Compliance June 22, 2021

PSNC 2021: Washington Update: Your Regulatory and Legislative Questions Answered

Leading ERISA attorneys and retirement plan policy experts discuss what regulations need to be addressed in 2021. 

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Day two of the 2021 virtual PLANSPONSOR National Conference (PSNC) reviewed the litigation efforts that were upended by the coronavirus pandemic last year, the new pieces of legislation that were enacted and what plan sponsors should begin considering for their plans’ futures.

Jodi Epstein, partner at Ivins, Phillips & Barker, began the session by disclosing five provisions of the Setting Up Every Community for Retirement Enhancement (SECURE) Act that are relevant for the current year, the first being an annual disclosure of plan contribution account balances as projected lifetime income.

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Second, Epstein told plan sponsors to look out for notices on qualified birth or adoption distributions (QBADs), which are available to any qualified participant. While QBADs have been available since January 2020, many plan sponsors have been waiting for additional guidance from the Department of Labor (DOL) on how to distribute such features, Epstein said. A QBAD would allow for up to a $5,000 distribution for the birth or adoption of one child, to each parent.

Epstein noted that plan sponsors are not mandated to offer QBADs. Additionally, participants can take other paths to receive a distribution. “It’s an optional provision, and then even if your plan doesn’t have a QBAD, a participant can get an in-service withdrawal and characterize it as a QBAD,” Epstein said.

Third, plan sponsors that have not started to count hours for long-term, part-time employees should begin quickly, Epstein said. According to the DOL, long-term, part-time employees who complete at least 500 hours of work for three consecutive years will be eligible for plan benefits in 2024, and therefore the counting of their hours should begin this year, she said.

This also goes for any “leased,” contract, or gig workers as well, said Epstein, in the case that a plan sponsor hires the employee for full-time work and benefits.

Epstein listed required minimum distributions (RMDs) as another change to review, since the SECURE Act increased the age to receive a distribution from 70.5 to 72 years old. Those who were receiving RMDs prior to 2020, but then suspended their distribution due to the pandemic, will resume receiving them, Epstein said. Those who reach age 72 in 2021 will also need to take their first RMD.

Lastly, RMD death-payout changes must also be reviewed by plan sponsors, especially given the SECURE Act’s 10-year rule. Under the legislation, entire balances of a participant’s inherited individual retirement account (IRA) must be distributed or withdrawn within 10 years of the original owner’s death. This rule applies even if the death occurred before the owner began taking an RMD.

The panel also touched on the possibility of extended coronavirus-related distributions (CRDs) in the future, adding that the likelihood may be slim as the economy rebuilds and most of the United States opens back up.

“We have to think back to where we were when that CARES [Coronavirus, Aid, Relief and Economic Security] Act was passed,” said David Levine, principal at Groom Law Group. “We were looking at 10% to 20% unemployment, people being concerned over their small businesses, and [the government] was throwing everything to salvage the economy. Fast-forward to the end of last year where you had people filing for PPP [Paycheck Protection Program] loans, and not as high of an unemployment rate. I don’t think Congress sees a big need to bring back that provision.”

With COVID-19 declared a national disaster, and as reports circulate on possible disaster relief aid, Epstein advised plan sponsors to document any alterations to their plan that could have been caused by the pandemic, or any changes that were a result of the CARES Act. “Keep track of what you did. You think you’ll be able to think back to what happened in 2020, but then years go by,” she said.

For example, any plans that took advantage of the CARES Act loan suspension feature will soon have to implement loans again. Epstein said that while vendors are handling this differently, it’s up to the plan sponsor to keep the plan qualified and accurate with regular revisions. “Update your loan policy because people have loans that predated COVID and loans that are post-COVID,” Epstein added.

Because workforces went remote in 2020, cybersecurity protection is anticipated to grow even more important in coming years. This means employers will have more responsibility to review and enact the best protection for their plans and participants, the panelists said.

Levine underscored the significance of properly reviewing vendors for not just their cyber-protection features, but for their insurance as well.

“If there is a massive breach and things get stolen without insurance, you want to understand what their controls are,” he said. “You want to understand notification steps and what they can promise to do.”

Compliance June 22, 2021

PSNC 2021: Fiduciary Mistakes to Avoid

ERISA attorneys advised plan sponsors to shore up their cybersecurity efforts and continue regular benchmarking work.

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Art by Aart-Jan Venema

The second day of the 2021 virtual PLANSPONSOR National Conference (PSNC) featured a lively discussion among four attorneys and a financial adviser as part of the “Fiduciary Mistakes to Avoid” panel held Tuesday morning.

With so many new regulations and pieces of legislation to keep up with, even the most diligent plan sponsors can lose sight of all the tasks that need to be done, or make a mistake, the panelists said.

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“Compliance issues are often interrelated,” said Percy Lee, an associate attorney with Ivins, Phillips & Barker.

Along those lines, plan sponsor fiduciaries need to follow more than just the Employee Retirement Income Security Act (ERISA) and guidance from the Department of Labor (DOL), he said. They also need to comply with IRS rules, Health Insurance Portability and Accountability Act (HIPAA) regulations and state laws, as well as the General Data Protection Regulation (GDPR) if the firm has a presence in the European Union.

He also said plan sponsors need to encourage their committees to document fiduciary discussions and integrate those key points into their requests for proposals (RFPs).

Sponsors can get help with all of this from their ERISA attorneys, retirement plan advisers/consultants or benefits brokers, Lee said. The thing to keep in mind when trying to keep up with all of these requirements, he added, is that some of them are not “commandments or regulations,” which is why the insight of fiduciary partners can be so helpful.

Cybersecurity Guidance and Simulations

One issue that should be top of mind for sponsors right now is the restricted use of plan participant data, as spelled out in the recent Northwestern University and Shell lawsuits, Lee said. This should lead sponsors and their advisers and consultants to hold conversations on data security and privacy, he continued.

He also said the recent DOL guidance on cybersecurity should make sponsors aware that they need to elevate participants’ “online ‘street smarts’” when it comes to their protection of their accounts and personal data.

“The DOL guidance affirms the importance of cybersecurity measures when selecting recordkeepers and other vendors with access to plan information,” Lee said. “Sponsors must conduct due diligence on policies, procedures and track records, and formalize these commitments into their service agreements. They must then continue to evaluate them, and document that.”

This can be done simply, through education, he suggested, noting that “the end user has a critical role in reducing harm from cyberattacks.”

Forward-thinking retirement plan advisers are also using “red team/blue team exercises” in their cybersecurity efforts, said Michael Kane, managing director of Plan Sponsor Consultants. In these exercises, a “red team” is a group that plays the role of an enemy or competitor attacking a company’s cybersecurity defenses and provides security feedback from that perspective, and the “blue team” fights back against the simulated intrusion.

Moderator W. Michael Montgomery, managing principal with Montgomery Retirement Plan Advisors, said he is aware of more and more plan sponsors going through these simulations, but because the security findings are so sensitive, most companies keep those findings and discussions at the retirement committee and/or board of directors level. “There is a hesitancy to get that detailed,” Montgomery said.

That is where the “use of appropriate experts can help [plan sponsors] make the appropriate decisions” with respect to their cybersecurity protocols, said Michael Rosenbaum, a partner with Faegre Drinker Biddle & Reath. “There are secrets that they want to protect. Generally, we see sponsors talk about this in committee meetings.”

Regular Benchmarks

One fiduciary duty that sponsors need to exercise on a regular basis, said Summer Conley, a partner with Faegre Drinker Biddle & Reath, is benchmarking or conducting due diligence on plan providers on a regular basis.

But they shouldn’t stop just there, she continued. Sponsors must ask themselves, “‘Who else should I benchmark? What else is overlooked?’” Conley said. “They shouldn’t just be focusing on recordkeepers. Rather, they should consider anyone providing services that are being paid for their services. That includes trustees, auditor(s), investment consultants, actuaries and others. They need to benchmark these providers and select a provider for a reasonable fee—and there is a range of ‘reasonableness’ where that is concerned. That is the key point, not that they should pick the cheapest provider all the time.”

A rule of thumb that sponsors can keep in mind is to keep their eyes and ears open to developments and new services in the industry, Rosenbaum said.

In other words, don’t be that plan sponsor who “gets in a five-, six-, 10-year ‘comfort zone,’” he said.

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