April 11, 2017

Legislative Updates: First Quarter 2017

THE DEPARTMENT OF LABOR (DOL) DELAYS FIDUCIARY RULE FOR 60 DAYS

On April 4, 2017, the DOL issued a final rule delaying the Fiduciary Rule until June 9, 2017. The rule also delays transitional requirements of the Best Interest Contract Exemption and other prohibited transaction exemptions to June 9, 2017. This delay may provide some relief for institutions trying to meet the previous deadline of April 10, 2017. However, given the short length of the delay of only 60 days, institutions need to make a quick decision to finalize their compliance plans or delay their compliance efforts until the DOL releases its analysis.

The DOL’s proposed delay of the Fiduciary Rule received a significant number of public comments. Approximately 178,000 of the 193,000 comments opposed the delay (with 15,000 in support). Many commenters opposed the delay because its duration was too short. In addition to the delay by the DOL, there is the potential that a court may invalidate the Fiduciary Rule itself on process defects in the rule-making process because: 1) the DOL did not subject the rule to a full 60-day notice and comment period; and 2) the DOL released the rule very quickly after the end of the comment period. Assuming the final rule is not invalidated by a court and there are not additional delays by the DOL, the new compliance dates are June 9, 2017 and January 1, 2018, depending on the specific requirement.

FEDERAL TAX REFORM STALLS

There has been significant pushback against a major component of the tax reform blueprint House Republicans issued to outline proposed tax reforms in 2017 – the border adjustability proposal. This proposal had largely been ignored until now, when tax reform looks like it may happen. The proposal means a big change in how business income is taxed, moving away from taxing based on where goods are produced or where businesses are headquartered and toward taxing based on where goods/services are consumed. The result would be that U.S. exports would be exempt from taxes, whereas U.S. imports would be taxed.

Multiple industries have descended on Washington to wage an all-out lobbying war. Several committee members of the House and Means Committee have expressed concerns about the border adjustability provision and have even called for a hearing on the measure. On the Senate side, there appears to be enough opposition to the border adjustability proposal that the provision will not have the support necessary to pass the Senate. While there seems to be a strong congressional desire to implement tax reform in general, there appears to be enough opposition to stall the proposed tax reform in its current state.

PROPOSED REGULATIONS TO ALLOW FORFEITURE ACCOUNTS TO FUND QNECS AND QMACS

In January, the Internal Revenue Service (IRS) published proposed regulations that would allow employers to use their retirement plan’s forfeiture account to pay for both qualified non-elective contributions (QNECs) and qualified matching contributions (QMACs). These QNECs and QMACs are important to plan sponsors because they are utilized as a plan design feature to satisfy both the annual deferral percentage and annual contribution percentage for non-discrimination requirements.

The IRS has indicated that employers may immediately rely on these proposed regulations. Previously, the IRS required QNECs and QMACs to be non-forfeitable when they are first contributed to the plan. The IRS is reversing its previous position on forfeiture accounts by allowing these contributions to be non-forfeitable when they are allocated to participants’ accounts, clearly permitting QNECs and QMACs to be funded through the plan’s forfeiture account. Comments on the proposal are due by April 18, 2017.

IMPORTANT DISCLOSURES: These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—Arnerich Massena cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.