Government Affairs Update July 26, 2021

July 26, 2021

TOP NEWS

Senate Finance Schedules Retirement Security Hearing

On July 28 at 10:00 a.m., the Senate Committee on Finance will hold a hearing entitled “Building on Bipartisan Retirement Legislation: How Can Congress Help?” The Committee will be examining retirement security bills, including Senators Ben Cardin (D-MD) and Rob Portman’s (R-OH) Retirement Security and Savings Act (S. 1770) and Senator Chuck Grassley (R-IA), Maggie Hassan (D-NH), and James Lankford’s (R-OK) Improving Access to Retirement Security Act (S. 1703). Committee Chairman Ron Wyden also introduced the Encouraging Americans to Save Act which would restructure the saver’s credit into a “refundable, government matching contribution of up to $1,000 per year for middle and moderate income workers who save through 401(k) type plans or IRAs.” The bill also provides “up to $5,000 in additional government matching contributions for the first $10,000 saved during a five-year period beginning in 2022” to help retirement accounts recover from the impacts of the COVID-19 pandemic. IRI will be submitting a statement for the record highlighting the 2021 Federal Retirement Security Blueprint proposals contained in the bills introduced in the Senate and calling on the Senate to pass comprehensive retirement security legislation.

Providing expert testimony to the Committee are:

• Aliya Robinson, Senior Vice President: Retirement and Compensation Policy, The ERISA Industry Committee
• Brian Graff, Chief Executive Officer, American Retirement Association
• David Certner, Legislative Counsel and Policy Director, AARP
• The Honorable Tobias Read, Oregon State Treasurer, State of Oregon

IRI will monitor the hearing and will provide an update in the next edition of GAU.

Any questions should be referred to Paul Richman or John Jennings.

EBSA Issues Temporary Implementing FAQs on Lifetime Income Illustrations Interim Final Rule

This morning, the Department of Labor’s (DOL) Employee Benefit Security Administration (EBSA) issued Temporary Implementing FAQs on Pension Benefit Statements – Lifetime Income Illustrations Interim Final Rule. While this is not the final rulemaking following the submission of comments on the Interim Final Rule (IFR) from September 2020, the FAQs are intended to provide guidance and insight based on common questions posed in comments the DOL received in response to the IFR. The document makes clear that the final rulemaking will be issued very close to the statutory deadline of September 2021. The following are IRI’s key takeaways from the FAQs:

• Participant-directed plans that must issue quarterly statements can incorporate their first lifetime illustration on any quarterly statement up to the second calendar quarter of 2022 (ending June 30, 2022). Generally, delays should not be expected. However, please see the FAQ answer for more detail about delays for plans based on particular circumstances and current distribution cycle for benefit statements.
• For non-participant-directed plans under which a participant or beneficiary has his or her own account but does not have the right to direct the investment of assets in that account, the lifetime income illustrations must be on the statement for the first plan year ending on or after September 19, 2021.
• The IFR allows for the provision of additional lifetime income illustrations based on different sets of assumptions and conditions.
  • The FAQs do not address whether such additional illustrations would enjoy the same limitation on liability as illustrations that conform to the framework in the IFR.
• The Department intends to issue a final rule as soon as practicable based on feedback from comments received during the public comment period on the IFR. Should the final rule materially differ from the IFR, the DOL may take timing for compliance into account.

IRI will share these recent FAQs with our Retirement Plans & Tax Committee, along with our SECURE Act Implementation Working Group, which will resume regular calls at times and frequency based on the determinations of the members. IRI stands ready and willing to aid members in understanding and assessing these FAQs, along with any ongoing implementation efforts with respect to lifetime income illustrations, as identified by our membership.

 

Any questions should be referred to Emily Micale.

LEGISLATIVE NEWS

Senate HELP Explores Employment Classification under the PRO Act

Last Thursday, the Senate Committee on Health, Education, Labor, and Pensions (HELP) held a hearing to examine the Protecting the Right to Organize (PRO) Act (S. 420).  Among other provisions, the PRO Act would redefine “independent contractor” in a manner that would reclassify these individuals as “employees.” This change would have a significant impact on independent advisors and their clients. IRI is engaged with a joint trades coalition in sharing industry concerns with the bill with leaders on Capitol Hill. IRI President and CEO Wayne Chopus joined with other financial services trades chief executives in signing on to a letter to HELP Committee Chairwoman Patty Murray (D-WA) and Ranking Member Richard Burr (R-NC) expressing concerns that “the PRO Act’s ‘ABC test’ could eliminate the choice a majority of practitioners have made to serve clients independently. In turn, that could drastically reduce clients’ ability to access high-quality advice for their insurance, investment, and retirement security needs.” The coalition issued a press statement outlining the industry’s concerns concurrent with the hearing. 

Prior to the hearing on Thursday, IRI government affairs staff participated in meetings with members of the Senate HELP Committee to call for an exemption for the independent contractors used by the retirement income industry from the bill’s provisions. The coalition also sought support for the exemption.  The coalition’s meetings resulted in two Senators, Jerry Moran (R-KS) and John Hickenlooper (D-CO), asking questions about the “ABC test” issue.  Their questions focused on the potential for including exemptions for certain categories of workers from the test and clarification on how the test would be applied regarding worker’s rights to organize and join a union under federal labor laws that provide protections to employees. The expert witnesses who testified responded that in their opinion, the PRO Act’s “ABC test” would only apply to workers’ rights under the National Labor Relations Act and not to other employee protection laws and is designed to help ensure that workers are properly classified to prevent “bad apple companies” from mislabeling their employees to gain a competitive advantage.

Any questions should be referred to John Jennings.

Women’s Retirement Security Bill Reintroduced

Senate HELP Committee Chairwoman Patty Murray (D-WA) and Representative Lauren Underwood (D-IL) introduced the Women’s Retirement Protection Act last week. The bill would “expand eligibility for employer-sponsored retirement plans to even more part-time workers and ensures a woman’s spouse cannot alter their shared retirement savings without consent.” In a press statement, Sen. Murray said, “even before this pandemic, women in America typically had less money saved for retirement, in part because they were paid less than their male counterparts for the same work throughout their careers. Inequities, like investments, compound over time—which is why it is so critical we take action now to address how this pandemic and other challenges are undermining women’s financial futures. So today, I’m reintroducing the Women’s Retirement Protection Act to help women get the tools and resources they need to support themselves and their families throughout their lives.” Representative Underwood stated, “As women strive for economic equality in this country, we need to make sure they have the opportunity for stable, secure retirement. That includes ensuring a woman’s spouse cannot alter their shared retirement savings without her consent.”

According to a press statement, the bill will:

• Strengthen consumer protections to safeguard retirement savings by expanding existing spousal protections for defined benefit plans to defined contributions plans to prevent one spouse from making decisions that might undermine a couple’s retirement resources without the other’s knowledge and consent; 
• Ensure more part-time workers are offered retirement savings plans by expanding the minimum participation standards for part-time workers—most of whom are women. The SECURE Act established retirement plan eligibility for such workers after three years with an employer—WRPA would reduce that to two years; 
• Increase access to information about retirement and savings tools by providing grants for community-based organizations to help provide information and financial tools to women who are of working or retirement age;
• Support women with low incomes and survivors of domestic abuse seeking retirement benefits by providing grants for community-based organizations that assist them in obtaining qualified domestic relations orders, the legal instruments that allow for the division of retirement benefits—assuring they receive the retirement benefits they are entitled to following a divorce or legal separation.  

Any questions should be referred to John Jennings.

House Financial Services Markup Wednesday

The House Financial Services Committee is scheduled to hold a markup on July 28 at 10:00 a.m. The Committee will consider nearly a dozen bills, including H.R. 2265, the Financial Exploitation Prevention Act of 2021. The bill would help enhance protections for older and vulnerable investors by enabling the postponement of the redemption of securities or funds if a registered open-ended investment company or a transfer agent suspects financial exploitation. IRI submitted a letter of support for H.R. 2265 following its introduction.

IRI will monitor the markup and provide an update if necessary.

Any questions should be referred to John Jennings.

 

REGULATORY NEWS

Montana Works on Rulemaking Following Best Interest Regulation

Montana’s Commissioner of Securities and Insurance is working on rulemaking following adoption of the NAIC best interest model regulation to (1) adopt the NAIC’s model forms for mandatory disclosures to consumers and (2) provide greater clarity regarding the training requirements. The rules are not formally proposed yet, but Montana asked IRI for its feedback on the draft rules. Montana is especially interested in how the industry is operationalizing the NAIC Model requirements around the disclosures and the producer training. Based on feedback provided by members, Montana’s draft proposal would result in significant practical challenges for insurers and producers in Montana. IRI will recommend a number of important modifications to address these concerns and to ensure that Montana’s training requirements properly align with the rules being implemented in other states.

Any questions should be referred to Sarah Wood.

SEC’s Division of Examinations Issues Two Risk Alerts

The SEC’s Division of Examinations issued a Risk Alert on “Observations Regarding Fixed Income Principal and Cross Trades by Investment Advisers from An Examination Initiative”  on July 21st. According to the SEC, this Risk Alert relates to, “An adviser that enters its clients into these types of transactions implicates a variety of legal obligations under the Investment Advisers Act of 1940 (“Advisers Act”), particularly its fiduciary duty”.

 

This Risk Alert serves as a supplement to a related research initiative by the SEC in 2019. According to the SEC’s Announcement, “the Division supplements the staff’s observations made in the Principal Transactions Risk Alert by providing greater detail on certain compliance issues. These observations are derived from an examination initiative that focused on SEC-registered investment advisers that engaged in cross trades, principal trades, or both, involving fixed income securities. The Division encourages advisers to review their written policies and procedures regarding principal and cross trades, including the implementation of those policies and procedures, to ensure that they are consistent with the Advisers Act and the rules thereunder”.

 

A second Risk Alert relates to the Division’s “Observations from Examinations of Investment Advisers Managing Client Accounts That Participate in Wrap Fee Programs”. The Risk Alert begins with a substantive description of what is involved in wrap fee programs, then makes observations regarding conflicts of interests for advisors and risks for investors, possibly violating the SEC’s best interest standard of care. Finally, based on a review of a cross-section of examinations, the Division makes recommendations on compliance programs and procedures in the Risk Alert, providing guidance to avoid triggering violations and assistance in implementing proper procedures with respect to these specific transactions. [DZ1] 

 

IRI will share these Risk Alerts with our Securities Committee to solicit reactions and feedback. We welcome all members thoughts and comments on these matters and the SEC’s two recent Risk Alerts.

 

Any questions should be referred to Emily Micale.

 

FINRA Announces Update of the Interpretations of Financial and Operational Rules

FINRA has published its updates to interpretations in the Interpretations of Financial and Operational Rules that have been communicated to FINRA by the staff of the SEC’s Division of Trading and Markets (SEC staff). The updated interpretations are with respect to Securities Exchange Act (SEA) Rules 15c3-1 and 15c3-3. These interpretations are being updated with specific additions, revisions, and rescissions.

For a full list of those SEA Rules affected, please see the relevant FINRA Regulatory Notice 21-27.

We will share this Regulatory Notice containing the list of updated and/or rescinded SEA Rules 15c3-1 and 15c3-3 with our Securities Committee for further insight, comments, and reactions. However, we welcome members’ thoughts and recommendations with respect to any of the affected rules listed, or to Regulatory Notice 21-27 in general.

Any questions should be referred to Emily Micale.