In 2023, various federal government agencies, including the U.S. Department of Labor (DOL) and the Internal Revenue Service (IRS), unveiled four significant rules concerning employee benefits.
DOL's Proposed Fiduciary Rule
In late October, the Employee Benefits Security Administration (EBSA) issued a proposed rule that would change the definition of an investment advice fiduciary under the Employee Retirement Income Security Act (ERISA). EBSA's attempt to update the fiduciary rule comes five years after the U.S. Court of Appeals for the Fifth Circuit struck down its earlier attempt to restructure the rule.
The proposed rule and amendments to the ERISA prohibited transaction exemptions would subject a wider range of interactions between investment advisers and employee retirement plan participants to ERISA's strict conflict-of-interest rules. The proposed fiduciary rule would cut down the DOL's 1975 five-part test to include more professionals and situations, including advisors making recommendations about rolling over funds from an employee 401(k) plan into an individual retirement account (IRA). Previously, plan recordkeepers have taken the position that rollover advice was not subject to ERISA's fiduciary standards.
Industry groups urged the DOL to allow a longer comment period, a suggestion the DOL rejected in November. Public comments on the proposed rule closed on January 2, 2024. As a result, these groups are already threatening to sue if the DOL issues the final rule as proposed. The DOL has pushed back on suggestions that rollover advice should be exempt from ERISA or that its proposed rule goes beyond its statutory rulemaking authority.
DOL, HHS, and Treasury Proposed Rules on Mental Health Parity
DOL, the U.S. Department of Health and Human Services (HHS), and the U.S. Department of Treasury (Treasury) jointly issued proposed rules in July that would ensure that employer group health insurance plans provide coverage for mental health and substance use disorder treatment that is no more restrictive than that for medical or surgical treatment. Although the mental health parity law has been in place since 2008, Congress did not give federal regulators more authority to enforce the law against insurers and health plans until 2020. The proposed rules further implement the ability of these federal agencies to ensure compliance with the parity law.
More specifically, the rules would limit how these plans implement nonquantitative treatment limitations (NQTLs). NQTLs limit insurance coverage in ways that aren't easily countable, like prior authorization or concurrent review requirements, which mandate additional evaluation for coverage before the plan authorizes treatment. An extended public comment period for the proposed rules ended in October.
EBSA Issues Advisory Opinion Approving Citigroup Racial Equity Initiative
Citigroup Inc. and its affiliates announced the launch of a racial equity initiative called Action for Racial Equity in September 2020. As part of that initiative, the company agreed to pay fees for asset managers with a specific percentage of minority or female ownership for its ERISA-governed employee benefit plans. The EBSA advisory opinion found that this portion of the racial equity initiative did not constitute an activity subject to ERISA fiduciary rules.
IRS Announces Two-Year Delay of SECURE 2.0 Provision
On August 25, 2023, the IRS issued Notice 2023-62, which delayed a key tax provision in the SECURE 2.0 law by two years. Many employers still need to make significant changes to comply with the law, which requires catch-up contributions for retirement plan participants who had earnings of over $145,000 in the prior year to be made on an after-tax, or Roth IRA, basis. Compliance with this provision would require employers to identify higher-net-worth individuals eligible for the catch-up provision, ensure that they want to take advantage of it, and provide them a way to make after-tax contributions.
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