The National Association of Plan Advisors (NAPA) shared highlights from a 2021 NAPA 401(k) Summit panel where benefits and executive compensation partner Fred Reish addressed a wide range of topics, including missing participants, DOL cybersecurity guidance, prohibited transaction exemption (PTE) 2020-02 and lifetime income disclosure.
When asked about Department of Labor (DOL) activity on missing participants, Reish stated that it’s now one of the hot topics of DOL investigations. “You should be taking this as a serious issue because the DOL has started investigations — the issue of missing participants has been one of the things on their checklist,” he noted, adding that the DOL has also provided soft guidance in the form of best practices that can help protect the sponsor if they engage in a prudent process in trying to identify and find missing participants.
Reish strongly urged advisers to become familiar with the guidance and sit down with plan sponsors to explain the seriousness of the issue and make sure they understand the requirements. “If they have missing participants, there is an expectation. The failure to satisfy that expectation, in the eyes of the DOL, will be a fiduciary breach,” he noted.
Regarding DOL cybersecurity guidance, Reish said, “Sit down with the plan sponsor and go over [the best practices guidance] and have something in the minutes or the record that shows that they paid attention to this because nothing is your worst enemy at this point.” He added, “Having nothing that shows any effort to comply with an area that the DOL has indicated is one of its most high-priority areas is a bad thing.”
As for PTE 2020-02, Reish said that there is a non-enforcement policy in place until Dec. 20, 2021, but he suggested that advisers should start now if they are planning to take advantage and comply with the requirements of the PTE.
Additionally, Reish explained that fiduciaries who make a recommendation on a rollover that causes them to make money have abused their fiduciary status. However, because of PTE 2020-02, if fiduciaries act beginning on Dec. 21, particularly because of the non-enforcement policy, they will have an exemption from the prohibited transaction rules, he continued. Reish then outlined those requirements.
“That is a heavy, heavy lift, and if you’re not working on this already, and if you’re a small firm and this could fall within your area of responsibility, you better get going because Dec. 20 is coming soon,” Reish said. He also noted that based on the latest regulatory agenda, the DOL could issue a new regulatory proposal — and possibly a new exemption — by the end of the year.
Finally, regarding lifetime income disclosure, Reish emphasized that recordkeepers should consider providing examples, noting that the DOL’s recently issued FAQs said that projections could be provided, addressing criticisms that the disclosures may be useless. “Advisers need to be the catalyst for that because, for plan sponsors, it’s a train coming through the tunnel at them, but they don’t see it coming; recordkeepers are working on the solution, so they’re preoccupied with that,” he observed. “That leaves the adviser as the quarterback for compliance for the plan sponsor.”