August 2020 Issue:

• Coronavirus Crisis Response Bill Negotiations Stall
• President Trump Takes Executive Action on Payroll Tax, Unemployment
• GOP Offers HEALS Package, Its Next Coronavirus Response Legislation
• Key Differences and Potential Compromises in Coronavirus Bill
• Legislators Introduce NAIFA-backed Bipartisan COVID FSA Flexibility Bill
• Federal LTC Task Force Includes NAIFA Recommendations in Report
• NAIFA Submits Comments on DOL’s Proposed New Fiduciary Rule
• NAIFA Comments on DOL RFI on MEPs/PEPs
• More States Consider Updated Annuity Sales Rules
• IRS Issues Model Notices for Distributions due to RMDs, Birth/Adoption
• DOL Releases More FFCRA Return-to-Work Guidance
• DOL Requests Information on Paid Leave
• COVID Costs Make Meetings with Elected Officials Imperative

Coronavirus Crisis Response Bill Negotiations Stall

With more than $1 trillion in proposed aid separating the two sides, negotiations on the next coronavirus crisis response bill are currently stalled. However, it is not impossible that negotiations resume, though unclear the timing, and whether there will be a new law – and if so, it may contain life insurance tax, retirement, business and health insurance provisions of key interest to NAIFA.

On August 7, negotiators on the next coronavirus crisis response bill declared themselves at an impasse. The two sides remained quite far apart on the big issues, both sides agreed. However, neither side declared the effort dead, although resumed negotiations were not immediately scheduled. Reports were that the last meeting, late in the day of August 7, produced no progress. Rather, the negotiators—Speaker of the House Rep. Nancy Pelosi (D-CA) and Senate Democratic Leader Sen. Chuck Schumer (D-NY) for the Democrats; and Treasury Secretary Steven Mnuchin and White House Chief of Staff Mark Meadows for the Republicans—spent their time blaming each other for failure to move towards an agreement.

Mnuchin and Meadows then announced that President Trump would take unilateral executive action “as soon as possible.” That turned out to be Saturday afternoon, August 8. The President signed one executive order (EO) and three memos to agencies designed to extend unemployment benefits, suspend payroll tax payment due dates (but not liability), defer student loan payments, and continue the moratorium on evictions/foreclosures.

Prospects: It is unclear whether the effort to enact another law to shore up the economy and provide help to struggling individuals will resume, and if so, when. In part, a decision on whether to keep trying will depend on the reaction to the executive actions taken by the President on August 8. We will keep you informed.

NAIFA Staff Contacts: NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org, or Michael Hedge – Director – Government Relations, at mhedge@naifa.org.

President Trump Takes Executive Action on Payroll Tax, Unemployment

On August 8, President Trump issued four new executive action directives—one executive order (EO) and three memos with instructions to relevant agencies—related to coronavirus crisis response relief. They include a suspension of the requirement to remit individual payroll tax payments, and reinstatement (with conditions) of a $400/week federal supplemental unemployment benefit.

Administration negotiators on the currently-stalled coronavirus crisis response legislation are hoping that these executive actions will ease some of the pressure for more aid and will weaken the Democrats’ bargaining position. Whether that will happen is unclear—most Hill insiders don’t think the Administration has the authority to do much via executive action. Plus, the executive actions themselves are limited—more so than legislation would be.

The four executive actions are:

1. Payroll tax: This is a memo to the Secretary of the Treasury directing Treasury to defer the withholding, deposit and payment of their lower-paid employees’ payroll taxes. (As you know, employers and employees each pay 7.65 percent of wages—6.2 percent for Social Security and 1.45 percent for Medicare.) This directive impacts only the employee share of the tax (which employers withhold and then remit to the government). It applies only to those employees earning less than $100,000/year. It does not eliminate tax liability; rather it defers the employer’s obligation to collect and remit taxes owed by the impacted workers. Treasury guidance on a host of questions is expected within a few weeks.
   The payroll tax suspension would last through the end of the year and would waive any penalties or interest on the taxes not paid/remitted. It also directs the Treasury Department to explore ways (including legislation) to eliminate rather than merely defer the tax. And, President Trump said if he is reelected, he will extend the payroll tax holiday past year-end. He also said he would “forgive” payroll tax liability from August 1 through year-end; i.e., make sure the payroll taxes not paid between now and year-end would not have to be paid later. It is likely that such a result would require statutory authority, however, so whether it can be done could depend on the next Congress’ reaction to the proposal.
2. Unemployment benefits: The memo on unemployment benefits directs FEMA and calls on the States to participate in extending federal supplemental unemployment benefits by $400/week, contingent on the States paying 25 percent ($100/week) of the benefit. The memo specifies that FEMA use up to $44 billion in the Disaster Relief Fund (DRF) to pay the federal $300/week share of these supplemental unemployment benefits; and that the States use the CARES Act-created Coronavirus Relief Fund to pay their $100/week share of the payments. The payments shall continue, the memo says, until either the DRF balance falls to $25 billion or through December 6, 2020, whichever comes first.
3. Student loans: President Trump also signed a memo that directs the Department of Education to authorize deferral of payments on federally-held student loans, using current authority for waivers of and modifications to the requirements and conditions of economic hardship deferments.
4. Eviction/foreclosure protection: The EO on evictions/foreclosures states that the Administration “will take all lawful measures to prevent residential evictions and foreclosures resulting from financial hardships caused by COVID-19.” This has been characterized as an extension of the now-expired freeze on evictions authorized by the CARES Act. However, it is unclear what authority the Administration has (“lawful measures”) to reinstate the freeze.   

Prospects: Whether these executive actions will jump-start negotiations on the next coronavirus crisis response bill, or instead deepen the divide between Republicans and Democrats remains to be seen. Already some key Democrats are reacting negatively to the payroll tax memo, saying it exceeds presidential authority, provides false hope to those it is intended to benefit because the problems associated with it mean many if not most employers will not suspend withholding of their employees’ payroll tax liability. It would, if taken up by employers, deal a serious blow to the solvency of Social Security and Medicare, opponents say.

The unemployment benefit memo also troubles Democrats, and some Republicans, too. States are already begging for more coronavirus-related aid—making this new unemployment benefit contingent on States ponying up an extra $100/week raises questions about whether many cash-strapped States will participate in the program. Plus, it too is subject to legal challenge. Guidance may clarify states’ obligations.

NAIFA Staff Contacts: NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; or Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org.

GOP Offers HEALS Act, Its Next Coronavirus Response Bill

On July 27, the GOP offered a $1 trillion coronavirus response package. At less than one third the size of the Democrats’ $3.5 trillion Heroes Act (H.R.6800), the Republican package is facing stiff headwinds from some GOP lawmakers as well as outright opposition from Democrats. However, it is the GOP’s starting negotiating position on the next coronavirus crisis response bill. Negotiations on that bill are currently stalled but may resume at any time.

Generally, here are the provisions that the Health, Economic Assistance, Liability Protection and Schools (HEALS) package includes:

• Liability protection—applicable to any person or entity at risk for being sued by someone who contracts COVID-19. This liability protection would last for five years and would be applicable to coronavirus-related lawsuits only. It would make any such lawsuit subject to federal court jurisdiction (and would preempt all state laws). Plaintiffs could prevail only if they prove that the entity or person being sued is guilty of gross negligence or willful misconduct.
• Retirement savings—The legislation provides for new flexibility in retirement plan required minimum distributions and coronavirus-related plan loans.
• FSAs—There is a provision in the GOP proposal that allows flexible spending arrangement (FSA) amounts not used in 2020 to be carried over to 2021.
• Paycheck Protection Program (PPP)—The GOP legislation adds an additional $60 billion in funding for the PPP and creates a “second draw” program that allows businesses with 300 or fewer employees to apply for a second PPP loan. It also makes certain trade associations (those with fewer than 50 employees) that are not principally engaged in lobbying eligible for PPP loans.
  It also adds new expenses to the list of expenses that can be paid for with forgiven PPP loan money. Those new covered expenses include worker protection expenses—e.g., personal protective equipment (PPE) and adaptive investments needed to comply with federal health and safety guidelines related to COVID 19 incurred between March 1, 2020 and December 31, 2020; software, cloud computing and other HR and accounting needs; costs related to property damage due to public disturbances in 2020 that are not covered by insurance; and expenses in connection with contracts for goods in effect prior to February 15, 2020 that are essential to the recipient’s current operations.
  The PPP section of the legislation also allows the borrower to choose a coverage period between eight weeks after loan origination and December 31, 2020, and simplifies the process for applying for loan forgiveness by allowing borrowers to attest to a good-faith effort that they have complied with PPP loan forgiveness requirements and reducing documentation requirements. New PPP provisions also allow inclusion of employer-provided group benefits in addition to group health insurance, but the 60/40 rules continue to apply (i.e., forgivable loan amounts will be reduced if the amount of PPP loan money spent on other than payroll costs exceeds 40 percent).
• Extended federal supplemental unemployment benefits—the GOP proposal reduces federal supplemental unemployment benefits from the current $600/week to an amount (to be calculated by the states) capped at 70 percent of lost wages. Because States say their computer systems are not equipped to do these calculations in a timely manner, the bill provides for two months’ worth of a flat $200/week in federal supplemental unemployment benefits, and allocates $2 billion to the states to upgrade their computer systems to accommodate the 70 percent of lost wages standard. The extension would be through the end of this year.
• A refundable payroll tax credit equal to 50 percent of an employer’s “qualified employee protection expenses”—the tax credit applies to the cost of personal protective equipment (PPE), and for other steps (e.g., enhanced cleaning, technology, adaptions to the workplace) required of a business in order to reopen/stay open safely. The tax credit would be capped at $1,000 for each of the first 500 employees; $750 for each employee between 500 and 1,000; and $500 for each employee above 1,000. The credit applies to expenses incurred/paid between March 12, 2020 and December 31, 2020.
• Enhanced employee retention tax credit (ERTC)—This provision would extend the ERTC to the third and fourth quarters of this year. It would also increase the ERTC from the current 50 percent on up to $10,000 paid to a retained employee in the second quarter to $19,500 per retained employee for the third and fourth quarters. The GOP proposal also allows coordination of the ERTC with the Paycheck Protection Program (PPP). It also allows inclusion of employer-provided group benefits in addition to group health insurance in the calculation of “qualified wages,” even when no other wages are being paid to a furloughed employee.
• Medicare Part B premium freeze—the legislation freezes Medicare Part B premiums for 2021 at 2020 levels
• Business meal deduction—the HEALS package includes a provision that would allow a 100 percent deduction for business meals paid for between the date of enactment of this legislation and December 31, 2020.
• The HEALS legislation also provides for direct stimulus payments to individuals—at the same level as the first round of such payments ($1,200/individual; $2,400 per married couple earning $75,000/$150,000 or less each year). There is a phase-out that allows for smaller payments to individuals earning between $75,000/$150,000 and $99,000/$198,000. It expands the CARES Act direct payments, though, by allowing $500 for each dependent, not just children under age 17.

The bill also allows more flexibility to States on how they spend the aid allocated last March in the CARES Act but does not appropriate any new money to state governments. It does, however, include money to help schools reopen safely and money for testing/contact tracing. It also includes provisions to help with childcare for essential workers.

Prospects: There is no realistic chance that the HEALS package will become law. Instead, it is viewed as the Republicans’ opening bargaining position vis a vis the Democrats. Thus, every provision in it (and those in the Democrats’ Heroes Act) are subject to change as negotiations proceed toward an enactable new coronavirus crisis response bill. To date, those negotiations are difficult. Most lawmakers do want a new bill, and while the chasm between the GOP and the Democrats is wide and deep, there is considerable common ground in the two proposals. There is pressure for a successful conclusion to the negotiations, because the need for new aid is acute and many of the CARES Act relief provisions are expired or expiring. However, prospects for success remain murky at best.

NAIFA Staff Contacts: NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org, or Michael Hedge – Director – Government Relations, at mhedge@naifa.org.

Key Differences and Potential Compromises in Coronavirus Bill

Despite reports of wide differences between the Republican and Democratic coronavirus crisis response proposals, there are significant areas—some of key interest to NAIFA—of common ground. Here are some areas of potential compromise if negotiations resume.

Scope of the Bill: Perhaps the biggest single issue is the size of the relief legislation. The House-passed Heroes bill is scored at about $3.5 trillion. The GOP’s HEALS package would provide about $1 trillion in new coronavirus-related aid. A significant number of Republicans want either a cap of $1 trillion or even less in new spending. Thus, fitting each priority aid provision into a package that carries a price tag that most lawmakers will support is and will continue to be a struggle for the negotiators. The usual “split the difference” (which would result in a bill north of $2 trillion) is made more difficult by the number of GOP lawmakers who are concerned about the federal deficit and oppose too much new spending. This has resulted in some disarray among Republicans, which makes the negotiations more difficult. Partisanship is warring with the leverage the Democrats have from their caucuses’ united support for the $3.5 trillion Heroes Act. Currently, negotiations are at an impasse.

Paycheck Protection Program (PPP): Both the HEALS legislation and the Heroes Act would extend and expand the PPP. The House-passed Heroes Act includes a provision that makes deductible ordinary business expenses paid with tax-free forgiven PPP loan funds. Even though the HEALS package does not include this provision, there is widespread bipartisan support for it. Similarly, the GOP’s HEALS proposal includes authority for a second loan for small PPP borrowers, something there is support for among House Democrats even though that provision is not in the Heroes Act. Extension of the PPP is also in both proposals. Small trade association eligibility for PPP loans is another area on which Democrats and Republicans apparently agree. Bottom line: PPP extension/expansion is a likely area for compromise.

Liability Protection: The GOP’s HEALS package includes five years of extensive protection against being sued by people who contract COVID 19. The Democrats’ Heroes Act does not. So far, Democrats will not accept the sweeping protection proposed by the Republicans, but since it is the GOP’s top priority, it is also likely that some kind of liability protection will be included if a final agreement can be reached.

Health Insurance: The Heroes Act creates a new two-month open enrollment period for Affordable Care Act (ACA) health insurance; establishes a full premium subsidy, for nine months, for COBRA coverage; prohibits cost-sharing for all COVID 19 treatment (whether covered under a government program or a private insurance policy); increases for one year to $2,750 the amount of carryover permitted under flexible spending arrangements (FSAs); and extends the FSA grace period to 12 months after the end of the current plan year. The HEALS proposal allows for a rollover of unused 2020 FSA amounts into 2021. Most Republicans support increased support for health insurance for the unemployed, but a key sticking point is whether to restrict subsidized coverage to insurance that does not cover abortions. To date it appears that the abortion issue is the major—perhaps the only—consideration holding up a compromise on the health insurance issues.

Employee Retention Tax Credit: Both coronavirus crisis response proposals contain provisions to expand the CARES Act’s employee retention tax credit (ERTC). An expanded ERTC is high on the list of potential compromises. Both proposals would extend ERTC availability through the end of the year. The House bill would make the ERTC available to companies with up to 1,500 employees, while the Senate proposal would limit ERTC eligibility to companies with 500 or fewer employees. The House bill sets a $36,000 limit on the ERTC while the Senate proposals puts a $19,500 cap on the maximum credit.

Direct Payments to Individuals: A second $1,200 payment to each individual earning less than $75,000/year ($150,000 for married couples) has been proposed by both parties. The Senate proposal also authorizes a new $500 direct payment on behalf of children (including those older than age 17) and disabled or out-of-work dependents. The House bill authorizes an additional $1,200 payment for up to three dependent children, including those over age 17. This direct payment provision tops the list of relief provisions likely to be included if a final agreement can be reached.

Unemployment Benefits: While the two parties are far apart on a new level of federal supplemental unemployment benefits, lawmakers from both parties want to extend the current benefit. This will be a difficult area for compromise.

As of now, the President has issued a memo directing FEMA to pay 75 percent of a $400/week federal supplemental unemployment benefit, if the States pay 25 percent of the benefit. Democrats want to extend the $600/week in supplemental benefits through next year. Republicans want to change the supplemental benefit to a percentage (70 percent) of lost wages, with a two-month (at $200/week) transition period to allow States time to build out the systems needed to calculate individual replacement wage amounts. Negotiators from both sides said they were open to finding middle ground on this issue. How the President’s executive memorandum influences this aspect of negotiations is unclear.

Paid Leave: The Republican proposal does not address paid leave issues; the House bill expands and extends the paid leave rules enacted in the Families First Coronavirus Response Act (FFCRA). Democrats want to impose the requirements for coronavirus-related paid leave on large employers and extend the requirements through 2021.

Hazard Pay/Back-to-Work Pay: The House’s Heroes Act includes a provision authorizing $13/hour in extra hazard pay to essential workers. The HEALS legislation is silent on this issue, but a significant number of Republicans either support this idea, or a similar one that would provide a “back-to-work” bonus payment (of either $450/week for about a month, or $1,200/week for two weeks). These two approaches, while different, are similar enough in purpose and scope that a compromise involving melding the two ideas is possible in a potential final agreement.

There are many other areas that are of key importance to the negotiations. For example, Democrats want $1 trillion for state stabilization funds. But Republicans, while they granted new flexibility to States on how to spend CARES Act-authorized state stabilization funds, did not include any new funding for State governments. Insiders think a compromise could come by combining GOP-desired liability protection with new funding for States and local governments.

Other areas ripe for compromise include whether to provide more money for schools, for testing/contact tracing and necessary medical supplies, for childcare assistance, and for Post Office assistance.

Prospects: Right now, agreement seems elusive at best. The biggest challenges appear to be the size of the package, how to deal with unemployment benefits, more money for the States, and partisan positioning. While any of these could turn into an unsurmountable hurdle, a look at possible roads to compromise suggest that the majority of Congress observers who believe that there will be a bill enacted into law will turn out to be right. Timing is key—federal supplemental unemployment benefits expired August 1; PPP loans dried up August 8. The economy is hurting—it shrunk at a record annualized rate of 32.9 percent during the second quarter of 2020. COVID 19 cases and deaths are spiking. There are some who argue that the divide between the two parties is too deep to permit a compromise, and that ultimately Congress and the President will leave it to the voters in November to determine who will make these decisions in 2021.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org, or Michael Hedge – Director – Government Relations, at mhedge@naifa.org.

Legislators Introduce NAIFA-backed Bipartisan COVID FSA Flexibility Bill

On August 11, Reps. Axne (D-IA) and Troy Balderson (R-OH) introduced new bipartisan legislation to offer families another tool to help pay for bills and necessities during the novel coronavirus pandemic.

The COVID-19 Health and Dependent Care Flexible Spending Account Distribution Act would give families access to unused funds in their health flexible spending accounts (FSAs) and dependent care assistance plans (DCAPs) to better afford their expenses during these challenging times.

NAIFA members assist employers in providing over 181 million people with health coverage and employee benefits. Many parents, families, and guardians utilize pe-tax FSAs and DCAPs to pay for dependent care, childcare, medical care, and other qualified expenses. NAIFA supports flexibility during the pandemic when medical appointments are being cancelled and childcare, camps, and schools have been closed or cancelled. Without action, parents who have contributed to these accounts could lose those dollars at the end of the year.    

If enacted, the legislation will complement existing relief provided in IRS Notice 2020-29, which provided increased employer flexibility regarding grace periods and mid-year elections for §125 cafeteria plans, including health FSAs and DCAPs.

Prospects: Legislators and regulators are open to COVID specific relief. Rep. Wittman (R-VA) also wrote to leadership asking for similar flexibility to be included in COVID relief legislation. The biggest hurdle is time. There are few legislative days remaining before the year-end with an election in the middle.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; or Michael Hedge – Director – Government Relations, at mhedge@naifa.org.

Federal LTC Task Force Includes NAIFA Recommendations in Report

The U.S. Treasury Department has released a report from the Federal Interagency Task Force on Long-Term Care Insurance recommending government actions to foster innovation in long-term care (LTC) product design, improve the efficiency and relevance of LTC product regulation and promote financial literacy on LTC matters.

NAIFA was the only producer group that participated in the Task Force’s July 2019 meeting at the Treasury Department. NAIFA Trustee Connie Golleher told the Task Force that consumers have a desperate need for LTC planning services and products. She encouraged government support for product innovation, regulatory simplification and the elimination of IRA, 401(k), and 403(b) early withdrawal taxes if funds from those accounts are used to pay LTC insurance premiums. The Task Force recommends each of these NAIFA suggestions in its report. NAIFA would also support additional tax incentives to encourage consumers to prepare for potential LTC needs.

NAIFA supports the Task Force’s recommendation for greater emphasis of LTC financial literacy education. The report specifically mentions that NAIFA finds financial literacy education programs valuable. NAIFA’s FinancialSecurity.org website is dedicated to promoting financial literacy for consumers.

NAIFA established the Limited & Extended Care Planning Center, with the help of more than a dozen founding partners, to maximize professional and consumer awareness and improve the distribution of limited and extended care solutions. Through thought leadership, events, educational resources, research, networking and advocacy, the LECP Center leverages technology to increase conversations, build trusted relationships and expand distribution year-round while raising consumer awareness.

Prospects: NAIFA will continue to work with both state and federal legislators, regulators and industry stakeholders to foster LTC product design innovation, improve the efficiency and relevance of LTC product regulation and promote financial literacy related to long term care.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org.

More States Consider Updated Annuity Sales Rules

Arizona and Iowa have adopted changes to the National Association of Insurance Commissioners’ (NAIC’s) suitability in annuity transactions (#275) model regulation, and at least four additional states have said they working to adopt the new best-interest annuity sales rules by January 1, 2021. The NAIC revised its suitability in annuity transactions model law this past February.

On July 31, during a conference call in connection with the NAIC’s virtual summer meeting, regulators from Idaho, Ohio, Rhode Island and Kentucky said they are working on updating their annuity sales rules.

The NAIC is preparing frequently-asked questions (FAQs) to help states consider updating their rules to align with the new NAIC model. The model “articulates a best-interest standard through the following four obligations: care, disclosure, conflict of interest, and documentation,” reports from the conference call stated. The reports went onto say that “The new regulations will commit the agent to extra work and documentation to establish the consumer's profile. Agents will need to find out and document things like a consumer's financial situation, insurance needs and financial objectives. The rule specifically does not establish a fiduciary duty, nor does it ban agents from recommending products with a higher compensation structure. But the agent must be able to show that such a recommendation is in the consumer's best interest.”

Prospects: Some states require legislation, or legislative approval of a regulation to change insurance/annuity rules. Others make changes via regulation. NAIFA worked closely with the NAIC during the development of the revisions to the NAIC’s annuity model regulation. Generally, NAIFA supports the amended NAIC annuity transactions model and adoption by the states of the amended model is a top state advocacy priority for NAIFA.

NAIFA Staff Contacts: Gary Sanders – Counsel and Vice President – Government Relations, at Gsanders@naifa.org or Julie Harrison – State Chapter Director – Government Relations, at jharrison@naifa.org.

NAIFA Submits Comments on DOL’s Proposed New Fiduciary Rule

On August 6, NAIFA submitted comments to the Department of Labor (DOL) on its new proposed fiduciary rule to govern ERISA plans. NAIFA’s comments on the new proposed reg encourage the agency to make clear that when using the term “investment advice,” the Department is not assuming a one-time rollover is automatically an indication of an ongoing relationship that triggers fiduciary status. The comments also expressed general appreciation for DOL’s principles-based approach and neutrality vis a vis business models, its effort to promote appropriate efficiency among regulatory agencies, and its reinstatement of the five-part test for determining fiduciary status in the context of ERISA plans.

The comments stated, “Overall, NAIFA thinks the proposed PTE (prohibited transaction exemption) – with the modifications described below – will benefit retirement investors by preserving access to a wide variety investment advice professionals, products, and compensation arrangements. The Department has struck the right balance between crafting a PTE with robust compliance obligations that serve the interests of investors, while avoiding an overly prescriptive approach or penalizing certain market segments or arrangements versus others, which has the potential to minimize competition and options for consumers – particularly for low- and middle-income families who cannot afford expensive advisory fees – and to cause industry participants to leave the marketplace because of dramatically increased compliance and administrative costs.”

The comments went on to encourage modifications that would clarify that the use of the term “investment advice” in the proposed reg’s preamble would not result in a reinterpretation of the well-established five-part test, which the proposed reg reinstates, that determines whether an advisor is a fiduciary. NAIFA pointed out that relevant case law makes clear that “isolated sales transactions accompanied by incidental advice do not, by themselves, constitute “investment advice.” It is important, NAIFA stated, that “off-handed” references to “investment advice” in the reg’s preamble not give rise to an interpretation that would run afoul of settled law. This is particularly important in the context of rollovers, NAIFA said. “We strongly urge the Department to observe its own five-part test and the clear directives of the Fifth Circuit (in Chamber of Commerce of the United States v. U.S. Department of Labor) and remove all discussion and statements in the preamble that suggest – or could be interpreted to suggest – that one-time transactions or recommendations (e.g., rollover recommendations) constitute fiduciary investment advice,” NAIFA concluded.

NAIFA’s comments also recommended that DOL reconsider imposition of the Securities and Exchange Commission’s (SEC’s) Best Interest requirement on ERISA plans, or at least that it be modified, for purposes of ERISA plans. “While we appreciate the Department’s general effort to align the proposed PTE with the SEC’s Regulation Best Interest (“Reg BI”) and to promote regulatory efficiencies, we urge the Department to bear in mind important distinctions between the SEC’s regulation and ERISA’s investment advice fiduciary framework. Most importantly, Reg BI establishes a transactional, per-recommendation standard of conduct designed for sales activity by broker-dealers and their registered representatives; it intentionally and explicitly is not an ongoing fiduciary standard akin to the one imposed on investment advisers by the 1940 Act (or, indeed, that imposed on ERISA Plan fiduciaries). Not all of the elements of Reg BI, therefore, are likely to be appropriate or necessary for an exemption that will only be used by investment advice fiduciaries,” NAIFA pointed out.

NAIFA also recommended that enhanced documentation requirements not be imposed on rollover recommendations, that DOL should not require ongoing monitoring of investments that possess “unusual complexity and risk,” and that “overly punitive eligibility criteria” should not be utilized to extend supervisory authority over IRA fiduciaries. In addition, NAIFA said, the proposed PTE should include language to exclude non-cash-value welfare benefit plans that do not have an investment component, and that the proposed reg should revise the definition of “financial institution” and “plan” to expand availability of the PTE to insurance intermediaries and to clarify that advice pertaining to employee welfare plans without an investment component is not fiduciary investment advice.

Prospects: DOL will now consider all the comments submitted on their proposed new reg—and many are expected, including some from consumer interests that think this proposed reg does not provide enough protection to investors—and will decide which, if any, modifications to make. The proposed reg will then go to the White House’s Office of Information and Regulatory Affairs (OIRA) for review. When OIRA completes its review (and DOL makes any changes that OIRA requires), the regulation will be finalized. The process normally takes around three months, but it could move more or less quickly. We will keep you posted.

NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org.

NAIFA Comments on DOL RFI on MEPs/PEPs

On July 17, NAIFA submitted comments in connection with DOL’s request for information (RFI) on multiple employer plans (MEPs)) and pooled employer plans (PEPs). Generally, NAIFA said it applauds DOL’s efforts to make MEPs and PEPs more accessible for employers, especially small employers that might not otherwise offer retirement savings plans to their employees.

NAIFA told the DOL that expansion of access to PEPs and MEPs “presents a tremendous opportunity to have a positive impact on retirement savings in the U.S. by alleviating many burdens that have historically barred small employers from offering retirement benefits. The administrative burden alone is huge for small business owners…further, allowing employers to rely upon the PEP’s fiduciaries to administer a plan without retaining those obligations on themselves will provide much-needed comfort to employers—particularly small employers—who previously were unwilling to take on those responsibilities and risks,” NAIFA said.

Specifically, NAIFA said that the MEP and PEP rules would appeal to a broad range of entities, including those already providing 401(k) plans, trade associations, insurance brokerages, and third-party administrators. To maximize this appeal, NAIFA encouraged DOL to structure any new prohibited transaction exemptions (PTEs) to be broadly available to different entity types and administrable across a variety of business models. NAIFA’s comments further urge DOL to be sure that any new PTE relief allows for fair compensation for administering a PEP or MEP.

NAIFA also suggested that while it may be possible for MEPs/PEPs to rely on existing PTEs, it would be better if DOL were to construct a new PTE to accommodate these unique retirement plans. There should be a particular focus on the needs of small employers, NAIFA said. In conclusion, NAIFA told DOL, “Regardless of employer size, the goal should be to maximize take-up rates. The more employers who participate, the more employees who will be able to take advantage of these plans and save for their retirement.”

Prospects: It seems likely that DOL—through its Employee Benefits Security Administration (EBSA)—will at least explore whether to write new rules to make PEPs and MEPs easier/less expensive for small employers to participate in. However, there is as yet no timeline for such a potential rulemaking initiative.

NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org.

IRS Issues Model Notices for Distributions due to RMDs, Birth/Adoption

On August 6, in Notice 2020-62, the Internal Revenue Service (IRS) issued model notices to help meet the requirement that certain information be provided to recipients of eligible rollover distributions related to new required minimum distribution (RMD) rules, and to birth/adoption-related distributions. Notice 2020-62 updates the notice requirements laid out in Notice 2018-74 related to the safe harbor explanations concerning the statutory change in RMD age to 72, and to the provision of an exception to the ten percent early withdrawal penalty tax for distributions taken in connection with the birth or adoption of a child.

One model notice covers distributions from a designated Roth account; the second model notice is for distributions from a non-Roth account. The law requires plan administrators to provide written explanations “within a reasonable period of time before making an eligible rollover distribution.” Notice 2018-74 provides two safe harbor explanations. Notice 2020-62 updates those safe harbor explanations to reflect the law changes regarding RMDs and birth/adoptions. These model notices may be used by plan administrators and payors to satisfy their obligation to provide explanations that accurately reflect current law.

NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org.

DOL Releases More FFCRA Return-to-Work Guidance

On July 20, the Department of Labor (DOL) issued additional guidance on return-to-work issues under the paid leave rules of the Families First Coronavirus Response Act (FFCRA). The new guidance focuses on how employers must provide sick leave after an employee returns to work after an FFCRA paid leave period.

Generally, the FFCRA requires employers with fewer than 500 employees to provide up to 80 hours of paid sick leave for certain coronavirus-related reasons. It also imposed paid leave rules, again for coronavirus-related reasons, when that leave is taken under the Family and Medical Leave Act (FMLA).

The new guidance clarifies that where an employee has taken extended FMLA leave, and has used four weeks of leave before being furloughed, the employee would be entitled, upon return to work, to the remaining eight weeks of leave if it is required (for example, if a child’s school/daycare is closed for coronavirus-related reasons). In other words, the time the employee was on furlough would not count against the amount of FFCRA leave to which an employee is entitled.

Also covered by the new guidance are rules for when employees return to work after caring for a family member who had or was exposed to COVID 19. The guidance says that such an employee, while entitled to restoration to the same or equivalent position, may be reassigned to a position requiring less interaction with coworkers, or to telework. Employers may also require such an employee to test negative for COVID 19 before returning to work—keeping in mind that such a requirement must comply with Equal Employment Opportunity Commission (EEOC) and Americans with Disabilities Act (ADA) rules.

The new guidance also makes it clear that when employees have been furloughed due to a quarantine order, those employees’ furloughs may not be extended, when the quarantine is lifted, due to the employees’ need to take FFCRA leave after being recalled to work.

Prospects: Paid leave questions abound in the current climate of reopening businesses and the potential for extended and/or expanded FFCRA requirements. Current DOL guidance is helpful in navigating what can be tricky situations. More such guidance is likely.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org, or Michael Hedge – Director – Government Relations, at mhedge@naifa.org.

DOL Requests Information on Paid Leave

On July 16 and 17, the Department of Labor (DOL) issued two formal requests for information (RFIs) regarding stakeholders’ feedback on (1) their experience with paid leave and (2) the Family and Medical Leave Act (FMLA).

The RFI on paid leave is asking for feedback on such issues as the economic impact of paid leave requirements on small businesses, the costs and benefits of paid leave, and whether there are alternatives to paid leave rules currently in place. Responses to the RFI are due to DOL by September 14, 2020.

The RFI on the FMLA requests feedback on the FMLA’s requirements for job-protected unpaid leave. Specifically, DOL wants to know stakeholders’ thoughts on what the definition of a serious health condition should be, issues related to intermittent FMLA leave, the FMLA’s notice requirements, and issues related to health care certifications. The RFI also wants to know what stakeholders think about any specific challenges and best practices they encounter in complying with the FMLA. Responses to this RFI are due to DOL by September 15, 2020.

Prospects: Paid leave is an increasingly high-priority issue, at federal, state and local levels. DOL’s RFIs suggest that the agency is reacting to proliferating paid leave rules, again at all levels of government. Expect a regulatory initiative after the DOL has collected and reviewed its requested input.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org, or Michael Hedge – Director – Government Relations, at mhedge@naifa.org.

COVID Consequences Make Meetings with Elected Officials Imperative

Nothing matters more to an elected official than how his or her constituents feel about issues. There is frankly no better spokesperson for our industry than a concerned NAIFA member who can explain how an issue will impact his or her business and the clients they represent. From relief to recovery, the issue of the day is COVID.

Our legislative priorities are COVID specific, and as always NAIFA members are meeting with elected officials to discuss legislative efforts and offer ongoing assistance. August meetings are well underway, with most meetings taking place over video calls, and some even taking place in person with NAIFA-branded facemasks.

The cost of COVID relief is tremendous – the federal spend is over $2 trillion and current negotiations range from $1-$3 trillion. If we don't explain our industry is part of the recovery, our products and services could be mistakenly targeted to pay the tab. While state and local governments received federal aid, they'll need to make up a 10% decline in tax receipts. Only 2% of state lawmakers list “insurance” as their occupation. And only 13% own their own business. State and Federal lawmakers need to hear from NAIFA members!

August recess is the perfect opportunity for you to get involved in NAIFA’s advocacy. During the recess, members of Congress typically have more freedom in their calendars and are more than willing to schedule extra time to seek input from and meet with constituents. Given that we’re in the peak of an election year, both lawmakers and candidates are eager to understand what voters want from their lawmakers – this gives you an excellent opportunity to provide relevant feedback.

Getting involved is easy! If you are interested in representing NAIFA in a meeting with your federal or state representatives, feel free to contact your state’s Grassroots Chair, NAIFA-National Grassroots Director Maggie Buneo (mbuneo@naifa.org) or NAIFA-National Legislative Liaison Cody Schoonover (cschoonover@naifa.org) for more information on how to get involved. Also, legislators will be home most of fall to campaign, so there will be ample opportunity to meet before the November 3^rd election.

Lend your voice to the network of constituent advocates by reporting relationships you have or are willing to develop with elected officials at NAIFA’s Advocacy Action Center. Log into your NAIFA account by entering your email address (no password required) and clicking on the representatives that appear, or search for additional state or federal representatives that you would like to report.

Developing and maintaining relationships with legislators can benefit both your personal and professional life – not only will you have the satisfaction of knowing that you are going above and beyond to advocate for your clients and our industry, several NAIFA members have signed lawmakers and staff as clients as a result of these important relationships!

NAIFA Staff Contacts: Maggie Buneo – Director – Grassroots, at mbuneo@naifa.org or Cody Schoonover – Legislative Liaison, at cschoonover@naifa.org.