DOL Regulations - Live Q&A Session with EBSA - Static Version
Friday, July 15, 2 p.m. EDT
Please note that input received during the course of this web chat is not part of the formal rulemaking process. You can find DOL’s proposed regulations, and submit comments, by visiting www.regulations.gov.
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1:53 Moderator: You can submit your questions at any time, but the chat will begin at 2:00pm. This will be a text only chat, so no video or audio will be included.
2:03 Phyllis Borzi, EBSA: Good afternoon. I am Phyllis Borzi, Assistant Secretary for the Employee Benefits Security Administration. Welcome to the EBSA Web Chat on the Spring 2011 Regulatory Agenda.
President Obama issued Executive Order 13563 on January 18, 2011, on “Improving Regulation and Regulatory Review.” Section 1 of the Executive Order sets forth the “General Principles of Regulation” that we are to follow. Specifically, our regulatory system must protect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation. It must be based on the best available science. It must allow for public participation and an open exchange of ideas. It must promote predictability and reduce uncertainty. It must identify and use the best, most innovative, and least burdensome tools for achieving regulatory ends. It must take into account benefits and costs, both quantitative and qualitative. It must ensure that regulations are accessible, consistent, written in plain language, and easy to understand. And, it must measure, and seek to improve, the actual results of regulatory requirements.
We here at EBSA are fully committed to ensuring that these principles guide our regulatory agenda. This web chat is an important way for us to allow for public participation and an open exchange of ideas. We hope the public will take this opportunity to ask questions about our regulatory agenda and current regulatory priorities.
As you probably know, EBSA’s regulatory and enforcement responsibilities under the Employee Retirement Income Security Act – ERISA - extend to almost 718,000 private pension plans, approximately 2.6 million employer-sponsored health plans and a similar number of other welfare plans. The plans together hold more than $6 trillion in ERISA assets. EBSA is committed to protecting the interest of the millions of America’s workers who are dependent on ERISA-covered plans for their economic well-being – whether for retirement, health care or other benefits.
EBSA continues to focus on completing its fee transparency initiatives. Specifically, we will be publishing a final rule relating to reasonable contracts and arrangements under section 408(b)(2) of ERISA. We published an interim final rule last year and requested public comments on a few discrete issues. The comments were supportive and confirmed our belief in the basic structure of the rule. When fully implemented, this regulation will give plan fiduciaries valuable information about service provider compensation and revenue sharing, and the disclosure of this information will benefit millions of participants and their families.
We are simultaneously moving forward with our related welfare plan fee transparency initiative. The welfare plan initiative involves consideration of whether, and to what extent, service relationships in the welfare plan context should be subject to similar fee and compensation disclosure requirements. As most of you are aware, we recently held a public hearing to discuss fee transparency issues relating to the welfare plans. The transcript for that hearing is located on our website along with written comments, testimonies, and supplemental information submitted after the hearing. We are currently reviewing these materials and discussing issues with interested persons, including representatives for the various groups who testified at the hearing.
The Regulatory Agenda includes another critical item aimed at assuring retirement security and protecting participants’ rights. Specifically, we are working to finalize our proposed amendment of the current regulation defining the circumstances under which a person will be considered a “fiduciary” when providing investment advice to employee benefit plans and IRAs, including advice to participants and beneficiaries of such plans. This initiative is intended to assure retirement security for workers in all jobs regardless of income level by ensuring that financial advisers and similar persons are required to meet ERISA’s standards of fiduciary responsibility when providing investment advice. Taking into account significant changes in both the financial industry and the expectations of plan officials and participants who receive investment advice, the proposed amendments would change a thirty-five year old rule that we believe inappropriately limits the types of investment advice relationships that give rise to fiduciary duties. We have been, and intend to continue, working with plan sponsors, participants, service providers, other federal agencies (including the Securities and Exchange Commission (SEC), the Department of the Treasury, and the Commodities Futures Trading Commission (CFTC)) as well as other experts to produce the best possible final regulation.
In this regard, we do not believe there are any fundamental inconsistencies with provisions of the new Dodd-Frank business conduct rules and the implementing regulations of the SEC and CFTC, such that the Department’s proposal would result in swap transactions being prohibited by ERISA’s prohibited transactions rules and we have made that belief clear to those who have inquired on that matter. In any event, we intend to make this conclusion clear as we address the issue in the final rule. We also understand that in defining who is a fiduciary there may be implications in applying the prohibited transaction rules of ERISA to current investment practices, particularly in the context of IRAs. We have broad authority to issue exemptions from the prohibited transaction rules of ERISA so that we can make sure that beneficial advice practices are permitted, even if they would otherwise be technical violations of the statute. In this regard, we are examining our existing exemptions as part of this project. If we find there are arrangements that are not covered by existing exemptions, but that are beneficial to participants and beneficiaries, we can permit these to continue by granting administrative exemptions subject to conditions to safeguard against abuse. We can coordinate the applicability dates of our final regulation with any of these new or amended administrative exemptions so that IRA service providers have a reasonable and sufficient period of time to make any necessary changes to their business arrangements, . To put it simply, we seek to protect retirees and plan participants from biased and imprudent investment advice by bringing the fiduciary definition more in line with its statutory purpose and origin. In pursuing that objective, we remain committed to developing and issuing a clear and effective final rule that takes proper account of all stakeholder views. We want to make sure we take the time to carefully examine the issues brought to our attention, and carefully craft the final regulation and the accompanying exemptions. Our goal is to publish a final rule by the end of the year or soon thereafter.
We also are continuing work on our “lifetime income” initiative, which involves consideration of steps we can take to encourage the offering of lifetime income options to participants and beneficiaries of defined contribution plans and the education of participants and beneficiaries with respect to such options. This initiative is intended to improve retirement security for all workers by helping to ensure that participants and beneficiaries have a greater degree of choice and flexibility in how they will receive their retirement benefits. Comments we received on the joint Labor Department and Treasury Department RFI, and testimony at the Agencies joint public hearing strongly support further consideration or action in a number of areas, including the idea that employees relying on defined contribution plans for their retirement savings would benefit from information on lifetime income streams. The Department, therefore, is considering, as part of the pension benefit statement regulatory initiative, requiring that pension benefit statements for defined contribution plans express the participant's “total accrued benefit” in the form of a lump sum account balance and in the form of a lifetime income stream.
We also are working on a proposal that would update and clarify the claims procedure requirements in our regulation at 29 CFR 2560.503-1. The Department last updated the Claims Procedure Regulation in 2000. After 10 years of experience in implementing the regulation, the Department believes there is a need to review the extent to which the Claims Procedure Regulation is working to meet the needs of plan participants and beneficiaries. The proposed rulemaking is intended to enhance benefit security and protect workers rights.
And, new on the Spring 2011 semi-annual agenda is a Request for Information Regarding Electronic Disclosure By Employee Benefit Plans that was published in the Federal Register on April 7. The public comment period closed on June 6. We published the RFI to initiate a conversation on whether, and possibly how, to expand or modify the Department’s electronic disclosure rules for employee benefit plan information under 29 CFR 2520.104b-1(c). On the one hand, electronic disclosure, in some cases, may be just as effective as paper-based communications, could lower costs and administrative burdens, and increase timeliness and accuracy. On the other hand, some workers and retirees may not be sufficiently computer literate to receive information electronically or have reasonable access to the Internet and others may simply prefer traditional paper disclosure for important financial information regarding their pensions and other employee benefits. In light of these competing interests, the Department plans to carefully review the public comments to the RFI before making any decisions.
We have many other regulatory projects on our agenda covering other important steps we are taking to enhance the security of employee benefit plans and protect workers rights to retirement, group health, and other welfare benefits. For example, regulations and other guidance implementing the Affordable Care Act continue to be an important priority for the Agency. Those efforts generally involve coordination with the Department of the Treasury and the Department of Health and Human Services as the two other federal agencies with principal responsibility for implementing the ACA health care reform improvements. Since we do not have our colleagues from Treasury and HHS with us here, we wanted to focus today’s EBSA web chat on the Department of Labor’s pension and other welfare plan initiatives.
For more information about EBSA, please visit our website, www.dol.gov/ebsa, or call the EBSA toll-free help line at 1-866-444-EBSA (1-866-444-3272) TTY: 1-877-889-5627 1-866, to request a copy of one of our many informative publications.
Again, although the web chat today is not part of the official record for the individual rulemaking projects on the agenda, we hope this dialogue will encourage you to submit comments you deem relevant for consideration in the record when rules are proposed and published in the Federal Register. Please be aware that we will be making your questions today - with our responses - available on the EBSA website for future review. With that, I would like to thank you all for your interest in our programs and activities, and open this up to your questions on EBSA's regulatory agenda and current regulatory priorities.
2:03 Comment From Lee Foster: Is EBSA considering issuing any reporting relief for 403(b) plans?
2:03 Phyllis Borzi, EBSA: Lee, the Department continues to believe that subjecting the financial statements and operations of a 403(b) plan to the scrutiny of an audit has inherent value and that subjecting ERISA-covered 403(b) plans to the same annual reporting rules that apply to other ERISA-covered pension plans is consistent with the purposes of Title I of ERISA and the interests of covered participants and beneficiaries. The Department responded to many of the audit concerns raised by the regulated community by issuing FAB 2009-02, which granted transition relief from the annual reporting requirements for certain pre-2009 contracts held in 403(b) plans, including the requirement for large plans to include as part of their annual report the report of an IQPA. In the guidance, the Department also stated that it understood 403(b) plans may encounter compliance issues unrelated to pre-2009 contracts in making the transition to the Form 5500 annual reporting and audit requirements generally applicable to other Title I pension plans. Acknowledging that there may be instances when full annual reporting compliance by 403(b) plans may not be possible for the 2009 plan year, the Department stated that the guiding principle must be to ensure that appropriate efforts are made to act reasonably, prudently, and in the interest of the plan’s participants and beneficiaries.
2:07 Moderator: If you have any questions please feel free to ask now.
2:09 Comment From Lee Foster: Will you please discuss the reporting of contract loans in 403(b) plans?
2:09 Phyllis Borzi, EBSA: Thanks Lee, for this question too. We are continuing to work with 403(b) plans on making the transition to the full 5500 annual reporting requirements that apply to those plans beginning with 2009 reports. EBSA's Office of the Chief Accountant and Office of Regulations and Interpretations (ORI) are available to help with questions about particular annual reporting issues. You can get in touch with them through the EFAST helpline at 866-GO-EFAST or ORI directly at 202-693-8523.
2:12 Comment From Natalie Miller: Can you discuss the recent extension of the deadline for fiduciary and participant fee disclosures?
2:12 Phyllis Borzi, EBSA: On July 13, 2011, the Department issued a final rulemaking to better align the timing of the 408(b)(2) regulation and the 404 participant level fee disclosure regulation to help plan administrators comply with both rules in an orderly and efficient manner, without unnecessarily delaying the access to information by plan participants and plan fiduciaries. The final rule delays the effective date of the 408(b)(2) rule to April 1, 2012. It also delays the compliance date for the participant level fee disclosure regulation for most plans to May 31, 2012. This rule was displayed today for public review at the Federal Register. We anticipate the rule will be published Tuesday of next week in the Federal Register. The published rule may contain formatting changes from the document issued on July 13, 20ll.
2:14 Comment From David: What are your views and goals with respect to the use of "plain language" in regulations, compliance guidance, and other materials written by EBSA.
2:14 Phyllis Borzi, EBSA: Great question, David. Even though ERISA issues can often be complex and technical, I think it’s important that our regulations, guidance and other materials, particularly participant outreach communications, be written in plain language so that people can understand their rights and obligations.
2:16 Comment From Guest: Do you know approximately when will final regulations on the Annual Funding Notice under ERISA 101(f) be issued or whether regulations would be anticipated this year?
2:16 Phyllis Borzi, EBSA: The annual funding notice proposed regulations were published in the Federal Register on November 18, 2010. The comment period closed on January 18, 2011. The Department is currently evaluating a number of issues raised by the commenters. As stated in the recently published Spring 2011 Regulatory Agenda, we expect to issue final regulations by January of 2012.
2:21 Comment From Steve Clark: When will the final 408(b)(2) regulations be issued?
2:21 Comment From Guest: Do you have any expected time line when the Final Regulations under 408(b)(2) will be issued? While the extension of the effective date is helpful it is still difficult for Service Providers to finalize solutions without the final regulations and/or spend unnecessary money and resources if the final regulations have any significant changes.
2:21 Phyllis Borzi, EBSA: We are very close to submitting the final 408(b)(2) regulation to OMB for clearance. Typically OMB has up to 90 days to review. After such review, the final regulation will be published. As a result, we believe that the 408(b)(2) regulation will be finalized in plenty of time for stakeholders to adapt their systems to any changes from the interim final to the final regulation in anticipation of the applicability date of the 408(b)(2) regulation on April 1, 2012, which was just announced this week by the department.
2:22 Comment From Kathryn Wilber: When does the Department anticipate publication of implementation guidance related to the auto enrollment and summary of benefits provisions of the Affordable Care Act?
2:22 Phyllis Borzi, EBSA: Thanks for your question, Kathryn. With respect to the summary of benefits and coverage, as you know, the provisions are effective beginning March 23, 2012. DOL, HHS and Treasury are actively working to issue a proposed rule as soon as possible. With respect to auto-enrollment, many issues are closely tied to issues under Internal Revenue Code section 4980H and PHS Act section 2708. The three departments are collaborating to issue guidance in the future. As you know, last year, DOL issued guidance indicating that until regulations are issued and effective, employers are not required to comply with the auto-enrollment provisions.
2:22 Comment From Guest: Will proposed regulations be issued soon relating to Pension Benefit Statements under ERISA 105(a) and will ERISA 209(a) regarding recordkeeping and reported be addressed at the same time?
2:23 Comment From Monica Gajdel: Will proposed regulations covering Pension Benefit Statements under ERISA 105(a) be issued soon and will any proposed regulations also cover ERISA setion 209(a) relating to reporting requirements?
2:23 Phyllis Borzi, EBSA: Thanks for the question. EBSA published interim guidance on the pension benefits statement requirements in the Field Assistance Bulletin 2006–03. That bulletin is published on EBSA website at http://www.dol.gov/ebsa/regs/fab_2006-3.html. We are currently working on proposed regulations to be published for public comment later this year or early next year that would address both ERISA section 105 and 209.
2:25 Comment From Guest: With so many stakeholders asking that the fiduciary rule be reproposed, what was the thought process behind issuing the rule in its final form later this year?
2:25 Phyllis Borzi, EBSA: Guest, our goal is to publish a final rule later this year. Based on our review of the issues raised so far, we don’t think we will need to repropose it. However, our current approach to finalizing the fiduciary regulation consists of multiple steps.
First, we are working to better understand how specific compensation arrangements would be affected by the proposed rule and whether clarifications of existing prohibited transactions exemptions would be appropriate. We have already begun to issue subregulatory guidance describing some of these clarifications and will continue to do so as necessary as we complete our analysis.
Next, we are working to finalize the regulation itself. We are paying special attention to the two primary exceptions to fiduciary status under the proposed rule: (1) clarifying the difference between investment education that does not give rise to fiduciary status and fiduciary investment advice; and (2) clarifying the scope of the so-called “sellers’ exemption” under which sales activity is not fiduciary advice. In both cases, we will be directly addressing the comments and concerns that were raised during our extensive public comment period.
Finally, simultaneously with the issuance of the final fiduciary regulation, we intend to propose one or more new prohibited transaction class exemptions and/or modifications to existing ones that may be useful to the regulated community so as to not unnecessarily disrupt existing compensation practices or business models, where we can make the requisite finding that the continuation of these activities is sufficiently protective of plan participants or IRA customers.
We are also considering an extended applicability date for compliance with the final regulation, particularly with respect to IRAs, so as to enable us to take public comments on the proposed exemptions and finalize them well before the compliance date, thus giving the regulated community sufficient time to adapt to these new rules.
2:28 Comment From David: The Claims Procedure rule contains a few items that don't make sense when applied to a nongrandfathered, non-ERISA plan, notably the requirement to include a description of the plan's claims procedures "as part of a summary plan description meeting the requirements of 29 CFR 2520.102.3". Will the update to the Claims Procedure Rule
2:28 Phyllis Borzi, EBSA: Thanks for your question, David. For non-ERISA plans, in other contexts, HHS has advised non-federal governmental plans and issuers to include disclosures in other summary materials provided by the plan or issuer. Non-ERISA plans should contact HHS for more information at cciio.cms.gov.
2:28 Comment From Florence Olsen: Hi, could you please elaborate on the department's objectives for amending the abandoned plans program? What gaps do you see in the current regulation?
2:28 Phyllis Borzi, EBSA: Thank you for your question, Florence. As you noted, we are considering whether to amend the Abandoned Plan Regulations (and the accompanying prohibited transaction exemption, 2006-06), to allow bankruptcy trustees to be QTAs for plans sponsored by companies in Chapter 7 liquidation under the Bankruptcy Code. We are doing this to address problems experienced by bankruptcy trustees as a result of their duties under both the Bankruptcy Code and ERISA. In some cases we think Chapter 7 trustees may be inexperienced with ERISA plan administration and terminating ERISA plans, which could result in excessive fees to plans. The idea is to extend the uniform standards and procedures in the current regulation to Chapter 7 trustees.
2:30 Comment From Guest: Prior to the Department's issuance of a model notice, does the Department test the model notice to ensure that participants and beneficiaries (or plan sponsors for that matter) understand the form ?
2:30 Phyllis Borzi, EBSA:
Thank you for your question. We are very concerned about making sure our models effectively communicate information to participants, beneficiaries, plans sponsors and others. Sometimes we propose our models for public comment and sometimes we use focus group tests. In the 404 participant-level feel disclosure regulation, DOL conducted focus group studies to see how participants generally choose among their plans’ investment alternatives, and specifically, how they would react to the model comparative chart that was published in the proposed rule. Results of these studies are discussed in the preamble to the final rule.
2:31 Moderator: We are ready for more of your questions!
2:32 Comment From Michael Marx: With respect to participant level fee disclosure and self-directed balance forward retirement plans, could a plan sponsor designate all of the investment options as "self-directed brokerage accounts" and circumvent the clear intent of disclosure to participants?
2:32 Phyllis Borzi, EBSA: The rule has specific provisions on self-directed brokerage windows accounts. If we see conduct designed to circumvent the clear intent of the regulation that would likely lead to an enforcement action.
2:39 Comment From BerylHirsch: Will there be any guidance coming that would indicate the information on Michelle's Law is not longer required in SPDs since student status can no longer be used for eligibility under the dependent to age 26 rules?
2:39 Phyllis Borzi, EBSA: Hi Beryl. As you point out, the Affordable Care Act provisions requiring plans to provide dependent coverage of children until age 26 seem to reduce the impact of Michelle's Law on plans. While the departments have not ruled out guidance, other health law projects are the priority.
2:42 Comment From Alison Cohen: Will we be seeing any update to the Target Date Funds/QDIA proposed regulations later this year?
2:43 Phyllis Borzi, EBSA: In November 2010, the Department proposed amendments to its qualified default investment alternative (QDIA) and participant-level disclosure regulations in order to make the two regulations more consistent with respect to disclosures on target date funds and similar investments. We are carefully considering comments received on the proposed amendments, and also are working closely with the Securities and Exchange Commission. In June 2010, the SEC proposed regulatory amendments similarly intended to clarify and enhance disclosure concerning investment in target date retirement funds. As indicated in the spring 2011 regulatory agenda, we currently anticipate issuing final guidance reflecting our careful review of commenters’ concerns in November 2011.
2:43 Comment From Guest: Is there intended to be a practical or legal difference between the "extension" language of the July 13th version and the "delay" language of the Federal Register version of the final rule on the applicability dates for 408(b)(2) and participant fee disclosure?
2:43 Phyllis Borzi, EBSA: No. The difference in terminology is the result of stylistic edits from the Office of the Federal Register.
2:44 Comment From Lily: Can you comment on when you expect the final regulations under 408(b)(2) to be issued?
2:44 Phyllis Borzi, EBSA: Hello Lily, thank you for your question. Please see the answer to "Guest" at 2:21.
2:52 Moderator: This is the last call for questions!
2:56 Comment From Paula: Are there any regulations related to PPACA -- other than the Summary of Benefits and Coverage regulations -- that the tri-agencies anticipate releasing in the near future?
2:56 Phyllis Borzi, EBSA: Thank you for your question Paula. The three departments are continuously reviewing various issues when considering whether to issue future guidance. That process is ongoing and it is a good idea to subscribe to our website to get updates when any new guidance is issued.
2:57 Comment From Jan Mock: It seems every TPA I work with has a different response. Do Early Retiree Welfare Benefits Plans have to follow annual and lifetime maximums under PPACA?
2:57 Comment From Jan Mock: Do Retiree Welfare Benefit Plans (Age 65+) have to follow lifetime and annual maximum benfits afforded under PPACA?
2:57 Phyllis Borzi, EBSA: Hi Jan, in response to your questions: if a plan covers less than two participants who are active employees (including some retiree-only coverage, depending on how the plan is structured), the PHS Act section 2711 rules prohibiting lifetime limits and restricting annual limits do not apply. The key issue is often a factual one as to whether the plan is structured so that it does not cover two or more active employees. It does not matter if a retiree is an early retiree or is age 65 or older. For more information see EBSA's FAQ Implementing the Affordable Care Act-Part III at www.dol.gov/ebsa/healthreform.
2:57 Phyllis Borzi, EBSA: Thank you all for your questions. It is always valuable to hear from our stakeholders. We strongly encourage you to submit comments for consideration in the record when rules are proposed and published in the Federal Register.
You can find directions on how to do this at http://www.dol.gov/regulations/ or at http://www.regulations.gov.
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