Borzi Updates Council on State Plan Guidance, Fiduciary Proposal

By Ray Harmon • November 06, 2015 • 0 Comments
“In my 40 years of doing this, I never thought I’d see the day we’d have a president giving us direct instructions …” [on state-run, automatic enrollment IRA programs], Assistant Secretary of Labor Phyllis Borzi told the ERISA Advisory Council Nov. 3-4.

At the hearing, Borzi noted that about 68 million people don’t have access to retirement plans at work, and that many argue a federal solution is most appropriate, but she said legislators tell her “we can’t wait.” State efforts are currently paused because of arguments that they’re preempted by ERISA — and Borzi said she believes the courts should be the ultimate arbiter — but the president directed the department to create guidance to help the states figure out what they might be able to do without triggering ERISA preemption.

The first piece of new guidance is a proposed rule that will establish a safe harbor for state plans to avoid ERISA. The second piece will be sub-regulatory guidance, effective immediately, to help states that want to embrace ERISA to offer coverage to their employees, including options for different ways to accomplish that goal. Borzi predicted that the department will meet the president’s deadline of getting both items out by the end of this year, with the formal rule already under review at the Office of Management and Budget since Sept. 1. It could be released at any moment.

Fiduciary Proposal Update

Borzi also updated the council on pending guidance from the department. On the re-proposed definition of fiduciary rule, she asserted the comment period was enormously long, upwards of 160 days “depending on how you count it,” and exceptionally transparent, with double the number of hearing days of the rescinded 2010 rule and about 100 face-to-face meetings with industry stakeholders since April. Per Borzi, Secretary of Labor Tom Perez’s goal is to get the final rule out in the “first half of 2016.”

The stated purpose of this meeting of the ERISA Advisory Council was to finalize and formally present its 2015 recommendations to assistant secretary of labor for the Employee Benefits Security Administration (EBSA) Phyllis Borzi on lifetime plan participation and pension risk transfers.
Through a series of public meetings this year, the council heard from retirement plan practitioners, as well as marketing and communications experts, about the pros, cons and challenges of being able to keep plan assets in an employer-sponsored plan and the importance of effectively communicating post-termination options to participants, plan sponsors and providers. This initiative was a follow-up to the council’s 2014 recommendations on lifetime plan participation.

Lifetime Plan Participation Project

Christina Cutlip, vice chair of the lifetime plan participation issue task force, began with the four options generally available to most terminating participants: keep the money in the plan, move the money to a new employer’s plan, roll the money over to an IRA, or cash out. Most participants and plan sponsors operate under the assumption that the participant must remove the money from the plan in some fashion, but the council believes for some people there may be advantages to keeping the assets in place. According to the council, examples of plan design features encouraging lifetime participation include annuities, stable value funds, ongoing access to plan loans, partial lump sum or installment distributions, and institutionally priced brokerage window options.


Ultimately the council recommended that the Department empower the public to make informed choices about their options by providing a wide array of sample model participant notices for plan sponsors in many different formats, avoiding “overly prescriptive guidance”, and making the decision to distribute such communications voluntary for sponsors. The council emphasized that the Department consider flexibility in form and content, simplicity, personalization and frequency when establishing communication methods for these kinds of complex or confusing issues. Toward this end, the council drafted for the department’s consideration a tipsheet and frequently asked questions to help plan sponsors implement lifetime participation features.

On pension risk transfers, the council provided two model participant notices for consideration as a follow-up to the council’s 2013 initiative recommending improved participant communications and disclosures on pension de-risking. One model notice is for lump sum risk transfers and the other is for insurance company risk transfers (i.e., going from an ERISA plan to an insurance company annuity). The council recommended that the department review and adopt the model notices and make them available to plan sponsors and participant advocates as soon as administratively feasible. Additionally, they recommended that the department create an online tool that allows participants to research retail annuities that could be purchased with their lump sum payments.

Ray Harmon, Esq. is government affairs counsel for ASPPA.