After years of waiting, fiduciary rule could finally become reality

When it comes to Washington issues affecting plan sponsors and service providers, the working title for 2016 will be The Year of the Fiduciary Rule.

Labor Department officials spent much of 2015 on a proposed new standard of fiduciary duty for anyone giving retirement investment advice, while a growing number of members of Congress on both sides of the aisle tried to put the brakes on it.

Despite that, most Washington observers expect a resolute Department of Labor — with White House backing — to prevail in the spring with a final standard, and then guidance. “The cost of continued inaction is too high,” said a DOL spokesman on background.

Congressional inaction also is likely, given a presidential election year in which the House has scheduled 95 voting days and the Senate will be in session for 26 weeks before the voters hit the polls.

That leaves little time for advancing new ideas on retirement savings. The strongest odds are that Congress will pass legislation allowing greater use of multiple employer plans, known as MEPs, by unrelated employers that do not want administrative burdens and fiduciary responsibilities of sponsoring plans.

Most of the action in 2016 will shift to the regulators, including the DOL, the Treasury Department and IRS, and the Securities and Exchange Commission.

The Department of Labor is expected to finalize rules proposed in November to allow states to set up mandated payroll deduction IRA programs for private-sector employees. DOL officials also issued interim guidance to encourage states to consider other defined contribution programs and approaches, such as MEPs. Industry stakeholders say they will also be active in 2016, when more state programs are expected to take shape.

Critics warn the DOL is giving states a marketplace advantage over other retirement plan providers, but Lynn Dudley, senior vice president of global retirement and compensation policy for the American Benefits Council, Washington, expects to see policymakers try to level the playing field between states and the private sector. “I think people do recognize that private-sector (offerings) are really helpful. They don't want to preclude that,” said Ms. Dudley.

Lew Minsky, executive director of the Defined Contribution Institutional Investment Association, agrees. When it comes to expanding access to retirement savings, “we don't see it as an either/or question. We think it can be a case of and/and/and.”

One of the biggest changes at the IRS will be the winding down of the plan determination letter program that sponsors rely on to verify a plan's tax qualification status. The ERISA Industry Committee, a Washington-based group that represents large employers on benefit issues and considers the change potentially devastating to large plan sponsors, sees a fight on the horizon.

An equally touchy subject at the IRS is updating mortality tables used for calculating defined benefit plan funding targets and lump-sum payouts. The IRS will continue to study life expectancy tables from the Society of Actuaries before finalizing the tables, and some larger plans might be able to model their own mortality tables. Either way, “that process needs to start very soon,” said Alan Glickstein, senior retirement consultant at Towers Watson in Dallas. “We tell (clients) they need to model that and be prepared.”

IRS and Treasury officials also will have their hands full with the $17.8 billion Teamsters Central States, Southeast & Southwest Areas Pension Fund, Rosemont, Ill., which seeks to suspend benefits under the Multiemployer Pension Reform Act of 2014. The comment period for the controversial application was extended to Feb. 1, and hundreds of opinions continue to pour in. Several other multiemployer plans are waiting in the wings, if Central States succeeds.

Cash balance plans could see a revival in 2016 when new IRS rules kick in for plan years beginning Jan. 1. With sponsors now able to use higher interest crediting rates, “we have seen a ton of financial advisers really talking to their clients about setting up cash balance plans,” said Meghan Elwell, director of strategy development for Austin-based asset manager Sage Advisory.

SEC officials hope to bump their current 10% exam rate for investment advisers, as the SEC calls money managers, to 14%, and have asked for 225 more examiners in fiscal 2016 to accomplish that. The agency's exam division already has set the stage for compliance outsourcing, including third- party reviews in the investment manager space.

“This will remain a big point of contention moving into next year,” said Todd Cipperman, founder and managing partner of Cipperman Compliance Services LLC, Wayne, Pa. He also expects pressure on Congress to increase SEC penalties.

One thing worrying plan sponsors is Congress' perennial hunt for revenue, with premiums paid to the Pension Benefit Guaranty Corp. proving irresistible to congressional budget negotiators in recent years. “In 2016, unfortunately, there will be a lot of opportunities for Congress to look to the retirement system for revenue, despite the counterproductive and negative impact that has on workers, retirees and their families,” said Annette Guarisco Fildes, CEO of ERIC.

“Congress is schizophrenic about retirement security, because with all of the interest in expanding coverage and growing savings, the desperate continuing hunt for revenue makes them do desperate things,” said Geoff Manville, principal, government relations, at Mercer LLC in Washington.

“Using the PBGC as a piggy bank for other spending ... definitely contributes” to pension derisking activity, said Mr. Glickstein of Towers Watson. “We are encouraging clients to increase their pushback on this. It's clearly behavior that isn't good for anybody.”