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Washington Labor & Employment Wire » Employee Benefits Security Administration

Borzi Addresses Fiduciary Regulation in Hearing

In a public hearing on March 1 and 2, 2011, Assistant Secretary of Labor for the Employee Benefits Security Administration (”EBSA”) Phyllis Borzi addressed the Department of Labor’s proposed fiduciary regulation, released in October 2010. The proposed regulation would update and expand the definition of a fiduciary under Section 3(21)(A) of ERISA. Under the proposed regulation, individuals preparing employer stock evaluations and similar investment advice would be considered ERISA fiduciaries. Speaking in support of the proposed change, Borzi pointed to the “tremendous evolution in the marketplace” in the 35-plus years since the existing fiduciary regulations were adopted and stressed the necessity of improving transparency and accountability.

At the hearing, critics of the proposed regulation urged EBSA to coordinate the fiduciary rulemaking with other agencies, including the Securities and Exchange Commission (”SEC”) and the Commodities Futures Trading Commission (”CFTC”).  Explaining that EBSA was working to harmonize the regulations with SEC and CFTC fiduciary standards, Borzi declined to defer entirely to those agencies regarding establishing new fiduciary standards. Borzi noted that the aims and structure of ERISA differed from other relevant statutes, such as the Consumer Protection Act and the Dodd-Frank Act, making it unworkable to completely synchronize the regulations.

Borzi explained that EBSA had no intention to issue a final fiduciary regulation that would require a covered party to be in violation of other statutes and regulations, but was unable to provide assurances that compliance with the EBSA regulation would necessarily comply with other fiduciary provisions. In issuing these caveats, Borzi noted that the proposed regulation would not directly conflict with existing Internal Revenue Service rules.

Prior to the hearing, Borzi stated that EBSA will likely issue a final regulation by the end of 2011.


EBSA Releases Proposed Rule on Target Date Investments


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On November 30, 2010, the Employee Benefits Security Administration (”EBSA”) of the U.S. Department of Labor issued a proposed regulation in the Federal Register that would require that additional information be disclosed in target date investments. The proposed rule would amend the qualified default investment alternative regulation and the participant-level disclosure regulation.

Under the proposed rule, which follows recently-promulgated SEC target date disclosure rules, EBSA would require plan fiduciaries to issue additional disclosures about the design and operation of target date investments. These requirements include an explanation of the asset allocation of the investment, a graphical depiction of how the allocation would change over time, and the significance of the target date of the investment. The proposed rule would also require plan fiduciaries to disclose information concerning the plan’s issuer, objectives, investment strategies and risks, historical performance, and fees and expenses. 

Additionally, the proposed rule would require that the fiduciary issue a disclaimer that investors may lose money upon arrival of the target date, which could coincide with retirement. It also includes a safe-harbor for the use of electronic media to provide the required disclosures to plan beneficiaries and participants.

Parties may submit written comments through January 14, 2011.


EBSA Issues Proposed Rule on Annual Funding Notices


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On November 18, 2010, the Employee Benefits Security Administration (”EBSA”) of the U.S. Department of Labor issued a proposed regulation in the Federal Register implementing the annual funding notice requirements of ERISA Section 101(f) for defined benefit plan administrators.

The proposed rule requires that administrators of defined benefit plans governed by Title IV of ERISA provide annual funding notices to the Pension Benefit Guaranty Corp., plan participants and beneficiaries, labor organizations representing such plan participants and beneficiaries, and employers contributing to applicable multi-employer plans.

Under the proposed rule, the notices must include information on the plan’s funding percentage, indicating how well the plan is funded, as well as its assets and liabilities, including a breakdown of how the plan has invested its assets. The proposed rule includes sample model notices for both single employer and multi-employer plans and requires notice be provided no later than 120 days from the end of the plan year.

Parties may submit written comments by January 18, 2011.


EBSA Proposes Update to ERISA Exemption Filing Procedures


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On August 30, 2010, the U.S. Department of Labor’s Employee Benefits Security Administration (”EBSA”) published a proposed rule in the Federal Register that would update and clarify exemption procedures for ERISAs prohibited transactions provisions.

ERISA generally prohibits plan fiduciaries from causing their plans to engage in certain transactions that could potentially lead to conflicts of interest or self-dealing. However, Congress has provided certain limited exceptions to ensure that this prohibition does not prevent plans from engaging in harmless customary business practices, including loans to plan participants, payment of reasonable compensation for services necessary for the operation of the plan, loans to employee stock ownership plans, and routine deposits of plan funds in certain financial institutions.

Additionally, the current rules provide that the Secretary of Labor may grant administrative exemptions on an individual or class basis if the Secretary or her delegate finds that such an exemption is administratively practical and would benefit the plan and protect the interests of its participants and beneficiaries. The recently proposed rule would streamline and modernize the process for granting such administrative exemptions, by consolidating the procedures for exemptive relief in a single, comprehensive final regulation, and clarifying the types of information and documentation generally required for an exemption filing. It further aims to improve transparency for plan participants and other interested parties, while removing outdated disclosure requirements.

The proposed rule also accounts for technological developments which have arisen since the establishment of the original procedures in 1990. This includes providing for electronic filing and the use of email for certain required submissions.

The deadline for public comments is October 14.


EBSA Issues Interim Final Rule on Conflicts of Interest and Disclosure of Fees for 401(k) and Retirement Plans


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On July 15, 2010, the Employee Benefits Security Administration (”EBSA”) of the U.S. Department of Labor announced an interim final rule governing disclosure of conflicts of interest and fees to 401(k) and retirement plan fiduciaries. The rule will assist fiduciaries in determining both the reasonableness of compensation paid to plan service providers and any conflicts of interest that may impact a service provider’s performance under a service contract or arrangement.

The interim final rule implements ERISA, Section 408(b)(2) and requires disclosure of direct and indirect compensation received by 401(k) and pension plan service providers receiving or expecting to receive $1,000 or more for fiduciary and investment services. The interim final rule applies to service providers receiving such compensation in connection with investment advisory services for specified 401(k) and pension plans, brokerage or recordkeeping services related to such plans, and indirect compensation received in providing other related services. Additionally, the interim final rules include a class exemption from ERISA’s prohibited transaction provisions for plan fiduciaries entering into service contracts without knowledge of non-compliance by service providers.

The interim final rule is a result of collaboration between House and Senate legislators, who highlighted the risks of nondisclosure and offered improvements, and the Department of Labor.

The interim final rule was published in the Federal Register on July 16, 2010 at 29 C.F.R. Part 2550 and the final rule will be effective within one year of publication. The Department of Labor is accepting public comments through August 30, 2010.


DOL Final Rule Sanctions $1,100 Daily Penalty on Underfunded Multiemployer Pension Plans


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On February 26, 2010, the Department of Labor published a final rule that will allow the Employee Benefit Security Administration (EBSA) to impose a civil penalty of up to $1,100 per day on multiemployer plans in endangered or critical funding status that fail to adopt funding improvement plans. The rule takes effect on March 29, 2010 for plan years beginning on or after January 1, 2008. No changes were made from the proposed rule.

In assessing a penalty, DOL will consider the willfulness and severity of the violation. The department will notify the multiemployer plan sponsor of the penalty and give the reasons for the penalty. The department may then waive the penalty, if the plan is able to demonstrate compliance or mitigating circumstances to explain noncompliance. The plan sponsor may also request an administrative hearing to contest the penalty. The rule clarifies that liability is joint and several among the trustees, regardless of their role in the violation.


DOL Announces Semi-Annual Regulatory Agenda for EBSA


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On December 7, 2009, the Department of Labor’s Employee Benefits Security Administration (”EBSA”) published its semi-annual regulatory agenda for regulations selected to be reviewed or developed over the next twelve months. Included in the agenda are the following significant regulatory items in the final rule and proposed rule stages. While EBSA has published a schedule for these items, the published dates are tentative and subject to change.

Regulations in Final Rule Stage

In December 2009, EBSA intends to issue a final rule clarifying the prohibited transaction exemption created by the Pension Protection Act of 2006. EBSA previously sought written comments and suggestions concerning this rule. The exemption would allow investment advice provided under an “eligible investment advice arrangement” to be provided to participants or beneficiaries of certain individual account plans. As defined in section 408(g)(2) of the Employee Retirement Income Security Act (ERISA), an “eligible investment advice arrangement” covers arrangements under which advisor fees do not vary with the selection of differing investment options, or under which investment options are selected on the basis of statutorily-compliant computer models. The final rule would provide additional guidance as to what types of computer models are satisfactory and would require the Secretary of Labor to create a model fee-disclosure form. EBSA also indicated in its semi-annual regulatory agenda that it plans on issuing a notice of proposed rulemaking in February 2010, which would narrow the scope of the prohibited transaction exemption as initially proposed by the Bush Administration.

On January 5, 2010, the comment period for the interim final rule implementing anti-genetic discrimination in covered group premiums under the Genetic Information Nondiscrimination Act (GINA) will end. The interim final rule was adopted in October 2009 and became effective on December 7, 2009. GINA prohibits group health plans and health insurers from denying coverage or charging higher premiums to an individual based on a genetic predisposition towards developing certain diseases and disorders. The rule provides, among other things, guidance regarding the prohibition on plans and issuers from requesting or requiring genetic testing, as well as the prohibition on the collection of genetic information. In addition to the formal prohibition of genetic-based discrimination, the rule establishes civil penalties under ERISA.

In January 2010, EBSA intends to issue final rules establishing a safe harbor period of seven days during which money withheld by employers or paid by participants for contribution to a plan would not be considered “plan assets” under Title I of ERISA or the related provisions of the Internal Revenue Code. Because plan assets are subject to fiduciary duties and other obligations, the amendment seeks to provide greater certainty to plan sponsors and fiduciaries, as well as plan participants, as to whether particular participant contributions held by an employer constitute plan assets. 

In April 2010, EBSA plans on issuing an interim final rule concerning the implementation of the Mental Health Parity and Addiction Act of 2008. That act requires that annual or lifetime dollar limits on mental health benefits be no lower than medical or surgical benefits offered under a group health plan. In response to an April 2008 Request for Information, EBSA received over 400 comments raising concerns over compliance with these parity provisions. Accordingly, EBSA anticipates issuing an interim final rule that will provide regulatory guidance regarding these provisions. 

In April 2010, EBSA plans to issue a final rule requiring that multiemployer plan administrators provide plan participants, beneficiaries, representatives, or contributing employers copies of written documents relating to the plan’s funding and financial condition within 30 days of receiving a written request. This final rule implements the new plan disclosure requirements set forth in the Pension Protection Act of 2006. EBSA intends to publish a separate regulation at a later date establishing civil penalties under section 502(c)(4) of ERISA for noncompliance with this provision.

In September 2010, EBSA plans to issue final rules implementing portions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and subsequent related legislation, including the Children’s Health Insurance Program Reauthorization Act of 2009.

In September 2010, EBSA plans to issue a final rule clarifying what information must be provided to plan participants and beneficiaries to allow them to make informed investment decisions. The rule may amend regulations governing ERISA section 404(c) plans. According to EBSA, the rule will specifically cover the disclosure of information concerning plan fees and expenses.

Regulations in Proposed Rule Stage

In June 2010, EBSA plans to issue a notice of proposed rulemaking intended to bring the definition of “fiduciary” in line with the current practices of plan managers, individual plan participants, and investment advisors. Under ERISA’s regulatory definition, a “fiduciary” administers plans by controlling plan operations, selecting service providers and managing plan assets. The rule would amend the definition of “fiduciary” at 29 C.F.R. § 2510.3-21(c) to include individuals rendering investment advice for a fee, as set forth under section 3(21) of ERISA. EBSA is issuing this rule in response to concerns that the current definition of “fiduciary” may inappropriately limit the types of investment advice that trigger fiduciary duties on the part of investment advisors.

In August 2010, EBSA intends to issue a notice of proposed rulemaking that would satisfy requirements of the Pension Protection Act of 2006 by requiring administrators of defined benefit plans to provide annual funding notices to pension plan beneficiaries and participants. Further, in September 2010, EBSA intends to issue a notice of proposed rulemaking that would satisfy requirements of the Pension Protection Act of 2006 by requiring ERISA-covered plans to provide individual pension benefit statements to plan participants and beneficiaries at designated intervals. Under the proposed rule, the designated intervals would differ with the type of account plan.  Individual account plans providing for individual direction would be required to provide quarterly statements, individual account plans not permitting individual direction would be required to provide annual statements, and defined benefits plans would be required to provide statements every three years.


Senate Approves Borzi to Lead EBSA.

By voice vote on July 10, 2009, the Senate approved the nomination of Phyllis C. Borzi to lead the Employee Benefits Security Administration (”EBSA”).  Borzi will serve as assistant secretary of labor for employee benefits security for the Department of Labor.

Borzi, who was of counsel with the Washington D.C. law firm O’Donoghue & O’Donoghue LLP, has extensive experience on ERISA and employee benefit matters. She previously worked as Pension and Employee Benefits Counsel for the Subcommittee on Labor-Management Relations of the Committee on Education and Labor in the U.S. House of Representatives and served on a number of health care and employee benefit-related advisory boards.

Her nomination was announced by President Obama on March 25, 2009.


Senate HELP Committee Approves Borzi to Lead EBSA.

On July 8, 2009, the Senate Health, Education, Labor, and Pension Committee, by voice vote, approved to nomination of Phyllis C. Borzi to head the Employee Benefits Security Administration (”EBSA”).  Her nomination now heads to the full Senate for final approval.

Borzi is currently of counsel with O’Donoghue & O’Donoghue LLP in Washington, D.C., where her practice focuses on ERISA and employee benefits. She previously worked as Pension and Employee Benefits Counsel for the Subcommittee on Labor-Management Relations of the Committee on Education and Labor in the U.S. House of Representatives and served on a number of health care and employee benefit-related advisory boards.

On March 25, 2009, President Obama nominated her to serve as assistant secretary of labor for employee benefits security in EBSA, a DOL subdivision.


Obama Nominates Phyllis C. Borzi as Assistant Secretary of Labor for the Employee Benefits Security Administration

On April 27, 2009, President Barack Obama nominated Phyllis C. Borzi as Assistant Secretary of Labor for the Employee Benefits Security Administration. EBSA is responsible for developing policies and regulations regarding pension, health, and other employee benefit plans as well as providing compliance assistance for these policies and regulations.

Borzi currently serves as a research professor in the Department of Health Policy, School of Public Health and Health Services, The George Washington Medical Center where she focuses on employee benefit plans, the uninsured, managed care, and legal barriers to developing health information technology. She also serves as of counsel with O’Donoghue & O’Donoghue where she specializes in ERISA and discrimination matters.

Prior to this role, Borzi served as pension and benefit counsel for the U.S. House of Representatives, Subcommittee on Labor-Management Relations of the Committee on Education and Labor for 16 years. Borzi has also served in numerous positions dealing with employee benefit plans, workers’ compensation, and insurance reform, including as a member on the Presidential Task Force on Health Care Reform in 1993.

President Obama first announced Borzi’s intended nomination on March 25, 2009.