This quarter’s QPA Advocate Newsletter begins with two pleas. First, please allow time before, during, and after your upcoming committee meetings to discuss the various regulatory and litigation updates described below. The environment has become quite tricky, but we can help you through that. Second, please make sure your people are registered for May’s Qualified Plan Fiduciary Summit. It’s a wonderful opportunity for you to hear from some of the nation’s leading experts, build relationships with like-minded contemporaries with other organizations, and spend time around QPA’s team members. Spend two minutes to register right now and you’ll be all set to join us in May! On with the update . . .

New DOL Fiduciary Advice Rule: On October 31, 2023, the DOL released a proposed amendment to the definition of an investment advice fiduciary. As the linked QPA Fiduciary News Alert highlighted, the DOL’s proposal was motivated by the DOL’s concerns with financial professionals’ advice to participants regarding distribution and rollover decisions, and how to invest the proceeds.

QPA Commentary: The DOL conducted a series of public hearings during the 60-day comment period. Now, the DOL is reviewing comments and considering whether to make any changes before publishing a final regulation. In the meantime, plan sponsors should focus on one key aspect of the proposal: it again reflects the DOL’s insistence that there is a tremendous difference between working with a fiduciary and with one who is not. Employers and employees alike will receive more protections when working with a fiduciary.

SECURE 2.0 Act “Grab Bag”: On December 20, 2023, the IRS issued IRS Notice 2024-2, which provides a “grab bag” of guidance relating the SECURE 2.0 Act of 2022. The linked QPA Fiduciary News Alert expands on the following areas addressed by the Notice: (1) de minimis financial incentives up to $250 to encourage participation; (2) Roth employer contributions only available for participants fully vested at the time of the contribution and not subject to withholding; (3) pre-SECURE 2.0 plans are protected from the new automatic enrollment requirement in various merger and spinoff contexts; and (4) the safe harbor automatic enrollment correction option is available for terminated employees.

QPA Commentary: The $250 de minimis threshold is higher than expected and should be helpful for employers desiring to put this feature to use. Other aspects may not be widely helpful now. The IRS continues to work on guidance relating to matching student loan debt repayments and emergency savings accounts.

Long-Term Part-Time Employees: Proposed Regulations: On November 27, 2023, the IRS published proposed regulations relating to the long-term part-time (LTPT) rules included in both SECURE 1.0 and 2.0. The LTPT rules, which resulted in many part-time employees becoming eligible to participate for the first time on January 1, 2024.

QPA Commentary: The proposed regulations don’t include many earth-shattering answers. Most importantly, perhaps, they confirm that the LTPT rules do not preclude a plan from excluding employees on the basis of eligibility conditions not related to age or service, such as a job classification. The most pressing issue for plan sponsors is to ensure their eligible LTPT employees have received the opportunity to participate in 2024. The upcoming issue will be to apply the SECURE 2.0 two-year measuring period for LTPT employees who will be eligible in January of 2025.

Cybersecurity Breach: A massive retirement plan-related cybersecurity breach occurred on November 2, 2023, when a third-party provider to nonqualified plans (Infosys McCamish Systems LLC) was the victim of a cyberattack. The attack resulted in those plans’ recordkeepers – including Ascensus/Newport Group and T. Rowe Price – being unable to update participant accounts for more than a month. Cyber risks are real. Since April of 2021, the DOL has made it clear that cybersecurity is a fiduciary issue. The lawsuits are just starting and likely to continue.

QPA Commentary: For most QPA clients, this quarter’s meeting review book includes the respective qualified plan recordkeeper’s response to an updated RFI, which sought assurances that the recordkeeper has implemented the safeguards and best practices recommended by the DOL. QPA conducted the RFI process on our clients’ behalf in an effort to assist with questions they may receive from your plan auditor or in the event of a DOL audit.

Improper Use of Plan Forfeitures: One law firm has filed two lawsuits alleging that plan sponsors improperly used plan forfeitures. Both Dimou v. Thermo Fisher Scientific and Rodriguez v Intuit Inc. allege that the respective plan sponsor’s use of forfeitures to offset company contributions was done “exclusively for the company’s own benefit, to the detriment of the plan and its participants.” Separately, Clorox Co. is fighting against similar allegations.

QPA Commentary: In each case, the plan document permits the use of forfeitures to offset company contributions. As such, these particular cases are not likely to succeed. However, the plan forfeiture litigation and a recent IRS proposed regulation serve as important reminders for plan sponsors: (1) review the plan document language regarding the use of forfeitures; (2) confirm forfeitures are only being used in a permitted manner; and (3) in general, use the forfeitures as soon as possible – likely no later than the end of the year following the year the forfeiture occurred.

Excessive Recordkeeper Fee Lawsuits Continue: On December 5, 2023, plaintiffs filed a class action lawsuit styled Ruebel v. Tyson Foods. Among the various claims of fiduciary breach, the plaintiffs assert that the fiduciary defendants caused the participants to pay “over a 75% premium per-participant for total” recordkeeping and administrative fees.

QPA Commentary: Watch for plaintiffs firms to get increasingly better at pleading these excessive fee claims in a manner that will survive motions to dismiss. They’ll not only show the fees paid by comparable plans, but also emphasize the commoditized nature of many recordkeeping services. Now is the right time to benchmark your recordkeeper – not necessarily with an eye toward making a change, but in an effort to do right by participants.

Litigation Continues to Accelerate: The post-COVID litigation wave remained strong in 2023. Despite many of the usual suspect firms finding themselves inundated in ongoing litigation, other firms have entered the fray. We now face a deeper bench of capable plaintiffs’ firms, who have diversified their claims to include far more legal theories in years’ past, including: (1) excessive recordkeeping fees; (2) excessive investment fees; (3) inadequate fund performance; (4) use of expensive share classes; (5) excessive float income; (6) improper use of forfeitures; and (7) reliance on proprietary funds.

QPA Commentary: Retirement plans have become more important to employers in the challenging labor market of the last few years. Even as those labor pressures lessen, plan complexity continues to increase. Committees and other plan fiduciaries should double down on their fiduciary education efforts in 2024. QPA’s Qualified Plan Fiduciary Summit in May and the periodic ERISA Attorney Talks are great sources of educational content. If you have already registered for the Summit, thank you!