Month: November 2020

SECURE Act

As you probably remember, last year President Trump signed into law the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.  The SECURE Act was a far-reaching and bi-partisan effort aimed at increasing access to tax-advantaged accounts and preventing older Americans from outliving their savings.  A few of the major components of the SECURE Act included:

• Pushing back the age at which retirement plan participants need to take required minimum distributions from 70 ½ to 72.
• Repealing the maximum age for traditional IRA contributions.
• Allowing individuals to use 529 plan money to repay student loans.
• Allowing penalty-free withdrawals from retirement plans for birth or adoption expenses.

Securing a Strong Retirement Act of 2020

Just last month, Congressmen Richard Neal (D-Mass) and Kevin Brady (R-Texas) introduced the Securing a Strong Retirement Act of 2020.  This new legislation attempts to build on the momentum from last year’s SECURE Act to encourage retirement savings. A few highlights of this new bill include:

• Promoting saving earlier for retirement by expanding automatic enrollment in retirement plans.
• Pushing back further the age at which retirement plan participants need to take required minimum distributions from 72 to 77.
• Increasing catch-up contributions for those age 60.
• Treating student loan payments as elective deferrals for purposes of matching contributions.

A copy of the Securing a Strong Retirement Act of 2020 and section-by-section summary of the bill can be found in the attached press release by the Ways & Means Committee:

https://waysandmeans.house.gov/media-center/press-releases/neal-and-brady-introduce-new-bipartisan-legislation-strengthen-americans

Moving forward

It is unclear if this legislation will pass next year in a possibly deeply-divided Congress.  But it appears there is consensus among both parties to help Americans save for retirement.   We will continue to monitor Congress’s progress with this new important piece of legislation.

The IRS has recently issued to document vendors opinion letter approvals for updated pre-approved defined contribution plan documents.  This starts the next cycle of required defined contribution plan document restatements.   If you are an employer that currently sponsors a 401(k) plan, profit sharing plan, money purchase plan or ESOP, and the plan document is currently on an IRS pre-approved document, you will need to restate your plan document on a newly approved document on or before July 31, 2022.

Rolling these new documents out to plan sponsors is of course a big undertaking for retirement plan document vendors, and they will be attacking this task in a very systematic way in the coming months so that their adopting employers can meet the deadline. The document vendors play the primary role in the plan restatement process. They will notify plan sponsors when their plan restatement process is scheduled and give plan sponsors a time period to review draft documents with legal counsel, obtain board of director approval, and execute and return the documents.  The documents will include the restated plan and usually an updated service agreement.

It is important to keep in mind that the plan sponsor/employer needs to be on top of the process.   The plan sponsor is responsible for reviewing, approving and adopting the restatement.  The document vendor will usually not accept responsibility for the timely completion of this process or the accuracy and correctness of the documents. Drafting mistakes are not uncommon, so it is critical for employer to not treat the restatement draft as a perfunctory “sign and return” task.   The plan sponsor should carefully review the draft to make sure that it is accurate. This process is also an opportunity to compare the plan provisions with the actual administration of the plan and to consider plan design changes.  When you receive the draft documents from your document vendor, we strongly urge you to devote adequate time and attention to getting this important task completed.

Attorney Q&A with Brandon Long

What began as a roundtable discussion to share ideas and best practices has now become a movement. Earlier this year, McAfee & Taft played a key role in establishing a first-of-its-kind coalition of Oklahoma employers. The mission: To act in the collective best interests of employers to promote healthcare quality, cost-effectiveness, transparency and accountability.

In this LINC Q&A video, McAfee & Taft employee benefits lawyer Brandon Long discusses the catalyst of this emerging movement, its purpose and vision, who comprises the coalition, what has already been accomplished, and next steps for those interested in being a part of the alliance.

Earlier this year, the United States Department of Labor issued a proposed rule on environmental, social, corporate governance, or other similarly-oriented considerations (collectively, “ESG”) related to the investments in ERISA plans.  The Department appears to have issued the proposed rule out of a concern about the growing emphasis on ESG investing and the potential for some investment products to be marketed to ERISA fiduciaries on the basis of purported benefits and goals unrelated to financial performance.

After receiving a number of comments on the proposed rule, the DOL issued its final rule this past Friday.  The final rule provides that ERISA plan fiduciaries must select investments and investment courses of action based solely on financial considerations relevant to the risk-adjusted economic value of a particular investment or investment course of action.  ERISA fiduciaries can never sacrifice investment returns, take on additional investment risk, or pay higher fees to promote non-pecuniary benefits or goals (including ESG goals).

The final rule states that it makes five changes to the applicable regulation under ERISA:

1. Evaluate Investments Based Solely on Pecuniary Factors.  The rule adds provisions to confirm that ERISA fiduciaries must evaluate investments and investment courses of action based solely on pecuniary factors – that is, financial considerations that have a material effect on the risk and/or return of an investment based on appropriate investment horizons consistent with the plan’s investment objectives and funding policy.
2. Can’t Sacrifice Returns to Promote Non-Pecuniary Goals.  The rule includes an express regulatory provision stating that compliance with the exclusive purpose (loyalty) duty in ERISA prohibits fiduciaries from subordinating the interests of participants to unrelated objectives, and bars them from sacrificing investment return or taking on additional investment risk to promote non-pecuniary goals.
3. Consider Reasonably Available Alternatives.  The rule includes a provision that requires fiduciaries to consider reasonably available alternatives to meet their prudence and loyalty duties under ERISA.
4. All Things Being Equal.  The rule sets forth required investment analysis and documentation requirements for those circumstances in which plan fiduciaries use non-pecuniary factors when choosing between or among investments that the fiduciary is unable to distinguish on the basis of pecuniary factors alone.
5. Might Be Okay to Include Fund With Non-Pecuniary Goals, IF. . . .  The final rule expressly provides that, in the case of selecting investment alternatives for an individual account plan that allows plan participants and beneficiaries to choose from a broad range of investment alternatives, a fiduciary is not prohibited from considering or including an investment fund, product, or model portfolio merely because the fund, product, or model portfolio promotes, seeks, or supports one or more non-pecuniary goals, provided that the fiduciary satisfies the prudence and loyalty provisions in ERISA and the final rule, including the requirement to evaluate solely on pecuniary factors, in selecting any such investment fund, product, or model portfolio. However, the provision prohibits plans from adding any investment fund, product, or model portfolio as a qualified default investment alternative, or as a component of such an investment alternative, if the fund, product, or model portfolio’s investment objectives or goals or its principal investment strategies include, consider, or indicate the use of one or more non-pecuniary factors.