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Brad Campbell, attorney with Faegre Drinker

Regulation and Compliance > Federal Regulation > DOL

Looming DOL Rules Could Have ‘Long-Term Ramifications,’ Lawyer Warns

By Melanie Waddell

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While the Internal Revenue Service’s recent news that it has granted a two-year transition period for Roth-only catch-up contributions, a change mandated by the Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act, is a “very positive sign,” more big decisions are in the pipeline, a former Labor official says.

Advisors should expect more Secure 2.0-related guidance from IRS and Treasury, said Brad Campbell, a partner at Faegre Drinker in Washington and former head of Labor’s Employee Benefits Security Administration.

ThinkAdvisor caught up with Campbell after the firm’s recent Inside the Beltway webcast to talk about forthcoming Secure 2.0 guidance as well as what’s on the agenda for lawmakers and the Labor Department.

THINKADVISOR: On Faegre Drinker’s recent Inside the Beltway webcast, you mentioned that the IRS will be releasing the bulk of Secure 2.0 guidance/rulings. Can you outline how many there will likely be and what they will entail? Also, can we expect these to be issued by IRS this year?

Campbell: While all of the relevant agencies have a significant new workload as a result of Secure 2.0, the burden falls most heavily on Treasury and the IRS, not only in volume, but also in urgency.

The recent guidance providing a two-year transition period for Roth-only catch-up contributions was a very positive sign for two reasons.

First, it proved that the IRS has been listening to concerns and is ready to begin issuing much-needed significant guidance.

Second, it showed that the policy decisions on implementation are likely to recognize the real-world difficulties in Secure 2.0 implementation, providing appropriate relief from the new law’s errors, omissions and ambiguities.

We don’t yet know when or how many guidance documents are coming, but the willingness of the IRS to provide an effective delay in mandatory compliance on this provision has gone a long way to reassure the regulated community that the agency acknowledges legitimate concerns about impending deadlines.

Can you detail some of the other IRS guidance that’s expected?

Other major guidance we’re hoping to see in the near term from the IRS:

  • the participant election of Roth treatment for employer matching and non-elective contributions, including vesting issues, payroll and income tax reporting issues, and election process issues;
  • implementation of the new distribution options related to terminal illness, domestic abuse, and emergency withdrawals, such as eligibility and documentation requirements;
  • the student loan provision addressing issues like claims processing, the timing of matching contributions related to QSLPs, and eligible loans; and
  • implementation of pension-linked emergency savings accounts, including notice requirements, determination of eligibility for employees, and the status of withdrawals from the emergency account for tax purposes

Besides Labor’s new fiduciary rulemaking, what else are you watching/waiting for in the regulatory realm that advisors should know about?

While the most visible and controversial rule is the fiduciary rule and associated class exemptions (and for good reason), DOL has several other items on its agenda that could have long-term ramifications.

DOL is set to finalize a so-called procedural rule that, as proposed, would make it very difficult for plans or service providers even to apply for prohibited transaction exemptions.

While this seems like an “inside baseball” technical rule, the reality is that ERISA cannot function properly over the long term without a viable and robust exemption process. Nonetheless, DOL proposed closing the door on nearly every applicant, and even included a prohibition on informal discussions of exemption issues with the staff. It is notable that business, labor and service providers united in opposition in their comments and in testimony on the proposal, something that rarely occurs.

The proposal was issued before Asst. Sec. [Lisa] Gomez began leading the agency, and many of us are hopeful that she will have materially different views on the importance of the exemption process, but we will not know until a final rule is issued.

Of course, advisors need to keep their eyes on the SEC, as it issues more and more new proposals that would materially increase compliance burdens on advisors and broker-dealers.

It’s fair to say the SEC has set a regulatory table in which its eyes may be much larger than its stomach, and it is not clear yet which or how many rules will be finalized.  What is clear is that from both a regulatory and enforcement standpoint, the SEC is much more aggressive in its efforts to assert its authority.

Do you anticipate any retirement legislation to be enacted this year?

I am not optimistic that Congress will be able to pass any retirement legislation this year, including a technical corrections bill for Secure 2.0.

While it is never impossible — there will be some “must pass” bills that could have retirement provisions attached to them if the stars align — it is unlikely given the “big-picture” politics of the legislative process.

While there appears to be significant bipartisan agreement on the actual policy of a technical corrections bill, the problem is finding a viable legislative vehicle to which it could be attached.

Pictured: Brad Campbell

Melanie Waddell

@Think_MelanieW

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