Industry & Regulatory News

According to an Employee Plans News release, the IRS is piloting a pre-examination retirement plan compliance program beginning in June 2022. Plan sponsors of retirement plans that have been selected for examination would be notified by letter and given a 90-day period to review plan documents and operations to determine if there are compliance issues. Mistakes found that qualify for the Self Correction Program under the Employee Plans Compliance Resolution System can be corrected in that manner. For items that don’t qualify, the plan sponsor can request remediation through a closing agreement with the IRS. The IRS will review documentation and either issue a closing letter or conduct a limited or full scope examination. The goal of the pilot program is to reduce taxpayer burden and reduce time spent on retirement examinations. The duration of the pilot was not specified, but the IRS will evaluate the effectiveness of the program to determine if it will become part of their overall compliance strategy. 

Senators Patty Murray (D-WA) and Richard Burr (R-NC)—chair and ranking members of the Senate Health, Education, Labor and Pensions Committee respectively—have released a discussion draft of compiled retirement provisions from several bills into the Senate’s latest version of what has been coined SECURE Act 2.0. The RISE & SHINE Act shares some similarities to, and builds upon the Securing a Strong Retirement Act bill that passed the House in March.

Representative Byron Donalds (R-FL) and several Republican co-sponsors have introduced HR 7860, the Financial Freedom Act of 2022. This is companion legislation to S 4147 introduced earlier this month by Senator Tommy Tuberville (R-AL). The proposal would prohibit the Department of Labor (DOL) from restricting the types of investments that plan participants can choose through participant directed accounts and self-directed brokerage accounts. The bills are in response to regulatory guidance released by the DOL and announced in March.

Senator Dan Sullivan (R-AK), along with co-sponsors Pat Toomey (R-PA), Mike Crapo (R-ID) and Chuck Grassley (R-IA), have introduced S. 4241 the “Investor Democracy is Expected Act” or INDEX Act. The bill would require investment advisors of passively managed funds to vote proxies in accordance with the instructions of fund investors – not at the discretion of the adviser. The adviser would be responsible for passing through the proxies, collecting the instructions, and voting according to the investors’ wishes. With the exception of routine matters, the investment advisor cannot vote on the proportion of shares for which voting instructions were not received. The proposal provides for a safe harbor whereby investment advisors would not be in violation of duties by choosing not to solicit voting instructions or voting the particular proxy.

In the May 23, 2022, issue of Employee Plans News, the IRS explains the applicability of the Employee Plans Compliance Resolution System (EPCRS) for pre-approved plans that are not restated by appropriate deadlines. Generally, 401(a) and 403(b) plans that fail to timely restate their plans on a pre-approved plan document could correct resulting defects under the EPCRS Self Correction Program if the defect has existed for less than the past three years. Older defects can be pursued by filing a Voluntary Correction Program (VCP) application with the IRS to correct the failure. The IRS indicates that the failure to qualify as a pre-approved plan is not in and of itself a qualification issue. 

Senators Todd Young (R-IN), and Cory Booker (D-NJ) have introduced the Emergency Savings Act of 2022. The proposal would allow “pension-linked” savings accounts for participants of up to $2,500 (subject to cost-of-living adjustments) to be used for unexpected expenses. The accounts would be treated in the same manner as after-tax contributions, and plan sponsors could automatically enroll a participant with a compensation deferral percentage not to exceed three percent. The account can be invested as cash, in an interest-bearing deposit account, or an investment product designed to preserve principal and provide a reasonable rate of return—and is not subject to any unreasonable fees, restrictions, expenses or charges in connection with the account or withdrawals.

The Securities and Exchange Commission (SEC) has issued a proposed rule that would add reporting requirements for registered investment advisors, registered investment companies, certain advisers that are exempt from registration, and business development companies to provide additional information regarding their environmental, social, and governance (ESG) investment practices.

Senator John Kennedy (R-LA) has introduced S. 4265, the Inflation-Adjusted Education Investment Act. The proposal would increase the current limit on 529 plan distributions from $10,000 to $12,000. The bill would also make the new cap adjustable for inflation beginning in 2023.

Representative Mark DeSaulnier (D-CA) has introduced H.R. 7780, the “Mental Health Matters Act,” which strengthens behavioral health benefits in schools and also amends provisions of the Employee Retirement Income Security Act (ERISA).

The Department of Labor’s Employee Benefits Security Administration (EBSA), IRS, and the Pension Benefit Guaranty Corporation (PBGC) have released final forms revisions to the Form 5500 Annual Return/Report of Employee Benefit Plan and Form 5500-SF Short Form Annual Return/Report of Employee Benefit Plan, and related instructions, that apply to plan year reports beginning on or after January 1, 2022. A proposed rule was issued last September.