Washington D.C. Employment Law Update : Washington D.C. Employment Lawyer & Attorney : Littler Mendelson Law Firm : Virginia, Tyson's Corner

Such concerns – in addition to the more than 260 written comments submitted in response to the proposed rule – have led the EBSA to reconsider its approach. According to a press release, a revised proposal will be published in early 2012. The EBSA claims that it:

anticipates revising provisions of the rule including, but not restricted to, clarifying that fiduciary advice is limited to individualized advice directed to specific parties, responding to concerns about the application of the regulation to routine appraisals and clarifying the limits of the rule's application to arm's length commercial transactions, such as swap transactions. Also anticipated are exemptions addressing concerns about the impact of the new regulation on the current fee practices of brokers and advisers, and clarifying the continued applicability of exemptions that have long been in existence that allow brokers to receive commissions in connection with mutual funds, stocks and insurance products. The agency will carefully craft new or amended exemptions that can best preserve beneficial fee practices, while at the same time protecting plan participants and individual retirement account owners from abusive practices and conflicted advice.

Once the proposed rule is re-issued, the public will have another opportunity to provide comments.

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Current law imposes a five-part test that must be satisfied in order for a person or an entity to be treated as a fiduciary by reason of rendering investment advice. Advice is considered “investment advice” if an adviser who does not have discretionary authority or control with respect to the purchase or sale of securities or other property for the plan:

1. renders advice as to the value of securities or other property, or makes recommendations as to the advisability of investing in, purchasing or selling securities or other property
2. on a regular basis
3. pursuant to a mutual agreement, arrangement or understanding, with the plan or a plan fiduciary, that
4. the advice will serve as a primary basis for investment decisions with respect to plan assets, and that
5. the advice will be individualized based on the particular needs of the plan.

The EBSA has stated that this definition is in need of an update in order to ensure that those providing investment advice to plan fiduciaries and/or plan participants and beneficiaries are subject to ERISA’s standards of fiduciary conduct. In essence, the proposed rule simplifies the above five-part test by providing that individuals are to be considered fiduciaries if they: (1) render investment advice described in the proposal to a plan, plan fiduciary, or plan participant or beneficiary for a fee or other compensation and (2) directly or indirectly represent or acknowledge that they are acting as a fiduciary within the meaning of ERISA with respect to the plan in rendering the advice. According to the EBSA, the proposal’s main changes include the following:

• Considers appraisals and fairness opinions concerning the value of securities or other property as fiduciary investment advice;
• Accords fiduciary status to those who render investment advice for a fee to a plan, its participants or beneficiaries and directly or indirectly represent or acknowledge that they are acting as a fiduciary within the meaning of ERISA in rendering the advice; and
• Removes the requirements in the current regulation’s five-part test that investment advice must be provided on a regular basis based on the parties’ mutual understanding and that the advice will serve as a primary basis for plan investment decisions.

The EBSA acknowledges that plan service providers that fall within the proposed rule “might experience increased costs and liability exposure associated with ERISA fiduciary status. Consequently, EBSA acknowledges that these service providers might charge higher fees to plan clients, or limit or discontinue the availability of their services or products to ERISA plans.”

Comments on this proposal are due within 90 days of the proposed rule’s publication in the Federal Register. Among other things, the agency is seeking comment on whether and to what extent the final regulation should define the provision of investment advice to encompass recommendations related to taking a plan distribution; the accuracy of the agency’s estimate of the number of service providers that would be affected by this rule; and the accuracy of the EBSA’s cost estimate for service providers to comply with and implement this rule. Comments may be submitted electronically through the federal eRulemaking portal: www.regulations.gov; via email to: e-ORI@dol.gov (enter into subject line: Definition of Fiduciary Proposed Rule); or sent by mail or hand delivery to: Office of Regulations and Interpretations, Employee Benefits Security Administration, Attn: Definition of Fiduciary Proposed Rule, Room N-5655, U.S. Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210.
 

The final rule implements the multiemployer retirement plan transparency provisions of section 101(k) of ERISA, which was added by the PPA. This section requires that, upon written request, the multiemployer plan administrator provide copies of certain actuarial and financial documents about the plan to participants, beneficiaries, employee representatives and contributing employers no later than 30 days after the request is made, with certain limited exceptions. Those who fail to do so face a penalty of up to $1,000 per day for each violation. The final rule takes effect April 1, 2010.

The required documents include copies of periodic actuarial reports—defined as reports prepared by an actuary of the plan and received by the plan at regularly scheduled, recurring intervals—or studies, tests (including sensitivity tests), documents, analyses, or other information received by the plan from an actuary of the plan that shows alternative funding scenarios based on a range of alternative actuarial assumptions, whether or not such information is received by the plan at regularly scheduled, recurring intervals. Other documents covered by this rule include quarterly, semi-annual, or annual financial reports prepared for the plan by any plan investment manager or advisor, and applications for funding relief filed with the Secretary of the Treasury requesting an extension of minimum funding requirements. The plan administrator is not required to provide a report that has not been in the plan’s possession for at least 30 days, but must inform the requester about the earliest date on which the report can be furnished. The final rule also imposes a 6-year limit on the provision of “aged” documents. Exceptions to the disclosure requirements also exist for individually identifiable and proprietary information as well as for underlying information and data.

The final rule allows a plan administrator to impose reasonable charges to cover the cost of furnishing the requested documents. According to the rule, a reasonable charge may not exceed the lesser of the actual cost to the plan for the least expensive means of acceptable reproduction of the document, or 25 cents per page, plus the cost of mailing or otherwise delivering the requested document. A plan administrator is not required to furnish to any requester more than one copy of a document during any 12-month period.

Plan participants and beneficiaries can be informed of the rights conferred by this final rule via the plan summary.

The EBSA’s proposed rule addresses the provision of investment advice to participants and beneficiaries in individual account plans, such as 401(k) plans, and beneficiaries of individual retirement accounts (and certain similar plans). This proposed rule would implement provisions of a statutory prohibited transaction exemption in ERISA and the Internal Revenue Code (IRC). The proposal follows the withdrawal of a final rule issued on January 21, 2009 after concerns were raised about the potential for advisor self-dealing.  As a result, the proposed rule lacks the earlier rule’s administrative class exemption, which was the target of some commentators’ concerns. The proposed regulations also contain clarifying language regarding the interpretation of the statutory exemption’s fee-leveling requirement.

The proposed rule, among other things, would require investment advisors to disclose their fees, and obtain a certification that their computer models used to provide the investment advice are objective and unbiased.

Comments to the proposed rule must be submitted on or before May 5, 2010, and contain the identification number: RIN 1210-AB35. The EBSA is encouraging the submission of comments electronically via the federal eRulemaking portal at http://www.regulations.gov, or by e-mail to e-ORI@dol.gov (enter into subject line: 2010 Investment Advice Proposed Rule). Written comments can be sent to Office of Regulations and Interpretations, Employee Benefits Security Administration, Attn: 2010 Investment Advice Proposed Rule, Room N-5655, U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 20210.
 

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Meanwhile, the PBGC has also published a final rule (pdf) that will make it easier for a member of the military to qualify for pension benefits. Under current PBGC regulations, benefits under a terminated single-employer pension plan are guaranteed only if the participant satisfies the conditions for entitlement to that benefit on or before the plan’s termination date. The Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) entitles military service members to return to their jobs after deployment and to receive credit for benefits, including employee pension plan benefits, that would have accrued during their military-related absence. The new PBGC rule address the scenario that occurs when a service member’s plan terminates while he or she is deployed. Under the new rule, the PBGC will consider the service member to have satisfied the conditions for benefits entitlement as of the plan’s termination date, so long as the service member is reemployed within the time limits set by USERRA. In other words, the rule will treat returning service members as if they had never left their employers at the time the plan terminates.

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