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Treasury, Labor Reg Agendas Face Tight Window Under APA, CRA

Practice Management
Near the end of a term of every presidential administration, there’s always a push to finalize key regulatory proposals before a potential new president or Congress can overturn them. And this year appears to be no different. 
 
Released by the White House’s Office of Information and Regulatory Affairs (OIRA), the newly updated Spring 2020 unified regulatory agenda—which is usually released in May but was delayed due to COVID-19—details an ambitious retirement-policy agenda for the next 12 months. The agenda highlights the regulatory and deregulatory actions that agencies plan to issue in the near and long term. While some items have been on the agenda for several years, others are new and have a higher sense of urgency. 
 
For instance, in the last three weeks the Department of Labor (DOL) has unveiled a proposed new prohibited transaction class exemption for investment advice fiduciaries; a proposed new rule to clarify the standards for environmental, social and governance (ESG) investing; and a Request for Information (RFI) on prohibited transactions involving Pooled Employer Plans (PEPs) under the SECURE Act.

These proposals appear to be a high priority for the administration, but under the Administrative Procedure Act (APA) and Congressional Review Act (CRA), they could face additional scrutiny from a new president and Congress.
 
Why Are the APA and CRA Important?
 
For those who may not be familiar with it, the APA governs the process by which federal agencies propose and establish new regulations. The statute generally requires agencies to provide public notice and a period for public comments, to review and analyze the comments, to assess the costs and benefits of the proposal and consider legal requirements. The APA also lays out the process for judicial review of rules in federal court.
 
In general, each of the proposals mentioned above will be subject to the procedures under the APA and the CRA, if finalized. And key Democratic members of Congress are already objecting to the 30-day comment period for the DOL’s proposed prohibited transaction class exemption for investment advice fiduciaries, noting that the period is “less than half of what similar proposals were granted in the past.”
 
In fact, the APA generally requires agencies to “give the public a meaningful opportunity to submit written comments in paper or electronic form and must consider all relevant matters presented.” Moreover, Executive Order 12866 recommends a comment period of at least 60 days.
 
The APA also specifies that agency rules generally may not take effect at least 30 days after publication in the Federal Register, except for a substantive rule that grants an exemption or relieves a restriction or for other “good cause.”
 
In the case of “economically significant” proposals—which it appears the proposed prohibited transaction class exemption does not fall into this category—these regulatory actions require a more detailed assessment of the likely benefits and costs of the regulatory action, including a quantification of those effects, as well as a similar analysis of feasible alternatives. A regulatory action is determined to be “economically significant” if OIRA determines that it is likely to have an annual effect on the economy of $100 million or more, or adversely affects a sector of the economy.
 
In addition, Congress—through the Congressional Review Act (CRA)—may review and choose to reject new regulations issued by Federal agencies. Under the CRA, before most final rules can take effect, an agency must submit them and supporting information to the House, Senate and the comptroller general. Rules defined as “major” under the CRA may not take effect for at least 60 days (30 days for non-major rules), with exceptions in some cases.
 
Congress generally has a 60-day window to act on a joint resolution of disapproval to take advantage of the CRA’s special “fast track” procedures. If both the House and Senate pass the resolution and it is signed by the President, the CRA states that the disapproved rule “shall not take effect (or continue).”
 
The timeline for this 60-day window gets tricky, however. It is based on legislative days and is also tied to when Congress adjourns its session. According to the Congressional Research Service, if, within 60 days of session in the House or Senate after the receipt by Congress of a rule, Congress adjourns its annual session sine die, the periods to submit and act on a disapproval resolution “reset” in their entirety in the next session of Congress. Additionally, in the new session, the reset periods begin on the 15th day of session in the House and Senate. 
 
In this instance, this would be like what happened with the reversal of the Obama administration’s DOL safe harbor exempting states’ and municipalities’ auto-IRA programs from ERISA, where President Trump and the Republican controlled Congress overturned the rule

While still a moving target, it appears that the current CRA window applies to any significant Trump administration rule that was either finalized or made effective after roughly May 15, 2020. As such, review of any rule implemented after that date under the CRA window would likely extend into 2021. This is because the 60-day window is based on legislative days and Congress will be adjourned for the month of August through Labor Day, and will adjourn again leading up to the elections.
 
In fact, even the DOL’s recently finalized rule providing a new safe harbor for electronic disclosures could be subject to the CRA next year.

It’s important to emphasize, however, that this scenario only really comes into play if the Democrats win the White House, hold the House and take back the Senate. Otherwise, Republican control of either chamber or the presidency could block a resolution from moving forward.
 
For a synopsis of the key retirement-based regulatory items on the unified agenda for the DOL and Treasury Department, following are proposed and final rules.
 
DOL Spring Agenda
 
Proposed Rule Stage (EBSA)
 
  • Fiduciary Rule and Prohibited Transaction Exemptions
  • Proxy Voting Update
  • Pooled Employer Plans Under the SECURE Act
  • Financial Factors in Selecting Plan Investments
Final Rule Stage (EBSA)
 
  • Pension Benefit Statements—Disclosure Regarding Lifetime Income, SECURE Act
  • Adoption of Amended and Restated Voluntary Fiduciary Correction Program
Treasury Spring Agenda
 
Proposed Rule Stage (IRS)
 
  • Further Guidance on the Application of Section 409A to Nonqualified Deferred Compensation Plans
  • Additional Rules Regarding Pension Plan Funding and Benefit Restrictions
  • Spousal IRAs, SEPs and IRA Technical Changes
  • Reporting and Notice Requirements for Deferred Vested Benefits under Section 6057
  • Minimum Vesting Standards
  • Application of Nondiscrimination Requirements, Backloading Limitations, Certain Plan Termination Rules, Benefit Limitations, and Top-Heavy Rules to Statutory Hybrid Plans
  • Guidance on the Timing of the Use or Allocation of Forfeitures in Qualified Retirement Plans
  • Voluntary Employees' Beneficiary Association (VEBA) Regulations
  • Extension of Rollover Period for Qualified Plan Loan Offset Amounts
  • Income Tax Withholding on Certain Periodic Retirement and Annuity Payments under Section 3405(a)
  • SECURE Act Modifications to Certain Rules Governing 401(k) Plans
  • Guidance on 401(a)(9) Required Minimum Distributions
Final Rule Stage (IRS)
 
  • Reporting and Notice Requirements for Deferred Vested Benefits under Section 6057
  • Update to Minimum Present Value Requirements for DB Plan Distributions
  • Nondiscrimination Relief for Closed DB Plans
  • Minimum Value of Eligible Employer-Sponsored Plans
  • Withholding on Certain Retirement Plan Distributions under Section 3405(a) and (b)
  • Guidance under Section 162(m)
  • MEPs and the Unified Plan Rule
  • Regulations under Section 401(a)(9) Updating Life Expectancy and Distribution Period Tables for Purposes of the RMD Rules