On the Horizon

Many analysts predict a possible increase in risk management standards for companies to deal with potential threats

With several provisions of the Department of Labor’s Fiduciary Duty rule on hold for now, what other regulations or changes could be on the horizon for this year? Cybersecurity, as noted in other articles we’ve published, is a top priority for the regulators.  Many analysts predict a possible increase in risk management standards for companies to deal with potential threats.

It’s clear that the Department of Labor’s fiduciary standards, and possibly more importantly the exemptions to them, are high on the list of what’s being watched.  Many are watching for the Securities Exchange Commission to propose their own fiduciary rule.  While harmony between the two agency’s standards would be easier to comply with, it might be worth noting that the agencies have different congressionally mandated requirements they have to fulfill, which would make their two standards, even if harmonious, slightly different. It’s worth watching the SEC to see the comments collected and follow their rule making process. States too may enter the fiduciary field with their own set of regulations.

Much of what might be coming on the regulatory front that involves the financial industry, might not involve those who only work on employee benefits and retirement accounts.  For example, many advisors note that the SEC may be increasing its enforcement of retail investors and potential abuse in the mutual fund markets.  However, the notes from the agency about how they plan to increase enforcement may be useful; the agency stated that it plans to use data analytic strategies to discover misconduct.  These data analytics may also be used in enforcement investigations about employee misconduct and alleged market manipulation.

Other enforcement actions that may see increased attention include the SEC Customer Protection Rule.  As with the retail investment issues, the increased attention on the Customer Protection Rule may again be useful in the method that the SEC used to enforce the rule, namely increased document requests to focused targets. Document requests and document trails will also be vital as the Consolidated Audit Trail (CAT) rules and requirements will build this year.  As with the retail investment, again, data analytics will be crucial for those who have to follow and collect information under CAT.

Other, less high profile regulations include: updating the Internal Revenue Services’ (“IRS”) Form 5500 Annual Report. While the DOL initially sought to update these forms back in 2016, its current stated purpose is to make the forms more data mineable so that they can meet more current compliance projects. This fits with the increased focus on data analytics of the SEC noted in its enforcement actions.

The new form, available last November, also removes the compliance questions posed by the IRS.  The DOL’s changes include an increase in the maximum civil penalty amount assessable under the Employee Retirement Income Security Act (ERISA) to $2,097 a day for a plan administrator who fails or refuses to file a complete or accurate Form 5500 report. Other changes are others predominantly administrative in nature, such as clarifications regarding plan name changes (making this process easier to report) and allowing for more ease in the electronic signature areas.

Other, more final rules include amending the Abandoned Plan Program.  That plan, according to the Department of Labor, “facilitates the termination of, and distribution of benefits from, individual account pension plans that have been abandoned by their sponsoring employer.” The amendments awaiting a final rule would allow a Bankruptcy Trustee to use the DOL’s Abandoned Plan process to terminate and windup employee benefit plans. The changes primarily make it considerably easier to terminate a plan where a company enters Chapter 7 (liquidating). Under the new rules, as soon as the Bankruptcy Court enters an order for relief (establishing an estate), the company’s employee benefit plan will be deemed abandoned. That would allow distribution of benefits to employees and trigger certain exemptions. It would also allow the Bankruptcy Trustees to pay themselves, under prevailing market rates for compensation, for the wind down. Among the exemptions is a “fiduciary safe harbor for qualified termination administrators to make distributions on behalf of participants and beneficiaries who fail to elect a form of benefit distribution.”


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