With SECURE Act, EBSA has its hands full
From tricky provisions in Secure Act, to a new fiduciary rule, regulators have their work cut out
If you’re an employee at the Labor Department’s Employee Benefits Security Administration, you might be working some weekends in the foreseeable future.
From writing the supporting regulations necessary to implement the recently passed SECURE Act, to crafting a new fiduciary rule, regulators have a short timetable to implement rules, some of which will be extremely difficult to do, according to attorneys with Drinker Biddle.
Labor previously passed on lifetime income disclosure requirement
One of SECURE’s provisions requires the Labor Department to craft a model lifetime income disclosure for workplace retirement plans.
Related: SECURE Act doesn’t insulate annuities in 401(k)s from a fiduciary standard
The disclosure will include an assumed monthly annuity payment based on the savings in retirement accounts.
EBSA’s deadline to deliver the model disclosure is one year after enactment of SECURE, or December 20, 2020. A year after that, retirement account statements will be required to include an income estimate at least annually.
The concept—that an estimated income stream will motivate higher savings rates—is generally agreed upon in policy circles, but is not without controversy. Some recordkeepers, and at least one trade organization representing retirement plan sponsors, have cautioned that mandated disclosures could undercut how providers already use retirement income calculations to inform savers.
It won’t be EBSA’s first attempt to write an income disclosure rule; in 2011 regulators attempted to do so, but ultimately dropped the effort because it was too hard to do, said Brad Campbell, a partner at Drinker Biddle and former head of EBSA.
“It’s a difficult regulation to write,” he said in a web symposium hosted by the firm. “A lot of service providers already do this. The question is what is the right way to do this, and if one way is required, will that chill innovation on income projections in the marketplace.”
Campbell used the example of a 25 year-old with $5,000 in a 401(k). “Lucky you—you just got a $12-a-month annuity. That could be a disincentive to save,” he said.
Still no sign of fiduciary rule
EBSA has established the issuance of a new fiduciary rule as part of its regulatory agenda. Originally, the agency set a release date for last fall, and then later for last December.
But no proposal has been sent to the Office of Management and Budget in the White House, which will have to sign off on the proposal.
The delay calls into the question the probability of getting a new fiduciary rule on the books by the end of President Trump’s first term.
Proposals at OMB often take 30 days to review, but that can be expedited. And the rule will have to be open to a public comment period, likely for 60 days. If Labor limits the comment period to 30 days, it could welcome challenges under the Administrative Procedure Act, said Campbell.
“The longer the delay, the less likely it gets done in 2020, but it’s not impossible,” said Campbell. “It’s in Labor’s best interest to get this done expeditiously.”
Election could stymie SECURE and fiduciary rule
If November’s election results in a change of administrations, the result would be a likely change in the regulatory agenda and priorities at EBSA.
That could impact not only a new fiduciary rule, which Democrats will likely claim does not go far enough to protect retirement savers, but it could also complicate the stream of regulations written to support the SECURE Act.
“SECURE comes at a time when there could be a change in the administration,” said Campbell. “There’s a lot of uncertainty. The conundrum for regulators is to give the timely guidance we’re all looking for.”
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