Would a halt to rulemaking and guidance matter for retirement plans?

[Peter Gulia]

2023’s autumn might bring at least two possibilities for disruptions and delays in some activities of some Federal agencies, including the US Labor and Treasury departments.

Not increasing the debt Congress authorizes the United States to incur might indirectly disrupt or delay the Labor and Treasury departments’ rulemaking and other guidance activities.

Not continuing appropriations after September 30 and a resulting government shutdown would make it unlawful for the Labor and Treasury departments’ employees to work on rulemaking and other guidance activities.

(If history is some guide about what could happen next: After November 1995, US government shutdowns have averaged about 19 days. The most recent was 35 days.)

If 2023’s autumn brings a slowdown or shutdown, would a delay in rulemaking and other guidance activities matter for retirement plans and service providers?

[CuseFan]

How could it not? From various organizations letters to Labor and Treasury, there are many requests for technical corrections and guidance on SECURE 2.0. If those go unanswered for an extended period, practitioners end up functioning in the dark, making educated guesses, or simply not acting at all.

Also, what about determination letter and plan termination filings (IRS and PBGC) that could get substantially delayed? 

This doesn't even consider the implications from the general economic meltdown that could happen. Any government shutdown and default would be bad for everyone, except maybe the handful of politicians whose election platforms were to blow up the economy.

[Paul I]

Undoubtedly, a shutdown would be bad news.  Currently, there already are too many unanswered questions from the agencies.  This is impacting the ability of software developers across the industry to design, code, implement and test modifications to support changes that are already effective.  Implementation of changes effective in 2024 and beyond are in the queue but also in limbo pending guidance.  Keep in mind that software changes are the tip of the iceberg of fully implementing operational changes.

We can hope that the agencies are anticipating that everything the needs to be done to implement will not be completed in time and that they are developing strategies or policies that will protect plans from being considered not in compliance.  An example is how the audit opinion changes on the Form 5500 were made optional for one year.  There were the pandemic rules around terminations versus layoffs, temporary availability of higher limits on loans, relaxing rules on notarization of spousal consent, and more.

If the probability of a government shutdown continues to increase over the next several weeks, I think the industry should be proactive in offering to the agencies suggestions and recommendations on steps that agencies can take in advance of a shutdown that will carry us through a shutdown and through a reasonable the time period afterwards. 

The industry did a good job helping the government in crafting and in lobbying for many of the recent legislative changes, and the industry should use its detailed operational knowledge and creativity to help design and lobby for steps to protect plans in the event of a shutdown.

[acm_acm]

People, including many politicians, are conflating a default due to hit the debt limit versus a government shutdown due to a delay in passing a budget.

We've dealt with the latter before and it does cause some problems.  If the former occurs, not getting IRS/DOL guidance will the least of our problems.

[Peter Gulia]

Many people conflate the legal effects of not increasing the debt limit and of not providing appropriations. They are different things with different legal consequences. That’s why my originating post’s second and third paragraphs distinguish between them.

Not increasing the debt limit does not require a government shutdown, but might lead some agency employees to reevaluate one’s career choices. And it might otherwise indirectly disrupt or delay the Labor and Treasury departments’ rulemaking and other guidance activities.

One also might fear that the two events could both happen. Imagine that a delay from the US Treasury’s use of so-called “extraordinary measures” runs out in September. If the 118th Congress by September 30 remains at an impasse (not only about debt but also about spending), some political strategies could result also in not continuing appropriations after September 30.

[Roycal]

A government shutdown would be bad for many reasons, although although a pause in regulatory activity relating to employee benefit plans is not one of them by a long shot.  So-called guidance of various sorts is no doubt useful, but life would go on.  One could always go back and refresh on the long-forgotten rules of old.

[Paul I]

We can remove delays, shutdowns, slowdowns... from the conversation.  We already are in a situation where many providers will not be ready to administer recent legislative changes by the effective dates of those changes.