Life insurers, the insurers' trade groups and employer groups are asking federal agencies to talk to them before eliminating old retirement plan regulations.
President Donald Trump told federal agencies to ease the burden of federal regulations on Americans by removing 10 regulations for every regulation they create.
The Employee Benefits Security Administration, an arm of the U.S. Labor Department, offered to help by killing two retirement benefits regulations on Sept. 2 if members of the public did not submit "significant adverse comments" by July 31.
One of the regulations subject to removal is a safe harbor that was created in 2007 for retirement plan fiduciaries who are choosing annuity options for the participants in 401(k)s and other defined contribution retirement plans.
The other regulation, a "transition policy" regulation, was completed in 2000. It affects retirement benefits managers who are using insurance contracts written before 1999 to guarantee retirement plan benefits.
Two commenters objected to both proposals. Seven other commenters objected only to the removal of the transition policy regulation.
Lynn Dudley, a senior vice president at the American Benefits Council, reported that "a number of" council members still have transition policies in effect.
She predicted that eliminating the 2000 transition policy regulation could cause insurers to terminate transition policies and force retirement plan fiduciaries to shop for replacements.
"Transition policies may contain benefits that are not available under similar insurance contracts available in the current market, including lower expenses," Dudley wrote in a comment letter. "Revoking the regulation would strip plan participants of these benefits."
What it means: For at least some insurers and retirement plan sponsors, stable regulations that are good enough may be better than quick efforts to improve and streamline the regulations.
The regulation removal proposals: The annuity selection safe harbor regulation affects employers that are choosing annuity providers for 401(k) plans and other individual account plans.
The regulation implements part of the Pension Protection Act of 2006.
EBSA officials said in a notice published in the Federal Register July 1 that they want to eliminate the 2007 safe harbor regulation because the retirement plan annuitization option provisions in the Setting Every Community Up for Retirement Enhancement Act of 2019, or the Secure Act, have replaced the 2007 safe harbor.
If the old safe harbor stays in the regulations, that "presents a risk that an unwary fiduciary may inadvertently rely on it instead of seeking out the more streamlined, less costly and more certain safe harbor in the statute," officials said.
EBSA adopted the second regulation set for removal, the transition policy regulation, in response to a court ruling.
The court ruling raised the possibility that the Employee Retirement Income Security Act fiduciary standard could apply to any insurance company assets supporting plans' retirement benefits guarantees.
Congress changed ERISA, and EBSA changed its regulations to prevent a fiduciary standard from applying to insurers' own "general account" assets.
If an insurer wrote a contract to guarantee plan assets before 1999, the transition policy is part of the plan's assets, but the assets of the insurer are not, according to the transition policy regulation.
Because the transition policy regulation applies only to policies issued before 1999, "it is not likely that any transition policies remain in effect," EBSA officials said in a notice about removal of the regulation. "Allowing the regulation to remain on the books only wastes time and resources that could be more productively employed."
Industry reactions: Chantel Sheaks of the U.S. Chamber of Commerce and Emily Micale of the Insured Retirement Institute objected to both the proposed annuity selection safe harbor removal and the proposed transition policy regulation removal.
The list of commenters objecting to the removal of the pre-1999 transition policy regulation also includes Lisa Bleier of the Security Industry Financial Markets Association; Bryan Keene and Jim Szostek of the Community of Annuity Insurers and the American Council of Life Insurers; Andrew Banducci of the ERISA Industry Committee; Thomas Roberts of Groom Law Group; Melissa Schulman of CVS Health and CVS Health's Aetna unit; and Lynn Dudley of the American Benefits Council.
The annuity selection safe harbor in the 2007 regulation is different from the Secure Act safe harbor, and "some fiduciaries may find greater comfort and confidence following their established fiduciary processes under the safe harbor provided by the regulation when making lifetime income options available to their participants," Micale wrote in the IRI comment letter.
"Eliminating the regulation's safe harbor could unintentionally lead to reluctance in offering lifetime income options," Micale said.
That would conflict with the provisions in the Secure Act and Secure 2.0 that are meant to encourage employers to offer plan participants lifetime income options, Micale said.
Similarly, eliminating the 2000 transition policy regulation "would create unnecessary uncertainty for insurers and plan fiduciaries, potentially compromising the regulatory clarity and participant protections that have been relied upon for over two decades," Micale wrote in a letter about that proposal.
"We urge the department to withdraw this direct final rule and instead engage in a formal notice-and-comment process to fully evaluate the continued relevance of the regulation and consider the input of affected stakeholders," Micale wrote in the IRI letter about the proposed transition policy regulation removal.
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