3 Messages for Retirement Planners in New DOL Notice

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)