RETIREMENT & BENEFIT PLAN SERVICES

Legislative and Regulatory Brief

August 2020

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Policy topics

• Legislative Activity 4

• Regulatory Updates 8

– Department of Labor Guidance and Projects

– IRS/Treasury Guidance and Projects

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Legislative Activity

• Congressional activity • Retirement policy in 2021

• Biden benefits platform • Next big retirement bill

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Legislative Activity

Congressional activity STATUS: Congress remains focused on passage of the next stimulus bill addressing various issues related to the effects of thecoronavirus. Heading into the 2020 election cycle, benefits remain an important policy issue with bi-partisan support.

Status in Washington House passed HEROEs Act. Proposed Act will provide additional funding to state and local governments, a second round of direct payments to individuals, and expanded relief for businesses and the unemployed. Retirement specific provisions:

• Additional RMD relief. Would provide a full exemption for 2019 RMDs, not just 2019RMDs not taken by January 1, 2020 as provided under the CARES Act.

• Expanded rollover relief. Recently, the IRS extended 60-day rollover deadline for RMDs taken in 2020 (even though the CARES Act waived 2020 RMDs) to August 31, 2020. The HEROES Act would extend the deadline to November 30, 2020 to complete the rollover of a waived 2020 RMD in a timely manner.

• Single employer Defined Benefit funding relief. Would modify certain aspects of the pension interest rate smoothing that Congress previously provided in 2012, 2014, and 2015 to address concerns that historically low interest rates were creating inflated pension funding obligations. Would help preserve and further enhance the effects of the interest rate smoothing, which is currently scheduled to begin phasing out in 2021. In addition, the HEROES Act would modify the requirements that apply to all single employer pension plans with respect to amortizing funding shortfalls, including increasing the amortization period from seven years to 15 years.

• Multiemployer plan relief. Proposal would provide relief for multiemployer defined benefit plans, which have been facing enormous challenges. The proposal would modify the Pension Benefit Guaranty Corporation’s (PBGC) partition rule and increase the PBGC guarantee, among other provisions.

Senate. The Senate did not take up the HEROES Act for a vote and instead are working on their own version of the next relief package. Current drafts of a Senate bill do not include any retirement related provisions.

Our Point of View • Retirement savings issues remain a consideration, even in the midst

of the coronavirus and a pending presidential election.

• While the Senate will not pass the House-passed HEROES Act as-is, elements of the House bill could get picked up in a compromise bill, possibly including the retirement provisions.

• We will continue to monitor for developments.

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Legislative Activity

Biden benefits platform STATUS: In July, Vice President Biden released, “The Biden Plan to Build Back Better by Advancing Racial Equity Across the American Economy” in which he addresses his position on some benefits policy issues.

Status in Washington Retirement “Equalize the tax benefits of defined contribution plans.”1

• The current tax benefits for retirement savings are based on the concept of deferral, whereby savers get to exclude their retirement contributions from tax, see their savings grow tax free, and then pay taxes when they withdraw money from their account. This system provides upper-income families with a much stronger tax break for saving and a limited benefit for middle-class and other workers with lower earnings. Biden will equalize benefits across the income scale so that low- and middle-income workers will also get a tax break when they put money away for retirement.

Give small businesses a tax break for starting a retirement plan and giving workers the chance to save at work. The document states:

– As proposed by the Obama-Biden Administration, the Biden plan will call for widespread adoption of workplace savings plans and offer tax credits to small businesses to offset much of the costs. Under Biden’s plan, almost all workers without a pension or 401(k)-type plan will have access to an “automatic 401(k),” which provides the opportunity to easily save for retirement at work – putting millions of middle-class families on the path to a secure retirement.

Caregiving

• In a speech on July 21, 2020 , Vice President Biden announced a series of proposals covering care for small children, older adults, and family members with disabilities.

• The plan proposes to spend more than $400 billion on caregiving for older Americans. It would devote much of that funding to lowering Medicaid waitlist times for home and community care services. It would also provide tax breaks to people who care for older family members themselves.

• Emphasize use of tax credits and state funding subsidies to make child care more affordable and accessible, and make prekindergarten for 3- and 4-year-olds universal.

Our Point of View Retirement

• This echoes a theme in the recently released draft Democratic platform, strongly indicating that Biden would like to change the tax incentive for contributions to a plan from an exclusion from income to a tax credit that provides the same tax benefit to everyone. One prior criticism of this idea is that it could have an adverse effect on the willingness of small business owners to set up a retirement plan.

• The details of what this is referencing are not entirely clear, but it appears to be referring former budget proposals by the Obama Administration, which included an automatic IRA. The Biden proposal reference seems more like an automatic 401(k) along the lines of one of the proposals of Rep. Richie Neal (see “Retirement Policy in 2021” on following page).

Caregiving

• This is a policy proposal by a presidential candidate and as such, many things would have to happen to get to something that would be considered in congress.

• Caregiving is an important benefit issue for employers and employees alike, whether the care is for a child or older family member.

• It is good to see the presumptive Democratic presidential candidate focused on this important benefits issue.

1 https://joebiden.com/racial-economic-equity/ Retirement & Benefit Plan Services | Legislative & Regulatory Brief 8/20 6

Legislative Activity

Next big retirement bill STATUS: Looking forward we could see continued focus on retirement policy. Retirement policy usually garners bi-partisan support and may be uniquely positioned to see activity in 2021.

Status in Washington

House

Rep. Richie Neal (D-MA) has had two proposals he introduced over the past couple of years, some elements of which were picked up in the SECURE Act, and others could get picked up in the next major retirement bill.

• Automatic Retirement Plan Act – Would require employers with at least 10 employees to offer a 401(k) or 403(b)

with automatic enrollment – Increase annual elective deferral limit to $19,500 and catch up contributions to

$6,500 • Retirement Plan Simplification and Enhancement Act

– Exempt retirement savings below $250,000 from RMDs – Expand the Saver’s Credit – Increase safe harbor cap for auto enroll and auto escalate – Exempt in-plan Roth amounts from RMDs

Senate

Retirement Security and Savings Act, co-sponsored by Senators Rob Portman(R-OH) and Ben Cardin (D-MD).

• Raise the RMD age from 72 to 75 • Individuals with $100,000 or less in retirement savings would not be subject to

RMDs • Increase catch-up contribution limits • Increased plan start-up credit for small businesses • Expansion of access to Qualified Longevity Annuity Contracts • Permitting student loan debt payments to be treated as elective deferrals for

purposes of receiving matching contributions in plans.

Our Point of View

House

• While these bill proposals are not new, several of the elements in them made it into the SECURE Act.

• Rep. Neal is a long time advocate of securing and expanding retirement savings, and as Chairman of the House Ways and Means Committee, is well positioned to set the agenda for the bills the committee will consider.

• Prior to the focus on coronavirus, Rep. Neal was focused on the next retirement policy package and said that improving Americans' retirement security remains a top priority.

Senate

• Senators Portman and Cardin are long time bi-partisan supporters of retirement savings enhancement and expansion.

• Following the passage of the SECURE Act in 2019, they turned their focus to the proposal of additional retirement policy in 2020. As the pandemic took hold, their focus turned to economic relief.

• Neither senator is up for reelection in 2020, and as we head into2021, Portman and Cardin may again work to advance retirement policy.

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Regulatory Updates

• Department of Labor activity and proposals • IRS Treasury/IRS guidance and plan for remainder of year

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Regulatory Updates

Department of Labor (DoL) Updates STATUS: Change in leadership at the DoL does not slow down the regulatory activity— Assistant Secretary Rutledge stepped down on May 31, 2020. Acting Assistant Secretary Jeanne Wilson now serves as the head of EBSA.

Status in Washington

DOL eDelivery final regulation released

• Provides two new safe harbors (both voluntary) for retirement plans to furnish documents required by Title I of ERISA (except for documents furnished by request) electronically by default. Does not cover notices or disclosures required by the Internal Revenue Code.

• Two new safe harbors:

– Notice and access safe harbor. Plan sends communication that indicates where covered plan information can be found online.

– Direct email safe harbor. Plan can send covered plan information directly via email.

• Electronic address. Work email or smartphone address may be used by default, but employers may not assign electronic addresses to employees exclusively for the purpose of delivering documents pursuant to the new safe harbor.

• Notice of Internet Access. Plans that choose the Notice and access safe harbor must send all employees a “Notice of Internet Access” or NOIA annually and when there is a change to a covered document:

– The NOIA must be sent to an electronic address that is provided by the recipient or assigned by an employer to an employee for employment-related purposes that includes, but are not limited to, the delivery of covered documents.

– Consolidated NOIA. The final rule allows the furnishing of a single consolidated NOIA on an annual basis that covers any document that must be furnished annually and does not require action by a covered individual by a particular deadline. Quarterly benefit statements may be sent electronically, but must have their own NOIA sent when they are available and cannot be rolled into the annual consolidated NOIA.

Our Point of View

• The DoL final regulation only covers ERISA Title I required documents. DoL consulted with IRS/Treasury and other regulatory agencies when drafting the final regulation with the intent of providing consistent guidance to plans and participants.

• However, the IRS/Treasury have not yet issued revised electronic delivery guidelines.

• Plans that may wish to take advantage of the new DoL regulation need to consider that they would be subject to at least two different sets of regulatory guidelines for electronic delivery: one for DoLnotices and one for IRS/Treasury notices, and possibly other guidelines depending on the plan.

• In the preamble to the DoL final regulation, the DoL indicates that the final rule was intended to align with the Treasury Department’s electronic media regulation and further states that the Treasury Department and the IRS have indicated that they intend to issue additional guidance relating to the use of electronic delivery for participant notices.

• While there is no set date for the release of IRS/Treasury updated guidelines for electronic delivery, plans may wish to wait until they have all of the updated regulatory guidelines in place before making any changes to their current process.

• We will continue to monitor for developments and additional guidance.

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Regulatory Updates

DoL Updates (continued)

Status in Washington

DoL issues Information Letter on Private Equity in DC plans. On June 3, 2020, the Department of Labor (DoL) released an Information Letter to a private equity firm that addresses the use of private equity in designated investment alternatives for 401(k) and similar defined contribution plan menus.

The letter focuses on the use of private equity as a part of an asset allocation fund and makes clear it is not addressing the direct investment in private equity by participants.

DoL’s analysis emphasizes the plan fiduciary’s obligation to ensure investments offered to plan participants are in compliance with ERISA guidelines and appropriate for participants. The letter also emphasized that private equity is different from public market investments and that a plan fiduciary should consider carefully these issues before offering an asset allocation fund that includes private equity.

DoL proposed new Financial Factors in Selecting Plan Investments Environmental, Social, Governance (ESG) rule. Released for review and comment on June 24, 2020, the proposal would amend the DoL “investment duties” regulation.

The amendments would confirm that ERISA plan fiduciaries may select investments based solely on financial considerations and not on environmental, social, and governance (ESG) considerations (unless the ESG considerations may appropriately be considered pecuniary in nature).

Comments were due to the DoL by July 30, 2020. The rule is proposed, so plans do not need to take any action at this time. Proposed regulations sent to Office of Management and Budget (OMB) as of July 2020. We will not know what is in these proposals until they are published in the Federal Register.

Proposed regulation on Pooled Employer Plans (PEPs) and other Multiple Employer Plans (MEPs). Provides guidance on the changes under the SECURE Act of 2019.

Proposed regulation on lifetime income disclosure on participant benefit statements. Provides guidance on the SECURE Act requirement that plans include an annuitized illustration of a participants account balance on their statements at lease annually.

Our Point of View

DoL issues Information Letter on Private Equity in DC plans. This letter was consistent with prior DoL guidance and serves as a road map to help plan fiduciaries who want to prudently offer private equity as part of a diversified investment option, such as a target date fund, under 401(k) and other defined contribution retirement plans.

The letter was well-received by the industry.

DOL proposed new Financial Factors in Selecting Plan Investments ESG rule. Several industry associations sent comment letters to the DoL with concerns about plan fiduciaries excluding ESG factors when creating their plan investment menus.

Industry concerns include the proposal’s exclusion of ESG funds from use as QDIA for a plan, as well as the fact that ESG factors are pecuniary, can have impact on the performance of an investment, and fiduciaries should and must take them into account.

Senate Democratic leadership sent a letter to the DoL on the proposal requesting the DoL “withdraw this harmful and unsupported proposed rule immediately.”

The DoL has incentive to finalize the rule and has indicated they are complying with the President’s 2019 Executive Order on Promoting Energy Infrastructure and Economic Growth. Issuing a final rule later this year could leave the rule open to a Congressional Review Act challenge if there is a shift in control of Congress and the White House after the general election in November.

We will continue to monitor the situation and provide updates accordingly.

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Regulatory Updates

IRS and Treasury Activity STATUS: While much of the activity over the past several months has been focused on guidance related to the CARES Act, the remainder of the year is focused on guidance still needed on the changes from the SECURE Act.

Status in Washington IRS Notice 2020-51 Guidance on Waiver of 2020 Required Minimum Distributions. The CARES Act waived Required Minimum Distributions in 2020. The Notice clarifies that distributions taken in 2020 that would have otherwise been RMDs but for the CARES Act provisions:

• Are permitted to be rolled over to an eligible retirement account • Have an extended rollover deadline of August 31, 2020 to be considered timely • Do not count for purposes of the IRA account rollover restriction of one rollover per

year rule • Beneficiary RMDs paid to spouse and non-spouse beneficiaries may be repaid to

the retirement plan by August 31, 2020 IRS Notice 2020-50 CARES Act Distribution and Loan Relief. The CARES Act provided for a the new Coronavirus Related Distribution (CRD) and expanded Coronavirus-related plan loan provisions. This notice provides clarity as follows:

• Distribution and loan relief is optional for plans • Expanded definition of who qualifies for CARES Act relief related to the adverse

financial consequences to include an individual’s spouse or a member of the individual’s household

• Confirms plan sponsors may rely on self-certification for CRDs and loans that the employee qualifies for at least one of the criteria at the time of the distribution or loan request

• Provides a safe harbor for re-amortization and repayment of suspended loan payments

• Clarifies that beneficiaries cannot rollover / recontribute a CRD • For nonqualified deferred compensation (NQDC) plans: If an individual receives a

CRD from the employer’s plan, this will be treated as a hardship distribution, allowing the NQDC election to be cancelled for 2020 (but not postponed or otherwise delayed).

Our Point of View • The CARES Act is the largest rescue package in U.S. history, with $2

trillion worth of economic relief for consumers and businesses. It includes support for small businesses, workers and families, health care systems, as well as distressed industries, businesses, states and municipalities.

• Since the CARES Act was passed, several items of regulatory guidance have been issued, providing further assistance related to eligibility and administrative guidelines.

• The clarity provided by the various Notices and Q&As that the IRS/Treasury released has been extremely helpful to plan sponsors, participants, recordkeepers and IRA account owners alike.

• There may be additional legislative and regulatory activity related to the impact of the coronavirus.

• Additionally, the IRS/Treasury have updated their Priority Guidance plan for the remainder of 2020, which has several proposed guidance projects we are tracking.

• We will continue to monitor developments and provide updates, as applicable.

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