Compliance May 16, 2023

DOL Will Not Appeal 401(k) Rollover Rule, ASA Says

The trade group that sued the DOL says the regulator will not insist that rollover advice should be subject to ERISA.

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The Department of Labor has withdrawn its appeal of a February federal district court ruling that ensured 401(k) rollover recommendations would not be seen as fiduciary investment advice, according to the American Securities Association.

The ASA announced on Monday that the DOL has voluntarily dropped the appeal of a case the Washington, D.C.-based trade association of regional financial services firms brought against the regulator. The ASA sued the DOL in early 2022, challenging guidance under the Administrative Procedure Act that said an adviser’s initial retirement plan rollover recommendation would qualify as investment advice and be subject to fiduciary obligations under the Employee Retirement Income Security Act.

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“We are pleased the DOL dropped its appeal of the district court’s decision to strike down [the DOL’s] attempt to change existing rules about retirement advice without a formal rulemaking,” Chris Iacovella, president and CEO of the American Securities Association, said in a statement.

In February, Judge Virginia M. Hernandez Covington, of the U.S. District Court for the Middle District of Florida’s Tampa Division, ruled against the DOL’s Employee Benefits Security Administration in American Securities Association v. United States Department of Labor, et al. Covington ruled that EBSA’s guidance on rollovers was “arbitrary and capricious” in the agency’s interpretation of the five-part test used for determining when recommendations count as investment advice.

The DOL issued an appeal notice in April, according to court filings, but did not lay out arguments. There is no additional posting on the court docket for the case as of Tuesday, and the DOL did not immediately respond to a request for confirmation.

The DOL and EBSA are continuing to review the definition of a fiduciary and are working on new guidance that will “more appropriately define when persons who render investment advice for a fee to employee benefit plans and IRAs are fiduciaries,” according to the DOL’s regulatory agenda.

Ask the Experts May 16, 2023

How Does SECURE 2.0’s Start-Up Tax Credit Apply to Recently Started Plan?

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

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Q: I read your Ask the Experts column regarding the limits when contributions are made by a physician to his/her own private practice, as well as to an unrelated hospital plan. I am a physician in the same situation as the article, with a for-profit private practice and employment at an unrelated hospital. Assuming that this limit remains in place, is the deductibility of employer contribution to my private practice plan affected by this rule as well? Is my ability for my private practice plan to take the start-up tax credit similarly affected? I started my private practice plan in 2021, so I believe I am still within my three-year window to take a start-up credit, if I am reading the Secure Act 2.0 guidance correctly.

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Kimberly Boberg, Taylor Costanzo, Kelly Geloneck and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: The good news is that the contribution limits described in our column, which are indeed still effective under current law, have nothing to do with your private practice retirement plan deductions and tax credits, other than the fact that what is contributed to your hospital’s 403(b) plan may impact the amount of your contributions to your private practice plan. You should also note that the tax credits were recently enhanced by the SECURE 2.0 Act of 2022; assuming that for the three-year period prior to 2021, your private practice did not maintain a retirement plan for its employees (and the practice did not benefit from another plan of an entity that owned/controlled it), then in 2023 you would be eligible for a tax credit for 100% of retirement plan start-up costs up to $5,000, assuming your private practice has less than 50 employees.

SECURE 2.0 also added another credit—available for the first five years of a new plan—of an applicable percentage of employer contributions to a defined contribution plan up to $1,000 per employee earning wages of $100,000 or less. In your case, since you are in Year 3 of your new plan, the applicable percentage of employer contributions is 75%; it will drop to 50% in 2024 and 25% in 2025. You should also note that you cannot take a deduction and a tax credit for the same amounts.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Amy.Resnick@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future column.

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