Compliance February 13, 2023

DOL Seeks More Comments on Correction Program

The Department of Labor extended to mid-April the deadline for public comments on amendments to the Voluntary Fiduciary Correction Program to reflect the impact of the SECURE Act 2.0.

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The Department of Labor has provided the public with more time to comment on amendments to the Voluntary Fiduciary Correction Program, it announced in a press release Monday.

The DOL’s Employee Benefits Security Administration reopened the public comment period—which had concluded on January 20—on amendments to the VFCP and proposed amendments to the associated class Prohibited Transaction Exemption 2002-51, the department stated. The new period runs for 60 days from notice being published in the Federal Register on February 14, which means the extended period should conclude April 15.

“Reopening the comment period will allow the Employee Benefits Security Administration to obtain important public input on implementing the changes mandated by Congress in the SECURE 2.0 Act of 2022 that impact the department’s Voluntary Fiduciary Correction Program,” stated Lisa Gomez, the assistant secretary for employee benefits security, in the press release.

“The Department is interested in comments on what revisions, if any, should be made to the VFC Program to reflect the treatment of corrections of loans to participants as described in SECURE 2.0 section 305(b),” according to documents placed on file with the Federal Register for publication on February 14.

The DOL’s proposed rule, published in November 2022, would allow fiduciaries to self-correct for participant contributions that are not invested or participant loan repayments that are not repaid and then to notify the department.

Plan sponsors, in their capacity as fiduciaries, are urged to comply with the Employee Retirement Income Security Act and the Internal Revenue Code by self-correcting violations. If plans voluntarily correct eligible transactions and meet the specified requirements, the program and exemption allow plans to avoid potential civil enforcement actions and penalties.

The SECURE 2.0 Act of 2022—a package of a package of retirement reforms passed by Congress in December 2022—included provisions for retirement and other types of plans. One change was to allow plans to self-correct errors related to loan administration through the Self-Correction Program under the Employee Plans Compliance Resolution System, within the jurisdiction of the IRS. Matt Hawes, a partner in the Morgan Lewis law firm, has explained previously that the earlier IRS policy required a process called the Voluntary Correction Program, which allowed plan sponsors to pay a fee and request IRS approval to make a correction.

Because SECURE 2.0 was passed after the proposal’s initial publication, the DOL is seeking additional feedback, notes Grant Vaught, a spokesperson at the Department of Labor, by email.

“The law includes a provision that requires the voluntary fiduciary correction program to cover certain violations related to participant loans if self-corrected violations align with the IRS’ Employee Plans Compliance Resolution System,” he says. “EBSA is reopening the comment period for 60 days to gather additional comments on any issues related to the amendment of the program to implement the act’s requirements.”

Products February 10, 2023

Putnam Brings ESG-Focused TDFs to DC Plan Sponsors

The defined contribution investment provider says the new offering is to meet growing demand from plan sponsors and participants.

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Defined contribution plan sponsors have access to new sustainable retirement target-date funds from Putnam Investments, the firm announced Friday.

The Putnam Sustainable Retirement Funds invest in actively managed, sustainable and ESG-focused exchange-traded funds managed by the firm, and using a similar glidepath as the firm’s other target-date offering, called Putnam Retirement Advantage.

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“Our goal as we look to bring products to the marketplace is to offer choice to our clients,” says Steven McKay, Putnam’s head of global defined contribution investment only. “If you look at the asset management industry in general, sustainable assets have doubled over the last three years.”

While interest in ESG-focused offerings has grown, McKay says this part of the DC space is still in a nascent stage with the expectation that it will evolve.

“We’re in the early innings of a much longer game here, and we’re looking to innovate for future demand,” he says.

The Putnam Sustainable Retirement Funds is the firm’s first target-date fund series with ETFs as underlying investments, a Putnam spokesman confirmed.

Republican Pushback

Republican policymakers are pushing back on the movement to consider ESG factors in investing, including in DC retirement plans, with asset manager BlackRock drawing much of the focus. In January, Republican state attorneys general, along with fossil fuel companies and researchers, challenged a Department of Labor rule that says ESG considerations can be taken into account when selecting investments for ERISA retirement plans.

The Putnam Global Asset Allocation team is responsible for the fund allocations of the firm’s new sustainable TDF suite, according to the Boston-based firm. McKay says those decisions will be guided by the material-based approach the firm takes with all DC-plan investments, with the goal of a sustainable retirement glide path that will follow the right risk at the right time.

The retirement investing head says Putnam paid close attention to the recent DOL ruling on ESG within plans, but the decision did not necessarily change the firm’s plans to offer what it saw as a client need. He believes the ruling helped provide guidance to fiduciaries on offering ESG-focused investments, and he expects further clarity as the space evolves.

“I think additional guidance and more clear and potential safe harbors down the road will help as demand grows and the needs of participants grow for these types of options,” he says.

Further Innovation

 Beyond the sustainable TDFs, Putnam is working on further innovations to the popular retirement vehicle, according to McKay.

A key part of that focus will be in personalization of the glidepath for individual participants beyond just age. Putnam is looking at products that take into account a host of factors to create an even more precise glidepath, including age, plan balances and contribution levels.

“To me, that’s an offering that I think participants would really gravitate toward and that plan sponsors would gravitate toward,” McKay says.

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