April 18, 2018


Fifth Circuit Strikes Down Fiduciary Rule

In a two-to-one decision, the Court of Appeals for the Fifth Circuit vacated the Department of Labor’s (DOL) partially implemented Fiduciary Rule, including the “best interest contract” exemption and other exemptions. The Court held that the DOL exceeded its rulemaking authority under ERISA in enacting the rule. While the DOL has announced that, until further review, it will not enforce the fiduciary rule, it has until April 30th to seek review of the Court’s decision, and until June 13th to appeal to the Supreme Court. The DOL has not indicated what it will do, but it is interesting that it agreed to a joint dismissal of a legal challenge to the Rule pending in the Washington D.C. District Court ten days after the Fifth Circuit’s decision. After spending significant time and resources to implement the Rule, many financial institutions are likely to continue operating as they do now; however, institutions that experienced a significant adverse impact to their operations may opt to return to their pre-Rule condition if the DOL fails to seek review or appeal.

Elimination of Some Retirement Plan Regulations

In February, the Internal Revenue Service (IRS) published a Notice of Proposed Rulemaking that would repeal approximately 300 tax regulations that have been deemed obsolete or otherwise unnecessary, some of which are related to retirement plans. Generally, the regulations interpret Internal Revenue Code provisions that have been repealed, significantly revised, or will no longer be applicable in the future, e.g. elimination of nondiscrimination rules that only applied to plan years prior to January 1, 1994. Although elimination of many of these regulations is not expected to have much impact, if any, there may be some grandfathered plans that could be affected.

Minor Impact of Tax Reform on Retirement Plans

Despite significant concern that Congress might change the tax treatment of retirement plans to help offset the reductions to individual and corporate tax rates in the Tax Cuts and Jobs Act, the biggest news about retirement plans is that there is no significant impact to retirement plans. Some of the minor changes affect disaster relief hardship options, the ability for Roth recharacterization (“undo” a conversion), and loan offsets.

Missing Participants and Voluntary Termination of Plans

The Pension Benefit Guaranty Corporation (PBGC) published the final rule that expands the missing participants program for terminated retirement plans. The implications are that fiduciaries, after diligent efforts to locate missing participants and beneficiaries have failed, may transfer those assets to the PBGC. Because the program only applies to terminating plans, ongoing plan sponsors would likely use the program if they decide to terminate the plan of an acquired entity.

To utilize this option, the PBGC requires the transfer of all assets to them to prevent plan sponsors from cherry picking more attractive plan participants. The PBGC expects the Department of Labor to provide guidance to fiduciaries who are eligible to terminate a plan. The program is available for plans that terminate on or after January 1, 2018.

Fee Changes for Voluntary Correction Program

In early January, the Internal Revenue Service (IRS) changed the fee structure for plan sponsor submissions to correct mistakes through the Voluntary Correction Program (VCP). Previously, plan sponsors generally paid a fee based on the number of participants in the plan, typically ranging from $500 to $15,000. Now, pursuant to Revenue Procedure 20184, plan sponsors will generally pay using a three-tiered structure based upon net plan assets. This new tier structure begins at $1,500 (for plans with net assets of less than $500,000) and goes up to $3,500 (for plans over $10,000,000 in net assets). The actual fee may be higher or lower than the previous fee, depending on the number of participants, the net assets, any previous/current fee waiver, the ability to qualify for a reduced alternative rate, and other plan specifics.


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.