Legislative Activity Health Savings Account legislation There have been several legislative proposals related to the repeal and/or replacement of the Affordable Care Act (ACA): The House-passed American Health Care Act (AHCA) and the Senate Republican draft of the Better Care Reconciliation Act (BCRA) both include provisions that would impact Health Savings Accounts (HSAs). While future health care legislation is uncertain, the HSA changes proposed may remain in play in future health care reform and/or tax reform efforts. Proposed changes are listed below. The ACA definition of qualified medical expenses would no longer exclude most over-the-counter medicines or drugs. The penalty tax for HSA withdrawals not used for a qualified medical expense would be reduced from 20% to 10% (as it was before the ACA). Double the annual maximum HSA contribution limit and maximum HSA contributions that could be made even if the High Deductible Health Plan (HDHP) had lower out-of-pocket maximums. [In 2017, the actual maximum HSA contribution limit is $3,400 for individuals and $6,750 for families.] Allow one spouse to make catch-up contributions to the other spouse s HSA. Permit HSA distributions to be used to pay HDHP premiums. Payment of medical expenses of children under age 27 are qualified distributions even if the child is not a dependent. Increasing HSA annual contribution limits will help individuals manage health care expenses now and in retirement. Permitting individuals to cover more medical expenses, even over the counter items, helps them manage costs. These provisions help to make HSAs more attractive to employers and individuals. We will continue to monitor legislative activity. Affordable Retirement Advice for Savers Act (HR 2823) sponsored by Rep. Phil Roe (R-TN) Would repeal the Department of Labor (DoL) fiduciary rule. The bill was marked up in the House Education and Workforce Committee in July, 2017. Would repeal the DoL fiduciary rule. Creates a new statutory definition of investment advice. If the bill makes it out of the House, it will face strong Senate Democratic opposition. Shrinking Emergency Account Losses (SEAL) Act Co-sponsored by Senators Bill Nelson (D-Florida) and Mike Enzi (R- Wyoming) the legislation introduced in April would address leakage from defined contribution (DC) retirement plans. Workers who separate from service have until their federal tax filing to repay loans they ve taken out of their company-sponsored retirement plan. Workers are permitted to keep making contributions after taking a loan. Allows employees to continue to contribute to their defined contribution (DC) plans in the six months following hardship withdrawal. Additionally, would limit to three the number of loans a worker can take from a DC plan and outlaw debit cards linked to DC plan assets. Leakage of retirement savings is a significant issue. Efforts to help individuals retain their savings after loans or hardships can help them be more financially secure in retirement. We continue to monitor the progress of this proposal. Bank of America Merrill Lynch is a marketing name for the Retirement Services business of Bank of America Corporation ( BofA Corp ). Banking activities may be performed by wholly owned banking affiliates of BofA Corp, including Bank of America, N.A., member FDIC. Brokerage activities may be performed by wholly owned brokerage affiliates of BofA Corp, including Merrill Lynch, Pierce, Fenner & Smith Incorporated ( MLPF&S ), a registered broker-dealer and member SIPC. Investment products: Are Not FDIC Insured Are Not Bank Guaranteed May Lose value Page 1 of 8
Legislative Activity Retirement Security for American Workers Act (H.R. 854) On February 3, 2017, Representative Vern Buchanan (R-FL) reintroduced the Retirement Security for American Workers Act. The bill would allow unrelated employers to join together to offer open multiple employer plans (MEPs) and resolve the one bad apple rule. STILL PENDING Under the legislation, open MEPs would be renamed Pooled Employer Plans (PEPs) to remove existing confusion between multiple employer plans and multiemployer plans. Open MEPs have had bi-partisan support in the past with Representatives Jim Renacci (R-OH), Ron Kind (D-WI), and Richard Neal (D-MA) co-sponsoring the Retirement Security for American Workers Act, which was first introduced last year, with open MEP provisions that were very similar to the open MEP provisions included in another bill, Retirement Enhancement and Savings Act (RESA), which was unanimously approved by the Senate Finance Committee in the fall of 2016. Open MEPs remain very popular within Congress and we expect efforts will be made to advance them and the other provisions in RESA during the current congressional session. Removing the current regulatory roadblocks would provide many more small employers access to workplace retirement savings plans. Making MEPs more broadly available has the potential to expand access to employer based retirement savings plans for almost half of the working population that does not currently have access to a plan at work. MEPs would allow small plans to access many of the services that are usually not available to them due to cost restraints. Tax reform proposals- The President and GOP leadership in the House and Senate have indicated that they intend to address tax reform at the corporate and individual level in the current Congress. The House GOP released a fiscal 2018 budget plan in July, combining tax reform with controversial spending cuts. The plan instructs 11 House committees to find savings from programs and policies they oversee, including taxes, financial regulation, food stamps and federal pensions. The plan does not include specifics but may consider tax reform proposals seen in recent years including: o Reviewing existing tax incentives for employerbased retirement and pension plans in developing options for an effective and efficient overall approach to retirement savings. o The effect of tax rate reductions. o Consolidation and reform of multiple different retirement savings vehicles. o Effective and efficient incentives for savings and investment. Tax reform proposals continue to surface as a way to reduce the deficit and pay for other legislation. Past proposals have included capping retirement contributions across accounts, freezing contribution limits, and lowering contribution limits. It will be important to encourage leadership not to pursue tax reform to the detriment of retirement accounts. Tax reform proposals to limit contributions or accumulation in retirement plans creates concerns for plan sponsors about managing grandfathered limits (if applicable), while managing revised or aggregated limits. This may result in plan administration being more burdensome and costly to manage. Similar proposals have been a topic of discussion for many years, and while the intent may be to simplify the number of different types of defined contribution plans, it could result in more complexity and disruption if these plans have to be modified and restructured. Page 2 of 8
Legislative Activity State and City/Municipality run retirement programs To date, over 30 states have proposed state run programs or studies to examine the possibility or need of them. Five states have enacted state run automatic IRA programs with a mandate for small employers who do not otherwise provide access to workplace retirement savings. Litigation Activity In May 2017, Congress effectively invalidated the 2016 DoL guidance providing safe harbors to State run programs, repealing the guidance under the Congressional Review Act. States that have already enacted programs with mandates are continuing to move forward in spite of the invalidated DoL guidance. Activity to date in 2017: In June, Vermont enacted a voluntary multiple employer plan called the Green Mountain Secure Retirement Plan. California, Illinois, and Oregon are moving forward with implantation of their enacted state run automatic IRA programs. Washington state is moving forward with their state run marketplace and have indicated they will be up and running in 2017. New York and New York City are exploring similar programs. We believe that 401(k) plans offer employees far greater ability to save for retirement than IRAs alone. Federal expansion of open Multiple Employer Plans (MEPs) would better address the retirement needs of small businesses currently without plans. Plan sponsors already offering a plan should not be negatively impacted by state or city/municipality programs that could require them to offer the state program to part-time or other employees not yet eligible for the employer plan. Plan sponsors with existing plans should not have the additional administrative burden of tracking various state requirements across the many states where they have employees. Ellis vs. Fidelity Management Trust Co. Dismissed. Accused Fidelity of engaging in imprudent investment strategies for the Fidelity Group Employee Benefit Plan Managed Income Portfolio Commingled Pool (MIP), a stable value fund offered as an investment option in some 401(k) plans for which Fidelity was trustee. The court decision discusses the significant detail of Fidelity s investment and monitoring process. The court found that Fidelity did not put its interests ahead of the portfolio s and therefore Fidelity did not breach its fiduciary duty. The court also recognized that, Fidelity periodically explored changing the Portfolio s benchmark both to more and less aggressive options, regularly conducting quantitative analyses of potential alternatives.... These cases have generally come down to having a process in place and following it consistently. Plan sponsors are reminded to always have an investment policy statement and procedures for selection and review of investments in the plan. Ongoing monitoring of the plan process is key. Barchock v. CVS Health Corp Dismissed. Participants in the CVS Employee Stock Ownership Plan claimed that plan fiduciaries imprudently invested plan assets in the plan's stable value fund. Plaintiffs argued that the stable value fund had an excessive concentration of investments with very short durations and excessive liquidity, both of which caused the fund to underperform comparable stable value funds. The court dismissed the complaint stating that the stable value fund "was invested in conformance with its stated objective and whether that strategy was prudent cannot be measured in hindsight" simply by judging its performance against industry averages. These cases have generally come down to having a process in place and following it consistently. Plan sponsors are reminded to always have an investment policy statement and procedures for selection and review of investments in the plan. Ongoing monitoring of the plan process is key. Page 3 of 8
Litigation Activity Department of Labor (DoL) DoL Regulatory Projects Update Trump Administration Released Priority Guidance Plan of Regulatory and Deregulatory Items in July, the Administration released an update of regulatory items that the Department of Labor, Treasury/IRS and PBGC will be focused on in 2017. Projects are categorized as active, inactive, or longterm. Saumer v. Cliffs Natural Resources, Inc. Dismissed. In this stock drop case, the participants alleged fiduciary breach claims based on public and non-public information arising out of the collapse in iron ore prices that caused the company's stock price to decline 95%. On the public information claim, the Court found that a fiduciary's failure to investigate the merits of investing in a publicly traded company is not the type of special circumstance that can support a claim based on public information, and that plaintiffs also must plead "what, if anything, the fiduciaries might have gleaned from publicly available information that would undermine reliance on the market price." On the non-public information claim, the Court determined that the plan fiduciaries could have concluded that divulging inside information would have caused the company's stock price to collapse, further harming participants already invested in the fund. These cases have generally come down to having a process in place and following it consistently. Plan sponsors are reminded to always have an investment policy statement and procedures for selection and review of investments in the plan. Ongoing monitoring of the plan process is key. Secretary of Labor Alexander Acosta confirmed On April 27, 2017, Congress confirmed the appointment of Alexander Acosta as Secretary of Labor The Secretary will determine which existing policy issues the Department of Labor will continue or discontinue. The Employee Benefits Security Administration (EBSA) Assistant Secretary position is yet to be filled. Secretary Acosta has begun the review of the DoL fiduciary rule as directed by the president We will continue to monitor DoL activity as they identify existing regulations that create undue burden for taxpayers or undue complexity that the President has directed them to revise or eliminate under Executive Order 13771. Conflict of Interest Rule (aka the Fiduciary Rule) Active. Multiyear project by the Department of Labor (DoL) to curtail conflicts of interest where investment advice is provided to individuals, plan sponsors, and plan participants DoL Fiduciary Rule Project On June 9, 2017, the DoL Fiduciary Rule moved forward with full applicability. On June 29, 2017, the DoL issued a Request for Information (RFI) in response to the President s directive to review the DoL Fiduciary Rule. o The RFI poses 18 questions for comment. o The first question asks whether the January 1, 2018 full effective date should be extended. o The remaining questions address various other elements of the rule. DoL is considering an extension of the transition period and sent a proposal to the OMB in August. The House Financial Services Subcommittee held a hearing on July 13 to discuss the impact of the DoL s Fiduciary Rule on the capital markets. Legislative proposals have been introduced in the House to repeal or defund the fiduciary rule (see Legislative Activity section for details). Bank of America Merrill Lynch continues to monitor DoL activity on the rule. For more information on the Conflict of Interest Rule, visit the DoL website: https://www.dol.gov/agencies/ebsa/laws-andregulations/rules-and-regulations/completedrulemaking/1210-ab32-2 Page 4 of 8
DoL Regulatory Projects Update Revision of Form 5500 Active. The DoL, IRS, and PBGC are part of a long-term project to modernize the Form 5500. DoL received comments on their original proposal in 2016. The DoL is reviewing comments received. Targeted date for completing comment review is January 2018. While this is showing active status on the DoL project list, it is a project that will likely take some time to complete. We will continue to monitor for developments and opportunities to provide input. Fiduciary Relief for Investments in Qualified Default Investment Alternatives Long Term. The DoL is exploring potential regulatory amendments that would permit the incorporation of auto-annuitization features into target date funds as part of qualified default investment alternatives without plans violating age-based, non-discrimination rules. The DoL has indicated that EBSA will begin this review by issuing a Request for Information. No target completion date has been provided. Providing plan sponsors with guidance in choosing lifetime income products for their plan s qualified default investment alternatives (QDIAs) can be helpful, but should not be mandated. DoL Guidance on State and City/Municipality Run Retirement program proposals Inactive. Congress has repealed the prior DoL favorable guidance to states and certain cities and municipalities that would like to offer retirement savings programs for individuals who do not have access to retirement savings in the work place. The House and Senate both approved resolutions of disapproval under the Congressional Review Act (CRA) that block the DoL guidance issued on state and city/municipality run retirement programs. This effectively invalidates the 2016 DoL guidance. States that already have enacted programs (CA, OR, CT, IL, MD) have indicated their intention to go forward with their programs, some citing a 1975 safe harbor, and do not believe they are affected by the pull back of the guidance. Other states continue to move forward with their programs in spite of the lack of clarifying guidance on mandatory programs. In July, Vermont Governor Phil Scott signed a bill into law that includes a provision directing the state to study and implement the Green Mountain Secure Retirement Plan, a voluntary retirement program for businesses with 50 or fewer employees. We continue to monitor developments on the state level. We have a voluntary system that works well and do not believe mandating plans is the answer. Mandated state plans do not just impact small employers; they have the potential to impact large employers with excluded classes of employees who could then be subject to a state plan requirement depending on the particular state and their proposed plan. Page 5 of 8
DoL Regulatory Projects Update Other projects of interest to plan sponsors Long-Term. Several projects have been moved to long term status with no other details available at this time. Benefit statements/lifetime income disclosure this project would implement the benefit statement requirement added by the Pension Protection Act of 2006 and could also require a lifetime income disclosure on benefit statements. Review of open brokerage windows in defined contribution plans In August 2014, the DoL released a request for information ("RFI") relating to brokerage windows in defined contribution plans. The public comment period closed November 19, 2014. While these remain on the long-term project list, there has been little or no activity on them for some time. We will continue to monitor DoL activity for updates to see if any of these projects are revived under the new administration. IRS/Treasury Guidance and Projects Trump Administration Released Priority Guidance Plan of Regulatory and Deregulatory Items In July, the Administration released an update of regulatory items that the Department of Labor, Treasury/IRS and PBGC will be focused on in 2017. Projects are categorized as active, inactive or long-term. Priority Guidance Plan As with the DoL, the guidance plan lists IRS/Treasury projects as active, inactive, or long-term. Governmental Plans. Project to define governmental plan status, on which no action has been taken since 2012. IRA Regulations. Longstanding project to update the IRA regulations may address valuation issues for IRA assets and other aspects of IRAs. Deferred Vested Benefits. Would provide regulations on the statement under 6057 to participants with deferred vested benefits. Cadillac Tax. Proposed regulations on the excise tax on high cost employer-sponsored health coverage, also called the Cadillac tax. Vesting Rules. Would provide an update to existing final vesting regulations that generally apply to tax qualified retirement plans. 409A. Provide rules on income inclusion for deferred compensation plans and other 409A changes. Minimum Present Value. A final regulation on the present value requirements for Defined Benefit (DB) pension plans. Closed DB Plans. To provide nondiscrimination relief for closed DB plans. Forfeitures for QNECs. Would finalize proposal to allow forfeitures to fund QNECs. (The proposed regulations can be relied upon now, however.) All of these items list their next targeted action for December 2017, but none are imminent. Some or all of these projects could cross over into 2018. We will continue to monitor for developments. Page 6 of 8
Pension Benefit Guaranty Corporation (PBGC) Priority Guidance Plan. As with the DoL, and IRS/Treasury projects are listed as active, inactive, or long-term. ACTIVE Expand missing participant program to terminated defined contribution plans is listed as a final rule targeted for September 2017. The final rule has not yet gone to Office of Management and Budget (OMB) for review. PBGC officials have stated that they would like to finalize this project in 2017. Rulemaking to update PBGC s regulations under the Freedom of Information Act (FOIA). LONG-TERM Administrative Review Multiemployer Guaranteed Benefits Projects on Valuation Assumptions and Methods. We continue to monitor these projects as they develop. SEC SEC Chair seeking public comments from retail investors and other interested parties on standards of conduct for investment adviser and broker-dealers. In June, 2017, SEC Commissioner Jay Clayton issued a statement requesting comments on their standards of conduct taking up a project that had gone dormant under the prior administration. The SEC had been directed under the Dodd Frank Act to review its regulations on their fiduciary standard, but to date the Commission has not moved forward on this issue. Several public comments in the form of letters and hearings on the DoL Fiduciary Rule have expressed concerns that the DoL was not working closely with the SEC in the promulgation of their fiduciary rule. The SEC has been receiving comments on their website since June 1, 2017. You can access them here: https://www.sec.gov/comments/ia-bdconduct-standards/iabdconductstandards.htm Coordination between the SEC and DoL on their respective fiduciary standards would help to ensure clarity on the application of standards of conduct. The SEC has not indicated when they might issue further guidance, the project is ongoing. We will continue to monitor for further developments. Retirement-targeted industry reviews and examinations (ReTIRE) initiative. ReTIRE is a multi-year initiative of the SEC focusing on certain higher-risk areas of registered investment advisers sales, investment, and oversight processes, with particular emphasis on select areas where retail investors saving for retirement may be harmed. SEC will be looking at recommendations, conflicts of interest, supervision and compliance controls, and marketing and disclosure. The SEC has indicated the purpose of its proposal is to protect retail investors, including those who invest through individual retirement accounts (IRAs). Broker-dealers and their advisors are the focus of this SEC initiative, not plan sponsors. The multi-year program provides financial services firms subject to SEC oversight with an opportunity to review their compliance procedures related to retail retirement accounts in anticipation of an examination by the staff. We will continue to monitor potential SEC enforcement activity in this area. Page 7 of 8
SEC Senior investors and retirement investments. As the U.S. population ages and investors become more dependent than ever on their own investments for retirement income, the SEC has been devoting increased attention to issues affecting senior investors and those investing for retirement. FINRA also has senior investors on their radar. The Financial Industry Regulatory Authority (FINRA) said cyber-security and investing by seniors was among the topics discussed at their national compliance outreach program for broker-dealers in July 2017. The program is designed to provide an open forum for regulators and industry professionals, including compliance, audit, and other senior personnel of broker-dealer firms and branch offices, to discuss compliance practices and promote an effective compliance structure. Investor protection for older and vulnerable adults is becoming more of a policy focus with our rapidly aging population both in the U.S. and globally. We support legislative and regulatory efforts to provide for protections against financial fraud. We continue to monitor SEC, FINRA, and state regulatory activity on this issue. Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions. 2017 Bank of America Corporation. All rights reserved. ARKKJ7RF 8/2017 Page 8 of 8