After a year of relative calm, the defined contribution industry faces a series of potentially sweeping regulations expected from the Labor Department and, to a lesser extent, the SEC in 2014.
“It will be a very busy year,” said Larry Goldbrum, Washington-based general counsel for the SPARK Institute Inc. “There will be a significant amount of regulatory activity.”
Mr. Goldbrum's list includes anticipated Department of Labor regulations on the definition of, and responsibilities of, a fiduciary; proposed rules on safe-harbor protection for DC plans offering annuities embedded in their plans; a required illustration by sponsors to participants about spending their retirement assets; and the Securities and Exchange Commission's final rule on money-market funds.
According to a DOL regulatory calendar, the department expects to issue in January a follow-up rule on a 2012 regulation governing fee disclosure to sponsors from providers and a final rule on target-date fund disclosure in March. The SEC's final rule on the marketing and advertising of target-date funds is expected in October.
In August, the DOL is scheduled to issue a proposed rule telling DC plans how to illustrate lifetime earnings streams to participants — the same month it will offer a proposed rule on defining a fiduciary.
In October, the DOL expects to issue more comprehensive proposed regulations on safe-harbor protection sponsors that offer annuities embedded in 401(k) plans. The SEC is scheduled to publish its new money-market fund regulations in October, too.
In another big issue affecting DC plans, the Supreme Court will hold oral arguments in the spring on a case that could determine the future of stock-drop lawsuits against DC plans that offer company stock as part of their investment menus. The court will make a decision before its term ends in June.
In December, the court accepted the case — Fifth Third Bancorp et al. vs. Dudenhoeffer et al. — to settle a dispute among federal appellate circuits. Although most appellate courts have adopted a tougher standard for reviewing stock-drop lawsuits, the 6th Circuit, headquartered in Cincinnati, has endorsed a less restrictive standard.
A decision favoring the softer standard “could make sponsors reconsider company stock,” said Lori Lucas, the Chicago-based executive vice president and defined contribution practice leader for Callan Associates Inc.
“The outcome could certainly lead to additional stock-drop cases — or kill most of the cases,” added Ross Bremen, a partner with the Boston-based investment consulting firm NEPC LLC.