PLANSPONSOR - August/September 2021 - 39

INSIDE ANGLE
DOL's Next Moves
What's in store for the rest of the year?
W
hile, for the Department of Labor (DOL), the first half
of 2021 has proven to be active, the department looks
to issue more guidance in the back half of the year. At
a minimum, we expect the agency will continue to follow through
on the Biden administration's priorities and issue guidance on two
controversial issues: environmental, social and governance (ESG)
investments and the definition of fiduciary advice.
Guidance Issued in 2 Areas
Notably, the DOL has already issued highly anticipated guidance in
two hot-button areas. In January, it issued its long-awaited missing
participant guidance. The guidance included three components:
a best practices document for plan fiduciaries; an internal DOL
memorandum to regional offices outlining the objectives and
factors to consider when launching a missing participants investigation-e.g.,
a large number of reported separated participants,
a plan sponsor bankruptcy, etc.; and Field Assistance Bulletin
(FAB) 2021-01, which provides a temporary enforcement policy
concerning the use, by terminating defined contribution (DC)
plans, of the Pension Benefit Guaranty Corporation (PBGC)'s
missing participants program.
In April, the DOL issued its cybersecurity guidance, which
also included three components: tips addressing cybersecurity for
plan fiduciaries to keep in mind when selecting service providers;
best practices for service providers to adopt as part of their overall
cybersecurity program; and online security tips for plan participants
to follow. The guidance was controversial in that it ignores
a service provider's expertise and unique vantage point for efficiently
tailoring cybersecurity to its own situation.
As we expected, the DOL's guidance efforts in the first half
of the year foreshadowed its significant enforcement initiatives for
the second. In this regard, the DOL has continued to investigate
plans for missing participant issues, relying on its own missing
participant guidance as support for enforcement. Unfortunately,
its guidance did not go as far as plan sponsors have needed in
providing meaningful, reliable principles under which, if plan
fiduciaries followed them, they would gain safe harbor relief under
Employee Retirement Income Security Act (ERISA) Section 404.
The DOL has also focused its enforcement resources on
plan cybersecurity practices. For the most part, its cybersecurity
inquiries are based largely on what it articulated in its recently
released guidance. For example, the agency routinely asks plans
to describe the types of cybersecurity practices they maintain at
the plan level, as well as explain their oversight of service provider
practices. Yet, it remains to be seen whether and how the department
seeks to develop theories of liability associated with the
cybersecurity best practices guidance.
As summer turns the corner and fall sets in, many in the
benefits community may be wondering what the DOL has left
in store for the next four months. While there's no question that
there is much work left to do, it is unclear how much the agency
will be able to fit in before year-end. Its regulatory agenda indicates
that it is far along on several proposed rules.
Possible New Initiatives
The DOL has submitted a combined rulemaking package covering
both ESG and proxy voting to the Office of Management and
Budget (OMB) for White House review. Although the details are
yet to be disclosed, it is widely expected that the Biden administration
will seek to embrace a much less restrictive position on plan
fiduciaries' consideration of ESG factors when making investments,
as well as a much more permissive stance on fiduciaries'
exercise of shareholder and proxy voting rights.
The DOL is also expected to revisit the investment advice
exemption, and broader fiduciary rulemaking, though this is not
on the administration's regulatory agenda. Notably, the administration
surprised many when it permitted the Trump DOL's
investment advice exemption to go into publication in February.
However, in FAQ guidance relating to the exemption subsequently
issued in April, the DOL confirmed that it " anticipates
taking further regulatory and sub-regulatory actions, as appropriate,
including amending the investment advice fiduciary
regulation, amending (the rule), and amending or revoking other
existing class exemptions available to advice fiduciaries. "
We expect the DOL to issue guidance redefining what fiduciary
advice is, soon. We also expect the DOL's regulatory package
to include changes that will conform existing exemptions from
ERISA's prohibited transaction rules to the agency's investment
advice exemption. Given the impact the work currently in progress
will have once complete, it is important to stay tuned.
Steve Saxon is a partner with Groom Law Group, Chartered,
and George Sepsakos is a principal with Groom. Offices for
Groom are in Washington, D.C.
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