Published in NH Business Review (6/18/2021)
To the surprise of no one who closely follow these matters, the Biden Administration and new Congress has quickly moved to advance their priorities relating to employee benefit plans even while the ink was drying on the 5,593-page federal stimulus legislation signed into law on December 27, 2020 (the “2020 Act”) that contained numerous provisions impacting employer sponsored benefit plans.
This article will briefly remind readers of some of the 2020 Act provisions impacting benefit plans, describe significant guidance issued by the Administration in furtherance of its policy goals and describe 2021 retirement plan legislation.
Existing Legislation Impacting Benefit Plans
The 2020 Act continued Congress’ recent trend in the earlier 2019 SECURE Act and the 2020 CARES Act to adopt new rules and benefits that are beneficial to impacted employees. The 2020 Act enacts a number of temporary changes to the rules for Section 125 cafeteria plan health flexible spending arrangement (“FSAs”) and dependent care flexible spending arrangements (“DCSAs”) including permitting additional carryovers, grace periods and election changes in 2021 and 2022. The 2020 Act contains numerous other welfare benefit plan changes designed to provide greater cost transparency and improve employee health care plan outcomes. The Act also allows employers to make payments of up to $5,250, tax free, toward employees’ student loans through the end of 2025.
The American Rescue Plan Act of 2021 (“ARP”), the economic stimulus bill signed into law by President Biden on March 11, 2021, included a provision for government paid health coverage from April 1, 2021 to September 30, 2021 for employees who involuntarily lost health coverage. The ARP requires employers to provide a 100 percent COBRA premium subsidy – between April 1, 2021 and September 30, 2021 – for employees whose reduction in hours or involuntary termination of employment makes them eligible for COBRA continuation coverage. The employer or plan advances the COBRA premium and is then entitled to a tax credit for the amount of the premium assistance provided.
Suspension of ERISA Rules on ESG Investments
On November 13, 2020, the U.S. Department of Labor (“DOL”) published a final regulation addressing “Financial Factors in Selecting Plan Investments” which significantly restricted the ability of private employer retirement plan fiduciaries governed by the Employee Retirement Income Security Act of 1974 (“ERISA”) to take into account environmental, social, and governance (“ESG”) considerations in making retirement plan investment decisions. The final regulation imposed a high bar for fiduciaries to justify use of ESG factors by generally requiring fiduciaries to select investments based solely on consideration of “pecuniary factors.” The long history of formal and informal DOL ERISA guidance relating to the use of ESG considerations is far beyond the scope of this article. However, most commentators agreed that if strictly interpreted, the regulation would limit the use of ESG considerations in selecting retirement plan funds and investments.
On March 10, 2021, under the new Administration, the DOL reversed course and announced that until further guidance was issued, it would not enforce either the final regulation or otherwise pursue enforcement actions against any plan fiduciary based on a failure to comply with those final rules. The DOL heard from a wide variety of stakeholders, including asset managers, labor organizations and other plan sponsors, consumer groups, service providers, and investment advisers who questioned whether the regulation failed to adequately consider and address the substantial evidence that the use of ESG considerations can improve investment value and long-term investment returns for retirement investors.
Retirement Plan Cybersecurity Guidance
On April 14, 2021, the DOL issued informal guidance on best practices for maintaining retirement plan cybersecurity. The DOL noted that ERISA requires plan fiduciaries to take appropriate precautions to mitigate the risk of financial loss from both internal and external cybersecurity threats. In light of ever-increasing cyber threats, the guidance was designed to establish best practices for maintaining cybersecurity and assist employers and fiduciaries to prudently select service providers with strong cybersecurity practices and monitor their activities
The guidance was issued in three parts: “Tips for Hiring a Service Provider”; “Cybersecurity Program Best Practices”; and “Online Security Tips.”
Although the guidance is consistent with current recommendations of data security attorneys and professionals, the significance of the guidance is that the DOL has now specified what actions it expects fiduciaries to take with respect to cyber security. Although the guidance is informal and does not have the same authority as regulations, it should be closely reviewed and implemented as part of good fiduciary governance. As with any guidance issued by a regulatory agency, it could be viewed by potential litigants and the DOL in audits as a roadmap to required practices.
SECURE ACT 2.0
Lastly, Congress is hard at work on yet another piece of retirement plan legislation commonly referred to as SECURE Act 2.0 that follows the 2019 SECURE Act. The legislation contains a large number of retirement plan changes including:
- Expanding mandatory automatic enrollment;
- Increasing the catch-up contribution limits for employees age 62, 63 and 64;
- Permitting employers to treat student loan payments as elective deferrals for purposes of matching contributions;
- Increasing the age for mandatory distributions to age 75 in several steps; and,
- Simplification and clarification of many retirement plan technical rules
The Legislation has bipartisan support and unanimously passed the House Ways and Means Committee in early May and is likely to become law sometime later this year again making major changes to retirement plans.
Elections have consequences. As is their prerogative, the new Administration and Congress are moving quickly to implement changes in both benefit plan policy and law that are supported by their constituents. It is important for employers and fiduciaries to stay abreast of these important new developments to be able to administer their plans correctly.