If you’ve not yet registered for the 16^th Annual Qualified Plan Fiduciary Summit, please take a couple minutes to register now. We’d love to see you there, where we’ll talk about the various developments described below… and more!

REGULATORY DEVELOPMENTS

New DOL Fiduciary Advice Rule: Last quarter, we explained that the Department of Labor (DOL) had released a proposed amendment to the definition of an investment advice fiduciary. The 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. On April 11, 2024, the DOL confirmed that the Office of Management and Budget had completed its review of a modified version of the previously proposed rule. Yesterday, the DOL confirmed its plan to release the final rule on the same day this newsletter is set for distribution.

QPA Commentary: The final regulation and related DOL guidance will require some time to unpack. We’ll be proactive in providing detailed guidance in news alerts, webinars, and the Qualified Plan Fiduciary Summit. In the meantime, we will remain cognizant of 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.

CITs in 403(b) Plans: Over the last decade, 401(k) plans have experienced a significant increase in their access to collective investment trusts (CITs), yet the law has prohibited 403(b) plans from offering CITs to their participants. The SECURE 2.0 Act of 2022 attempted to remedy that inconsistency by making the Internal Revenue Code changes necessary to permit CITs in 403(b) plans. However, federal securities laws have continued to prohibit CITs in 403(b) plans. On March 7, 2024, the U.S. House of Representatives approved a law that would place 403(b) plans on the same level as 401(k) plans with respect to the use of CITs. The Senate will likely consider the bill as a part of a larger legislative package later in 2024.

QPA Commentary: This is potentially big news for 403(b) plans. It appears they might be one step away from access to lower cost investment options, which could be of particular importance as innovative in-plan retirement income solutions become available in CIT form.

LITIGATION RISKS & DEVELOPMENTS

Cybersecurity Settlement (Sherwood v. Horizon Actuarial Services): A service provider to multi-employer benefit plans experienced a cybersecurity attack that exposed the personally identifiable information of more than 100,000 participants. An ensuing class action lawsuit sought damages and other forms of relief on behalf of a class of over four million participants. In March, the parties notified the court that they’d reached an agreement on a settlement that would require an $8.7 million payment by the fiduciary defendants.

QPA Commentary: The DOL has been clear in its stance that cybersecurity is a fiduciary issue. Last quarter, your QPA review book included your plan recordkeeper’s response to an updated RFI that sought assurances that the recordkeeper has implemented the safeguards and best practices recommended by the DOL. QPA conducted the RFI process on your behalf in an effort to help you to demonstrate compliance with the DOL’s expectations.

Improper Use of Plan Forfeitures: The recent wave of lawsuits alleging fiduciary breaches in connection with the use of plan forfeitures continues. In 2023, fiduciaries of multiple household name plans (e.g., Qualcomm, Intuit, Clorox, and Thermo Fisher Scientific) faced lawsuits alleging that they breached their fiduciary responsibilities when using plan forfeitures to offset employer contributions. In Barragan v. Honeywell, plaintiffs filed the latest such lawsuit against Honeywell fiduciaries on February 13, 2024.

QPA Commentary: This recent wave of lawsuits relates to plan documents that provide plan administrators a choice between various permissible uses of forfeitures, including (but not necessarily limited to) plan expenses or offsetting employer contributions. While the Honeywell and other cases remain pending, fiduciaries of other plans have a timely opportunity to consider the following four steps: (1) review their plan document language regarding the use of forfeitures; (2) monitor the use of forfeitures to ensure they are used only in a permitted manner; (3) document the use of forfeitures; and (4) consider the timeline on which forfeitures are being used and whether it would be timely under the regulation proposed by the Internal Revenue Service in February of 2023.

Support for Target Date Monitoring: In Lauderdale v. NFP Retirement, a California Federal court resolved a multi-year excessive fee lawsuit in favor of the defendants. This suit merits a longer conversation and perhaps its own section of a litigation webinar, but one of the most interesting aspects was the court’s conclusions regarding the fiduciaries’ approach to selecting, monitoring, and managing target date funds. The court cited to the DOL’s 2013 target date fund tips for fiduciaries and concluded that the fiduciaries had undertaken a process consistent with the DOL’s expectations.

QPA Commentary: QPA has developed a proprietary “Target Date Deep Dive” tool for the assessment of a plan’s target date funds. The tool includes a checklist that tracks the DOL’s 2013 tips. For those fiduciaries who have used QPA’s tool, although this court’s opinion is not binding across the country, the court’s analysis provides support for confidence that the tool and checklist would be considered as an indication of prudence.

MARKET TRENDS: PARTICIPANT SOLUTIONS

Summit Talk: In advance of this quarter’s 16^th Annual Qualified Plan Fiduciary Summit, a team of QPA advisors attended the nation’s largest advisor conference: the NAPA 401(k) Summit. The NAPA event afforded an opportunity to learn more about regulatory and litigation developments. Quite notably, though, the event focused on the growth in demand for two key areas of participant solutions: (1) advice; and (2) retirement income.

QPA Commentary: We have known for nearly two decades that participants value assistance with their in-plan money management, crave advice regarding their contribution decisions, and need access to “decumulation” vehicles that will make their savings last. Some of these solutions may come in separate forms (e.g., portfolio management + education) or combined (e.g., advisor managed accounts), and they may be combined with other solutions (e.g., advisor managed accounts + target date funds or income). Prior to the NAPA conference, Empower had announced a comprehensive suite of new retirement income solutions, and Morningstar’s Nathan Voris had penned a thoughtful piece examining the increasing frequency with which plan fiduciaries are combining target date funds and managed account services to provide a “Dynamic QDIA.” Also, QPA’s National Retirement Practice Leader co-authored a white paper entitled “A Call to Action on Retirement Income: It’s Time to Solve the Problem.”  Expect increasing conversations around these types of solutions and access within the marketplace.