Outside-IN

Outside-INblog

Outside voices and views for advisers

Trump executive order may prevent guidance on employee benefits issues

An order aimed at reducing regulation and controlling regulatory costs could sow confusion over issues such as executive compensation and the fate of planned rules affecting employer retirement plans

Feb 7, 2017 @ 5:42 pm

By Marcia S. Wagner

For employee benefits practitioners, the key takeaway from a recent Trump administration executive order on reducing regulations and controlling regulatory costs is this: “For every one new regulation issued, two prior regulations must be identified for elimination.”

This order, issued Jan. 30, may seem to have little relevance for retirement plan advisers, but is likely to have a significant impact if tax reform becomes a reality, particularly with respect to issues of executive compensation.

Here's one example.

In an interpretive bulletin published in December, the Labor Department stated “consideration of the appropriateness of executive compensation” is important when pension plans determine how to vote proxies and exercise shareholder rights under ERISA. (For example, a pension plan should not vote in favor of a new clearly excessive executive compensation arrangement for a company in which it invests, as that could harm the value of its investment.)

The appropriateness of executive compensation would relate not only to the amount of compensation, but also to the manner in which it is provided. For example, if the alternative minimum tax were eliminated from the Internal Revenue Code, incentive stock options might receive a resurgence in interest from executives. If section 162(m) of the code (which generally imposes a $1 million cap on compensation for the CEO and the four other most highly compensated officers) were repealed, the base pay of these officers would likely increase, and the need for shareholder approval of modifications to performance-based compensation would be removed. If Dodd-Frank were repealed or substantially modified, other compensation practices might be modified by corporations to make executive compensation arrangements more flexible and beneficial to executives.

Any tax legislation would almost certainly require the issuance of regulatory guidance, in some form, concerning these issues, and any such regulatory guidance would be affected by Mr. Trump's executive order, as such guidance would either be delayed, or not issued at all. That would require advisers to make reasonable, good-faith judgments with respect to what the new law requires.

More broadly, the executive order seemingly covers soft forms of guidance like answers to frequently asked questions, such as the FAQs issued by the DOL with respect to the fiduciary rule and those issued jointly by the DOL, Internal Revenue Service and Department of Health and Human Services implementing the Affordable Care Act. If the executive order is, in fact, that broad, the issuance of needed and helpful soft guidance might be curtailed, leaving advisers with uncertainty and increased risk.

It's unclear how the issuance of regulations mandated by Congress will be affected. For example, under the Affordable Care Act, the IRS is required to issue guidance with respect to discriminatory insured group health plans. If the IRS can only implement that guidance by eliminating two other regulations, the issuance of guidance in that area may continue to be delayed.

It is also unclear what a “new regulation” is. In some cases, that determination will be simple and uncontroversial. For example, one of the projects listed on the IRS semiannual regulatory guidance is the issuance of regulations under Code section 414(x), the combined defined benefit and qualified cash or deferred (401(k)) arrangements. There has been no prior guidance under this code section, so any regulation in this area would be a new regulation.

However, that same IRS guidance listed projects such as updating rules with respect to employee stock ownership plans, service crediting and vesting rules under Code section 411, and top-heavy rules under Code Section 416. Will the updating of existing regulations be treated as new regulations? (Top-heavy rules require minimum contributions or benefits be provided if 60% or more of the benefits under the retirement plan are for certain key officers and owners of the company. The service crediting and vesting rules are used to determine when a plan participant has a non-forfeitable interest in benefits under a plan.)

There were a number of regulatory projects that could be affected by the new regulatory order that were on the IRS agenda for the current fiscal year: clarification of the documentation required to substantiate hardship withdrawals; guidance with respect to the timing of the use or allocation of forfeitures in defined contribution plans; guidance under the prohibited transaction rules of code section 4975; regulations under code section 3405 with respect to distributions made from plans to payees outside the United States; and annual reporting under code section 6057. It remains to be seen what effect the Trump administration's executive order will have on these regulatory projects.

We are living in interesting times, and nothing is as simple as it appears.

Marcia S. Wagner is the managing and founding partner of The Wagner Law Group. She specializes in ERISA and employee benefits.

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

May 30

Conference

Adviser Compensation & Staffing Workshop

The InvestmentNews Research team will present exclusive data and highlights from its bellwether benchmarking study that will identify best practices for setting and structuring compensation and benefits packages throughout your... Learn more

Featured video

Events

The need for easier investment options.

Rob Barnett of Wilmington Trust makes the case for simpler investment choices for plan participants and sponsors.

Latest news & opinion

Why we must create a more diverse and sustainable financial planning profession

CEO explains how, why a firm should commit to conscious inclusion.

Wells Fargo sees slowdown in advisers exiting this year

The 2016 banking scandal and public relations fiasco had alienated some of the firm's advisers.

States trying to save DOL fiduciary rule appeal rejection of effort to intervene

California, New York, Oregon ask for rehearing by full 5th Circuit Court of Appeals.

Employees at best places to work focus on the person — and the fun

Employees at best places to work firms focus on the person and fun.

Waddell & Reed sees flurry of senior staff departures

Firm also experiences an almost 30% decline in number of brokers and advisers.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print