Phone: (202) 873-9567
Description & Current Status
|1||SECURE Act||March 2019||December 2019|
General retirement reform bill, no specific stable value issues involved but viewed as a net positive due to provisions that will increase money in retirement accounts. SECURE incentivizes and expands protections for auto-enrollment and auto-escalation plan features, facilitates the creation of open multiple-employer plans, and seeks to address the annuity safe harbor to encourage annuity options within plans. It also promotes retirement savings by revising the age at which required minimum distributions are required from age 70 ½ to age 72 and by repealing the age cap of 70 ½ on IRA contributions.
SECURE was passed by the House on 5/23/2019 by an overwhelming majority. Included in the year-end spending bill for 2019 in the Senate and signed into law on 12/20/19.
|4||RSSA / 403(b)||May 2019||June 2019|
The Retirement Security and Savings Act is a reform bill sponsored by Senators Rob Portman (R-OH) and Ben Cardin (D-MD), which contains language that expands the use of commingled investment trusts (CITs) for 403(b) plans. This language has been reviewed by a working group of the SVIA’s Government Relations Committee to ensure its applicability for stable value products. Also referred to as "Portman/Cardin".
The SVIA 403(b) working group has been active in reviewing drafts of legislation and passing along feedback to ensure board applicability of the new 403(b) CIT regulations being proposed. In particular, Angela Montez from ICMA and Paul Donahue from MetLife have significantly contributed to the process.
|5||CARES Act||March 2020||March 2020|
Sections 2202 and 2203 of the CARES Act allow for a Temporary Waiver of Required Minimum Distribution Rules and also streamline loan procedures and liberalize hardship distribution rules. These provisions are consistent with those advocated by retirement-focused trade associations including SVIA, which have been provided in other emergencies such as after 9/11, the financial crisis and natural disasters.
SVIA is monitoring the impact of these regulations and is looking to work with recordkeepers to see what kind of pickup they have had.
|6||Dodd-Frank CFTC/SEC Study||July 2009||June 2013|
The definitions of “swaps” and “security-based swaps” included in Dodd-Frank may be broad enough to capture stable value contracts. However, language included in Dodd-Frank requires the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) to study stable value contracts to (i) determine if they are swaps and (ii) if they are determined to be swaps, to then determine whether it is in the public interest to exempt stable value contracts from the rules governing swaps. Under Dodd-Frank the results of this study will be prospective (i.e., any stable value contracts in effect prior to the effective date of regulations issued as the result of the study will not be considered swaps). Stable value contracts are currently regulated by the Office of the Comptroller of the Currency, state insurance commissions, and the Department of Labor.
At this time, the Commissions have delayed taking up the study in order to address other mandates under Dodd-Frank. SVIA has been considering various avenues that could be explored in order to reach a conclusion on the study.
|7||QDIA / Deaccumulation / Annuities and Stable Value||October 2007|
In 2007, the Department of Labor issued final regulations creating a safe harbor for certain qualified default investment alternatives. Despite the efforts of the Association and many others, stable value funds as well as money market funds were not incorporated into the DOL’s QDIA safe harbor. The GAO conducted a study on the issue and issued a report in August 2015. The DOL’s Advisory Council on Employee Welfare and Pension Benefit Plans announced a 2018 issue statement related to lifetime income, with the objective of promoting lifetime income within DC plans by addressing annuity selection safe harbor guidance and the QDIA definition.
Viewed as a potential avenue for re-opening the QDIA issue to include multiple types of investments as QDIAs, including annuities.
|8||Fiduciary Rules (SEC/DOL/States)||April 2016||December 2020|
On March 15, 2018 the Appeals Court for the Fifth Circuit concluded that the Department of Labor overstepped its authority with the fiduciary rule and overturned the rule in a split decision in Chamber of Commerce v. U.S. Department of Labor. On April 18, 2018, the SEC voted (4-1) to propose a package of rules and interpretations addressing investors’ relationships with broker-dealers and investment advisers. The proposals include a new standard of conduct for broker-dealers under the Securities Exchange Act of 1934 (intended to apply to 401(k) rollover advice), new disclosure requirements for broker-dealers and advisers, and an interpretation of an investment advisers fiduciary obligation under the Advisers Act similar – but not identical – to the best interest standard proposed for broker-dealers.
The SEC rules as currently proposed would have a small net positive effect on stable value. Reg BI (Best Interest) imposes a new standard for brokers, broadly saying they must make investment recommendations that are in retail customers' best interest, and lays out steps which must be taken if recommending a rollover. Consensus is that this will have a negative impact on the amount of money leaving DC plans. The Securities and Exchange Commission held a hearing on June 5th to vote on its proposed package of rules and interpretations addressing investors’ relationships with broker-dealers and investment advisers (including its Regulation Best Interest), which was introduced in April 2018 and is the SEC’s best interest standard/fiduciary rule alternative. Further, in early May 2019, Department of Labor Secretary Alexander Acosta indicated that the Department was working with the SEC on these rules and predicted that the Labor Department would issue its proposal for a new fiduciary rule in December. The final rule was release on December 15th and is expected to have a significant impact on rollover recommendations, however it is possible the new administration will reconsider the rule.
|9||Stable Value Fee/Transparency Litigation vs. Insurance Products||August 2014||October 2020|
Cases typically charge that the insurance company managing the stable value product, while not acting as a fiduciary, effectively was a fiduciary and as such should not be able to retain any spread earned on investments in the company’s general account.
Originally all but one of the eight known cases have failed (including merits rulings by the courts that the issuing insurance company is not a fiduciary), and none of the cases have resulted in settlement payments. However, there are currently pending appeals.
The 8th Circuit appeal in Rozo vs. Principal Life has re-opened this issue, as a three-judge appeals court ruled unanimously Feb. 3 2020 that Principal was a fiduciary. An appeal was filed to the US Supreme Court which the association supported with an amicus brief, however in October 2020 we received word that the court declined to hear the case. Industry groups are currently pursuing a legislative solution instead.
|10||Stable Value Litigation vs. Plan Sponsors||March 2016||June 2019|
Lawsuits against plan sponsors that allege they failed in their fiduciary duty by not offering a stable value option have thus far had mixed results, but there have been a number of rulings in favor of plan sponsors in this regard. During the 4Q2018, the 9th Circuit Court of Appeals upheld a 2017 decision to dismiss the class action suit against Chevron’s 401(k) plan, which included claims that the plan’s fiduciary retained a money market fund rather than a stable value option. In addition, the settlement agreement for a lawsuit brought against the 401(k) plan sponsored by Pioneer Natural Resources USA, included the dismissal without prejudice of the suit’s claim that the plan fiduciary failed to replace the plan’s money market option with a stable value option. More recently, a U.S. District Court judge ruled in favor of American Century, dismissing an allegation that the defendants acted imprudently by failing to offer a stable value fund. In his decision, the judge wrote, “The evidence overwhelmingly shows that the Committee gave “appropriate consideration” to adding stable value funds”.
Suits against plan sponsors that allege that they failed in their fiduciary duty by not offering a stable value option have thus far had mixed results, and the outlook for pending and future suits in this vein remains uncertain. New suits: BBVA 401(k), Ahmed v. Liberty Mut. Grp.
|11||NAIC Risk-Based Capital Requirements||August 2015||January 2019|
In August, 2015, the American Academy of Actuaries’ C1 Work Group (C1WG) recommended risk-based capital factors for corporate bonds. This recommendation, "Model Construction and Development of RBC Factors for Fixed Income Securities for the NAIC’s Life Risk-Based Capital Formula," was exposed for comment and generated a number of comments and questions and was subsequently revised.
The Academy of Actuaries’ released its latest proposal in July 2018, with comments due in early October. After receiving additional questions regarding the methodology and modelling, regulators subsequently postponed discussion of next steps. The NAIC has not publicly indicated how or when it will proceed on the topic, and implementation seems unlikely until 2020 at the earliest.
|12||Stable Value Fee Litigation vs. Individual & Pooled Funds||August 2014||June 2018|
A 2014 case involving the Lockheed Martin retirement savings plan, which included a claim that the plan’s stable value fund was actually a money market fund, settled for $62 million, of which $37 million was related to the stable value claim. This settlement may serve as encouragement for similar suits from plaintiffs’ attorneys. Pooled fund cases primarily dealt with risk, asserting that the funds either didn’t take enough risk and therefore underperformed the average stable value fund or that the fund took on too much risk. Lawsuits targeting single-company stable value funds typically claimed the funds were mismanaged.
No known outstanding cases as of 3Q2018.
(Social Security, Medicare & Medicaid, etc)
Including Social Security issues such as privatization or any type of individual/mandatory account, MyRA, tax deductability, etc. Changes in retirement age and/or changes on capping of wages as well as age for mandatory distributions from plans as well as raising the caps to contribute to deferred savings plans. Changes here often involve scaling back tax deferrals to key exemptions.
Nothing currently being proposed, however a number of cut-backs were floated during the last major tax reform discussion.
|14||Form 5500 Reporting||June 2016||December 2016|
SVIA proposed changes to form 5500 in order to address the disparity between reporting for 5500 plans and financial reporting for employee benefit plans on stable value funds.
SVIA met with Ian Dingwall, EBSA’s Chief Accountant and Joe Canary, Office Director for EBSA’s Office of Regulations and Interpretations, to ask for the Department’s help in providing clarity for reporting of stable value in the 5500 form for employee benefit plans on a prospective basis. The Department agreed to work with SVIA to address this issue in their instructions for the next reporting cycle. SVIA agreed to provide more information as to how the instructions could be clarified to have consistent and accurate reporting between the Form 5500 and the financial reports for employee benefit plans on stable value and submitted an official comment letter on Friday, December 2nd.
|15||Accounting (FASB/GASB)||November 2001||May 2015|
This category summarizes three major accounting issues that faced stable value funds: FASB’s reaffirmation of book value accounting, GASB’s investment instrument-driven approach for state and local plans, as well as FAS133, which outlines how institutions must account for derivatives.
All three accounting pronouncements have been finalized and in use for several years.