After a two year wait, we have guidance regarding certain changes brought about by the SECURE Act. On February 23, 2022, the IRS released proposed regulations that revise the existing required minimum distribution (RMD) regulations and other related regulations.

The IRS has issued its 2021-2022 2^nd Quarter guidance plan update, in which it describes guidance projects in the current fiscal year. Many items in the plan have appeared in prior years’ Priority Guidance Plans. A number of the guidance items deal with retirement savings arrangements, including the following.

• Regulations and guidance relating to the 10 percent early distribution tax
• Comprehensive IRA regulations
• Regulations and guidance updating electronic delivery rules for providing applicable notices and making participant elections
• Regulations relating to SECURE Act modifications to certain rules governing 401(k) plans
• Guidance on student loan payments and their interplay with qualified retirement plans and 403(b) plans
• Regulations on the exception to the unified plan rule for Internal Revenue Code Section 413(e) multiple employer plans (proposed regulations issued in July 2019)
• Regulations on the definition of "governmental plan"
• Final regulations updating minimum-present-value requirements for defined benefit pension plans (proposed regulations issued in November 2016)
• Regulations on mortality tables to determine present value for single-employer defined benefit pension plans
• Final regulations for withholding on distributions when payments are made to a non-U.S. address (proposed regulations issued in May 2019)
• Regulations relating to the Section 6057 reporting requirements (proposed regulations issued in June 2012)
• Guidance updating electronic filing requirements for employee plans to reflect changes made by the Taxpayer First Act.

The Internal Revenue Service (IRS) has released proposed regulations relating to required minimum distributions from qualified plans, section 403(b) annuity contracts and custodial accounts, individual retirement accounts and annuities (IRAs), and eligible deferred compensation plans under Internal Revenue Code Section 457.

The proposed regulations are being updated in part to accommodate changes made by the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act). Comments on the proposal can be made up to 90 days after publication in the Federal Register.

The Pension Benefit Guarantee Corporation (PBGC) has updated the “What’s New for Employers & Practitioners” page of its website to indicate that the audit selection methodology has been revised. The PBGC’s Standard Terminations Q&A states that plans with a participant count of more than 1,050 are selected for audit. Plans with less than 1,050 participants may be randomly selected for audit. Further, plans may be selected for audit if the PBGC has reason to believe that there is a problem or if all plan assets were distributed without filing a Standard Termination Notice (PBGC Form 500) in accordance with the standard termination regulations.

The Department of Labor has published a Request for Information (RFI) seeking what actions, if any, the department should take to protect retirement savings from risks associated with climate change. According to a DOL news release, the RFI follows President Biden’s Executive Order on Climate-Related Financial Risk, which directs the department to identify actions it can take under ERISA and other relevant laws to safeguard the life savings and pensions of U.S. workers and families from threats of climate-related financial risk. The DOL previously issued a proposed rule “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights”, however the RFI deals with a broader set of questions than the proposed rule and is a different initiative. The RFI’s comment period will run for 90 days after publication in the Federal Register.

The IRS has issued Notice 2022-7, which contains updated guidance on factors used in certain defined benefit (DB) pension plan minimum funding and present value calculations. Updates include the corporate bond monthly yield curve, the corresponding spot segment rates used under Internal Revenue Code Section (IRC Sec.) 417(e)(3), and the 24-month average segment rates under IRC Sec. 430(h)(2). IRC Sec. 417 contains definitions and special rules for minimum survivor annuity requirements in DB plans. IRC Sec. 430 addresses minimum funding standards for single-employer DB plans.