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hello and welcome to today's 2021 plan sponsor regulatory outlook thank you for joining us to learn more about the consequences of the recent elections and how retirement policy may be impacted before i introduce our moderator we're going to review a few housekeeping items you may submit questions or comments during the presentation in the questions box we will be reviewing them as they come in and have q a at the end of the presentation this webinar is being recorded and we will send the recording to all participants within the next two business days now i have the pleasure of introducing you to today's moderator barbara delaney barbara is the practice leader at ssrba a division of hub international in 2020 she was named as a top 100 retirement plan advisor by plan advisor and received accommodation as a team lead on the top 100 women advisors by the national association of plant advisors barbara also serves on the government affairs committee of the american society of pension professionals and actuaries and the national association of plan advisors leadership council barbara i'll pass it off to you now to introduce our two speakers from fakery drinker thank you sarah and we're blessed to have these two wonderful speakers with us today i have the pleasure of introducing brad campbell and fred rich to nationally recognize the rest arrested attorneys and partners of feige drinker brad campbell is a nationally recognized figure in employee sponsored retirement plans who leverages his prior experience as the u.s assistant secretary of labor for the employee benefits to advise clients across broad range of issues related to erisa as erisa's former top cop and primary regulator brad has detailed and wide-ranging knowledge of the structure and operation of erisa plans insight that he applies to client engagement fred rich is a notice authority no noted authority on retirement plan products and plan management who helps ensure clients fulfill their fiduciary duty to investors and comply with federal law council's plan sponsors service providers and registered investment advisors on fiduciary responsibilities prohibited transactions under federal law federal audits and pension plan disputes when clients face regulatory dispute fred counsels them on mitigating the enforcement actions and resolving compliance issue now i'm delighted to turn it over to fred and brad fred you want to take it hey barb sure uh thank you very much um uh let's jump into the program and the program today is called elections have consequences and in our case we're going to focus on the consequences on retirement plan policy and i'm really fortunate to have brad with me as the co-speaker because not only was rad at the department of labor overseeing regulation and enforcement of erisa but prior to that brad had a life where he worked on the hill for a congressman so he's got that legislative experience and the regulatory experience that i i think it's going to be great for you all today uh well brad to get started i mean we we've had two sets of elections uh the first is a presidential election and and biden was inaugurated on the 20th of this month bringing the democrats into the white house and the second was the georgia senate runoff that occurred in in january and now those senators have been sworn in to office and the senate giving us a 50-50 split or if if everybody holds to the party line and it's a 50-50 vote then vice president kamala harris will cast in effect the 51st vote would you talk to us a little bit about maybe separate them a little bit and talk to us a little bit first about the presidential election and the consequences that'll have and then talk to us about the georgia senate runoff and the 50-50 split and the congress and and how that will augment the presidential election sure well thanks fred and thanks barbara but more importantly thanks to all of you for taking some time to listen to some erisa lawyers which well it does raise questions about your judgment but we appreciate it nonetheless uh so so fred your question's a really good one so you know obviously with president biden taking office that's giving him control over the regulatory and enforcement tools so whether it's the new sec chair he's proposed gary gensler whether it's mayor walsh or boston who is nominated for labor whether it's now confirmed treasury secretary yellen he's getting his own folks in to implement his policies on the regulatory side and so i would divide that into sort of two big buckets one is undoing the things the trump administration did or has left hanging that they want to address and then two actually implementing their own agenda and so as we'll see discussing some of these in details there's some rules that the trump folks left behind that the biden folks are going to have to deal with and then there's things that biden folks actually want to do when they start their own separate agenda and that that part i think is traditional in the sense of this is the same movie we see every time when there's a change in parties in the white house you get new folks in with new views different views and they go forth and do do what they're going to do the congressional side of this is a little different um you know going into the election after the november you know election we had the results uh we had the results for everywhere basically except georgia and it came out where who was going to control the senate would depend on the outcome of those two elections if democrats won both of them they would get this 50-50 control fred talked about if they lost one or both then the republicans would keep the senate and the difference in that in policy is actually quite significant for example some simple things that would affect the biden administration significantly is how long it takes to get their nominees through how long how hard is it to get senate confirmation and frankly if the republicans had retained control their plan unofficially uh was to let a few of the high-profile folks like janet yellen treasury secretary yellen come through but to make it very difficult and unpleasant for most of the other nominees and to drag it out for a long time that no longer can be done so the consequence of the shift in control in the senate is that president biden's nominees are going to have a much easier time getting through confirmation i didn't say easy i said easier time getting through confirmation and therefore will hit the ground running with their agenda quickly the other big difference is that where in retirement policy from a legislative standpoint prior to the november election what we were really looking at for a legislative fix on retirement is what a lot of people call the secure act 2.0 and we'll talk about some of those details but basically a bunch of rifle shot changes to retirement policy that are popular on both sides that everyone's agrees on now what we have is a situation where some of the biden administration's campaign proposals which perfor which suggests a little more fundamental change to the retirement system and the taxation of retirement contributions and so forth that's actually now a possibility that's going to be explored in legislation and we're expecting to see tax bills which could include retirement provisions be one of the early priorities of the combined democrat-controlled house senate and white house and you know i won't keep going on fred but i'll just throw up two words that everyone needs to know the shorthand version of what they mean which is budget reconciliation you may have heard all the talking heads mentioning that what it is is that shorthand for expedited process what it basically means is that if they do a tax bill under these special rules called budget reconciliation you only need 50 votes to win in the senate you don't need 60 to end debate so you get around what's called the cloture motion and that makes it very hard to stop those bills from moving forward if the democrats agree on their content now there's limitations on what can be in those bills there's a whole bunch of special rules but the bottom line is because they have 50 votes in vice president harris they're now able to advance a much more significant agenda legislatively than they were before well great what a great introduction congrats um let's uh if we move over to the next slide let's talk a little bit about uh marty walsh you mentioned that he's the uh boston the mayor of boston uh tell us he's gonna be the secretary of labor assuming he gets confirmed which he probably will um but tell us a little bit maybe about his background and what philosophy you think he's going to bring to the department of labor vis-a-vis retirement plans yeah this will this will be interesting his prior experience other than obviously you know being in politics and mayor of boston and the state legislature in massachusetts uh is that he was a labor uh he ran a labor union so he is very much from the world of organized labor and i think it's fair to say if we look at the policies he's likely to pursue as secretary of labor the ones that are on the top of his list probably are not those really in the retirement area it's probably a lot of the other things the labor department does and frankly that's not unusual i mean the reality is most secretaries of labor are not coming from a financial regulatory background because you know it's it's frankly it's a little unusual that the labor department has this small financial regulator built into it in erisa and that's not really the primary focus so we do think he's going to be interested um the funding issues that face multi-employer pension plans the jointly trusted labor plans that's going to be an issue he'll no doubt be active in pension benefit guarantee corporation the issues in general which are important he's going to be active in uh and we do anticipate though that there are priorities that he's going to work on in our space because they are priorities for the white house and we'll talk about it in a minute but one of those is the new pecuniary rule or you might have heard it called the esg rule and a rule that talks about how fiduciaries can prudently select environmental social and governance related investments that's something the white house the bind administration on the first day identified as an environmental priority they listed a whole bunch of regulations at federal agencies that needed to be in their view fixed for environmental policy reasons and the only one at the labor department on that list is this ebsa rule about the pecuniary factors for selecting investments so he'll be active in our area but i do think it's fair to say it's probably not his first priority and certainly not is his primary background right the the biden platform had a number of proposals in it i have mixed thoughts on whether or not they're they're going to be uh be able to get 50 votes in the senate so that the vice president can pass the uh or can vote the deciding vote but let's just quickly run through them because i don't want to spend too much time on things that may not happen but the but if we go back one slide um the the first one is what's called equalizing the benefits uh or the equalizing the tax deductions for deferrals what do you think about that yeah and so just to be clear about what you were saying two months ago these were just campaign promises no one expected being able to go anywhere in the senate now because of the change they might so i i agree with you these are not by any means done deals these are not policies that will happen but they're policies that are now in the mix of discussion and potential legislation where they weren't before in a realistic way so this first one about equalizing the tax deductions what they're saying is they think the current tax benefit of participating in the retirement erisa retirement system is disproportionately going to folks at the higher end of the income scale their view is that because your amount of your deduction is linked to your tax bracket in other words let's say barb that you're in the 35 tax bracket and i'm in the 10 and we both put a thousand dollars in our 401k you get 350 a tax benefit and i get 100. and they say that that's inequitable and inefficient and they're proposing some middle ground where there would be kind of a standard tax deduction let me be careful with that language it may not be a standard tax deduction in the tax meeting but a uniform tax credit possibly that would give all of us the same benefit for making that thousand dollar contribution and the effect of that would be to reduce the tax incentives that benefit higher income folks um which could have impacts on plan formation among small businesses and other places so it's a it's a somewhat controversial proposal uh and we'll see you know how that gets debated or whether it gets uh put in but that's one of the issues they've raised all right my sense is that that uh a lot of people are going to raise the argument that if you don't give the highly compensated folks enough of a tax break that in many cases small employers may not set up plans because they're they're they're going to have their deductions reduced going in but when they take the money out at the back end they're going to be taxed at their at a fairly high rate if they've accumulated a lot of savings so i i don't know about you brad but if i had to bid on that one i would bet it will not become the law i just think it's going to be it's going to be hard to get 50 votes i think it will be hard to get it but i think it'll be a vigorous debate and there'll be more support for it than than we might think oh okay well let's just do the the second bullet point here uh in another one of the platform type proposals was that every 401k plan in the country other than maybe the smallest ones be forced to automatically enroll their employees i think historically uh the democrats have been in favor of that kind of a concept that everybody ought to be automatically every employee ought to automatically be put on a plan but the republicans tend to say hey we don't we don't think it's a good idea to impose mandates on employers that life is tough enough the way it is uh let's let's try to make it easy on the employers and and hopefully over time that will encourage more jobs and a better economy uh what do you think about that one yeah there's a number of different variations of these concepts so there's things that president biden's talked about there are things that the ways and means committee chair mr neil of massachusetts who's the head of the head of the tax writing committee in the house he's been promoting auto iras and auto 401ks as well and the proposals vary a little bit some of them say that if you're starting a plan you're going to have to include auto enrollment and auto escalation if you're above a certain size other versions of it want to establish a fallback so employers who don't offer a plan would have to offer access to some kind of national 401k or maybe not nationally as in government-owned but potentially a privately there's a lot of details to work out but the idea being that if you don't have access to a to a plan at work that there be a fallback one you're defaulted into by the government which you can then get out of if you want it that this part of the debate i think does have some legs because one of the key issues that the democrats are concerned about is access to retirement savings and fortunately i think for the industry mr neil is not believing it automatically has to be a governmentally run program but rather that there be a way for the private sector to facilitate these programs um which could offer a lot of opportunities for folks to to get covered who aren't now but the devil's going to be in the details and how any of these go forward the formation of maps will accelerate because of this it could well be so the the maps and the pooled employer plans the peps which are now coming online uh those were created by the secure act by you know bipartisan cooperation for the purpose of expanding the availability of plan options particularly to small business and they could be a vehicle that could be widely used to cover some of these folks again a lot of it's going to depend on the details that they negotiate but i think this area is one that we should expect some potential legs too simply because everybody supports more access and if they structure these proposals the white the right way republicans have become less less automatically in opposition to things like automatic enrollment because we've all seen that it works 10 years or plus of experience shows that people actually like auto enrollment it's not that participants didn't want to save it's that they didn't know how and what to do and didn't make the decisions and so when you default them and put them in auto escalation they don't jump out it's not until you get very high levels of contribution that you get any significant number of people who decide to opt out so both sides are coming to the conclusion that some form of mandatory participation is useful the question is how much and how far yeah i think this has probably been moved along a little bit too by states like california and oregon that have their state mandated programs of employers other than the smallest employers have to have an iris set up or a plan where they can employees can defer money out of their paychecks and where they're automatically enrolled at a particular deferral rate well let's move to the next slide and uh where i think there's some greater certainty uh about whether or not the law will pass we have brad mentioned the secure act a minute ago and he was referring to a 2019 secure act that among other things had a provision of pooled employer plans where a whole bunch of employers can sign on to a single plan they can transfer a lot of their fiduciary responsibility on to the sponsor of that single plan but it it's but it accumulates the assets of all of the employers and in addition to a transfer of fiduciary responsibility there's also hopefully through the accumulation of assets the the services and the investments will be less expensive so that's 2019 secure act which to make it easy i'll call secure act 1.0 what we're going to talk about now is secure act 2.0 which isn't the law 1.0 is already the law 2.0 is a bill that was introduced last year and will be reintroduced this year by congressman neal who as brad said is the chairman of the house ways and means committee a very powerful position democrat massachusetts and congressman brady who is the ranking member being the most senior member of the minority that is of the republicans on the house ways and means committee so you have the two top senior congressmen on one of the most powerful committees in congress have co-introduced this bill meaning it's bipartisan also this bill is has draws many provisions from a senate proposal introduced by senators portman and cardin portman a republican card and a democrat who are two of the most influential thinkers about retirement issues in the senate which is my long-winded way of saying hey i think this thing has legs and i know it's bipartisan which is great for any piece of legislation but which surprisingly is somewhat usual for retirement plan legislation it it just seems to have drawn less controversy than laws and rules in a lot of areas so with that introduction let's talk about what some of the provisions are because i think uh by the end of this year this bill will have passed many of these provisions will probably be effective for next year so they're in your immediate future number one there there's a concern in congress and among policy makers generally that we need more plans in america particularly small employer plans where a lot of employees don't have a chance to save through payroll withholding so the question is how do we increase plan sponsorships well the two ideas were let's increase the tax credit that employers can get for small plant startups and let's have uh gee that idea of peps that i talked about an integral seems pretty good let's do it for 403b plans as well as retirement plans uh so brad walk us through a little bit about the details on this and what you think the odds are yeah well i agree with you i think the odds are very good this will pass the question is timing and how long it takes and that's because you know they got a pretty full agenda of things they got to deal with now they've got to decide on covent funding whether there's another round of relief they got to decide on these tax bills they're going to start moving they got a i guess hold an impeachment trial i don't know where i think that's happening anyway you add all that up and there's a lot of demands on floor time in the senate in particular so it's it may not happen in the short term but i agree with you i think it's likely that this year one way or another some package of reforms similar to these past and you're right one of the core elements of it is access and there's kind of three main ways they're they're attacking the access issue one is to again make peps more available to 403 b's another is greater tax incentives for employers who start a plan uh basically trying to remove all of the expense so instead of deducting half of the expense of a startup you can deduct all of it you know things like that to try and make it cost free for the employer and also a whole bunch of new credits for uh participate for participants so you would actually essentially have a government match for participant contributions whether there was an employer match or not so there's some really valuable from that perspective tax credits uh in here to encourage uh participation but that's only one element of it and if we go on to the next slide there's you know a bunch of other provisions here that are helpful for employers as well you know we mentioned before that there's sort of this growing acceptance of of mandates what this bill has as it was introduced last year is a notion that new plans would have to adopt automatic enrollment and auto escalation going from six to ten percent or is it three to ten percent anyway going up until you hit a maximum of ten but they wouldn't apply it to existing plans they would apply it to new plans for above a certain size employer where the employer had been in existence longer than three years so there's kind of a ramp up to this mandate call it a soft demand date but the fact that there was wide bipartisan support of that by republicans is significant as we mentioned earlier it shows there's acceptance that this approach works and isn't putting an undue burden on employers because of the way it's structured the probably one that i think is going to affect a lot of folks and have a lot of interest is this notion that you as the employer could decide to allow to make matching contributions to the 401k plan or the other similar plans if the employee is making payments on their student loans in other words student loan payments could be treated essentially the same as planned contributions for the purposes of an employer match to the plan and that's been something people wanted for a long time but hasn't been possible on a broad scale uh actually directly linked on a tax favored basis to the plan before and this would allow that again a whole bunch of provisions in here that do a lot of little things to help folks like increasing catch-up contributions um and so forth if we go to the next slide there's there's still more um that they had in this proposal a big one another change on rmds so we went from 70 and a half to 72 in the secure act 1.0 last year and i think everyone around the world said think we've got we finally got rid of the half at least on the back end of these qualification issues um and they're proposing taking it up to 75 again to reflect uh increasing longevity and also you know not forcing people to realize uh losses and periods of volatility and another very popular one to let 403 bees invest in collective trust which is not currently possible so you add all that together it's a bunch of little ideas that everyone likes that could collectively do some good and probably again the biggest change since two months ago when this bill was introduced is that now there's the potential for tax legislation in the retirement space that goes beyond just these things but i think whether that other bigger tax legislation takes place or not these ultimately will pass it just may take time for the senate and the house to work it out this year good well i i i think that uh you know from my perspective congress is focusing on the right things which is to get more people into plan or get more plan sponsors to employers to have plans get more people into plans and then get them saving more money so let's move on from legislation to regulation wait for the screen to catch up with us here uh one more slide the uh brad while they're working with the slides they're what back and forth while they're working with the slides um there are three sets of regulations i want to talk about today if we have time we might talk about one or two things beyond that but um on the one is the cuny area or esg regulation we have a slide on that coming up so we don't have to talk about it right now the second one is the lifetime income illustrations and then the third one is a sort of the fiduciary rule um but let's let's the numbers one and three on this slide we have follow-up slides on but we don't on the lifetime income so let's spend a minute on in here here for those of you who are listening in and you're wondering what we're talking about with the lifetime income illustrations and they in the old secure act 1.0 from 2019 there was a requirement imposed on plan sponsors beginning at the end of this year 2021 to include to provide participants with a projection of what their life of what their account balance would buy in retirement now if you're thinking oh gee how am i going to do that don't worry about that that your record keeper your service providers will take care of that but it's going to raise a lot of questions with your employees and and uh you know what does this mean what do i do about it should i be saving more and i would encourage plan sponsors to be talking to their advisors and and to their service providers or record keepers about uh what's it going to look like give me give me a sample now let me look at it let me see what questions i have about since you're going to be providing it to my employees what we have right now describing what needs to be done and what your service providers are looking at right now your your plan service providers are is what called an interim final regulation and i want to turn to brad here in a second and say uh you know brad from my perspective there's some glitches on the guidance that the trump administration issued and a interim final regulation suggests that it could be changed pretty easily what do you see happening over the next few months so brad off to you yeah so just to clarify for everyone because i'm sure most of you are not uh up with the intimate details of regulatory law uh good for you you probably do something more productive with your life but an interim final regulation is different than a normal regulation a normal regulation the department proposes what they're going to do asks for comments then they think about the comments and then they issue a final rule and the final rule is one you have to live with the proposal is just an idea that they're thinking about doing in this case a interim final means the proposal is the final rule but they're willing to take comments on it and may change the final rule again so that's where we are with this the the the interim final essentially the proposal that the uh trump administration put out in september is binding unless the biden administration makes more changes to it and gets those out to us if the administration makes no changes this will become effective this september and will apply to end of the year numbers of you know disclosures that will need to be made roughly in january to account for this 2021 plan here some of the glitches fred was talking about and we're waiting to see if the biden folks are going to do that um some of the glitches fred was talking about dol was trying to balance a desire to be simple in the safe harbor where you get a you know some protection from litigation with the desire to be accurate and i think they got the simplicity over right and the accuracy underwrite uh because you know fred was saying they're going to look at your account balance what they actually say in the safe harbor is you're going to take this individual's account balance at the end of this year and you're going to project both an individual and a joint survivor annuity number calculation of income based off of that but you're going to pretend this individual is 67 and that this is the final amount that's in their account regardless of how old they actually are so when fred said folks are going to come to you with questions and your advisors with questions well imagine i'm 25 and i've saved 5 000 in my account and i just got a disclosure that said all this is gonna get me in retirement income is two dollars a month because they're pretending i'm retiring today with five thousand dollars to my name that's i think going to engender some questions uh an alternative for dol was to figure out how to take that five thousand dollar balance roll it forward to the retirement age and then calculate an annuity but that would of course raise questions about how many assumptions are you making methodology et cetera and so there's a there's a balance to be struck and a lot of comments were sent into dol following the september rules saying hey let's look at some of these issues again another glitch that frankly is really odd uh is that if you have a lifetime income solution in your plan already you can't give the actual projection your actual plan will give what would produce uh and still get to safe harbor so making up this artificial number with its limitations from dol gets legal protection but your actual plan projection of your actual plan does not and that seems a weird outcome as well so there may well be some changes coming on this rule but as fred said talk to your record keeper because whether it's modified or not uh this rule is happening and you're going to have to deal with this at the end of the year for a second most of ours are doing projections now the frustration we hear from our clients is if you have someone who's 50 they have outside assets and it doesn't account for outside assets so 90 percent of the time for the older folk it's not accurate for the younger folks it actually turns out very well because it's taking their current percentage and projecting it out so there's this work to be done because you do need all the assets on it but it's a work in progress i would say yeah i think this issue is not one where people disagree with the concept i mean the concept makes sense if you tell me i've got 374 000 in my retirement account i say yippee that's a lot of money but i don't know what it means if you tell me i've got 600 bucks in retirement income i understand what that means so the concept i think everyone agrees on it's the execution that's actually really thorny and raises some some policy issues a quick quick comment on what brad was talking about where he mentions a safe harbor uh when employers found out that that the department of labor was thinking about requiring projections uh they went to the department of labor and said uh gee what happens if the projections are wrong i mean and and as a matter of fact the projections will be wrong because they're based on assumptions and assumptions never literally come true now that'll be uh helped to some degree by the fact that you'll get this statement every year so every year that'll be finer and finer tuned as your account balance gets bigger and as you get older but nonetheless the department of labor said don't worry about that if you follow these rules the the things that brad was talking about and you project it the way we say or you have your record keeper your service providers project it the way we say there will be a fiduciary safe harbor meaning you're not going to be liable if the if the illustrations turn out to be wrong and when brad was talking about a if you have something in your plan that provides an income stream in retirement there's a growing interest in the government particularly in providing guaranteed benefits for example annuities through plans and an annuity would say you know if you put so many dollars in here we'll pay you so much a month in retirement that would and and as brad was pointing out even though that's what that participant would actually get in retirement you can't use that as a projection there's a lot of nonsense in this interim final regulation and hopefully we'll get straightened out but i think the takeaway for the moment is as an employer with a sponsoring a 401k plan uh you ought to be talking to your advisor and your record keeper your service providers it's somewhere in the next few months to get your hands around this to understand what's going on and and to develop solutions and what i mean by solutions well one idea would be to provide some alternative calculations saying on the other hand you're only 25 years old so we don't have to assume you're going to be 67 on december 21st let's do a projection let's take your current account balance and project it out for 42 years compounding a you know a reasonable rate assumed rate of return and see what where you are today looks like then another would be what's called gap analysis do you want to provide gap analysis to your participants which says see if you want to be on course to have a reasonable um retirement based on standard data then you should be saving another 25 a paycheck i'm i'm making these numbers up but i'm trying to give you an idea so that's what you need to get your hands around just what what's going on and what do i want to do about it uh going forward and as we get further along in the air there'll be more information on this but i think maybe we spend as much time as we can on this one i do want to add one more thing that that that on the one on one of the earlier slides i realized we should have mentioned that there's this concept of a long-term part-time employee which would be an employee who's working for you for at least 500 hours a year but less than a thousand so they don't automatically get in the plan and that will come the the year you begin counting how many hours i work is this year this is the first year so this year next year and the year after three years and then the fourth year you would need to bring those people into plan at least to allow them to defer that's secure act 1.0 secure act 2.0 says wait a second let's reduce that to two years now that's not the law the law is three years but maybe it'll change to two years so if you're not hopefully you have in place this year a method for tracking the hours of your part-time employees where you can easily calculate those two or three years from now so that you're going to be operating your plan in a compliant fashion okay enough that really is a great takeaway fred because i think we have a lot of clients who don't realize they need to talk to their record keeper and their payroll provider this year to make sure they're starting to gather that part-time you know 500-plus hour employee data yeah that they may not have been keeping track of for any real purpose before yeah it's a funny thing where you can say oh you don't they don't come into the plan until 2023 or 2024 or whatever and people think oh i don't have to worry about it now but you do you have to be coordinating with those service providers to make sure you're tracking the hours and you're accumulating the data on a year by year basis between now and then so i'm glad you said that brad that's a good point let's go to the next slide uh brad we've talked about esg economics social and governance factors for selecting investments we've talked about pecuniary which is the strangest possible word to ever get into a law so but now the the the trump department of labor said uh hey you've got to select investments based only on pecuniary factors but if economic social or governance factors can affect the ultimate risk or return of the investments then they become valid but if you're just using them to say hey we're trying to accomplish some esg goal they're not legit in terms of the regulations so um that was one of those rules that became effective as i think we've already said before the biden administration came in so now the biden department of labor has to figure out what to do with that um you've already alluded to this but why don't you just tell us what you think the outcome of this is going to be yeah so yeah again you need to understand that the background of this whole question of how do you consider investments that have sort of these environmental social governance factors this has been an issue for 20 or 30 years at the labor department there's been guidance that's gone back and forth starting with the clinton administration when i was running the agency in the bush administration we put out guidance pushing back on the clinton guidance and then the obama folks put out guidance pushing back on our guidance and then the trump people finally said we're just going to do a rule and what the trump folks were concerned about is they don't they don't want to see plans used as leverage in other political activities they don't want to see environmental groups or unions or anybody else using plan assets to engage in shareholder activism and make investments that are going to be motivated by politics and not economic benefit to participants and the phrase they finally came up with was pecuniary to describe that in other words the only factors they want you to consider for your investments are pecuniary factors things that would have a material economic effect on the investment during the time frame the plan is going to hold the investment and that's in essence what they were driving at as i mentioned before the bike administration well i don't think they disagree with the basic thought that erisa plans are about doing what's best for participants their view was that the trump rule has gone too far and particularly in how it approaches qdias may have overly restricted investment in esg related investments and consideration of those factors and that it may essentially scare off plans from investing in legitimate investments that nonetheless have these features and so they put it on this list of saying you know as i mentioned targeting it as an anti-environmental regulation that needs to be reviewed and that's separate from the erisa considerations which are also present there are a number of people in the erisa world who don't like the way this final rule was crafted even though i think everyone agrees the final rule was better than the proposal which really did target esg in a negative way the final rule is much more modest so if what you should take away from this is you are absolutely allowed to invest in esg related investments you can use them as qdias but you have to go through essentially the normal fiduciary process and take into account uh only the relevant factors to the economics of it and that can include esg or not depending on when they're relevant and when they aren't so there's absolutely ability to invest in these now but be aware that the byte administration is likely to in the short term my guess is by guidance and in the long term probably by another regulation we'll make this even more permissive so the direction we're going with the biden administration is easier to invest in esg the president where we are is esg is allowed but you're going to have to follow the right process and so i think that's the easiest way to sum up where we probably are yeah i know what i'm telling people and i assume you are two rads plan sponsors is uh you know if they've got a esg investment in their plan right now and they've heard that the department of labor is uh issued tougher rules in that area i'm saying just hold on don't don't don't take it out don't even think about taking out don't have a meeting on taking it out uh you're you're operating in a in a environment now with a lot of gray uh less let's hold on and let's see what the biden administration does because otherwise you could end up doing something today in three or six months from now reversing what you did today it's a it's a good time to uh to be a procrastinator how's that yeah i would also say don't let it stop you from investing in esg if you've been going through a good process the key is do you have a good thorough prudent fiduciary process and if you do this shouldn't scare you off either i think fred's absolutely right don't rush to get rid of these and don't rush to add them but if you're going through the normal course and you were going to do this anyway i wouldn't let this stop me from continuing on a process that was already in you know in motion sorry i talked over you barbara that's okay because we have many of our clients have been waiting to put esg in and we've been going through the due diligence processing so what i'm hearing is hold off a little bit before we add them actually what i would do on that barb is is uh go to the investment manager the mutual fund management firm and say are you using uh esg factors as pecuniary factors or are you just using them to accomplish environmental social and governance goals if they say they're using them as pecuniary factors i'm with brad you'll just run it through your regular process and i don't think there's a need to hauled off on that um so i think i think it's you know in a few months it's gonna be a lot clearer anyway hey let's go on to the next slide and brad on this one let's cover it pretty quickly it mainly impacts advisors to plans so but the dol has said that and i'm going to overly simplify this that if you make a rollover recommendation to a plan if an advisor recommends that a participant in a plan roll over to an ira with them and then they provide ongoing advice to the ira then the advisor will be a fiduciary when they made the rollover recommendation which means that the advisor has to look at the uh the the investments services and expenses in the plan that has to look at the investments services and expenses of the options available in the ira and then has to gather information about the participant the investor and determine what's in the best interest of the investor that is an expansion a significant expansion for advisors of what the rule has said in the past my fact that's a reversal of what the rule has said in the past uh unless that advisor also happened to be the advisor to the plan then it's the same thing but if that was just a another advisor say a personal advisor for a participant then yes that would be a a fiduciary act fiduciary advice under the under the new interpretation by the department of labor and that then brings in a conflict because typically an advisor makes more money from an ira than they do from a plan because the fees for plans are very low uh maybe that advisor doesn't even work with a plan at all in which case they're getting nothing relative to those assets where if they if the money goes into the hour they get a advisory fee or a commission uh for the services they provide there so that's what's called i mean we would all say that's a conflict of interest but in the internal revenue code in erisa we call that a prohibited transaction literally meaning it's prohibited well the the dol then said but if you follow these rules we'll give you an exception to the prohibitions and this is one of those rules that doesn't become effective until after the biden administration was sworn in on january 20th so uh uh brad i just threw a whole word salad out of you will you uh or you will you uh put it all together in a way that makes sense for folks yeah so basically the bottom line is when does all the when is the full panoply of erisa both the standard of care and the primitive transaction rules when do they apply to advice recommendations and as fred said in the past generally rollovers were viewed as not a space where that applied the trump administration issued guidance which surprised all of us for sending bush era guidance that said nope it applies to rollovers most of the time uh with the nuances fred laid out and that's caused a lot of questions about well what's gonna happen because the special rules that they put out saying okay well if you're a fiduciary for this rollover here's how you can still get a commission here's how it's no longer a prohibited transaction or at least it's an exempted prohibited transaction if you follow these special rules um the binding administration doesn't seem to like those new special rules that they think are probably too permissive so what we think is going to happen is they're going to very shortly propose a delay of the effective date which right now would be sometime in february they'll probably propose a 60-day delay take comments on the rule and the policy maybe delay it again and ultimately we think they're going to withdraw the special rules but this issue is still going to be there the guidance is probably still there and we think actually the biden folks are going to go a step beyond and instead of just doing new guidance related to the old 1975 rule they're probably going to replace or start a regulatory process to replace that rule with a new rule and if that song sounds familiar it's because they did this in the biden administration back in well they started 2011 or so they did it for real in 2015 2016 and then a federal court vacated the rule struck it down as being overly you know outside of their department's authority the way they did it in 2018. so in some ways we're going to have another debate about exactly how do you define fiduciary how does that square with what the courts have said the department can and can't do for planned fiduciaries in the short term the the real effect is if you have an advisor who's regularly telling you what the plan lineup should be they pretty much ought to be explaining to you that they are a fiduciary it's very unlikely they're not a lot of the debate in this new rule is going to be about what happens on rollovers and when that's advice and that's maybe not a core issue that's going to affect the operations of a lot of your plans even though indirectly it's relevant because it affects your ability of your participants to get advice to leave certainly since the judiciary rules for four years ago we have absolutely seen a trend rollovers are not coming out of plans i mean they've almost stopped because the broker-dealers and ras have basically said you really can't do this unless you have a lot of good reasons so generally as a trend we're seeing money staying in plants much more than we ever have and that's interesting and i i've seen similar things but in part that's because i see plans falling in two bunches those that are designed really for mid-career accumulation folks you know like all the features really are around how does this help me accumulate retirement assets versus another which says okay we need that part but we also want this plan to be somewhere where people will stay after they retire and take assets from the plan in other words is this a plan that serves the needs of retirees who want to stay in the plan and how a plan structure probably has a lot to do with whether a rollover makes sense for those individuals because it gets into the availability of things like retirement income or other investments it gets into the availability of individualized advice whether which i'm buying in my ira but probably don't have in my plan so i think you're right it's raised some barriers but i think there's still a really real need for people to uh get advice about whether they should roll over or not because there are reasons to roll over no matter how good your plan is uh in my situation it might not be what's advantageous for me uh at retirement lesson plan design issues because many planned documents just don't allow you to take distributions cost 25 per distribution so i think that's an industry issue that we all have to work on it's kind of interrelated yeah that's a great point it is a lot of planned design issues there yeah barbin and brad i think in the you know we probably ought to open it up to questions now and spend our last 10 minutes or so responding to any questions that you might have barb on behalf of the audience or to any questions that have come in while we've been talking well let me start with the first one i don't see any yet in the chat room but what do you think the most important thing for plan sponsors to address out of these new regs this year priority you want to start off i think i'd start off with having a conversation about these lifetime income disclosures because that's actually a requirement that is going to hit this year one way or the other uh whether it changes or not so i talk to my service providers in particular my record keeper about what what's coming there uh and the other thing again i'd say even though it's not about necessarily these new regs talk to your payroll provider and make sure they and your record keeper are wired together on this question of 500 but less than a thousand hour part-timers yeah i would uh i'm going to take the liberty of of responding to your question but not to really what you asked how's that let me explain what i'm saying um we didn't talk about it on the program but the other thing first off i agree with brad that's that would be number one right now uh i would also start tracking part-time employees which we mentioned as an issue and then the third thing is if you haven't really looked at the expenses of your investments and the expenses of your service providers your record keeper including any revenue sharing or other indirect payments they may get due to your plan make sure to do it this year that we aren't talking litigation today that's a whole different program but that is those two sets of expenses investments and record keepers are the primaries uh claims that are being filed in in the rissal litigation so yeah if i could just add to that um please remember that the plaintiffs bar is trying to convince you that you're always supposed to pick the cheapest and always supposed to pick the zero share class that isn't that's that isn't what your actual duty is and that's not what the courts have held in the cases where they've gone all the way to trial what the courts have held is what the erisa requirements currently are which is you have to understand those issues and make a prudent decision about them and pay only reasonable fees and a reasonable fee is not a synonym for the cheapest fee so as fred said if there's indirect payments you need to know what those are going for it may be that the quote unquote higher cost share class is actually on net a better advantage for the plan because revenue sharing offsets other expenses it may in fact be it's just more expensive those are things you have to understand as part of your fiduciary process and making judgment about it isn't as simple as saying buy only institutional funds it's about understanding how you're using the funds that you have available and what it means for the plan's bottom line that's a great point i think that that people forget that you can pay for additional services you can pay for additional quality it it's it's what's reasonable for what you're getting and although there's no litigation on it at least theoretically if if you uh pay an amount to someone who provides very little in the way of services to your plan and your participants you could actually be overpaying even though they're cheaper than someone who provides a lot more service and this stuff is way too complicated for an employer to do on their own honestly you need to work with a advisor who specializes in 401k plans they have reports and databases and sources of information that would be invaluable to you and that and that you just don't have access to so um that there's the rule doesn't say that a fiduciary has to be an expert on this all this what it says is if the fiduciary isn't knowledgeable about a particular issue they need to hire the expertise then you can hire the knowledge and and that's where a specialized focused 401k advisor comes into play and protecting you not just in getting good advice about good investments but actually protecting you from potential claims and from department of labor investigations a question came in i'm going back to the part-time because i know that's affecting a lot of employers do you have to go back retroactively to count hours before 2021 for long-term part-time employees or do you just start this year uh you don't i mean the the the beauty of the way they crafted the rule is you start counting this year and for eligibility to be in the plan the other beauty is uh that you don't have to actually contribute for them you don't have to make matching contributions for example but you can and they don't count in discrimination testing which is important as well but to be very clear even if you've had someone who has only worked who's worked 750 hours each year for the last eight years you would not have to start counting until this year next year and the following year and then make them eligible under the letter of the law obviously you know you might have discretion before that but in terms of what's required it would be this year as year one for everybody yeah and if you want to you can uh pardon pardon the phrase uh brad since you worked for a republican administration but if you want to you can be even more liberal in the application of the rule uh that is you can include them right now if you want to i mean that's just what we're talking about is the outer limit not what you can do if you want to yeah one other question and confirm that the secure 1.0 does not require dc plans to provide annuities just illustrations correct uh go ahead brad i saw you start to respond i'm just going to say that's that's correct it's only requiring this annual illustration based on the individual participants account balance at the end of each year uh so it's not requiring an actual product to then provide lifetime yeah agreeing with what brads the the illustration will sort of look like an annuity but that's just the illustration that's on paper uh the there is no requirement to provide an annuity the secure act 1.0 did create a fiduciary safe harbor if you want to provide annuities so that you wouldn't be sued for picking the insurance company to if if they have financial trouble later on but nothing in their mandate's an annuity nothing nowhere it's not mandated any communication issues you foresee on this lifetime income i think i think people are going to be confused and ask questions especially younger workers now if the more cynical among you might say well the good news is most these younger workers will never read the notice so maybe they won't ask the question but for those who do i you know i have to say if i were 25 and saving in my plan i had a small amount of money in there and got told i was going to get a minuscule amount of retirement income it would make me wonder what's the value of this plan the way that's presented is sort of a disincentive right yeah i think they're going to be a lot of questions if it stays the way it is picking up on brad's example let's say that 25 year old has got 3 000 in their account the way the rule works it assumes that on december 31 of this year that 25 year old is not 25 but there are 67 and so it tells you how much thousand dollars would buy in retirement income for a 67 year old hypothetically obviously you're not required to buy an annuity but hypothetically what uh you would get a month if you were uh if you took your three thousand dollar account balance at 67 and and bought lifetime retirement benefits it's goofy it's just goofy it's it's gonna raise as brad said so many questions i that's why i was encouraging people to get engaged early because i even though they're not mandated i mean there will be some communications that are required by the law but they aren't that explanatory and so i think you want to work with your record keeper to make sure there's going to be uh somewhere certainly in the fourth quarter of this year an education campaign going out to your employees to say hey you're going to be getting these projections here's how they work uh you know hypothetically it's going to assume your list don't worry if you're young and it's a real low number don't worry about it they just keep you know stay the course keeping the plan and every year that number will get bigger and by the time you get to retirement you know you'll be you you would hopefully be in good shape uh they can't quite say it the way i said it because that's a little too optimistic for a lawyer but uh but but giving a sense of uh comfort that the number they're getting is not the final number and if anything they should react by doing more not by doing less and one final question if they already allow part-timers in their plan they don't have to do anything they're already allowing part-timers in so they're safe yeah yeah as long as their definition of part-time and what their plan says uses at the 500-hour rule it can be less than 500 that they're using but as long as they're putting in people who uh uh have at least 500 hours a year for three years and anything more favorable to part-time employees lower hours lower time waiting period all of that is permissible okay that's it um on questions we are right at 1201 here we're one minute off perfect barb thank you so much for moderating this yeah thank you and thanks all of you for joining in yeah it's been a pleasure thank you goodbye take care bye