Fiduciary duties of trustees, directors, others |
[Guidance Overview] EBSA Makes Small Clarifying Correction to FAB 2012-02 FAQs on Participant-Level Fee Disclosure
From an EBSA email distributed on May 17: "The Department of Labor's Employee Benefits Security Administration made a technical correction to recently released Field Assistance Bulletin No. 2012-02, which contains frequently asked questions and answers about the Department's participant-level fee disclosure regulation (29 CFR section 2550.404a-5). It has come to the Department's attention that, as initially released on May 7, 2012, a sentence in the answer to Question 19 concerning quarterly Web site updates to 'average annual total return' information inadvertently referred to the most recently completed calendar 'year' rather than the most recently completed calendar 'quarter.' The Department corrected this error on May 17, 2012 in order to accurately restate the requirements of the regulation. The word 'calendar' also was removed from the phrase '... 10-calendar year periods ...' in the same sentence. See Q-19, n.2." (Employee Benefits Security Administration)
[Guidance Overview] Another Question is Answered in the Who's the Employer Q&A Column
I heard the DOL has sought a temporary restraining order against Matthew Hutcheson in connection with the open MEP he dealt with. Does it clarify the approach the DOL is taking in dealing with open MEPs? (BenefitsLink.com)
ERISA Fee Benchmarking Rules and Practices Can Be Useful Even to ERISA-Exempt Public Plans
"Although public plans are not subject to ERISA, many times the guidelines are used as a best practice. ERISA section 404(a) requires that fiduciaries elicit information necessary to assess not only the reasonableness of the fees to be paid for services, but also the qualifications of the service provider and the quality of the services that will be provided. Benchmarking allows plan sponsors to do a fee to services comparison of other plans in their benchmarking group. Among other things, this will help determine if the plan is receiving the right amount of fiduciary support from the current service providers." (National Association of Governmental Defined Contribution Administrators)
Personal Fiduciary Liability Under ERISA: Your Obligations Can Follow You Into Bankruptcy (PDF)
"In the past, bankruptcy allowed fiduciaries to essentially abandon their plan administration duties. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) ... explicitly imposed plan administration duties on panel trustees and put an end to the abandonment of retirement plans by bankrupt employers.... BAPCPA [also] allowed the [DOL] to change its role in bankruptcy from retirement plan 'caretaker' to retirement plan 'collector.' In bankruptcies in which employee contributions are missing due to defalcation, the DoL is now using its resources very effectively to recover those missing monies." (Lockton)
[Opinion] What If 'Say on Pay' Rule Applied to Public Pension Consultants and Managers?
"Say on Pay gives shareholders [of large private corporations] a vote on executive compensation at least every three years. Paradoxically, the financial performance of many public pension funds in the past decade has been downright dismal and deserves equal attention from stakeholders. If these were private companies, their stock market prices would be running a course similar to what happened to many of the banks and Wall Street brokerage houses in recent years." (Governing)
DOL FAQs Address Participant Fee Disclosure Rules as Applied to Brokerage Windows, Calculation of Total Annual Operating Expense Ratio
"While brokerage windows, self-directed brokerage accounts and other similar plan arrangements (for simplicity, referred to here after as 'brokerage windows') are not considered designated investment alternatives and are therefore excluded from the annual investment disclosures, brokerage windows must still make certain annual plan-related disclosures to each participant eligible to use the window, whether or not he or she chooses to use the window. A plan administrator offering a brokerage window must furnish a general description of the brokerage window and any fees or expenses that may be charged against an individual participant's account. The quarterly disclosure must reflect the dollar amount of fees and expenses that were charged against that individual participant's account over the preceding quarter[.]" (SunGard Relius)
[Guidance Overview] 9th Circuit Case Addresses Equitable Remedies Post-Amara and Says Mere Violations of Law Do Not Establish 'Harm' Creating Equitable Remedies
"Plaintiffs [in Skinner v. Northrop Grumman Retirement Plan B] argued the plan documents should be reformed to match the terms of the 2003 SPD. The Court held that reformation is appropriate only in cases of fraud or mistake. The Court found there was no evidence that: (a) the Plan participants were intentionally and materially misled, or that (b) plaintiffs actually relied on purportedly misleading information." (Lane Powell)
Proskauer ERISA Litigation Newsletter, May 2012
Articles include: Health Care Reform Remains Alive and Well as DOL Enforces ACA through Plan Audits; Class Warfare -- ERISA Class Litigation in Light of Wal-Mart v. Dukes; and Rulings, Filings, and Settlements of Interest. (Proskauer Rose LLP)
[Opinion] Combination of Fee Disclosure DOL Regs and 'Strict Liability' Under Code Section 4975 Might Be Explosive
"Though [it is possible to] get lost in the detail of timely meeting the new disclosure requirements, the real impact will occur once the dust settles, and when [there are] all manner of prohibited transactions -- arising either from failure to properly disclose compensation or from what is revealed by the disclosure itself.... [One] of the most serious of the impacts of 408b2 promises to arise from application of Code section 4975, not from ERISA Section 406 to which 408b2 is connected.... Once the prohibited transaction occurs, the tax liability attaches, and there is a duty to report and pay that tax. The IRS has no ability to waive that tax -- unlike the prohibited transaction penalty under ERISA." (Business of Benefits)
DOL Alleges Idaho Plan Administrator Misused Retirement Funds
"[DOL] has filed a complaint in the U.S. District Court for the District of Idaho against Matthew D. Hutcheson alleging that he violated [ERISA]. The complaint alleges that, toward the end of 2010, Hutcheson used more than $3.2 million representing the retirement plan savings of workers from multiple employers for his own personal expenses and in an attempt to purchase an interest in the Tamarack Resort -- a failed ski and golf resort in Idaho. [The DOL alleges that the resulting] prohibited transaction has left affected retirement plans without sufficient funds to pay participants all the benefits owed to them." (Employee Benefits Security Administration)
Time's Up on 401(k) Fee Disclosure Compliance: New Potential Breaches of Fiduciary Duty Looming
"[Ian Dingwall, EBSA's chief accountant,] suggested that auditors call their clients to make certain that they, as plan fiduciaries, have a list of service agreements and know which ones are not in writing by July 1. A service agreement that is not in writing is not considered �reasonable� under the DoL regulations, and therefore results in a prohibited transaction.... Putting plan auditors in the position of enforcer of the service-provider disclosure requirement is beyond the scope of an auditor�s responsibility." (CFO)
[Guidance Overview] Final EBSA Fee Disclosure Requirements Addressed in Field Assistance Bulletin 2012-02
"The [Field Assistance Bulletin (FAB)] contains 38 questions and answers relating primarily to participant-level disclosure but also addressing service provider disclosure. It includes many helpful and practical solutions to uncertainties in the final disclosure regulations. It is clear from the text of the FAB that the DOL has no intention of extending either of disclosure deadlines. However, in Q&A 37, the DOL recognizes that many service providers and plan administrators may have initiated or even made disclosures prior to publication of the FAB based on interpretation of the regulations and may be unable to modify their disclosures by the deadlines without unreasonable difficulty or cost." (Warner Norcross & Judd LLP)
[Guidance Overview] FAB Addresses Investment Disclosures to Participants About a Plan's Designated Investment Alternatives
"Do the investment disclosure requirements apply to alternatives closed to new investments? Yes. If participants are allowed to retain current investments in a given fund, then the comparative chart of investments must include the fund, even though participants cannot move money into the fund. The plan administrator could (but need not) limit the disclosures to those participants invested in the fund." (SunGard Relius)
IRS Proposals for Encouraging Longevity Annuities Might Not Impress 401(k) Sponsors
"[T]here are potential liability issues. For example, while many insurance companies offer such products (including several launched within the past year), each insurer offers only its own solution. That undermines a plan sponsor�s fiduciary duty to prudently select investment options.... The plan sponsor also has a duty to pick an insurer that will be able to make annuity payments long into the future. 'You�ve got to pick a provider that�s going to be around for 50 or more years,' says Robyn Credico, director of defined-contribution consulting at Towers Watson." (CFO)
Good-Faith Efforts Already Taken to Comply with Participant Fee Regs Won't Be Penalized, EBSA Says
"[Phyllis C. Borzi, assistant secretary of labor for the Employee Benefits Security Administration] said plans that have already distributed, or are getting ready to distribute, their participant-level fee disclosures under Section 404(a) of [ERISA] will not be subject to DOL enforcement action if they acted in good faith to comply with the rule [prior to the recent issuance by the EBSA of 'Frequently Asked Questions' about the fee disclosure regulations].... However, Borzi cautioned that plans that discover they were not in totally in compliance with the participant disclosure rule in light of the FAQs will need to develop a plan to comply with the law before their next participant disclosure." (Bloomberg BNA)
Trends from the 2012 Fiduciary Survey of Investment Advisors and Registered Representatives
"The survey not only sought advisors' opinions on the fiduciary standard but also gauged their understanding of what such a standard means now, or would mean, to their businesses. Key findings in the first report on the survey pointed out that registered reps and investment advisors in the field believe that extending the fiduciary standard would not cost investors more for advice, limit access to advice or products nor price investors out of the market for advice." (AdvisorOne)
Employer Agrees to Restore $1.3 Million to Employee Retirement Plan
"In a consent judgment entered this month in the U.S. District Court's Central District in Los Angeles, officers of ... Western Mixers Inc. agreed to restore $802,901 to participants' accounts within 10 days. During the course of the investigation leading up to the lawsuit, the company repaid to the plan $485,000 of the total funds identified as missing. The consent judgment fully recovers unpaid contributions and unauthorized withdrawals, plus interest." (Employee Benefits Security Administration)
[Guidance Overview] DOL Addresses Definition of Designated Investment Alternatives for Purposes of Required Participant Fee Disclosures
"The issue that has generated more attention and discussion regarding both the participant (404a-5) and the service provider (408b-2) regulations is the issue of what constitutes a designated investment alternative (DIA).... The issue is significant because an employer annually must provide participants a significant amount of investment information with respect to each DIA. Furthermore, under the 408b-2 regulations, a covered service provider that provides a platform of DIAs in connection with recordkeeping or brokerage services would need to make annual investment disclosures about the DIAs to the plan fiduciary. In this technical update, [the authors] discuss clarifications of the definition of a DIA provided by the recently released FAB 2012-2." (SunGard Relius)
Recent Case Emphasizes Importance of the Retirement Plan Fiduciary Decision-Making Process
"[T]he recent district court decision in Tussey v. ABB, Inc., which levied a $35.2 million judgment against the employer-fiduciary (ABB), emphasizes the importance of a prudent decision-making process. Here are some of the major missteps made by ABB and the key takeaways for other plan fiduciaries[.]" (Poyner Spruill)
[Guidance Overview] DOL FAQs Address Implementation of Participant-Level Retirement Plan Fee Disclosures
"These long and detailed FAQs underscore the complexity of the new disclosure requirements.... The DOL also indicated that it is working on a second set of FAQs focused on the service provider fee disclosures. As a reminder, calendar-year plans are required to make their initial annual disclosure to participants no later than August 30, 2012 and provide their first quarterly statements no later than November 14, 2012." (Thomson Reuters/EBIA)
[Guidance Overview] Eleventh Circuit Becomes Latest to Adopt Rebuttable Presumption That Fiduciaries Act Prudently by Investing in Employer Stock
"[This] decision is an adaptation of the presumption of prudence first announced in Moench v. Robertson, ... which is commonly referred to as the 'Moench presumption.' ... [but the Eleventh Circuit here] determined that the Moench presumption was more appropriately viewed as a standard of review rather than an evidentiary presumption. ... [A]ffirming the application of the presumption at the pleading stage is in marked contrast to a recent Sixth Circuit decision to the contrary in Pfeil v. State Bank ... The resolution of this circuit split is a developing issue in ERISA litigation, and it is likely to have a significant impact on the viability of ERISA stock drop law suits going forward. It may also eventually lead the United States Supreme Court to consider the application of the Moench presumption." (Jenner & Block)
[Guidance Overview] DOL FAQs Address Retirement Plan Fee Disclosures (PDF)
"DOL acknowledges that it may be unduly difficult or expensive to bring such disclosures into compliance ... before the Regulations' respective effective dates [so the agency stated that] it generally will take no enforcement action against a covered service provider or plan administrator who has acted in good faith based on a reasonable interpretation of the Regulations and who also establishes a plan for complying with the requirements ... in future disclosures.... The Bulletin provides additional guidance with respect to the following topics:" (Sutherland)
[Guidance Overview] Describing Plan Administration Expenses When Making Participant Fee and Investment Disclosures
"Plan administrators annually must furnish an explanation of any fees and expenses for general plan administrative services (e.g., legal, accounting, recordkeeping), which may be charged against a participant's individual account, as well as the basis on which such charges will be allocated (e.g., pro rata, per capita) to, or affect the balance of, each individual account. The DOL explained that the annual administrative expense disclosure may be expressed in terms of an amount, formula, percentage of assets or a per capita charge, but must be written in a manner calculated to be understood by the average plan participant. How specific the disclosure must be depends on the facts and circumstances of the service and the fee or expense being disclosed." (SunGard Relius)
[Guidance Overview] DOL FAQs Clarify Participant-Level Disclosures, 'Good Faith' Standard for Enforcement Purposes
"The [ERISA section 404(c)] disclosure conditions -- which were effective for plan years beginning after November 1, 2011, and are therefore already in effect for many plans -- generally operate by reference to the participant disclosure rules. With the delay in the initial disclosure date, it was unclear whether the failure to provide the initial disclosures after the effective date of the section 404(c) changes would be considered noncompliance with the section 404(c) rules. DOL has now clarified that a plan need not furnish the participant disclosure information before it must be furnished under the new regulation to maintain section 404(c) status." (Morgan Lewis)
[Guidance Overview] New Q&As in DOL Field Assistance Bulletin 2012-2 Clarify, Expand Fee Disclosure Regs
"In 23 pages, the FAB provides a series of 38 FAQs addressing a variety of topics in the regulation. The answers provide examples and discussion on the disclosure requirements, amplifying many points that were previously unclear. They also set forth new rules, some of them quite surprising to those who have studied the regulation over the last year and a half, as well as some valuable exemptions. Sprinkled throughout is DOL commentary on fiduciary practices. Without a doubt, the FAB will mandate fine-tuning of programs and systems to comply with the new rules." (SunGard Relius)
[Guidance Overview] The Final 408(b)(2) Regulation: Impact on Investment Managers (PDF)
"The new disclosure rules apply to any discretionary asset manager for an ERISA-covered retirement plan who reasonably expects to receive $1,000 or more of direct or indirect compensation in connection with its services to a plan.... Discretionary managers include those hired directly by the plan to manage all or some of its assets, and also the fiduciary managers of 'plan asset vehicles' -- investments that are themselves subject to ERISA, and in which a plan invests. Such investments include collective investment funds or trusts offered by banks, the separate accounts of insurance companies or certain other investment vehicles (e.g., hedge funds) if more than 25% of the funds being managed come from ERISA plans and other 'benefit plan investors.'" (Drinker Biddle)
[Guidance Overview] DOL FAQs Address Retirement Plan Fee and Expense Disclosure Rules
"EBSA is working on a second set of FAQs that focuses specifically on the disclosure rules for covered service providers under ERISA Section 408(b)(2). However, these current FAQs are relevant to covered service providers as they offer guidance on what information covered service providers must give plan administrators to help the administrators comply with their disclosure requirements." (Practical Law Company)
[Official Guidance] 11th Circuit Adopts Moench Standard in Suit Over Home Depot ESOP (PDF)
"Because the purpose of a plan is set by its settlors (those who created it), that is the same thing as saying that a fiduciary abuses his discretion by acting in compliance with the directions of the plan only when the fiduciary could not have reasonably believed that the settlors would have intended for him to do so under the circumstances. That is the test.... The defendants were not required to depart from the Plan's directives regarding Home Depot stock just because they were aware that the stock price likely would fall." (Justia.com)
Investment Advisers Often Tell Customers What They Want to Hear, Tout Higher-Fee Products, Finance Professors Conclude
Professor Mullainathan (Harvard) is the Assistant Director for Research at the Treasury Department's Consumer Financial Protection Bureau. Excerpt: "Do financial advisers undo or reinforce the behavioral biases and misconceptions of their clients? [This study uses] an audit methodology where trained auditors meet with financial advisers and present different types of portfolios. These portfolios reflect either biases that are in line with the financial interests of the advisers (e.g., returns-chasing portfolio) or run counter to their interests (e.g., a portfolio with company stock or very low-fee index funds). [The authors] document that advisers fail to de-bias their clients and often reinforce biases that are in their interests. Advisers encourage returns-chasing behavior and push for actively managed funds that have higher fees, even if the client starts with a well-diversified, low-fee portfolio." (Sendhil Mullainathan, Markus Noeth and Antoinette Schoar via National Bureau of Economic Research; paid subscription or individual purchase required to retrieve full text)
[Official Guidance] Text of DOL Field Assistance Bulletin 2012-02: FAQs on Participant-Level Fee Disclosures and Service Provider Fee Disclosures
38 Questions and Answers, supplementing the final regulations. Example: "Paragraph (c)(2)(i)(A) of the [final participant-level fee disclosure] regulation requires an explanation of any fees and expenses for general plan administrative services which may be charged against participants' and beneficiaries' accounts and the basis on which such charges will be allocated. How specific does this explanation have to be in order to comply with this requirement?" (Employee Benefits Security Administration)
[Guidance Overview] Does Your 401(k) Plan Have an Investment Policy Statement and Do Your Fiduciaries Follow It?
"There is an important lesson in [Tussey v. ABB. Inc.]: it can be very expensive to depart from your investment policy. [The authors] find that many employers adopt 'canned' investment policies that they received from their outside service provider without much explanation or analysis. The best defense against the kind of award won by the plaintiffs is for investment fiduciaries to make sure that they have read and understand the [investment policy statement, or 'IPS'] and determined whether it is appropriate for them, and, where appropriate, made any changes to customize a canned IPS." (Osler)
[Guidance Overview] Former Trustee Liable for over $4 Million for Breach of Fiduciary Duty
"The [Court of Appeals for the Third Circuit] said that [the retirement plan's trustee] breached his ERISA-imposed duty and caused a loss to the Plan. He fraudulently reported an inaccurate account balance ..., improperly distributed the Plan's assets to himself, and otherwise used the assets for his personal benefit. These fraudulent actions resulted in a loss when the Plan participants received an amount smaller than their proportionate shares in the [trust fund]." (ERISA Lawyer Blog)
CalSTRS Brings Shareholder Derivative Suit Agains Wal-Mart Directors
"[T]he California State Teachers' Retirement System owns about 5.3 million shares in Wal-Mart, worth about $313 million. Although that is a small stake -- far less than 1 percent -- the suit was filed on behalf of Wal-Mart itself against people the pension plan identified as having failed in their duties to the company.... [The plan] has never brought such a lawsuit before.... [It] asks that damages from the result of any violations be awarded to Wal-Mart, and that the company reform and improve its corporate governance and internal procedures.... Since derivative suits ask that damages be returned to the company, there is not usually a great monetary reward for plaintiffs." (The New York Times; free registration required)
As a Plan Sponsor, Are You Prepared to Provide Fee Disclosures to Participants?
This 39-minute video includes a description of the format of Vanguard"s reporting of its fees as a service provider to its plan sponsor customers, and what Vanguard will be doing to assist its customers with the participant-level fee disclosures. (Vanguard)
[Opinion] Revenue Sharing on Trial: Complex, Inefficient and Unnecessarily Expensive
"The basic problem with revenue-sharing is that it is an inefficient and opaque way to compensate service providers. Its needless complexity leaves many plan sponsors unable to line up costs with the value of services so that they can prudently fulfill their fiduciary duty to determine the reasonableness of costs. In this way, revenue-sharing is like any other third-party payer system. In cases such as Tussey, revenue-sharing costs incurred by plan participants went unnoticed by the plan sponsor and therefore remained unknown, harming plan participants while generating [what a court called] 'unreasonable' profit for Fidelity." (Morningstar)
A Survey of Current Recordkeeping Practices for 'ERISA Budget Accounts' (PDF)
At page 6 of this 20-page document. "More recently, the broader marketplace began forcing recordkeepers to offer access to non-proprietary investments. These funds enter agreements with recordkeepers to share revenue in the form of sub-transfer agent (Sub-TA) fees, and as part of that process, recordkeepers began agreeing to cap their annual fee on plans at a certain level. As revenue was received, either all, or a portion of the amount in excess of the cap was in turn set aside in what many call an 'ERISA Budget Account.'" (CAPTRUST)
[Guidance Overview] How to Protect Your Company's 401(k) Plan Committee under New Service Provider Fee Disclosure Regs
"First, consult with your company's attorney to find out if you are the fiduciary of your company's 401(k) plan. Second, get a fiduciary liability policy before the rule goes into effect July 1. These plans are typically not expensive and can cover all individuals, trustees and board members who act as fiduciaries of the company's retirement plan. Finally, get a new [third-party] administrator for your plan that has low fees and accepts fiduciary responsibilities." (Smart Business)
[Guidance Overview] Final DOL Regs Address Fee Disclosures to Participants in Self-Directed Retirement Plans
"Plan sponsors of covered participant-directed individual account plans should review their summary plan descriptions, plan prospectuses, benefit statements, plan websites and other plan communications to determine what additional information must be provided under the final regulations and how they will comply with the information and disclosure requirement." (Pillsbury)
[Guidance Overview] DOL Issues Final Regs on Pension Plan Service Providers; Health & Welfare Plan Service Providers Next in Line?
"Failure to comply with the final regulations will cause the plan and service provider arrangement to be a prohibited transaction and subject the service provider to certain excise taxes under Code section 4975.... In light of the DOL's intention to include welfare plans under these regulations in the future, it may be wise for service providers and plan fiduciaries to begin reviewing any service provider arrangements under these plans as well." (Pillsbury)
[Guidance Overview] Action Items for Plan Fiduciaries: Handling Fee Disclosures by Service Providers, and Fee Disclosures to Participants
Includes a useful chart of the various deadlines that apply to participant-Level fee disclosures. (Pillsbury)
Unhappy with Scandal, New York Municipal Pension Funds to Vote Against Wal-Mart Directors
"Concerned about Wal-Mart's reported cover-up of bribery in its Mexico operations, leaders of New York City's pension funds said ... they would vote their 4.7 million company shares against five directors standing for re-election to the retailer's board at its annual shareholder meeting next month." (The New York Times; free registration required)
The Fiduciary Assessment of an Investment Advisor (PDF)
"An assessment should begin with a background check, including civil lawsuit databases and a review of public information such as the AdvisorCheck from the SEC and the Financial Industry Regulatory Authority's (FINRA) BrokerCheck if applicable. Since the assessment is likely to be used to increase client trust, the background check is a necessary starting point." (ASPPA)
[Guidance Overview] Tussey v. ABB, Inc. Shows Importance of Implementing Process for Prudent Decision-Making and Following Plan Documents
"This case serves as a reminder to fiduciaries wrestling with decisions that may impact the use of plan assets of the importance of ensuring that they go through a documented process of determining whether the fees incurred by their plan are reasonable. Ensuring that a fiduciary has engaged in a prudent process with respect to fees paid to plan vendors will become even more important when the [DOL's] revised Section 408(b)(2) regulations become effective July 1, 2012." (Miller Chevalier)
Issues that Must Be Addressed to Prevent Your 401(k) Plan from Becoming an Easy Target for Knowledgeable Plaintiffs' Attorneys (PDF)
"If anyone doubts that ERISA class action litigation is alive and well, they should read the decision in Tussey v. ABB Inc. ... Not only were the plaintiffs awarded $36 million, the arguments the plaintiffs' attorneys ... made were quite sophisticated and clearly resonated with a judge who did her homework. The takeaway from this case is that fiduciaries must document what they did, why they did it, and that their actions were in the best interests of the plan and the participants." (Investment Horizons, Inc.)
401(k) Fee Litigation, April 2012
"Initially, the lawsuits were brought by plan participants against plan sponsors and alleged that, by allowing plan service providers to receive revenue sharing payments, the plan sponsors caused the participants to pay excessive fees, in breach of the sponsors' fiduciary duties to the participants. The focus of these lawsuits against the plan sponsors has evolved over time to include broader challenges to, among other things, the plan sponsors' selection of actively managed mutual funds as plan investment options. [The target page links to the Groom chart of 'Participant Claims Against Sponsors and Related Fiduciaries' and 'Plan Fiduciary Claims Against Plan Providers' and 'Plan and Participant Claims Against Plan Providers.']" (Groom Law Group)
Ten Things Plan Fiduciaries Should Avoid (PDF)
"In recent court case, Tussey v. ABB, Inc., ... the judge found that the plan fiduciaries breached their fiduciary duties and were jointly and severally liable for $13.4 million lost by the Plan due to failure to monitor recordkeeping fees and negotiate rebates and $21.8 million lost by Plan due to mapping one investment fund to another. In addition, the service provider was held jointly and severally liable for $1.7 million for lost float income. Lessons learned from this case are at least 10 things Plan fiduciaries should avoid[.]" (ERISAdiagnostics, Inc.)
[Opinion] ASPPA Letter to EBSA on Asset Allocation Strategies, Model Portfolios and Need for Transitional Relief
"The American Society of Pension Professionals and Actuaries ..., the Council of Independent 401(k) Recordkeepers ... and the National Association of Plan Advisors ... are writing to request that [DOL] provide guidance which clarifies that asset allocation strategies and models are not themselves Designated Investment Alternatives ... under both DOL Regulation Section 2550.408b-2(c) (the '408(b)(2) regulation') as well as DOL Regulation Section 2550.404a-5 (the '404(a) regulation') ... and to provide for a good faith transition period in recognition of the uncertainties that remain in regard to the regulations' application." (ASPPA)
ERISA Section 408(b)(2) Is about Plan Sponsors' Continued Fiduciary Obligations
"Financial advisers to retirement plans need to recalibrate their thinking about Section 408(b)(2) of [ERISA]. Rather than focusing on what it means for their own disclosure obligations, they need to remember that the law is truly about the due-diligence obligations of plan sponsors." (Investment News)
[Guidance Overview] Another Question is Answered in the Who's the Employer Q&A Column
A lawyer friend of mine says the U.S. Department of Labor requires association-based Multiple Employer Plans to have 'commonality'; but does not require it generally, such as with open MEPs. Is that true? (BenefitsLink.com)
[Guidance Overview] Availability of Class Actions Narrows, Could Mean Fewer 401(k) Fee Cases
"[T]he U.S. Supreme Court's 2011 decision in Wal-Mart Stores v. Dukes ... and other recent cases have led to a more rigorous application of the rules for establishing a bona fide class. This has likely contributed to the waning of new excess fee cases and may have been a factor in recent settlements." (The Wagner Law Group)
[Guidance Overview] OK to Levy Recordkeeping and Investment Management Fees Only on Certain 401(k) Participants? Federal Case Asks But Doesn't Answer
"A significant issue raised but not resolved in the ABB case -- a matter that may very well be the next frontier in fiduciary oversight litigation -- is, whether the record keeping costs of a 401(k) plan may be borne exclusively by those participants whose investment funds enjoy revenue sharing (also known as 12b-1 fees) while participants whose accounts are invested in investment funds with no revenue sharing pay little or nothing." (Troutman Sanders)
Does ERISA's 6-Year Statute of Limitations Apply Only When Fiduciary's Alleged Fraud is Concealed?
"In a case of first impression, in Cataldo v. United States Steel Corporation, No. 10-3583 (April 12, 2012), the Sixth Circuit says that it will address whether ERISA's 6-year statute of limitations applies when plaintiffs have simply alleged an underlying breach sounding in fraud, or whether application of ERISA's 6-year statute of limitations only applies where the fiduciary has attempted to hide its breach from the injured party, and then sidesteps this question." (The Pension Protection Act Blog)
[Guidance Overview] Recent ERISA Fee Litigation: Key Lessons for Plan Fiduciaries
"A recent Federal District Court decision [out of Missouri] dealing with ERISA plan fees is generating substantial discussion in plan fiduciary circles, not only because of the significant liability imposed on fiduciaries (almost $40 million), but because of its discussion of some key fiduciary issues.... Tussey v. ABB, Inc. ... may provide significant guidance to plan fiduciaries in their determination of the 'reasonableness' of an arrangement when a service provider engages in revenue sharing. The Tussey case also contains some important general lessons for plan fiduciaries." (Orrick)
Despite Proliferation of Service-Providers and Monitoring Firms, Plan Sponsors Can't Shed Ultimate Liability
"Consider the cautionary tale of several small plans that entrusted fiduciary responsibility to someone once considered a stalwart in the field. Matthew Hutcheson, who co-wrote the book 401(k) Ethos, was regarded as a go-to person for all things fiduciary and testified before Congress, recently was indicted for wire fraud after allegedly stealing money from the plans for which he acted as fiduciary." (Treasury & Risk)
[Guidance Overview] 401(k) Plan Fees in Turmoil: District Court in Tussey Case Finds Fiduciary Breaches but Third Circuit Does Not
"Overall, the courts' decision in Tussey and Renfro appear to show that the ... outcome is less dictated by the choices made by plan fiduciaries than by the thoroughness and care by which the plan fiduciaries investigated, considered and compared their investment selections and fees. Accordingly ... it is critical for plan sponsors to understand and follow their plan's investment policy procedures and guidelines, to understand their plan's fees and compare them to the marketplace, to document all actions taken with respect to investment selections and plan fees, and to act for the exclusive benefit of plan participants and beneficiaries." (Trucker Huss)
Best Governance Practices for Public Retirement Systems (PDF)
"NCPERS encourages fiduciaries who have not done so to consider adopting the [practices in this document] with the understanding that flexibility in implementation is one hallmark of effective governance." (National Conference on Public Employee Retirement Systems)
[Opinion] Text of Pension Rights Center's Criticism of U.S. Chamber's White Paper on the Private Retirement Plan System
"Like the Chamber, the Center is committed to financial literacy, but financial literacy is not just teaching people about compound interest and asset allocation. It is also about empowering employees and retirees by providing them with timely and plain-English information that helps them understand the terms of their plan the amount of benefits they have earned and how much they are paying in administrative and investment management fees. Hence, [the Center finds] it a bit of a contradiction that the Chamber recommends greater financial education, while at the same time advocating for the reduction or elimination of information -- such as quarterly statements in 401(k) plans -- that is necessary for people to be financially literate." (Pension Rights Center)
[Guidance Overview] Considerations for Plan Sponsors and Fiduciaries in Minimizing Potential Fiduciary Liability After Tussey v. ABB, Inc.
"[The Tussey v. ABB, Inc. case] suggests that plan sponsors and fiduciaries should press service providers/recordkeepers to provide enough information about revenue sharing arrangements to allow them to: [i] Calculate total revenue sharing paid to service providers; [ii] Determine the plan administrative costs that would be charged in the absence of revenue sharing; [iii] Compare to the level of plan administrative costs paid by plans of comparable size; [iv] Determine whether revenue sharing payments provide the service providers/recordkeepers with compensation beyond the administrative cost in the absence of revenue sharing (i.e., beyond the �market rate�); and [v] Negotiate rebates of revenue sharing that exceed the market rate." (Porter Wright)
[Guidance Overview] Fee Disclosure Wasn't Enough to Shield Retirement Plan Fiduciaries from $35 Million Judgment
"[T]he [Missouri District] court ruled that the corporate fiduciaries of a 401(k) plan violated their fiduciary duties by failing to monitor third-party administrative costs, negotiate plan rebates and prudently select and monitor investment options. The court held the fiduciaries liable for $35 million in damages, concluding that, although the fiduciaries' actions conformed to DOL regulations relating to fee disclosure, their failure to follow their investment policy statement, understand the payments being made under the plan and to investigate the best available investment alternatives resulted in a breach of fiduciary duties." (Littler)
Sample of Enhanced All-In Fee Report
"[This sample annual fee report] has been enhanced to provide additional fee information in accordance with the Department of Labor�s (DOL) rules under ERISA section 408(b)(2).... This fee disclosure document is comprised of three components: (i) a Summary Fee Report that provides a consolidated view of [the] plan's fee information; (ii) [the] enhanced All-in Fee Report, which contains the detailed fee information ...; and (iii) an Appendix containing important information required by the DOL fee disclosure regulation." (Vanguard)
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