Chamber Comments on Automatic Portability Regulation

March27, 2024

Office of Regulations and Interpretations
Employee Benefits Security Administration
U.S. Department of Labor
Room N-5655
200 Constitution Avenue, NW
Washington, DC 20210

Re: Proposed Rule; Employee Benefits Security Administration; Automatic Portability Regulation RIN 1210-AC21

ToWhomItMay Concern:

This is the U.S. Chamber of Commerce's (Chamber) response to the Department of Labor's(DOL)proposedregulationon theautomaticportabilitystatutoryprohibited transaction exemption (PTE) added bySection120 of theSECURE 2.0Act(SECURE 2.0) (Proposed Regulation). The Chamber supports automatic portability as a way to increase retirementsavings. However, the Chamberis concernedthat certain provisionsin the ProposedRegulation would discourage automatic portability by making it more difficult for an automatic portability provider (APP) tooperate and for a plan sponsor to participate in such a program. We are also concerned that a number of provisions in the ProposedRegulation are not within the scope of the statute and how DOL may try to apply these provisions to other individual and class PTEs in the future. As such, we request DOL reexamine the Proposed Regulation to ensure the success of automatic portability programs.

Background

In2018 DOL issued Advisory Opinion 2018-01A relating to whether certain entities involved in an automatic portability transaction were fiduciaries under the Employee RetirementIncomeSecurityActof1974,asamended (ERISA).IntheAdvisory Opinion,DOL noted that the objective of an automatic portability program is "to improve overall asset allocation, eliminate duplicative fees for small retirement savings accounts, and reduce leakage of retirementsavings from the tax-deferred retirement saving system."¹

In2019, DOL issued Prohibited Transaction Exemption 2019-02 (PTE 2019-02), which was an individual, five-year exemption allowing Retirement Clearinghouse toreceive fees for its automatic portability program that matches a former employees' eligible mandatory distributionaccountsindividuals'newemployer'splan, subjecttothe exemption'sconditions.

Section120 of SECURE 2.0 provides for astatutory exemption for automatic portability programs, with provisions similar to those in PTE 2019-02, codified at 26U.S.C. Section 4975(d)(25),(f)12).Section120(d)provides thatnolaterthanDecember29,2023,theSecretary of Labor (Secretary) may, but is not required to, issue regulationsin the following areas:

• Requiring an APP to provide individuals notice before the pre-transaction notice.
• Requiring an APP to disclose to plans information required to be provided by a covered service provider pursuant to section 29 C.F.R. Section 2550.408b-2(c).
• Requiring a plan to fully disclose fees related to an automatic portability transaction in its summary plan description or summary of material modifications, as relevant.
• Requiring a plan to invest amounts received on behalf of a participant pursuant to an automatic portability transaction in the participant's current investment election under the plan or the default investment if no election has been selected.
• Prohibiting or restricting third party compensation (other than a direct fee the plan sponsor pays for the transfer).
• Prohibiting exculpatory provisions in an APP contract or communications with individuals disclaiming or limiting its liability if there is an improper transfer.
• Requiring an APP to take actions to ensure that participant and beneficiary data is current and accurate.
• Limiting the use of data related to automatic portability transactions for any purpose other than executing the transaction or locating missing participants.
• Providing for corrections procedures if an auditor determines the APP was not in compliance.
• Ensuring the appropriate participants and beneficiaries receive all required notices and disclosures.
• Making clear that the exemption provided in Code Section 4975(d)(25) applies solely to automatic portability transactions.

OnNovember7,2023,the PortabilityServicesNetwork(PSN)announcedthatit was fully operational,12 months after it was announced in 2022. The purpose of the PSN is to "help tens of millions of under-served and under-saved Americans keep their retirement savings invested and working for them when they change jobs."²The PSN isan industry run solution, and it covers nearly 60percent of all workers who are saving through anemployer­ sponsored retirement plan.

January29,2024,morethan12monthsafterSECURE2.0wasenacted,DOLpublished the Proposed Regulation, which would add substantial administrative burdens and costs to automaticportabilitytransactionsbeyondwhatis inthe statuteorwhatwasinPTE 2019-02. In the preambletothe ProposedRegulation, DOL notedthat some stakeholders communicated to DOL that no further guidance was needed from DOL to effectuate Section 120, especially because products and procedures have already been developed to provide automatic portability services.³ In response, DOL stated that it believes that regulations, as compared to some other form of guidance, are needed to implement Section 120 to address and reinforce the consumer protections in the statutory conditions and requirements. As explained below by section as they appear in the Proposed Regulation, the Chamber is asking DOL to reconsider its position on a number of these provisions not only because of the additional administrative burden and cost they would add, but also because of DOL's lack of statutory authority to add additional conditions not otherwise provided for in the statute.⁴

Discussion

EffectiveDate

The effective date for the Proposed Regulation is 60 days after published in the Federal Register. Given the sweeping changes in the Proposed Regulation, such as adding additional notices, requiring additional work from plan sponsors, which would require updated contracts, and requiring language services that currently are not in place, compliance with a 60-day effective date would be impossible. At the very least, there would need to be a 12 to 24-month effective date if these additional requirements were added.

Fee Disclosure

Clause (b)(2)(ii) of the Proposed Regulation provides that the APP must ensure that all fees are disclosed to and approved by the plan fiduciary before any automatic portability transaction. In the preamble, DOL requested comments on whether additional specificity regarding the disclosure of other types of services and fees for such services is needed. The statute is sufficiently clear as to what fees for what services must be disclosed, and DOL does not need to provide additional guidance.

FiduciaryStatus

26 U.S.C. Section 4975(12)(B)(i) provides that for the automatic portability transaction to apply, an APP must acknowledge in writing, at such time and in such format as specified by the Secretary, that the provider is a fiduciary with respect to the individual retirement account (IRA) that is established on behalf of the individual who was cashed out of the prior employer's plan.

Under Subparagraph (b)(1) of the Proposed Regulation, the APP would need to acknowledge fiduciary status with respect to the IRA in connectionwith its processingof automaticportability transactionsupon being engaged byanemployer or plan sponsor and in thenoticestoparticipants.Giventhatthestatuteonlyrequiresacknowledgingfiduciary statustothe IRAholder, anyfinalregulationshouldnotrequiretheAPPtoacknowledgeto the plan sponsor that it isa fiduciary under the Internal Revenue Code (Code) to the IRA. Furthermore, itshouldbe sufficientfor the first notice to the IRAholder to contain this notice. Finally, DOL shouldacknowledgeand any requirednoticesshouldbe clearthat fiduciary status is for a potentialfuture transaction,namely whenthe moneyis beingmoved, and there is no general, ongoing fiduciary status or fiduciary status when the searches are being conducted.

Data Usage

Under the statute, the APP may not market or sell data relating to the IRA or to the participants of the employer-sponsored plan that receives the money from the IRA. Subparagraph (b)(3) of the Proposed Regulation provides that the APP may not market or sell tothird-partiesparticipant-related dataorIRAdatatheAPPaccessesorobtainsin connectionwith the automaticportabilitytransactiontothirdparties. TheAPP also musttake all necessary steps that a reasonable fiduciary would take to safeguard participant and individual retirementplan data to the extent the APP exercises control over the data. Finally, if data is improperly accessed, the APP must take appropriate remedial action to safeguard the data based on the sensitivity of the accesseddata and the nature and severity of the breach.

In the preamble to the Proposed Regulation, DOL asks whether the regulation should permituseofdata forotherpurposes.At thispoint, DOL shouldnot allowforusesbeyond what is in the statute, nor should DOL prescribe how data must be maintained or protected because determining the appropriate maintenance and protection is up to each APP and will vary depending on the facts and circumstances. Further, there is concern that an overly prescriptive requirement could easily become outdated. Finally, the final regulation should not include specific data security requirements, such as a requirement to carry insurance to cover data breaches,because this determinationshould be left up to each APP and will depend on the fact and circumstances.

In any finalregulation,DOL shouldkeep inmind that the APP is a fiduciaryto the IRA for purposes of Title II only.This means that the fiduciary standards under Title I do not apply. Section102 of Executive Order: ReorganizationPlan No. 4 of1978 (ReorganizationPlan4) provides that "except as otherwise provided in Section105 of this Plan, all authority of the Secretary of theTreasury to issue the following described documents pursuant to the statutes hereinafter specified is hereby transferred to the Secretary of Labor: regulations, rulings, opinions, and exemptionsundersection 4975 ofthe Code."⁵ In issuingany finalregulation, DOL shouldkeep inmind that nothing in Reorganization Plan 4 gives DOL the authorityto apply Title Istandards toTitle II only plans.

Open Participation

Paragraph(b)(4)oftheProposed Regulationfollows26U.S.C.Section4975(f)(12)(B)(iv) byrequiringtheautomaticportabilityprovidertoofferautomaticportabilitytransactionson the same terms to any transfer-inplan. In the final regulation,DOL should clarify that this only relates to fees, and other contractual terms may vary.

Notices

Subparagraph (b)(5) of the Proposed Regulation provides for notices to the DOL, plan sponsors and toparticipants. With respect toparticipantnotices, in addition to the pre­ transaction and post-transactionnotices required by statute, clause (b)(5)(iii) of the Proposed Regulation adds an additional participant notice. Specifically, the APP must provide an initial enrollmentnotice upon the plan's enrollmentin the autoportability program. This notice must be provided to each participantwithin15 days of the plan's enrollmentin the program and explain the possibilityof a future automaticportability transaction.We suggestdeletingthis requirement because as fundamental matter, participants need to receive information when it actually applies to them. In this case, when their accountwould be subject to an automatic portabilitytransaction.Formany participants, the contents ofthe initialnotice willnot apply because they will have account balances over $7,000 when the plan enrolls in the program. Furthermore, even for those whose accounts may be below the threshold when the plan enrolls in the program, their accountslikely will be more than that when they terminate employment. Finally,given that the Proposed Regulation also require that the APP provide a modelnotice with the same information as the initial notice to the plan sponsor to include in the summary plan description, there is no need for the exact same notice to be sent to all participants, many of whom will neverhave an automaticportability transaction apply.

Thestatuterequiresthataparticipantreceiveapre-transactionnotice,andthenotice must include:

• A description of the transaction and the fees that will be charged and any other compensation the APP will receive;
• A description of the individual's right to affirmatively elect not to participate in the transaction, other available distribution options, the deadline to make an election, the procedures for the election and a telephone number for the APP;
• The individuals right to designate a beneficiary and the procedures for doing so; and
• Such other disclosures as the Secretary of Labor may require.

Inadditiontothestatutoryrequirements,undersubclause(b)(5)(iv)(B)ofthe Proposed Regulation,thepre-transactionnoticealsomustincludea"statement requesting the individual's affirmative consent totransfer theassetsfromtheindividual retirement planto theaccountintheemployer-sponsoredretirementplan."Wesuggestthisberemoved because notonlyisit contrary towhatthestatute requires foranautomatic portability transaction,butitisalsocouldbemisleading.Thestatuteallowsforanautomaticportability transaction to occur if the APP does not receive affirmative consent. Nowhere in the statutory exemption does it require that the APP receive an affirmative consent. Furthermore, by includingthis in the notice, itcouldmisleadan individual into believingthat ifthe individual does not affirmativelyconsent, the account will not be transferred.

Inthe preamble to the Proposed Regulation, DOL asks whether additional information should be requiredin the notices, particularly"whetherspecificinformationshouldbe provided to the IRA owner explaining the significance of transferring assets into an employer sponsored plan as opposed to retaining those assets in an IRA.... "⁶ There is concern that adding additionalinformation otherthan what is requiredin the statute would dilute the importantinformationthe statuterequirestobein the notice. Furthermore,the APP is not going to have the specifics of each employer's plan to explain the difference between the IRA and the employer plan.A general statement as required in theSPD,the pre-transactionnotice thatthemoneywillbe transferred,and theAPP'scontractinformationwillprovidethe individualwith the mostimportantinformationand the ability to obtain furtherinformationif necessary.

Clause (b)(5)(v) of the Proposed Regulation lists the information that must be provided inthepost-transactionnotice.Subclause (B)requiresthenoticetoincludeallinformation regardingthelocationandamountofanytransferredassetswhichincludes,butisnotlimited to, the name of the employer and the name of the plan. We suggest any final regulation delete the"butisnotlimited to"phrase becauseit otherwise suggest thatother information is requiredtobeincluded.However,anyfinalregulationshouldmakeclearthattheAPPmay, butisnot required to,include additional information.

Under the statutory exemption, the participant notices must "be written in a manner calculated to be understood by the average person and shall not include inaccurate or misleading statements."⁷Subclause (b)(5)(vi)(A) of the Proposed Regulation expands on thisto require that participantnotices be "written in a mannercalculatedto be understoodby the average person, which for purposes of these regulations, is the average intended recipient." This same clause also requires that notices must be written in a culturally and linguisticallyappropriate manner. This clause also provides that the APP must "exercise considered judgmentand discretion by takinginto accountsuch factorsas the levelof comprehension and educationofthe typicalintendedrecipientand the complexityofthe termsofthe program. Considerationof these factors will usually require the limitation or elimination of technical jargon and of long, complex sentences, the use of clarifying examples and illustrations,the uses of clear cross references, and a table of contentsbe included."

Subclause (C) of the Proposed Regulation lays out the standards for culturally and linguistically appropriate notices, which includes:

• Providing oral language service that include the ability to answer question in any applicable non-English language and provide assistance with automatic portability transactions in the non-English language;
• Providing, upon request, a notice or disclosure in any applicable non-English language; and
• Including in the English version of all required notices and disclosures, a statement displayed in any applicable non-English languages clearly indicating how to access the language services provided by the automatic portability provider.

Subclause(D)providestheapplicablenon-Englishlanguageisalanguagein "any county in which ten percent or more of the population is literate only in the same non-English language, as determine in guidance published by the Secretary of Labor."

Current regulations require that ERISA disclosures be written "calculated to be understoodby the average plan participant." ⁸ This same standardoften applies to notices under the Code. For example, the safe harbor notice for Code section 401(k) plans must be "written in a manner calculated to be understood by the average employee eligible to participate."⁹ Thisstandardissimilartothestatutoryexemption,namelythatthedisclosure be writtentobe understoodby theaverageperson. Theproposedstandardthat disclosures are requiredto be written for the "averageintendedrecipient"is contraryto both the language in the statutoryexemptionand the currentERISAand Codestandard. On amorepractical note, this standard would be impossible to meet. In the preamble to the Proposed Regulation, DOL states that the "idea of an a 'average person' in the context of understandingthe notices under the exemption should be read as the average person receiving the notice rather than an abstract concept of an average person at large."¹⁰ However, given that hundreds of thousands of Americans receive their retirement benefits through their employers, both in the private and public sector, there is no "average person receiving the notice." Given the breadth of who possiblycouldreceivethisnotice,thelevelofeducation,readingcomprehension,and financialliteracy is equally broad. As such, the standard for automaticportability transaction notices should follow what is required under the statutory exemption,namely written in a manner to be understood by the average person.

Given that there is no "average" intended recipient, any final regulation also should delete the requirement that the APP must "exercise considered judgment and discretion by taking into account such factors as the level of comprehensionand education of the typical intended recipient and thecomplexity of theterms of the program" inSubclause (b)(5)(vi)(A).¹¹

Nowhere in the statutory exemption are notices required to be "written in a culturally and linguistically appropriate manner." In fact, neither ERISA nor Code disclosures are required to meet this standard. Instead, this standard only applies to certain disclosures for individual and group health plans. Specifically, Section 2719 of the Affordable Care Act (ACA) requires group health plans and health insurance issuer offering group or individual health insurance coverage must implement an effective appeals process for appeals of coverage determinations and claims. This process must provide notice to enrollees, in a culturally and linguistically appropriate manner, of available internal and external appeals processes and the availability of any applicable office of health insurance consumer assistance or ombudsman established under section 2793 of the ACA to assist such enrollees with the appeals processes. DOL, the Department of the Treasury and the Department of Health and Human Services (Tri-agencies) have interpreted this to mean that all claims and appeals notices must meet the culturally and linguistically standard, not just the notice of available internal and external appeals process and the applicable office of health insurance consumer assistance.¹² Section 2715 of the ACA also requires that the summary of benefits and coverage be provided in a culturally and linguistically appropriate manner.

The same as what DOL is now proposing for automatic portability notices, under regulations, the Tri-Agencies provided that issuers and group health plans will be considered to have provided notices in a culturally and linguistically appropriate manner if:

• The plan or issuer provides oral language services (such as a telephone customer assistance hotline) that include answering questions in any applicable non-English language and providing assistance with filing claims and appeals (including external review) in any applicable non-English language;
• The plan or issuer provides, upon request, a notice in any applicable non-English language; and
• The plan or issuer includes in the English versions of all notices, a statement prominently displayed in any applicable non-English language clearly indicating how to access the language services provided by the plan or issuer.

The applicable-non-English language is determined with respect to an address in any United States county where more than ten percent or more of the population residing in the county is literate only in the same non-English language.¹³

Nowhere in the statutory exemption are notices relating to automatic portability transactionsrequired to be provided in a culturally and linguisticallyappropriatemanner. Had Congresswishedtoapply the ACA health care standardto retirementplan notices, such as the automaticportabilitytransaction,itwouldhave doneso.Given that the ACA was enacted in 2010,12 years before SECURE 2.0,presumably Congress was aware of the standard they created in the ACA for issuers and group health plans, and, had they wished to apply this standard to the statutoryexemption for automaticportability transactions, they would have done so.

Paragraph 120(c) spells out the DOL's regulatory authority, and nowhere in that paragraphdoes itprovide that DOL has the authorityto requireretirementplan notices relating to automaticportability to abide by the standardsthat Congresshas only applied to health plans andissuers in the ACA. There isconcern that DOLis using the PTE process and this particular regulation to impose standards that may only be done through legislative changes. As such, DOL should not include such provisions in any final regulations.

Inthepreamble to theProposed Regulation, DOLrequested comments onhow anAPP "wouldhandleundeliverablemailand whetherspecificadditionalregulatoryprotections should be establishedfor individuals with respect to whom the automaticportability provider has received returned mail."¹⁴ DOL also invited comments on whether the regulation should addresselectronicdisclosureofnoticesand disclosuresunderthe exemption.Howan APP will address returned mail must be included in its process and procedures (as required in subparagraph (b)(9) of the Proposed Regulation), and this should be sufficient and no further guidance is needed. With respect to electronic delivery, 26CFR Section1.401(a)-21 provides sufficientguidanceon electronicdisclosurewith respect toretirementplans under the Code.

Searches

Under thestatutory exemption (26U.S.C.Section4975(d)(25)((viii)),theAPPisrequired to search monthly whether the individualwith an IRA also has an accountwith an employer. The statutory exemption does not specify how these searches must be performed. However, subparagraph (6) of the Proposed Regulation lays out very detailed requirements for how searches must be done, including ongoing address validation searches via automatedchecks of (i) the National Change of Address records, (ii) two separate commercial location databases and (iii) any internal databases maintained by the APP. Furthermore, if a valid address is not obtained from the automated checks, the APP must also perform a manual internet-based search. These verificationsmust be performedat least twice in the first year the accountis in the APP's system and at least annually after that.Given that databases and optimal searches willchangeovertime, thereis concernwiththe specificityin theProposedRegulationand also that these provisions are not aligned with the reality of searchingfor a new employerand an employee account.

Inthe preambletotheProposedRegulation,DOLaskedwhetherqueriesshould be allowed to be done by partnering recordkeepers,and whether regulations are needed to address this.Queries should beallowed to bedone bythe partnering recordkeepers; however, no addition regulations are needed in this area because it is a contractual matter between the APP and the partnering recordkeeper.

DesignatePlan Official

Subparagraph (b)(7) of the Proposed Regulation requires the APP ensure the employer-sponsored plan that accepts transfers into the plan designate a plan official responsiblefor monitoringtransfers into the plan due toautomaticportability transactions, including ensuring the amounts received on behalfof a participantare invested properly. Accounts are deemed to be invested properly if made in accordance with the participant's current elections or any default election.This provision was neither in the original PTE, the statutoryexemption,orthe listofregulatoryauthorityunderthe statutoryexemption. Furthermore, from a practical perspective, employers do not have access to each participant's account tomonitorhow each individualaccountis being invested. Itwould be nearly impossible for an APP torequire this to be in a contract with the employer, and it would effectively eliminate any automatic portability transactions. Finally, such a requirementis not necessaryas the plan sponsorhas the generalfiduciary duty to monitor the APP just as it would any other service provider. As such, any final regulation should delete this provision. Instead, a final regulation could provide that the APP's policies and procedures (under current subparagraph(b)(8))and the plan documentwill reflectthat moneyrolledinto the plan because of an automatic portability transaction will be invested in accordance with a participant'selectionorthe defaultelection ifthereis no currentelection.

Timingof Transfers

Subparagraph (b)(8) of the Proposed Regulation requires that transfers must occur as soon as practicable. The Chamber agrees with this approach as compared to a more prescriptive approach.

Policiesand Procedures

Subparagraph(b)(9)lists the criteriathatmustbeintheAPP'spoliciesand procedures, including that any plan that accepts transfers designate a representative that is responsible for monitoring transfers into the plan and the investment of amounts receive. This should be deleted for the reasons discussed above.

Audit

Both PTE 2019-02 and the statutory exemption provided for an annual audit. However, the Proposed Regulation expands significantly onthe requirements in both of these. As such, were many of these requirementsto be in a final regulation, the first audit should be delayed dependingon when the final regulation is issued to give both the APP and auditors time to respond to a final regulation.

Subparagraph(c)(6)oftheProposedRegulationrequiresthatifthe APPdoesnot have access to the record or information to be included in the audit, the APP, as a condition of its service,mustrequirethatthe appropriateinformationbe providedtotheAPP. Thissentence is too open-ended, and it should be deleted. There may be sensitive information from the plan sponsor or recordkeeper that may not be shared. Conditioning whether the APP may serve a particular recordkeeper or plan sponsor based an open-ended requirement to divulge informationan entity may not be able todivulge could ultimatelymake automaticportability transactions unfeasible.

Subparagraph (c)(7) of the Proposed Regulation requires the audit becompleted within 180 days of the annual period to which itrelates, and itmust be filed with the DOL within 30 days ofthat. However,subparagraph(8) of the ProposedRegulationrequires the APP include a certification with the report that it reviewedthe audit report, and addressed, corrected, or remedied any noncomplianceor inadequacy in itscompliance or has an appropriatewritten plan to address any such issues. Dependingon the nature of the audit findings, 30 days may not be adequateand any finalregulationsshouldallowforan extensionofan additional 30 days if needed.

AdditionalCorrective Actions

Subparagraph(c)(9)ofSECURE2.0Section120(c)(9) providesthattheSecretary may issue regulations to:

provide for corrections procedures in the event an auditor determines the automatic portabilityproviderwas not in compliancewith this provision and relatedregulations as specified in paragraph (12)(B)(ix)(II) of section 4975(f) of such Code, as so added, including deadlines, supplemental audits, and corrective actions which may include a temporary prohibition from relying on the exemption provided by paragraph (25) of section 4975(d) of such Code, as added by this section.

Subparagraph (c)(1) of the Proposed Regulation provides that the Secretary may require the APP tosubmit to supplementalaudits and corrective actions, including a temporaryprohibition from relying on the exemption, if the APP or an affiliate is found to be, among other activities:

• Engaging in a systematic pattern or practice of violating any provision of Code section 4975(f)(12) or this regulation;
• Is the subject of a foreign or domestic criminal conviction:
  • Involving or arising out of the conduct of the automatic portability program or any automatic portability transaction; or
  • For any felony involving larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, misappropriation of funds or securities, or conspiracy to commit any such crimesora crimeinwhichanyoftheforegoingcrimesisan element.

First, although paragraph 120(c)(9) allows the Secretary to provide for corrections procedures if an auditor determinedthe APP was not in compliance with the requirementsin the statutory exemptionand relatedregulation, itdoes not provide DOL the authority to provideadditionaldisqualifying events.

Under the Proposed Regulations, an APP could no longer rely on the exemption if it or an affiliateis foundtobe engaginginasystematicpatternorpracticeofviolatingany provision ofCode section4975(f)(12) oranimplementingregulation.The Proposed Regulation is unclear who would be making this determination,namely is it theauditor or the DOL. The Proposed Regulation also does not define what is a pattern or practice or what types of violationsareincluded, suchaswillfulversusunintentional.TheProposedRegulationdoes not state whether it needs to be a repeated violation of the same provision or violations of separate provisions. Finally,the Proposed Regulation provides no recourse to the APP if this determinationis made, which leaves the APP with no due process to rebut any DOL findings that could subject them to businessclosure. As such, this section should be removed.

We are very concerned with DOL's inclusion of the foreign affiliate conviction as a disqualifying event. As explained in more detailed below, given that there is no nexus between an automaticportabilitytransactionwhichmay only occurin the United States and for which the APP has not discretion, and a foreign affiliate'sconvictionof one of the listed crimes in a foreign country, the only conclusionis that this was included in the ProposedRegulation to justifyitsinclusioninthe proposedamendmentstoPTE84-14relatingtoqualified professional asset managers (QPAMs), the PTE procedure final regulation, and the proposed changes to PTE 2020-02.

Before 2004, neitherDOL nor industry had conditionedeligibilityto rely on classPTE 84-14 (QPAMexemption)on whethera foreignaffiliatehadbeen convictedof crimein a foreign jurisdiction. However, in 2004,out of an abundance of caution, an entity applied for an individual QPAM exemption based onthe possibility that anaffiliate in Korea, Japan or Taiwan might in the future have a criminal convictionbecause of dual-penaltylaws, which hold the employerliable for acts of an employee. After 2004, even though PTE 84-14 was never amendedto explicitlyincludeforeign crimesofan affiliateas a disqualifyingevent (even though the PTE had been amended for other reasons), DOL granted 8 individual QPAM exemptionsbasedon foreign convictionsnotrelatedtothe QPAMbusiness. AlthoughDOL has claimed that ithas been itslong-standingposition that foreign convictionsare a disqualifying event for PTE 84-14, itdid not attempt to amend PTE 84-14 until 2022 when, amongotherproposedchangestoPTE84-14,itexplicitlyincluded any foreignconvictionof an affiliate, whether related to the QPAM business or not,as a disqualifyingevent for an entity acting as a QPAM in the United States.¹⁵

Inaddition,inMarchof2022DOLamendedtheprohibitedtransaction exemption procedures to require any applicant (and certain corporate officers and fiduciaries) to include a list of all foreign convictions from the past 13 years.¹⁶ Finally, seemingly to bolster this "long standing"interpretation,theproposedamendmentstoPTE2020-02wouldprovideforaloss ofeligibilitybasedonalitanyofcrimesunrelated toproviding investment advice,including any equivalent foreign crimes, not only by the investment professional and the financial institution, but also by an affiliateofthe financialinstitution.¹⁷ An affiliate also wouldinclude any officer, director, partner, employee, or relative (by lineal decent) of the investment professional or the financial institution.

Similar to the amendments to PTE 84-14 and 2020-02, in the Proposed Regulation, DOLhas not shown how the criminal convictionof a foreign affiliate of an APP is related to or detrimental to individuals for whom the APP is providing automaticportability services within the United States relating to assets held in trust in the United States. As such, any final regulation should delete the reference to foreign crimes.

Website Content

Paragraph (d) of the Proposed Regulation requires theAPP maintain a website that displays the following:

• A description of all the direct and indirect fees and compensation the APP receives for services provided in connection with the automatic portability transaction;
• A list of recordkeepers for each employer-sponsored retirement plan with respect to which the automatic portability provider carries out automatic portability transactions; and
• The number of plans and participants covered by each recordkeeper.

DOL didnotexplaininthepreambletotheProposedRegulationwhythe website would need to include the number of plans and participants covered by each recordkeeper or what purpose this would serve. Furthermore, given that this number changes daily, it would be outdatedatbest.Finally, becauseoftheproprietarynatureofthisinformation,itis very unlikely that recordkeepers would share such information with the APP. Given that the statute onlyrequirestheAPP maintainawebsitecontainingalistofrecordkeepersforeachplan and a list of all fees relatedtothe automaticportability transaction, the requirementto list the number of plans and participants and covered by each recordkeeper should be deleted in any final regulation.

Inthe preamble to the Proposed Regulation, DOL solicited comments onwhether other documents or materials should be required to be posted on the website, such as a redacted copyofthe auditor'sreport.¹⁸ Given that the statutoryexemptionspellsout whatmustbe on the APP's website, no additional information should be required to be on it. This is especially true of the auditor's report, which is not a public document, and is meant as a compliance tool for both APP and DOL.

Exculpatory provisions

Subparagraph120(c)(6)providesthattheSecretarymayissue regulations that "prohibit exculpatoryprovisions in an automaticportability provider's contracts or communications with individualsdisclaimingorlimitingits liabilityin the eventthat an automatic portability transaction results in an improper transfer."Paragraph (e) of the Proposed Regulation does that by stating that the APP may not "include exculpatory provisions in its contracts or communications with individuals who are the IRA owners disclaimingor limiting the APP's liability if the APP causes an impropertransfer of assets in connection with an automatic portability transaction." The Proposed Regulation carves out disclaimers for:(1) liability caused by an error,a misrepresentation,or misconduct of a party independentof the APP or (2) damages arising from acts outside the control of the APP.

InthepreambletotheProposedRegulation,DOLrequestscommentsonwhetherthe prohibitiononexculpatory provisionsshouldbebroaderandincludeviolationsofthe prohibitedtransactionprovisionsinCodesection4975generallyandERISAinconnection withanyconductoftheautomaticportabilityprovideroranaffiliatethatissubjecttoTitle 1.19 TheProposedRegulationiswithinthestatutoryauthorityCongressprovidedDOLfor promulgating regulations relatingtoexculpatory provisions,andnothingfurtherisneeded. Furthermore, it is unclear why DOLwould need to include language relating to Title I,given that the APP is solely a Title II fiduciary.

Conclusion

TheChamberappreciatestheopportunitiestocommentontheProposed Regulation. We believe autoportability will benefit individuals and help them prepare for a more secure retirement.Assuch,wehopeDOLwillconsiderourcommenttoensurethesuccessof autoportabilityprograms,whichultimatelywillincrease individual retirement savings.

Sincerely,

Chantel Sheaks
Vice President, Retirement Policy
U.S. Chamber of Commerce

¹ Advisory Opinion 2018-01A, p. 1 available at https://www.dol.gov/sites/dolgov/files/EBSA/about­ ebsa/our-activities/ resource-center/ advisory-opi nions/2018-01a.pdf.

² "PRESS RELEASE: Portability Services Network Launches Nation's First Solution to Move Workers' Retirement Savings When Changing Jobs", November 7, 2023 available at https://psn1.com/press­ releases#:-:text=CHARLOTTE%2C%20NC%E2%80%94November%207%2C,them%20when%20they%20  change%20jobs.

³ Because the PSN was working toward full operation based on PTE 2019-02 and SECURE 2.0 Section 120, in a letter dated April 7, 2023 relating to implementing SECURE 2.0, the Chamber stated that although the statute provided that DOL may issue regulations, there was no need for additional regulations or guidance. Letter available at https://www.uschamber.com/retirement/u-s-chamber­ letter-outl ines-priorities-to-implement-secu re-2-0.

⁴ Section 120(c) specifically provided that DOL may issue regulations in a number of areas no later than December 29, 2023. DOL has missed this deadline and, arguably, its authority to issue regulations or guidance in the enumerated areas has lapsed. It appears that Congress explicitly included the deadline to lessen the administrative and cost burden regulations could have on the ongoing PSN and to encourage its growth. As such, DOL should reconsider its authority to regulate in the enumerated areas.

⁵ Executive Order: Reorganization Plan No. 4 of 1978 available at https://www.dol.gov/agencies/ ebsa /laws-and-regulations/laws/executive-orders/4#section3 .

⁶ 89 Fed. Reg.5624, 5631 (January 29, 2024).

⁷ 26 U.S.C. § 4975(f)(12)(B)(vii).

⁸ 29 CFR § 2520.102-3 (providing the standard for contents in a summary plan description).

⁹ Code§ 401(k)(12)(D).

¹⁰ 89 Fed. Reg. 5624, 5632 (January 29, 2024).

¹¹ The remainder of this subclause goes on to explain what this means. Specifically, according to DOL, this means that "[c]onsideration of these factors will usually require the limitation or elimination of technical jargon and of long, complex sentences, the use of clarifying examples and illustrations, the uses of clear cross references, and a table of contents be included." While we agree that the elimination of technical jargon and complex sentences should be a goal in drafting participant and individual communications, we are concerned with DOL's overly prescriptive proposal of exactly what must be in the automatic portability disclosures and how DOL will apply this standard in the future. For example, there will be certain lengthy disclosures, such as summary plan descriptions, where a table of contents is appropriate. However, for shorter disclosures such as a post-transaction disclosure, a table of contents is not appropriate because it may be as long as the disclosure. Similarly, there are times where an example is helpful, such as explaining different investment options, but there are also times where examples are not necessary and simply add to the length of a disclosure and the likelihood the disclosure will not be read. Any final regulation should not include overly prescriptive requirements of how disclosures should be written or produced.

¹²See 29 C.F.R. 29 CFR § 2590.715-2719(e).

¹³29 C.F.R. 29 CFR § 2590.715-2719(e).

¹⁴ 89 Fed. Reg.5624, 5633 (January 29, 2024).

¹⁵ 87 Fed. Reg. 45204 (July 27, 2022).

¹⁶ 89 Fed. Reg. 4662 (Jan. 24, 2024).

¹⁷ 88 Fed. Reg. (Nov. 3, 2023).

¹⁸ 89 Fed. Reg.5624, 5635 (January 29, 2024).

¹⁹ 89 Fed. Reg.5624, 5635 (January 29, 2024).

About the author

Chantel Sheaks

Chantel Sheaks develops, promotes, and publicizes the Chamber’s policy on retirement plans, nonqualified deferred compensation, and Social Security.

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