We participated a few days ago in the American Bar Association Tax Section meeting in Boston. There were two clear themes emerging from the discussions with Government representatives and ERISA attorneys: (1) retirement plan industry members are still working to figure out the implications of the new fiduciary regulation; and (2) the IRS continues to develop and explore additional tools to help with improved plan administration and compliance.
Here are a few brief notes of interest for plan sponsors:
- Plan sponsors will need further guidance and ongoing education regarding their duty to monitor service providers and potential “co-fiduciary” liability under the new fiduciary regulation. The regulation will create an entirely new class of fiduciaries. How will plan boards, trustees, and committees monitor those fiduciaries? How will you identify these new fiduciaries?
- Commission-based brokers and insurance companies (offering a group annuity contract solution for plans) are expected to struggle the most in response to the fiduciary regulation. There is speculation that the brokers will not only struggle to serve as retirement plan fiduciaries, but also will not be motivated to try. That is because a common primary purpose for doing the retirement plan work – capturing rollover dollars when participants terminate employment – will also be more challenging under the new regulation.
- The IRS again updated its correction program – the Employee Plans Compliance Resolution System or “EPRCS” – in an attempt to further encourage plan sponsors to proactively correct plan operational errors. Just in time for the ABA Meeting, the IRS published Revenue Procedure 2016-51 on Thursday. This updated version of EPCRS incorporates the more forgiving option for self-correcting automatic enrollment and missed deferral failures. It also seeks to improve the efficiency of negotiating sanctions imposed following a plan audit.
- The current elimination of the determination letter application program for individually designed plans will lead to the IRS providing different compliance assistance tools. In Announcement 2016-32, the IRS sought feedback on what additional guidance it might be able to provide. The new EPCRS also seeks to make it easier to correct the failure to adopt required amendments, which previously would have been more likely to be addressed in the determination letter application process.