Industry & Regulatory News

The Securities and Exchange Commission (SEC) has finalized rules to amend Form N-PX, Annual Report Of Proxy Voting Record of Registered Management Investment Company, to enhance the information mutual funds, exchange-traded funds (ETFs), and certain other funds currently report annually about their proxy votes and to make that information easier to analyze. The rule and form amendments will also require institutional investment managers subject to the Securities Exchange Act of 1934 to report annually on Form N-PX how it voted proxies relating to executive compensation matters.

The rule is effective July 1, 2024.

The Securities and Exchange Commission (SEC) has released a proposed rule titled “Open-End Fund Liquidity Risk Management Programs and Swing Pricing; Form N-PORT Reporting.”

The Pension Benefit Guarantee Corporation (PBGC) has submitted to the Office of Management and Budget an information collection request and extension related to Form 5500 series annual reporting requirements. Specifically, the request proposes modifications to Schedule R, Retirement Plan Information, and Schedule SB, Single-Employer Defined Benefit Plan Actuarial Information.

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.

Representatives Brad Schneider (D-IL) and Ron Estes (R-KS) have introduced HR 9252, Advancing Auto-Portability Act, to reduce retirement leakage by allowing automatic rollovers of certain accounts to follow workers to another employer plan.

The Securities and Exchange Commission (SEC) has released a final rule to amend requirements for shareholder reports for mutual funds and exchange-traded funds (ETFs) and rules for investment company advertisements. The SEC has identified in its press release several highlights of the final rule.

Shareholder Reports Tailored to the Needs of Retail Shareholders

The Commission’s final rule amendments will require mutual funds and ETFs that are registered on Form N-1A (“open-end funds” or “funds”) to transmit to shareholders concise and visually engaging annual and semi-annual reports that highlight information that is particularly important for retail shareholders. The final rule amendments also facilitate funds’ ability to make electronic versions of their shareholder reports more user-friendly and interactive.

Availability of Additional Information on Form N-CSR and Online

The new rules will require that funds make available online certain information that may be more relevant to investors and financial professionals who desire more in-depth information. This information also must be delivered free of charge upon request and filed on a semiannual basis on Form N-CSR. This information includes, for example, a fund’s schedule of investments and other financial statement elements.

Amendments to the Scope of Rule 30e-3 to Exclude Open-End Funds

The SEC adopted amendments to exclude open-end funds from the scope of rule 30e-3, which generally permits certain registered investment companies to satisfy shareholder report transmission requirements by making these reports and other materials available online and providing a notice of the reports’ online availability, instead of directly providing the reports to shareholders.

Fee and Expense Information in Investment Company Advertisements

The final rule amendments require that presentations of investment company fees and expenses in advertisements and sales literature by registered investment companies and business development companies be consistent with relevant prospectus fee table presentations and be reasonably current. The rule amendments also address representations of fees and expenses that could be materially misleading.

The final rule amendments will become effective 60 days after publication in the Federal Register. The SEC is providing an 18-month transition period after the effective date of the final rule amendments to allow open-end funds adequate time to adjust their shareholder reports and comply with the rule 30e-3 changes. The SEC is also providing an 18-month transition period after the effective date to comply with the final rule amendments to the advertising rules. The final rule amendments that address representations of fees and expenses that could be materially misleading apply on the effective date.

The Securities and Exchange Commission (SEC) has released a proposed rule to prohibit investment advisers from outsourcing certain services or functions without first meeting due diligence and ongoing monitoring requirements related to the “covered function”. A covered function is a function or service that is

• necessary to provide advisory services in compliance with federal securities laws, and
• if not performed or performed negligently, would be reasonably likely to cause a material negative impact on the adviser’s clients or on the adviser’s ability to provide investment advisory services.

The SEC is providing examples of potential covered function categories an adviser may wish to consider in the amendments they are proposing to Form ADV, Section 7.C of Schedule D. Covered functions listed would include: Adviser/Subadviser; Client Services; Cybersecurity; Investment Guideline/Restriction Compliance; Investment Risk; Portfolio Management; Portfolio Accounting; Pricing; Reconciliation; Regulatory Compliance; Trading Desk; Trade Communication and Allocation; and Valuation.

The proposal would also require advisers to obtain reasonable assurances that a third party recordkeeper will meet four standards which address the third party’s ability to

• adopt and implement internal processes for making and/or keeping records that meet recordkeeping rule requirements applicable to the books and records being maintained on behalf of the adviser;
• make and/or keep records that meet all of the requirements of the recordkeeping rule applicable to the adviser;
• provide access to electronic records; and
• ensure the continued availability of records if the third party’s relationship with the adviser or its operations cease.

Comments should be received on or before 30 days after publication in the Federal Register or December 27, 2022, whichever is later.  

Representative Greg Murphy (R-NC), along with co-sponsor Representatives Carol Miller (R-WV), David Schweikert (R-AZ), and Lloyd Smucker (R-PA) have introduced HR 9198, the Safeguarding Investment Options for Retirement Act.

The bill would require plan fiduciaries to base investment decisions on only pecuniary factors. A fiduciary is not prohibited from considering an investment option that promotes nonpecuniary benefits so long as participant interests are not subordinated to other objectives or additional financial risks related to nonpecuniary factors. Additionally, such investment cannot be a default investment for the plan. The term pecuniary factor means a factor that a fiduciary prudently determines is expected to have a material effect on the risk and return of an investment based on appropriate investment horizons consistent with the plan’s investment objectives and the funding policy established under ERISA.

The bill would further amend the Internal Revenue Code to require that if a trust contains investment options with nonpecuniary factors, such trust shall also include investment options based solely on pecuniary factors in order to be qualified.

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 IRS has issued Notice 2022-55, which contains the 2023 cost-of-living increases for qualified retirement plan dollar limitations on benefits and contributions under the Internal Revenue Code (IRC).

• Annual additions under IRC Section (Sec.) 415(c)(1)(A) for defined contribution plans: $66,000 ($61,000 for 2022)
• Annual additions under IRC Sec. 415(b)(1)(A) for defined benefit plans: $265,000 ($245,000 for 2022)
• Annual deferral limit (402(g) limit) for 401(k), 403(b), and 457(b) plans: $22,500 ($20,500 for 2022)
• Catch-up contributions to 401(k), 403(b), and 457(b) plans: $7,500 ($6,500 for 2022)
• Annual deferral limit for SIMPLE IRA and SIMPLE 401(k) plans: $15,500 ($14,000 for 2022)
• Catch-up contributions for SIMPLE IRA and SIMPLE 401(k) plans: $3,500 ($3,000 for 2022)
• IRC Sec. 401(a)(17) compensation cap: $330,000 ($305,000 for 2022)
• Highly compensated employee (HCE) definition income threshold: $150,000 ($135,000 for 2022)
• Top-heavy determination key employee definition income threshold: $215,000 ($200,000 for 2022)
• SEP plan employee income threshold for benefit eligibility: $750 ($650 in 2022)
• Taxable wage base (TWB), as noted in a prior announcement, increases to $160,200 for 2023 from $147,000; used in some integrated allocation formulas
• Qualifying longevity annuity contract (QLAC) amount excludible from required minimum distribution determinations: $155,000 ($145,000 for 2022)

IRA Contribution and Taxpayer Contribution Credit Amounts

Annual limitations for IRA contributions, deductibility for those who are active participants in employer plans, and those seeking an income tax credit for retirement saving contributions, have slightly different indices that are used for determining cost-of-living adjustments (COLAs) in employer plans. The limitations for 2023 are as follows.

• Traditional and Roth IRA contributions: $6,500 ($6,000 for 2022)
• Traditional and Roth IRA catch-up contributions: $1,000 (not subject to COLA increases)
• IRA deductibility phase-out for single taxpayers participating in employer plans rises to $73,000 - $83,000 (was $68,000 - $78,000)
• IRA deductibility phase-out for married joint filing taxpayers participating in employer plans rises to $116,000 - $136,000 (was $109,000 - $129,000)
• IRA deductibility phase-out for married with spouse an active participant in an employer plan rises to $218,000 - $228,000 (was $204,000 - $214,000)
• Roth IRA income limitations for determining maximum contribution for married joint filers: phase-out range rises to $218,000 - $228,000 (was $204,000 - $214,000)
• Roth IRA income limitation for determining maximum contribution for single filers and heads-of-households: phase-out range rises to $138,000 - $153,000 (was $129,000 - $144,000)

Taxpayers who make contributions to IRAs or deferral-type employer-sponsored retirement plans of up to $2,000 may be eligible for a special income tax credit (the “saver’s credit”) of 10, 20, or 50 percent of the amount contributed, depending on their income.

For joint filers, the maximum adjusted gross income level for

• the 50 percent tax credit is $43,000;
• the 20 percent tax credit is $47,500; and
• the 10 percent tax credit is $73,000.

For head of household filing status, the maximum adjusted gross income level for

• the 50 percent tax credit is $32,625;
• the 20 percent tax credit is $35,625; and
• the 10 percent tax credit is $54,750.

For all other filing statuses, the maximum adjusted gross income level for

• the 50 percent tax credit is $21,750;
• the 20 percent tax credit is $23,750; and
• the 10 percent tax credit is $36,500.