Reprinted with permission of the Employee Benefit Plan Review – June 2017
It seems that certain federal regulations are, or soon may be, suffering the same fate as the subject of Robert Frost’s famous poem, “Mending Wall,” which begins, “Something there is that doesn't love a wall.” In the poem, the boundary wall is broken down by forces of nature, hunters in hurried pursuit of prey, and (perhaps) elves. In contrast, the various devices being applied currently to dismantle certain federal regulations are much more strategic, requiring advanced planning and precise orchestration.
The following describes some of the actions to date by the Trump Administration and Congress to delay, diminish or eliminate existing regulations and limit the issuance of future regulations.
Like many of his predecessors, President Trump has relied on executive orders in the early days of his Administration to advance his policy priorities.
• Executive order regarding regulations under the Affordable Care Act
As a first step towards fulfilling his campaign promise to repeal and replace the Patient Protection and Affordable Care Act (ACA), on January 20, 2017, the date of his inauguration, President Trump issued the Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal. The stated purpose of the Executive Order was to “minimize the unwarranted economic and regulatory burdens of the Act and prepare to afford the States more flexibility and control to create a more free and open healthcare market.”
The Executive Order authorizes the Secretary of Health and Human Services and other federal agencies to waive, defer, grant exemptions for, or delay the implementation of any provision or requirement of the ACA that would impose a fiscal burden on any state, or a financial or regulatory burden on interested parties, including individuals, families, health care providers, or health insurers.
Pursuant to the authority granted under the Executive Order, on February 15, 2017, the Internal Revenue Service (IRS) issued guidance stating that it would not reject an individual’s federal income tax return merely because it fails to include information about the health insurance coverage, if any, maintained by the individual. Although ACA penalties may still apply for failure to maintain individual coverage in accordance with the ACA, this development may impede the ability of the government to identify taxpayers who have violated the individual coverage mandate.
It is not clear what other actions will be taken by agencies pursuant to the January 20, 2017, Executive Order. However, states may be encouraged to apply for waivers with respect to ACA requirements as a result of such order.
The Executive Order notes that any attempts to revise regulations issued under the ACA must continue to comply with the notice and comment rulemaking requirements under the Administrative Procedure Act. Thus, the potential impact of the Executive Order on existing ACA regulations is limited.
• Executive order restricting issuance of new regulations
Throughout the presidential campaign, the contraction of the federal government, including the reduction of federal regulation, was a constant theme for Candidate Trump. Why this focus? According to Politico, there has been a marked increase in the issuance of federal regulations since the beginning of the Clinton Administration. Of the approximately 1,900 regulations issued since 1995 that have a significant effect on U.S. businesses, about 44 percent were issued during the Obama administration. For this purpose, “significant effect” is defined as a regulation that has an published a list effect on the economy of at least $100 million.
Within a month after President Trump was elected, the conservative Freedom Caucus in the U.S. House of Representatives published a list of more than 200 regulations or executive orders that it believed should be repealed or curtailed by the Trump Administration in its first 100 days. Over 70 percent of the regulations and orders on the list were issued on or after January 1, 2015.
With this backdrop, on January 30, 2017, President Trump issued an executive order titled, “Presidential Executive Order on Reducing Regulation and Controlling Regulatory Costs.” As its name suggests, the stated purpose of the order is to manage the costs associated with compliance with federal regulations.
• Fiscal Year 2017
The executive order sets forth special limits for the current fiscal year ending September 30, 2017. Under the order, unless prohibited by law, an agency proposing a new regulation is required to identify at least two existing regulations for repeal. Moreover, the total incremental cost of all new regulations finalized in the 2017 fiscal year must be no greater than zero unless otherwise required by law or pursuant to guidance issued by the director of the Office of Management and Budget (OMB). Any incremental costs of a new regulation must be offset by elimination of costs associated with repealed regulations.
• Fiscal Year 2018 and forward
The requirements are more stringent for future fiscal years. With respect to fiscal year 2018 and future fiscal years, each agency, in its annual Regulatory Plan, must, for each proposed regulation that increases incremental cost, identify the regulations to be repealed and provide an estimate of the totals costs or savings for each proposed regulation and regulations to be repealed. Unless otherwise required by law, no agency can issue a regulation unless it is included in the Regulatory Plan and approved by the OMB. Starting with fiscal year 2018, during the budgeting process the OMB will identify the total amount of incremental costs allowed for each agency in issuing new, and repealing existing, regulations. Unless otherwise required by law, no regulations exceeding the OMB budgetary limit will be permitted unless approved by the OMB.
The Executive Order sets forth exemptions relating to:
• OMB Guidance for Fiscal Year 2017
On February 2, 2017, the OMB issued guidance on the January 30 Executive Order as it relates to fiscal year 2017. The guidance clarifies that the Executive Order applies only to “significant regulatory actions.” As defined in Section 3(f) of Executive Order 12866 (1993), “significant regulatory actions” include regulations that are likely to have an annual effect on the economy of $100 million or “adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities.” The definition also includes a regulation that creates a serious inconsistency or interferes with an action taken or plan by another agency or that material alters the budgetary impact of entitlements, grants, user fees, etc.
The January 30 Executive Order does not apply to independent agencies, such as the Federal Reserve Board, the Securities and Exchange Commission, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. In addition, emergency regulations addressing critical health, safety, financial matters or another compelling reason may qualify for a waiver from some or all of the requirements of the executive order.
Many of the requirements of the January 30 Executive Order apply “unless otherwise required by law.” The OMB guidance provides that agencies are permitted to take regulatory action that is required to comply with an imminent statutory or judicial deadline. An agency can contact the Office of Information and Regulatory Affairs if it believes other proposed regulations are exempt from the Executive Order because they are otherwise required by law.
The OMB guidance indicates that, in applying the “2 for 1” rules, agencies must not bundle regulations that are not logically connected. Court action overturning a regulation is not counted as a deregulatory action. However, congressional action to overturn a regulation can be counted under the “2 for 1” rule.
It is permissible to transfer savings from repeal of regulations from one component of an agency to another. Agencies may also request the director of OMB to transfer cost savings from other agencies.
• Impact of January 30, 2017, Executive Order
On March 5, 2017, The New York Times reported that the effective dates of at least 90 rules had been impacted by the January 30 Executive Order. There is also evidence that certain industries have approached the Trump administration with specific requests for regulatory relief.
In the case of regulations that are already finalized, the Trump Administration has had to follow the regulatory process under the Administrative Procedure Act to delay and possibly derail regulations that have been issued but are not yet effective.
• Delay of Fiduciary Rule
In April 2016, the Department of Labor (DOL) issued final regulations that changed the ERISA fiduciary rules governing advisors to retirement income investors. The regulations, known as the “Fiduciary Rule,” originally had an effective date of April 10, 2017. On February 3, 2017, the Trump Administration issued a memorandum directing the DOL to review the Fiduciary Rule before moving forward with implementation, taking into account a number of specified factors including whether the rule was likely to reduce taxpayers’ access to retirement products, retirement savings information, or financial advice.
Because the Fiduciary Rule was already final, the Trump Administration was required to follow the notice and comment mechanism set forth in the Administrative Procedure Act in order to delay the effective date of the rule. On April 5, 2017, a mere five days before the original April 10 effective date, the DOL issued a final regulation delaying the effective date of the Fiduciary Rule to June 9, 2017. The delay period will be used to review the Fiduciary Rule in light of factors set forth in the February 3, 2017, memorandum.
Congress, both houses of which currently have Republican majorities, has also been active in repealing or delaying regulations.
The Congressional Review Act (CRA) was enacted on March 29, 1996, for the purpose of allowing Congress to overturn regulatory actions taken late in the final term of an outgoing administration. For obvious reasons, the act is predominantly applied when power shifts from one political party to another.
The CRA sets forth expedited procedures for the revocation of regulations that have been finalized within the prior 60 legislative days. Prior to 2017, the CRA had been used only once during the early period of the administration of President George W. Bush to overturn a rule on ergonomics standards issued by Occupational Safety and Health Administration (OSHA). Recently, the CRA was invoked to overturn Department of Labor regulations on mandated retirement programs sponsored by qualified political subdivisions.
On August 30, 2016, the Department of Labor issued final regulations with an effective date of October 31, 2016, providing a safe harbor exemption from ERISA for state mandated retirement programs. The final regulations provided that state programs satisfying certain requirements would not constitute an “employee pension benefit plan” or a “pension plan” subject to ERISA. On December 20, 2016, the DOL amended the regulations to extend the previously described safe harbor to mandatory savings programs maintained by “qualified political subdivisions,” including governmental units of a state, city, county or similar governmental bodies meeting specified requirements.
Pursuant to the CRA, on February 15, 2017, the House of Representatives passed two joint resolutions, H.J. Resolutions 66 and 67, overturning the final regulations with respect to mandatory retirement programs maintained by states and qualified political subdivisions, respectively. On March 30, 2017, the Senate approved H.J. Resolution 67 overturning the regulation with respect to qualified political subdivisions only. The repeal of such regulation became final on April 13, 2017, when President Trump signed Joint Resolution 67. The Senate is expected to vote on H.J. Resolution 66, relating to state mandatory retirement programs, in mid-May.
Further efforts to reduce the regulatory burdens on individuals and businesses are expected in the coming months. It remains to be seen whether these efforts will, in fact, reduce costs and promote economic development or whether such actions will serve only to divert governmental officials from more substantive issues.
Lori Jones is the chair of Thompson Coburn’s Employee Benefits practice.
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