Treasury, SEC Outline Bold Regulatory Agendas

The Treasury Department and the Securities and Exchange Commission offered a look at their regulatory priorities for the coming months on June 11, including proposals in the pre-rule and final stages.  

For the Treasury Department, this semiannual regulatory to-do list was the first offered under the Biden administration, and while the SEC is an independent agency, it was the first regulatory agenda under new Chairman Gary Gensler. 

Treasury and IRS Priorities

With respect to retirement plans, chief among the Treasury Department’s spring regulatory agenda items is to issue guidance addressing various aspects of the SECURE Act.  

MEPs and the Unified Plan Rule. One item that may be of particular interest is a second Notice of Proposed Rulemaking (NPRM) concerning the so-called “one bad apple” rule in relation to multiple employer plans (MEPs) under changes made by the SECURE Act. 

According to the summary description, the proposed regulations “would provide an exception, if certain requirements are met, to the application of the ‘unified plan rule’ for section 413(e) MEPs in the event of a failure by one or more participating employers to take actions required of them to satisfy the requirements of section 401(a) or 408 of the Code.”

Before the SECURE Act was enacted, the Treasury and IRS proposed regulations in July 2019 to provide an exception to the one bad apple rule for certain MEPs, but those rules were never finalized, even though they were consistent with the provisions that were ultimately enacted under the SECURE Act. 

The new, updated agenda advises that Treasury and the IRS plan to issue the NPRM by September 2021. 

Safe Harbor 401(k) Plans and Long-term Part-time Employees. Treasury and the IRS also intend to issue proposed regulations implementing sections 102, 103, 109, 112, and 113 of the SECURE Act, which modify certain aspects of the rules governing safe harbor 401(k) plans and require that long-term part-time employees be eligible for 401(k) plans. While the agenda doesn’t specify whether this guidance would be issued in one package or divided into smaller pieces, it does show that the department intends to issue an NPRM by December 2021. 

Required Minimum Distributions. Additional SECURE Act modifications include guidance on changes to the required minimum distribution rules under Code Section 401(a)(9) applicable to qualified retirement plans, individual retirement arrangements, 403(b) plans and 457(b) plans. The summary description further notes that Treasury intends to clarify rules on determining the designated beneficiary for purposes of applying the RMD rules, as well as provide guidance on statutory changes to the rollover rules of section 402(c) that have been made since regulations were first issued in 1995. Here, the agenda shows that Treasury intends to issue an NPRM by September 2021. 

Nondiscrimination Relief for Closed DB Plans. The proposed regulations would amend the existing Section 401(a)(4) and Section 401(a)(26) regulations applicable to certain DB plans and DC plans that provide additional benefits to a grandfathered group of employees to reflect modifications enacted by the SECURE Act. While proposed rules were issued in 2016 prior to the SECURE Act, Treasury and the IRS have been extending temporary relief from certain of the nondiscrimination requirements. Under the updated agenda, Treasury advises that it intends to issue final rulemaking by December 2021. 

Update to Minimum Present Value Requirements for DB Plan Distributions. Here, Treasury and the IRS intend to issue final regulations by December 2021 modifying the minimum present value requirements applicable to certain DB plans to update the regulations for changes made by the Pension Protection Act of 2006 and provide other modifications to these rules as well.

Hybrid Plans. According to the agenda, Treasury and the IRS intend to issue an NPRM by December 2021 providing guidance on the application of the nondiscrimination requirements, the backloading limitations, certain plan termination rules, the benefit limitations and the top-heavy rules to cash balance plans, pension equity plans and variable annuity plans that addresses particular characteristics of those types of plans.

Notice Requirements for Deferred Vested Benefits Under Section 6057. Similarly, Treasury and the IRS intend to issue by the end of the year proposed regulations providing guidance on the requirement for plan administrators or employers to furnish an individual statement to participants who separate from service with a deferred vested benefit.

Definition of Church Plan. Also targeted for release by the end of the year is proposed guidance updating existing final regulations on the definition of a church plan under Code Section 414(e).  

Securities and Exchange Commission

Meanwhile, in his first regulatory agenda, SEC Chairman Gensler has put forward an ambitious plan that he suggests will protect investors, maintain “fair, orderly, and efficient markets,” and facilitate capital formation. Reversing policies established by the SEC over the course of the last year is a recurring theme.

Short- and long-term regulatory actions that the Commission plans to take include the following. 

Climate Change Disclosure. While the SEC has already indicated that it is considering recommending proposed rule amendments to enhance registrant disclosures regarding issuers’ climate-related risks and opportunities, the agenda shows that the Commission has a target date of October 2021 for release of an NPRM. 

Cybersecurity Risk Governance. Similarly, the Commission is considering recommending proposed rule amendments to enhance issuer disclosures regarding cybersecurity risk governance, with a target release date of October 2021. 

Proxy Voting Advice. In a June 1 statement, SEC Chairman Gensler directed the staff to review the Trump administration’s proxy adviser rules and whether to recommend further regulatory action regarding proxy voting advice. The updated agenda shows that the Commission has a target date of April 2022 for proposed rule amendments governing proxy voting advice.

Custody Rules for Investment Advisers. The Commission also is considering proposing amendments to existing rules and possibly proposing new rules under the Investment Advisers Act of 1940 to improve and modernize the regulations around the custody of funds or investments of clients by Investment Advisers. This agenda item also has a target date of April 2022 for release. 

Other notable proposed and final SEC rulemaking areas include:

• market structure modernization within equity markets, treasury markets and other fixed income markets;
• transparency around stock buybacks, short sale disclosure, securities-based swaps ownership and the stock loan market;
• investment fund rules, including money market funds, private funds and ESG funds;
• 10b5-1 affirmative defense provisions;
• additional guidance under Dodd-Frank, including securities-based swaps and related rules, incentive-based compensation arrangements, and conflicts of interest in securitizations;
• amendments relating to special purpose acquisition companies; and 
• mandated electronic filings and transfer agents.

While the SEC is considered a bipartisan independent agency, the spring regulatory agenda primarily reflects the priorities on new Chairman Gary Gensler. For their part, Republican Commissioners Hester Peirce and Elad Roisman took issue with several items on the agenda, as well as suggesting that several items are missing from it. 

“The Agenda makes clear that the Chair’s recent directive to SEC staff to consider revisiting recent regulatory actions taken with respect to proxy voting advice businesses was not an isolated event, but just the opening salvo in an effort to reverse course on a series of recently completed rulemakings,” Peirce and Roisman said in a statement responding to the agenda. 

“A change in administration naturally brings changes in policy, and the Agenda reflects that shift in the form of new rulemakings, but reopening large swathes of work that was just completed without new evidence to warrant reopening is not normal practice,” they add. 

For the full SEC spring regulatory agenda, click here.   

For the full list Treasury/IRS spring regulatory agenda, click here. 

And for our post on the Department of Labor’s spring regulatory agenda, click here. 

Note that the dates listed in the semiannual Regulatory Agenda are target dates for release and are subject to change.