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Labor Department building in Washington. (Photo: Mike Scarcella/ALM)

Regulation and Compliance > Federal Regulation > DOL

3 Messages for Retirement Planners in New DOL Notice

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What You Need to Know

  • The new prohibited transaction exemption updates involve elimination of references to credit ratings.
  • The changes reflect Dodd-Frank revisions.
  • The Labor Department notes that it is also reflecting changes made by the SEC.

The Employee Benefits Security Administration — an arm of the Department of Labor — has moved to flush references to credit rating agencies out of six sets of rules.

EBSA is preparing to publish a notice updating the rules Wednesday, in the Federal Register. The updates are set to take effect 60 days after the official Federal Register publication date.

The rules are exemptions from the Employee Retirement Income Security Act and Internal Revenue Code conflict-of-interest rules.

The exemptions help mutual fund companies, life insurers and others buy, sell and manage assets that support retirement plans and other benefit plans.

EBSA made the changes because of provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act that require the Labor Department to remove references to credit ratings from its class exemptions, and to substitute other creditworthiness standards.

Here are three takeaways from the update notice, for retirement planning specialists.

1. The change in standards for evaluating creditworthiness might not make life any easier for plan sponsors and managers.

Instead of simply holding securities with high ratings from credit rating agencies, the parties affected by the new updates must be “subject to no greater than moderate risk” and “sufficiently liquid that such securities can be sold at or near their fair market value within a reasonably short period of time.”

2. The Labor Department is watching the SEC closely.

EBSA officials state in the preamble to the new class exemption updates that they are basing their updates on the approach the Securities and Exchange Commission took in removing references to credit ratings in its own standards.

The SEC replaced references to “investment grade securities” with references to securities that are of “‘sufficiently high credit quality that they are likely to maintain a fairly stable market value and may be liquidated easily,’” according to an EBSA quote from an SEC Federal Register filing.

3. The Great Recession is still reshaping U.S. financial services rules.

Congress passed Dodd-Frank in response to the residential mortgage defaults, collateral call problems and derivatives trading problems that began to freeze world financial markets in 2007 and led to meltdown fears that plagued the economy well into 2009 — and in a world not yet affected by COVID-19 or concerns about war in Ukraine.

One implication of the new exemption updates notice is that EBSA and other federal agencies are approaching the post-COVID-19 world wearing Dodd-Frank eyeglasses.


Labor Department building in Washington. (Photo: Mike Scarcella/ALM)