Department of Labor Confirms It Will Not Enforce Controversial “Pecuniary Factors” Rule for ERISA Plan Investments

On March 10, 2021, the Department of Labor’s Employee Benefits Security Administration (EBSA), the agency charged with interpreting and enforcing ERISA, announced that it will not enforce the Trump-era “Financial Factors in Selecting Plan Investments” rule, which has been perceived as potentially discouraging retirement plan fiduciaries from selecting investment alternatives which emphasize environmental, social, and governance factors (commonly referred to as “ESG investments”).

The rule, which was finalized in November 2020 and technically became effective on January 12, 2021, does not prohibit ESG investments.  However, it has been widely criticized as fostering a misapprehension that ESG investments may be subjected to a higher degree of fiduciary scrutiny than others.  Following the election, EBSA’s announcement of its non-enforcement policy comes as no surprise, as the Biden administration had already identified the rule on its “List of Agency Actions for Review.”

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Biden Administration Permits Trump-Era Investment Advice Exemption, Rollover Guidance, to Come Into Effect

The Department of Labor issued a press release on February 12 confirming that Prohibited Transaction Exemption 2020-02, titled “Improving Investment Advice for Workers & Retirees” (the “Exemption”), would go into effect as scheduled. The Exemption was finalized and published by the Trump administration in December 2020, and came into effect on February 16.

The newly available Exemption is intended to fill a void left by the loss of the “Best Interest Contract” or “BIC” Exemption, which was struck down along with the rest of the Obama-era Fiduciary Rule in a March 2018 Fifth Circuit ruling.

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DOL Provides (Informal, Non-Binding) Guidance on Missing Participants

On January 12, 2021, the Department of Labor (“DOL”) issued guidance that is intended to help retirement plan fiduciaries meet their ERISA obligations to locate and distribute benefits to missing or nonresponsive participants.

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Fee Disclosure Rules Will Soon Apply to Group Health Plans

Buried in the year-end Consolidated Appropriations Act (CAA) is a provision that requires group health plan brokers and consultants to make comprehensive fee disclosures similar to those that apply to retirement plans. As discussed further below, the new fee-disclosure requirements will result in additional compliance obligations for group health plan sponsors, brokers, and consultants, starting in December 2021.

As background, ERISA generally prohibits transactions between an ERISA plan and a party-in-interest, such as a service provider to the plan. However, a statutory exemption (known as the ERISA 408(b)(2) exemption) allows such transactions so long as the plan pays only reasonable compensation to a party-in-interest to provide necessary services to the plan. In 2012, the Department of Labor (DOL) issued regulations under which the ERISA 408(b)(2) exemption is available for a retirement plan only if a covered service provider makes a number of fee and service disclosures to the plan’s fiduciary to enable the fiduciary to make a determination as to whether the fees are reasonable. These are generally referred to as the 408(b)(2) fee disclosures. The DOL regulations implementing this fee-disclosure requirement specifically omit health and welfare plans.

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Health Plan Transparency Final Rule Requires New Health Plan Disclosures

On October 29, 2020, the Department of Health and Human Services (HHS), Department of the Treasury (Treasury) and Department of Labor (DOL) issued the final rule on transparency in health plan coverage. The final rule imposes significant new requirements on group health plans, including all issuers of non-grandfathered individual and group health insurance coverage and self-insured plans (that are not account based plans), to disclose information on pricing and cost-sharing under their plans. Grandfathered health plans and excepted benefit health plans are not subject to the transparency rules.

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DOL Issues Guidance on Private Equity Investments in 401(k) Plans

The Department of Labor (DOL) recently issued guidance in the form of an Information Letter describing the process that plan fiduciaries should undertake in determining whether an investment fund having a private equity component satisfies ERISA fiduciary standards. Specifically, the DOL emphasized that there are factors unique to such investment funds that should be considered as part of a prudent process.

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Talking Through the DOL’s Proposed Prohibited Transaction Exemption, Episode 4: Litigation Risks

On June 29, the Department of Labor (DOL) issued a proposed prohibited transaction exemption (PTE), filling the void left when the Fifth Circuit vacated the Obama-era 2016 DOL regulation in 2018. While the proposed rule is ostensibly an administrative rulemaking on which the DOL seeks public comment, it also does a lot more. In this podcast episode, Faegre Drinker’s Jim Jorden and Brad Campbell analyze the litigation issues related to this new interpretation — particularly as it pertains to the sale of annuities and other insurance products.

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The Clock Is Ticking: DOL Issued Interim Final Rule on Lifetime Income Disclosures for Defined Contribution Plans

The Setting Every Community Up for Retirement Enhancement (SECURE) Act included several provisions related to lifetime income strategies under retirement plans, including a requirement that pension benefit statements for defined contribution plans disclose the “lifetime income stream equivalent” of each participant’s current account balance – both as a single life annuity (SLA) and as a qualified joint and survivor annuity (QJSA). On August 18, 2020, the Department of Labor (Department) issued an interim final rule implementing this requirement that includes a model disclosure and assumptions for converting benefits (the Rule), and a fact sheet.

As background, under ERISA, administrators of defined contribution plans (such as 401(k) and 403(b) plans) are required to provide pension benefit statements quarterly if the plan allows participant-directed investment, otherwise annually. Among other requirements, the benefit statements must include the participant’s current account balance.

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New Guidance on Health Coverage Issues Relating to COVID-19

On June 23, 2020, the Department of Labor, Department of Health and Human Services (HHS), and Department of the Treasury (the Departments) issued new frequently asked questions (FAQs) regarding coverage for COVID-19 testing under the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The FFCRA and the CARES Act generally require employer health plans to provide coverage for COVID-19 testing without imposing any cost sharing (including deductibles, copayments and coinsurance), prior authorization or certain other medical management requirements. Prior FAQs were issued on April 11, 2020 (FAQs Part 42).

The June 23, 2020, FAQs provide additional guidance on health coverage issues for sponsors of group health plans during the COVID-19 pandemic, and are particularly relevant for employers considering return-to-work policies.

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Department of Labor Publishes Request for Information on Pooled Employer Plans

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 created a new type of plan that may begin operating in 2021 called a pooled employer plan (PEP). A PEP is a plan in which multiple unrelated employers will be able to participate. A PEP will have to be maintained by a pooled plan provider (PPP) which must act as a named fiduciary and take on substantially all of the PEP’s administrative duties. Though the statute is fairly detailed, it leaves open a variety of questions, including a number of prohibited transaction issues, that need to be addressed by the Department of Labor (DOL).

For the full alert, visit the Faegre Drinker website.