The American Retirement Association is asking the ERISA Advisory Council to examine issues concerning the extent to which an ERISA-covered retirement plan may use plan assets to pay the costs associated with plan design changes and other features that encourage retirement savings.
In an April 3 letter to ERISA Advisory Council Executive Secretary Larry Good, the ARA explains that under existing Department of Labor guidance (DOL Advisory Opinion 2001-01A), plan assets may be used for expenses relating to “legally required” plan amendments necessary to maintain a plan’s tax qualification, but the employer must pay for costs of any discretionary plan changes – those which are treated as nonfiduciary “settlor” decisions.
The ARA observes that while continuous innovation in plan design by policymakers and industry leaders holds the promise of improved retirement preparedness for millions of workers, plan sponsors have to balance the costs of realizing beneficial plan changes for plan participants against their likely benefits. In today’s regulatory climate, however, the adoption of many optional plan designs and features popular with employers and employees – such as automatic enrollment and QDIAs – are not legally required and would be considered “discretionary” under the DOL guidance, the letter further explains.
“As a result, the costs of amending the plan to establish such popular design features and retirement readiness programs are not payable out of plan assets, causing employers, especially small employers, to forego plan amendments due to their associated costs, when the features potentially will generate tremendous benefits for employees,” according to ARA Executive Director and CEO Brian Graff, Chief Government Affairs Officer Will Hansen and General Counsel Allison Wielobob.
“The ARA is concerned that under current DOL guidance, adoption of beneficial ERISA plan design features is undermined by the costs employers bear in implementing them,” they further emphasize.
As such, they encourage the Advisory Council to examine this topic and consider recommending that the DOL review its interpretation of reasonable uses of plan assets.
The next meeting of the ERISA Advisory Council is scheduled for April 10, when it will set the topics to be addressed by the Council in 2019 and receive an update from leadership of the Employee Benefits Security Administration (EBSA).
In 2018, the Council studied lifetime income products as a qualified default investment option with a focus on decumulation and rollovers and evaluated the DOL’s regulations and guidance on ERISA bonding requirements.