Compliance April 27, 2016

ICI Asks Lawmakers to Support Bills Against Fiduciary Rule

Bipartisan legislation already advancing in the U.S. House of Representatives suggests imposing a best interest standard through changes in the law, rather than through a cumbersome contractual regime, ICI says.
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In a letter to Speaker of the House Paul Ryan, R-Wisconsin, and House Minority Leader Nancy Pelosi, D-California, Investment Company Institute (ICI) President and CEO Paul Schott Stevens said that Congress should continue advancing bipartisan legislation to adopt a best interest standard in law, rather than through the “cumbersome contractual regime” imposed by the Department of Labor (DOL) in its final fiduciary rule. 

Stevens wrote to support H.J. Res. 88, introduced by Reps. Phil Roe, R-Tennessee, Charles Boustany, R-Louisiana, and Ann Wagner, R-Missouri.

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Stevens said the Institute strongly endorses the principle that financial professionals should act in the best interest of their clients when offering personalized investment advice, and that other bipartisan legislation already advancing in the U.S. House of Representatives is the appropriate way to implement this principle. “Such legislation has the distinct advantage of imposing a best interest standard through changes in the law, rather than through the cumbersome contractual regime contrived in regulations by the Department of Labor. The legislation would impose broad, strong statutory protections for savers seeking financial advice, without introducing the extreme complexity inherent in the Department’s rule,” Stevens wrote.

Stevens noted that while the DOL’s final rule reflects a number of modifications, the basic structure of the proposed rule remains intact. “Like the proposed rule, the final rule imposes significant new liability through a complicated, back-door regulatory regime that will have the effect of limiting available advice options for many savers,” he wrote, contending that implementation of the rule will make it more difficult for low- and middle-income Americans to save for retirement. He said small businesses, in particular, will find it more difficult to offer their employees saving opportunities.

Steven’s letter can be viewed here. 

A resolution has also been introduced in the U.S. Senate to stop implementation of the new fiduciary rule.

Compliance April 27, 2016

PBGC Aims for Reduced Late Premium Penalties

PBGC director says penalties “should be no more than necessary to encourage timely payments.”

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The Pension Benefit Guaranty Corporation (PBGC) is proposing to cut its penalties for late premium payments amid increasing criticism that the cost of its mandatory insurance coverage stands among the chief causes driving private employers out of the defined benefit pension market.

“We think penalties should be no more than necessary to encourage timely payments,” explains PBGC Director Tom Reeder. “I’m committed to doing everything I can to help companies keep their pension plans.”

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Under current laws and regulations, PBGC uses a two-tiered penalty structure that rewards self-correction. A lower rate of 1% of the late payment per month late applies when a delinquency is corrected before PBGC notifies the sponsor, while a higher rate of 5% applies if the correction is made following PBGC notification. Penalties in the first category are capped at 50% of the late amount, and 100% in the second instance, PBGC explains.

Under a new proposed rule released this week, PBGC would essentially reduce penalties for late payers by half. Additionally, for sponsors with “good payment histories that pay promptly following notification of late payment,” PBGC will reduce the penalty by 80%. The proposed changes will apply to both single-employer and multiemployer plans, and will apply to late premium payments for plan years beginning in 2016 or later. (A premium rate summary is available here.)

In an example case shared by PBGC in which a $100,000 premium is paid two months late by a plan sponsor who discovered the underpayment and corrected it before PBGC sent notice, the current regulations would lead to a $2,000 penalty. Under the proposed regulation, the penalty in this situation would be half that amount, or $1,000.

If the same plan sponsor did not discover the missed premium payments before PBGC sent notice, currently the payment would amount to $10,000 penalty, or 5% of $100,000 for two months. Under the proposed regulation, PBGC would therefore assess a $5,000 penalty. In addition, if the sponsor qualified for the good payment history waiver, PBGC would automatically waive 80% of that amount, reducing the penalty from $5,000 to $1,000—the amount that would have been assessed due if the plan had self-corrected. 

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