Fiduciary Hot Topics | Q3 2024

We want to ensure that you as a retirement plan advisor are on top of what's new and upcoming in the retirement planning space, which is why we have our quarterly Fiduciary Hot Topics. Your plan sponsors may bring these topics up with you, but on this page, you will learn how to position these discussions with them and be prepared. This quarter's edition features Biden's 2025 Budget Proposal, the Social Security Fairness Act, the final DOL Investment Advice Fiduciary Rule, and more!

President Biden’s FY2025 Budget Proposal

President Biden released his budget proposal for fiscal year 2025 on March 11, 2024. The budget includes several retirement-related proposals targeted at “high-income taxpayers” (HITs), defined as joint filers with adjusted gross income (AGI) exceeding $450,000, head-of-household files with AGI above $425,000 and single filers with AGI above $400,000. These are preliminary ideas yet to be formalized (if at all) into bills.

Since this proposal would only apply to DC plans, its adoption could increase the attractiveness of defined benefit plans for certain sponsors and participants. The Build Back Better Act of 2021, which was considered, but not enacted, included similar proposals. 

H.R. 82 The Social Security Fairness Act of 2023

The Social Security Fairness Act of 2023 (H.R.82) is seeing renewed activity. Introduced in 2023 by Rep. Garret Graves (R-LA-6), in March 2024, Rep. Graves and Rep. Abigail Spanberger (D-Va.) called on the House Ways and Means Committee to hold a markup on the bill. If enacted, H.R. 82 would eliminate the government pension offset (GPO) and the windfall elimination provision (WEP).

Final DOL Investment Advice Fiduciary Rule Casts a Broader Fiduciary Net

On April 25, 2024, the Department of Labor (DOL) published its “Retirement Security Rule: Definition of an Investment Advice Fiduciary,” a package of finalized regulations and amendments to several advice-related prohibited transaction exemptions (PTEs), including PTE 2020-02 and 84-24, as well as others. 

Amended PTE 2020-02 and PTE 84-24

PTE 2020-02 allows a broad array of investment advice fiduciaries to receive compensation that would otherwise be prohibited if they comply with the conditions outlined in this downloadable PDF.

PTE 84-24 is tailored for use by independent insurance agents who recommend annuities issued by more than one insurance company. The DOL added a new section to PTE 84-24 to provide relief for independent insurance agents providing fiduciary advice, subject to conditions like those in PTE 2020-02.

Notice 2024-35 Relief for 2024 Specified RMDs

Notice 2024-35 provides relief for qualified retirement plans, beneficiaries of plan participants and IRA beneficiaries regarding specified required minimum distributions (RMDs) that are not paid in 2024. Specifically, the notice provides that if the plan meets certain requirements, it will not fail to be qualified for failing to make a specified RMD in 2024, and the IRS will not assess an excise tax on an individual for failing to take a specified RMD. 

Environmental Social Governance (ESG) 

In the case of Spence v. American Airlines et al, the United States District Court Northern District of Texas found in favor of the plaintiff and denied American Airlines motion to dismiss on February 21, 2024. The finding allows the plaintiff to proceed with his claim that American Airlines improperly favored environmental social and governance (ESG) funds in the American Airlines 401(k) plan at the expense of workers’ financial interests. 

Defined Benefit Risk Transfer

The class action lawsuit Piercy et al. v. AT&T Inc. et al. against AT&T and State Street Global Advisors represents the first major challenge to a risk transfer of defined benefit plan obligations to a “private equity-backed” insurer. It alleges that, in selecting Athene for this risk transfer, defendants breached their ERISA fiduciary duties of loyalty and prudence and, under DOL Interpretive Bulletin 95-1,4 their obligation to select the “safest available annuity.” Similar lawsuits focused on risk transfer have been filed against AT&T and Lockheed.

Cybersecurity

Cybersecurity is of increasing concern for qualified retirement plan sponsors, service providers and participants. The Department of Labor has identified it as an area for potential examination. In lieu of formal regulations, to date the DOL has issued “best practices” for each audience.

• Tips for Hiring a Service Provider: This piece helps plan sponsors and fiduciaries prudently select a service provider with strong cybersecurity practices and monitor their activities, as ERISA requires.
• Cybersecurity Program Best Practices: This piece assists service providers, like record-keepers, in their responsibilities to manage cybersecurity risks by following these steps.
• Online Security Tips: This piece offers plan participants and beneficiaries who check their accounts online basic rules to reduce the risk of fraud or loss.
  

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