July 22, 2019

Legislative Updates: Second Quarter 2019


In late April, the Government Accountability Office (GAO) published a report on early withdrawals from retirement plans and IRAs. The report examined and reported on the number and amount of early withdrawals, factors leading up to them, and strategies and policies to limit early withdrawals. Examining individuals in their prime working years (ages 25 to 55), the GAO found that individuals withdrew at least $69 billion of retirement savings, resulting in those plan participants and IRA owners paying more than $6 billion in tax penalties associated with these withdrawals.

A job loss or separation from employment often leaves participants owing tax penalties associated with loans and negatively impacts retirement savings. To help limit early withdrawals, some plans allow participants to continue repaying loans after separation, and others limit the number and amount of loans. The report found that participants value the access to retirement loans, but that withdrawals have a significant negative impact on retirement savings. Regardless of whether participants have full or limited access to loans, they can have both positive and negative impacts on individuals.

The recommendation from the GAO is that the Department of Labor (DOL) and the IRS require plan sponsors to report on the number and amount of loans that are not repaid on Form 5500, since the current approach does not allow for the accurate tracking of unpaid loans. However, the DOL and the Internal Revenue Service (IRS) neither agreed nor disagreed with the GAO recommendation. We expect more clarity in the near future.


In May, the ERISA Advisory Council (Council) released two 2018 studies, one looking at promoting income options within defined contribution (DC) plans, and a second study that examined the effectiveness of DOL guidance on ERISA fidelity bonds. The Council, created by Congress and comprised of 15 individuals appointed by the Secretary of Labor, makes recommendations to the Secretary. While Council recommendations are not binding, they are helpful to the industry and to plan sponsors because they often indicate future DOL priorities.

Based on the first study, the Council recommended amending the qualified default investment alternative (QDIA) rule to include an annuity; allowing plan fiduciaries to appoint a discretionary consultant (3(38) investment manager) to monitor the annuity; and encouraging plan sponsors to adopt plan design features to facilitate the use of annuities.

The second study examined whether changes to ERISA’s fidelity bond requirement could improve compliance and enhance the protection of plan funds and other property. Specifically, the Council recommended additional guidance to demystify and explain the basic requirements titled “Fidelity Bond Summary.” Ultimately, the goal is to have a fidelity bond in place to protect employee benefit plans from the risk of loss due to fraud or dishonesty.


In April, the House Ways and Means Committee voted to move forward with the retirement legislation entitled the “Setting Every Community Up for Retirement Enhancement (SECURE)” Act of 2019. Also, in early April, the Senate reintroduced similar provisions in the Retirement Enhancement and Savings Act (RESA). Both bills have many things in common, signaling that the House and Senate are likely to come to an agreement and send a final package to President Trump for his signature. Some benefits of the proposed legislation include: 1) authorization of multiple employer plan (MEP) arrangements; 2) monetary incentives for smaller businesses to adopt new plans and add automatic enrollment features; 3) an allowance for smaller businesses to offer retirement plan benefits up to the due date of tax returns; 4) a safe harbor for fiduciaries for selecting an annuity provider; 5) portability of lifetime income products; and 6) an allowance for business owners to switch to a safe harbor in the middle of a plan year, if certain conditions are met.

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.