Headlines about "Fiduciary duties of trustees, directors, others"
Gathered from the web by the editors at BenefitsLink.com.
[Opinion] Who Needs Placement Agents, Anyway? No Place in the Public Pension Boardroom for Mercenaries
Excerpt: "Until there are prohibitions on pension marketers making campaign contributions to board members and strict controls on contributions to anybody else involved in pension governance, the trustees can profit from their decisions to hire investment advisors. Requiring them to get a lobbying license almost makes it a laughable exercise unless there are explicit prohibitions embedded in the law. Otherwise the law would become a 'license to steal.' Board members who accept such payola should be disqualified for voting on any issue that involves a campaign contributor and on any investment or contract/vendor decision remotely related. The proposed CalPERS legislation should include a provision similar to that as well." (Governing.com)
[Official Guidance] Text of DOL Notice Withdrawing Final Regs on Investment Advice to Participants (PDF)
2 pages. Excerpt: "[A] number of commenters raised legal and policy issues concerning the exemption and, in particular, questioned the adequacy of the final class exemption's conditions to mitigate the potential for investment adviser self-dealing. The Department believes that the questions raised in these comments are sufficient to cast doubt on the conditions' adequacy to mitigate advisers' conflicts. If conflicts are not mitigated advice might be tainted. Therefore the Department has set aside its previous assumption that participants and beneficiaries who follow advice delivered pursuant to the final class exemption will commit investment errors at one-half the rate of those who are unadvised, together with its previous conclusion that the final class exemption's benefits justify its cost." (Employee Benefits Security Administration, U.S. Department of Labor)
[Official Guidance] DOL Cancels Earlier-Published Bush Administration Final Regulation on Investment Advice to Participants
Excerpt (DOL press release of Nov. 19, 2009): 'The department decided to withdraw the rule based on public comments that raised sufficient doubts as to whether the conditions of the final rule and the class exemption associated with the rule could adequately protect the interests of plan participants and beneficiaries. The department recently extended the applicability and effective dates of the final rule until May 17, 2010. That extension expires upon the effective date of this withdrawal." (Employee Benefits Security Administration, U.S. Department of Labor)
Company Stock Can Be a Source of Fiduciary Worry
Excerpt: "[E]ven with a careful, diligent approach, plan sponsors may still find themselves embroiled in company stock problems. Company stock can pose a basic dilemma for plan sponsors. ERISA, the body of law that covers retirement plans, requires fiduciaries to act prudently and offer diversified investments to participants -- but it also allows investment in a single security -- the company's stock. Historically, company stock investments have had volatile returns, which can be challenging for plan fiduciaries." (The Vanguard Group, Inc.)
Class Certification Granted in Lawsuit Alleging That Defendant Engages in Certain Revenue Sharing Practices That Violate ERISA (PDF)
Excerpt: "U.S. District Judge Stefan Underhill recently granted plaintiffs' motion for class certification in Haddock v. Nationwide Financial Services Inc., No. 3:01-cv-1552 (SRU) (D. Conn.), a lawsuit alleging that defendant engages in certain revenue sharing practices that violate ERISA. Judge Underhill found that plaintiffs met all of the requirements for certifying a class under Rule 23(b)(2). . . . In 2001, trustees for a number of employer-sponsored profit-sharing retirement plans filed a putative class action against defendant (the plans' investment provider), alleging that certain payments it received from mutual funds or their affiliates were actually provided in exchange for offering the funds as plan investment options under defendant's variable annuity contracts, rather than for administrative services rendered, and that such payments constituted a breach of fiduciary duty under ERISA. In April 2006, the district court denied defendant's motion for summary judgment in a widely publicized opinion that held, inter alia, that there were triable issues of fact on whether defendant was an ERISA fiduciary by virtue of its authority to eliminate and substitute underlying fund investment options and/or on the basis that revenue sharing payments might be plan assets under ERISA." (Sutherland Asbill & Brennan LLP)
[Guidance Overview] With Lawsuits Increasing Against Pension Plan Sponsors, Individual Fiduciaries Should Protect Themselves Against Financial Risks
Excerpt: "If you are a fiduciary for your employer's retirement savings plan, you already know that life isn't getting any simpler. Lawsuits against plan fiduciaries are on the upswing, and some have been found personally liable for plan losses under ERISA, the Employee Retirement Income Security Act of 1974. What you may not know is that neither your company's directors' and officers' insurance nor the bond that all retirement plan sponsors are required by law to carry will indemnify you for claims involving benefit plans. The former excludes such claims, the latter covers only plans themselves. Instead, you need fiduciary liability insurance, and if you don't know whether you have it, you should find out." (CFO.com)
[Official Guidance] Text of EBSA Announcement Delaying Implementation of Participant Investment Advice Regs Until May 2010 (PDF)
2 pages. Excerpt: "This document further delays the effective and applicability dates of these final rules from November 18, 2009, until May 17, 2010, to allow additional time for the Department to complete its analysis of questions of law and policy concerning the rules. . . . A number of . . . comments expressed the view that the final rules raise significant issues of law and policy. Among these, some expressed disagreement with the final rules' interpretation of the statutory exemption, and further questioned the adequacy of the class exemption's conditions in mitigating against the potential for investment adviser self-dealing." (Employee Benefits Security Administration, U.S. Department of Labor)
[Guidance Overview] Where Private Plan Is Substantially Over-Funded, Participants Suffered No Injury from Alleged ERISA Violations
Excerpt: "The parties agreed that at the time McCullough filed his complaint, and at all times relevant thereafter, the plan was substantially overfunded. The parties also stipulated that the plan had never failed to pay benefits owed to participants or beneficiaries, and that AEGON had no intention to terminate the plan. The court of appeals held that its own binding circuit precedent did not permit a participant in a defined benefit plan to bring suit claiming liability under ERISA for alleged breaches of fiduciary duties when the plan was overfunded. McCullough v. AEGON USA, Inc., Case No. 08-1952 (U.S. 8th Cir., November 3, 2009)." (Cypen & Cypen)
Seven Things Every Plan Sponsor Should Know About Being a Fiduciary
Excerpt: "As a plan fiduciary, it's never too late to start doing the right things the right way, but doing the right things means understanding what is expected of you -- and appreciating the implications." (PLANSPONSOR.com; free registration required)
[Guidance Overview] ERISA TPA That Is Not a Fiduciary Must Face State-Law Breach of Contract Claims by Plan Sponsor
Excerpt: "EBIA Comment: This well-written decision (collecting numerous other cases) is recommended reading for employers and TPAs alike, as it reviews and summarizes many of the most important contractual provisions and legal principles governing the TPA relationship. One lesson to be learned: In the event of contract disputes, TPAs that successfully argue they are not ERISA fiduciaries should be prepared to face alternative claims under state law." (Employee Benefits Institute of America)
Fiduciaries Well-Positioned to Bring About Positive Changes in Target Date Funds
Excerpt: "Rather than focusing on past deficiencies in target date funds, the Senate Special Committee on Aging's recent hearing on the funds focused on how they can be turned around quickly. However, the hearings should serve as notice to all fiduciaries involved -- retirement plan sponsors, investment advisers to the plans, fund managers and mutual fund boards -- that they are perceived by regulators as the sources of problems with target date funds and will be held accountable to fix them." (Investment News; free registration required)
Best Practices for Retirement Plan Investment Fiduciaries (PDF)
20 pages. Excerpt: "This paper outlines six 'Best Practices' for plan sponsors of allocated defined contribution plans as they seek to meet their fiduciary responsibilities concerning investments." (Securian Retirement)
[Guidance Overview] California Supreme Court Hears Pension Trustees' Case
Excerpt: "The California Supreme Court last week heard a case that may be of great significance for trustees on pension boards in California. The case, Lexin v. Superior Court, arose out of a decision by the San Diego Employees' Retirement System (SDCERS) board of administration to approve an increase in pension benefits for city employees and at the same time allow the pension fund to be underfunded. The San Diego County district attorney brought criminal proceedings against certain members of the board, alleging a violation of Government Code section 1090. The questions to be decided in the case is whether the petitioners' service on the Board of the San Diego Retirement System, as it related to an increase in pension benefits for members of the system, violate the conflict of interest provisions of Government Code section 1090, and subject them to criminal prosecution, or did the non-interest exemption of Government Code section 1091.5?" (National Conference on Public Employee Retirement Systems)
Caterpillar Agrees to $16.5-Million Settlement of Excessive Fee Lawsuit in Federal Court in Illinois
Excerpt: "A company newsletter said the September 2006 suit leveled the fiduciary breach charges against Caterpillar regarding its four 401(k) plans for workers and retirees. According to the announcement, the net proceeds of the settlement will be allocated to participant accounts and former participants based generally upon the number of years a participant maintained an account balance in one or more of the plans." (PLANSPONSOR.com; free registration required)
Specific Corporate Compliance Challenges by Practice Area: ERISA
Excerpt: "[The chapter] provides a general overview of the Employee Retirement Income Security Act of 1974 ('ERISA') and discusses best practices for fiduciary compliance, ERISA litigation and risk management, and ERISA reporting and disclosure requirements." (Corporate Compliance Practice Guide: The Next Generation via Seyfarth Shaw LLP)
Advanta Corp. Faces Several Probes
Excerpt: "On Friday, Philadelphia-based Spector Roseman Kodroff & Willis became the fifth law firm in the past three weeks to say it was investigating Advanta for potential violations of the Employee Retirement Income Security Act (ERISA) of 1974. Spector Roseman's investigation involves concerns that Advanta and other plan administrators may have breached their ERISA-mandated fiduciary duties of loyalty and prudence to participants and beneficiaries of Advanta's employee stock ownership plan and employee savings plan." (Philadelphia Business Journal via bizjournals.com; free registration required)
The Powerful California Pension Fund CalPERS Is Catching Flak for Not Practicing What It Preaches
Excerpt: "The California Public Employees' Retirement System has long pushed companies to clean up their acts. Now the nation's largest pension fund is getting flak for its own governance practices. But while other pension funds are overhauling their policies on hot-button issues -- including campaign contributions and investment middlemen -- CalPERS is making only marginal changes. The worry among shareholder activists is that this new perception may hamper CalPERS' ability to enact change elsewhere." (BusinessWeek)
[Guidance Overview] Law Firm that Settled Pension Suit on Its Own May be Fiduciary
Excerpt: "The U.S. District Court for the Eastern District of Michigan has determined that a pension fund's law firm that agreed to a settlement of a lawsuit by the fund against a service provider without approval of the fund's trustees may have breached fiduciary duties under the Employee Retirement Income Security Act (ERISA). In his opinion, U.S. District Judge Stephen J. Murphy, III said certain allegations in the complaint against law firm Sullivan, Ward, Asher and Patton, P.C. 'appear sufficient, if proved, to support a finding that Sullivan Ward was a 'fiduciary' under ERISA and thus state a claim upon which relief can be granted.'" (PLANSPONSOR.com; free registration required)
Benefit Plan Protection: What Insurance Policies Are Needed?
Excerpt: "Experience has shown that benefit plans can face a wide range of potential legal claims and that comprehensive protection requires more than one type of insurance coverage. This publication discusses some common claims involving three insurance policies that can protect benefit plans, their trustees, fund office staff and, by endorsement, agreed-upon people or entities: fidelity bonds, fiduciary liability insurance and employment practice liability insurance." (Segal Company)
[Guidance Overview] ERISA: Life After the Stock Market Shock (PDF)
14 pages; reprinted by permission to the author from the Benefits Law Journal. Excerpt: "As the current financial crisis continues to unfold, questions abound about why the wheels fell off our economy and what, if anything, ERISA plan fiduciaries should do in response. What follows is the author's best guess as to what happened and what new problems ERISA fiduciaries face after the stock market shock." (Jones Day)
[Guidance Overview] Broker-Dealers and Other Non-Fiduciaries as Fiduciaries? (Part 2)
Excerpt: "The ultimate outcome of the great wrestling match among the executive and legislative branches of the federal government, and various powerful financial services interest groups as to whether broker-dealers will be turned into fiduciaries and, if so, what kind of fiduciary standard they will have to live up to is not yet known, of course. Given that, many of the registered representatives who believe that they already are fiduciaries to their clients cannot be blamed for perhaps feeling as though they're in a state of suspended animation." (Morningstar Advisor)
Second Circuit Limits Impact of Employer's Oral Misrepresentation of Benefits Plan
Excerpt: "Ever since the Second Circuit Court of Appeals held more than 15 years ago in Mullins v. Pfizer, Inc. . . . that a fiduciary's material misrepresentation concerning the availability of future voluntary retirement benefits could be considered a breach of fiduciary duty under [ERISA], the Second Circuit has been a relatively hospitable venue for such claims. Larger companies had the impossible task of policing hundreds of potential manager/human resource personnel 'fiduciaries' to prevent misrepresentations; a misrepresentation, even in a casual conversation, could be an ERISA violation. This all changed on September 30, 2009, when the Second Circuit decided in Ladouceur v. Credit Lyonnais . . . ." (Paul Hastings)
California Supreme Court Justices Question Conflict-of-Interest in San Diego Pension Case
Excerpt: "The California Supreme Court sounded ready yesterday to end the prosecution of six former city of San Diego pension board trustees, a move that could shut down part of a long-running legal battle. At a hearing that lasted more than an hour, the justices seemed skeptical about the case filed in 2005 by the county District Attorney's Office against the board members, charging them with breaking the state conflict-of-interest law." (SignOnSanDiego.com)
[Guidance Overview] Court Finds a Breach of Fiduciary Duty Despite Clear Statement in SPD that Employer Could Amend Retiree Medical Plan
Excerpt: "[The Third Circuit] held that Unisys breached its fiduciary duty by not informing retirees that Unisys retained the right to change the terms of their retiree medical benefits. In reaching this conclusion, the court rejected Unisys' key arguments that (1) there was no need to inform the individuals of Unisys' right to amend because no amendments were being contemplated at the time, (2) the Summary Plan Description (SPD) Unisys distributed expressly stated that Unisys retained the right to amend the plan, and (3) the injunction compelling Unisys to reinstate the plan without the right to change benefits impermissibly restricted Unisys in its capacity as a settlor." (Buchanan Ingersoll & Rooney)
[Guidance Overview] Court Says Participant in Overfunded DB Plan Has No Standing to Sue for Fiduciary Breach
Excerpt: "According to the opinion, all parties agreed that at the time [the plaintiff] filed his complaint, and at all times from 2001 to 2006, the plan was 'substantially overfunded,' according to actuarial valuation reports of the plan's assets and liabilities. The parties also agreed that plan never failed to pay benefits owed to participants or beneficiaries, and that AEGON had no intention to terminate the plan." (PLANSPONSOR)
[Opinion] Testimony of Morningstar Director of Research: Five Concerns About Target-Date Mutual Funds
Excerpt: "[T]here are certain concerns, given the extraordinary position that target-date funds now occupy as the default investment of choice for America's New Retirement Model. These concerns include:* Variation in fees; * The use of proprietary (in-house) funds; * Lack of manager ownership; * Variation in glide paths among the shorter-dated funds; * Lack of transparency" (Morningstar)
[Official Guidance] Court Says Participant in Overfunded Defined Benefit Plan Has No Standing to Sue for Fiduciary Duty Breaches
Excerpt: "[The 8th Circuit majority] held that plan participants 'would if anything be adversely affected by subjecting the Plan and its fiduciaries to costly litigation.'" (PLANSPONSOR)
[Guidance Overview] Chart and Outline of 401(k) Fee Litigation, Updated October 2009
Excerpt: "Over the past several years, more than two dozen lawsuits have been filed relating to 401(k) plan fees and, more specifically, 'revenue sharing' arrangements with plan service providers. 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 . . . ." (Groom Law Group)
[Guidance Overview] Fiduciary Debate Lands at Supreme Court
Excerpt: "The debate over investment advisors' fiduciary duty has made it all the way to the Supreme Court. On Monday, November 2, Supreme Court Justices heard oral arguments from lawyers for three investors who claimed that Harris Associates of Chicago, the investment advisor for the Oakmark family of mutual funds, charged them higher fees for similar services than it did to independent institutional investors such as pension funds." (Investment Advisor)
[Guidance Overview] Justices Tackle Case on Investment Fees
Excerpt: "Several Supreme Court justices on Monday seemed reluctant to make the courts arbiters of whether mutual fund investment advisers are charging excessive fees for their work on what has become an essential investment tool for Americans." (Washington Post; free registration required)
[Guidance Overview] San Diego Public Pension Conflict-of-Interest Case Makes It To State Supreme Court
Excerpt: "Public employee pension boards throughout the country are watching the case carefully, as it could affect the makeup of pension boards nationwide. The issue is whether the six San Diego pension board members voted to allow the city to underfund its pension plan in return for higher pension payouts. Defense attorneys argue it was not a 'quid pro quo,' and the defendants are not guilty of conflict of interest. The votes resulted in a billion dollar pension deficit that the city then hid from investors." (KPBS)
[Guidance Overview] DOL Issues Additional FAQs on Schedule C for 2009 Form 5500
Excerpt: "Generally, both pension plans and those welfare plans that are required to file Form 5500 must include Schedule C to report compensation received by plan service providers. Schedule C will not be required for a welfare plan, however, unless the plan has a trust or should have a trust because Technical Release 92-01 does not apply." (Employee Benefits Institute of America)
[Guidance Overview] Fiduciary Liability Insurance vs. ERISA Fidelity Bonds: What's the Difference?
Excerpt: "This article addresses an issue that every plan sponsor should consider whether they have ever been sued or not. We're talking about the issue of insurance, and more particularly, the distinction between fidelity bonds and fiduciary liability insurance. The issue is important because some confusion exists among retirement plan sponsors about their insurance needs." (Reish & Reicher)
Litigation Against Advisers Is Increasing
Excerpt: "We are seeing an increasing number of claims filed against advisers . . . both as civil lawsuits and FINRA arbitrations. While the increase in claims undoubtedly reflects the recent stock market losses, it is also the result of at least three other factors. Those are: an increasing awareness of the fiduciary standard; the growing focus on retirement savings, including rollovers to IRAs; and heightened expectations about the performance of advisers. Of course, there is always that fourth category . . . crooks who steal money." (Reish & Reicher)
Public Employee Retirement System Investments, 1993, 1995, 1997 and 2009 (PDF)
Excerpt: "Recommendation. The Government Finance Officers Association (GFOA) recommends that fiduciaries adhere to the following best practices regarding investments: 1. Pension fund fiduciaries should establish a written investment policy that lays out formal policies and procedures to regulate and monitor the system's investment program. The investment policy should: establish the objectives of the investment program; define acceptable risk; establish liquidity requirements at a level that does not compromise the system's cash flow needs; describe diversification requirements; comply with applicable state and local statutes." (Government Finance Officers Association of the United States and Canada)
[Guidance Overview] Plan Language Sufficient to Authorize Settlement of ERISA Benefit Claims with TCA's
Excerpt: "The recent decision in Faber & Young v. Metro. Life Ins. Co. highlights the boundary between conduct authorized under the plan on the one hand, and conduct forbidden by the fiduciary prohibitions of ERISA. The district court, influenced by the Second Circuit's opinion in Kendall v. Employees Retirement Plan of Avon Prods., 561 F.3d 112, 118 (2d Cir. 2009), held that the fiduciary's conduct did not cross the line drawn by ERISA's fidiciary constraints." (Roy Harmon III via Health Plan Law)
CALPERS Trustees Increasing Proportion of Risky Investments
Excerpt: "As the entire pension industry questions what level of risk it should be taking in the aftermath of last year's financial meltdown, Calpers in June increased its target for venture capital and private equity -- what the fund's advisor itself called the highest risk, highest reward bet -- to 14 percent of overall investments, up from 10 percent." (Reuters)
New York Attorney General Unveils Plan to Overhaul State Pension System
Excerpt: "New York Attorney General Andrew Cuomo unveiled his plan to overhaul the state pension system, even as the state comptroller expressed concern that there could be constitutional problems with it. . . . The proposed legislation would impose stringent limits on political contributions, require extensive disclosures from investment fund personnel, create a code of conduct, compel any licensed professional to report conflicts of interest, and would bar investment firms from using placement agents or lobbyists to get business from the state pension fund.One of the more significant proposals is to change oversight of New York's $120-billion pension fund - the state's single largest asset, Cuomo said - from the current system of sole trustee to a 13-member, bipartisan board of trustees. Currently, only three states - New York, Connecticut and North Carolina - have pension funds with a sole trustee." (Newsday)
401(k) Fee Litigation Report as of September 2009
Excerpt: "In addition to the lawsuits against plan sponsors, lawsuits have been brought against 401(k) plan service providers. These cases typically are based on allegations that the service providers are 'functional fiduciaries' under ERISA. The plaintiffs claim that, in negotiating for and receiving revenue sharing, the service providers breached fiduciary duties and engaged in 'prohibited transactions' under ERISA. Some of the lawsuits similarly challenge the use of actively managed mutual funds as investment options." (Groom Law Group)
Adviser Group Urges Congress to Keep 'Authentic' Fiduciary Standard
Excerpt: "A group of financial planners warned congressional leaders . . . against enacting proposed standards for advisers that are being endorsed by the brokerage industry. The Committee for the Fiduciary Standard, a group of 600 investment professionals, sent a letter to House Financial Services Committee Chairman Barney Frank, D-Mass., and others, voicing concern about proposals to adopt a new fiduciary code of conduct for brokers and advisers. 'The committee is concerned that misunderstandings of the authentic fiduciary standard could inadvertently be reflected in legislation and weaken the standard at the exact time that investors are looking to Congress and regulators to strengthen oversight of the financial system and Wall Street,' the letter said." (Investment News; free registration required)
[Guidance Overview] First Circuit Finds Plan Language Adequate for Delegation of ERISA Fiduciary's Authority
Excerpt: "Section 1105(c)(1)(B) of ERISA (29 U.S.C. 1105(c)(1)(B)) states that '[t]he instrument under which a plan is maintained may expressly provide for procedures . . . for named fiduciaries to designate persons other than named fiduciaries to carry out fiduciary responsibilities (other than trustee responsibilities) under the plan.' This First Circuit opinion examines the nature of the delegation process and provides guidance on the requirements necessary for an effective delegation of fiduciary authority. The issue is important since an ineffective delegation may lead to a benefit decision by a person or entity that has no claim to deferential judicial review." (Roy Harmon III via Health Plan Law)
[Guidance Overview] The Roles of the ESOP Trustee in the ESOP Valuation Process (PDF)
8 pages. Presentation at the ESOP Association Mid-Atlantic Chapter Conference, October 16, 2009, Charlottesville, VA. (Morgan, Lewis & Bockius LLP)
[Guidance Overview] Health Plan TPA Could Still Be a Fiduciary
Excerpt: "A federal judge in Massachusetts has ruled that a third-party administrator (TPA) for two health plans cannot be blamed as a 'functional fiduciary' for problems in processing claims that allegedly cost the plans millions of dollars. However, U.S. District Judge F. Dennis Saylor IV of the U.S. District Court for the District of Massachusetts indicated that a trial would have to be held to decide whether the TPA, BeneFirst LLC, was instead a 'named fiduciary.' Saylor asserted BeneFirst's discretion over the health plans, sponsored by a chain of New England and New York hardware stores, as well as its ability to control plan bank accounts did not rise to the level of making the TPA liable as a 'functional fiduciary' under the Employee Retirement Income Security Act (ERISA)." (PLANSPONSOR.com; free registration required)
401(k) Asset Allocation, Account Balances, and Loan Activity During 2008 (PDF)
63 pages. Excerpt: "After rising in 2003 and for the next four consecutive years, the average 401(k) retirement account fell 24.3 percent in 2008. The average 401(k) account balance moved up and down with stock market performance, but over the entire five-year time period increased at an average annual growth rate of 7.2 percent, attaining $86,513 at year-end 2008. The median 401(k) account balance increased at an average annual growth rate of 11.4 percent over the 2003?2008 period to $43,700 at year-end 2008." (Investment Company Institute)
[Guidance Overview] Should You Become an Investment Manager within the Meaning of ERISA?
Excerpt: "[I]ncreasing numbers of sophisticated plan sponsors are asking their advisors to serve as an ERISA 3(38) investment manager and/or conducting searches for those who do. Significant opportunities are emerging for advisors that are equipped to serve in this capacity, but it is a decision that must be carefully evaluated and prudently implemented." (Reish & Reicher)
[Guidance Overview] Benchmarking of 401(k) Investments and Service-Providers by Employers: Part of a Prudent Process
Excerpt: "When evaluating the relevant data, the fiduciaries should compare it to comparable information from the marketplace. In other words, fiduciaries have to 'benchmark' the investments and services in order to evaluate their quality, cost, effectiveness and other attributes. This requirement applies to all fiduciary decisions . . . ." (Reish & Reicher)
ERISA Litigation
Excerpt: "As the spate of recent cases show, the risk of ERISA litigation has increased for companies. Heavy stock losses and the severity of punishments for scandals being handed out by courts have encouraged plaintiffs to test the boundaries of ERISA fiduciary law. Defendants may be exposed to a costly battle. 'With any litigation, there is the risk of prolonged litigation and its attendant costs. That risk can be greater in ERISA litigation, where the complex benefit issues often require retention of experts and claims are brought on behalf of all participants in the plan,' explains Howard Shapiro, a partner at Proskauer Rose LLP. 'While only equitable relief is available under ERISA, such relief can be costly if reformation of the plan, reversal of a plan amendment, or the removal of plan trustees is a possibility.'" (Financier Worldwide Limited)
Current Wave of 401(k) Fee Lawsuits May Be a Harbinger of Things to Come
Excerpt: "The complaint's accusations include charging excessive fees, SJP and VLP effectively setting their own compensation by disbursing plan assets to themselves via Charles Schwab Trust Co. without the sponsor's knowledge, and failing to adequately disclose the revenue-sharing they received. Because the providers effectively exercised fiduciary control over the plan for the purposes of enriching themselves, the complaint says, they violated ERISA. The complaint compares the recordkeeping fees it says were charged by VLP with those of its replacement, Allen, Gibbs & Houlik, L.C. (AGH). If the plan 'had engaged AGH in 2007 instead of VLP to provide recordkeeping services, compensation paid to the recordkeeper for the Plan would have been $2,425 instead of $15,106,' the complaint says, adding that the services provided were 'virtually identical.'" (PLANSPONSOR.com; free registration required)
[Guidance Overview] Court Dismisses Company Stock Suit against Harley-Davidson
Excerpt: "The U.S. District Court for the Eastern District of Wisconsin has dismissed a lawsuit accusing Harley-Davidson and certain of its executives of breaching their fiduciary duties under the Employee Retirement Income Security Act (ERISA) by continuing to offer company stock as an investment option in the company's retirement plans. After first determining that former employee Lisa Bosman had standing to sue even though she had cashed out her retirement plan account, Chief U.S. District Judge C. N. Clevert, Jr. said that 'Stating a valid claim of imprudence under these circumstances requires more than allegations that there were gaps between supply and demand and a corresponding bad quarter.'" (PLANSPONSOR.com; free registration required)
Mixed Reaction to Attorney General Andrew Cuomo's Pension Fix for New York
Excerpt: "Attorney General Andrew Cuomo's push to create a 13-member oversight board to end pay-to-play in the state pension fund got mixed reviews Thursday. Three state senators, including Democratic leader John Sampson and Long Island Republican John Flanagan, appeared with Cuomo to support the bill, which essentially would eliminate the state controller as sole trustee of the fund. 'This bill will provide the necessary checks and balances to root out abuse and restore confidence in our state retirement systems,' Sampson said." (NYDailyNews.com)
[Guidance Overview] Fiduciaries Again Defeat ERISA Stock Claims at Trial in Brieger et al. v. Tellabs, Inc. (PDF)
3 pages. Excerpt: "In Tellabs, the corporate and fiduciary defendantssecured another complete victory, proving, once again, that stock drop cases are eminently winnable if the defendants, and their carriers, are willing to stay the course and allow the trier of fact to hear the evidence." (Professional Liability Underwriting Society via Morgan, Lewis & Bockius LLP)
Seven Qualitative Due Diligence Factors in Investment Selection
Excerpt: "A good due diligence process begins by measuring investments using quantitative factors against set benchmarks and in relation to peers. The fi360 Fiduciary Score, for example, is calculated using eleven quantitative factors that we consider to be the minimum due diligence criteria that you should use when evaluating an investment. But in addition to quantitative analysis, fiduciaries should consider applying qualitative factors, which can help detect organizational instability. Organizational instability, over time, usually leads to underperformance.' (Investment News; free registration required)
[Guidance Overview] District Court Concludes That Defendants Had No Discretion to Eliminate or Liquidate Citigroup Stock Fund (PDF)
Pages 1-2 of 5 pages. Excerpt: "The Citigroup decision is noteworthy because the court focused on the plan terms to determine the appropriate scope of any fiduciary duties regarding investments in employer stock. The decision suggests that, if the terms are sufficiently explicit, they could eliminate the prospects of a viable fiduciary breach claim for failure to discontinue stock fund investments." (Proskauer Rose LLP)
[Opinion] 401(k) Fiduciary Responsibility: Conventional Wisdom and the Law of Unexpected Consequences (PDF)
10 pages. Excerpt: "For almost 30 years, conventional wisdom has maintained that 401(k) fiduciaries can easily fulfill their duties of loyalty and prudence by (1) hiring a competitively priced recordkeeper that routinely deals with plans of their size, (2) using a well-respected investment consultant to advise on selecting and monitoring 'competitively' priced investment options, and (3) complying with the letter (as distinct from the spirit) of the law. Conventional wisdom also assumed that employees are rational adults who are fully willing and capable (educationally and financially) of tackling the challenges of achieving a financially secure retirement. Unfortunately, conventional wisdom, more often than not, reflects what we wish to believe rather than fact." (Richard D. Glass via InvestmentHorizons.com)
[Guidance Overview] Flight from Equities in Cash Balance Plan no ERISA Miscue, According to Judge
Excerpt: "An employer's move to reduce its equity holdings and increase fixed income investments in its cash balance pension plan did not represent an illegal benefits reduction, a federal judge has ruled. U.S. District Judge J.P. Stadtmeuller of the U.S. District Court for the Eastern District of Wisconsin asserted that the decision by S.C. Johnson & Sons did not violate the anti-cutback rule in the Employee Retirement Income Security Act (ERISA). Stadtmeuller said the employer's pension plan changes did not result in a 'reduction of accrued benefits' that would trigger the ERISA provision prohibiting sponsors from changing their plan in a way that generates lesser benefits for participants." (PLANSPONSOR.com; free registration required)
Judge Dismisses WaMu Employees Lawsuit vs JPMorgan
Excerpt: "A U.S. District Court dismissed a lawsuit of former employees of Washington Mutual against JPMorgan Chase & Co to recover their retirement account losses after the collapse of the thrift. The plaintiffs filed a case in November 2007 against Washington Mutual asserting the financial company breached duties it owed under the Employee Retirement Income Security Act by allowing them to invest their 401(k) funds in Washington Mutual stock. The funds declined as the stock of Washington Mutual, one of the largest U.S. financial institutions, plunged -- hurt by mounting losses." (Reuters News Service via ABC News)
New Guidance on Department of Labor Enforcement Priorities for Employee Benefits
Excerpt: "In a September 14, 2009 speech, Assistant Secretary of Labor Phyllis C. Borzi announced that EBSA has initiated a criminal project to prosecute what she referred to as 'the most egregious and persistent violations' of ERISA, and also plans to focus enforcement efforts on several key civil areas. All plan sponsors, administrators and other fiduciaries should be aware of these enforcement priorities." (Arent Fox LLP)
[Guidance Overview] Court Dismisses Stock Drop Case against Humana
Excerpt: "The U.S. District Court for the Western District of Kentucky has dismissed claims by retirement plan participants that Humana officials violated their fiduciary duties by holding plan assets in company stock after mistakes made in pricing Medicare Prescription Drug Plans led to decreased company earnings. In his opinion, Judge John G. Heyburn, II said defendants were following the plan's explicit terms by investing plan assets in Humana stock, and that '[t]he allegations do not suggest anything more than poor judgment on the part of the fiduciaries who relied on well-reasoned and researched advice in determining the earnings projections.'" (PLANSPONSOR.com; free registration required)
[Guidance Overview] Eleventh Circuit Upholds ERISA's Plan's Benefit Denial Under Doyle Test
Excerpt: "The unpublished decision in Keith v. Prudential affords further insight into the Eleventh Circuit's take on the proper approach to judicial review in cases of conflicted fiduciaries. The Court has previously held that Met Life v. Glenn implicitly abrogated its prior approach which involved a heightend standard of review and burden shifting. In Keith, the Court signals how this change can make a practical difference in outcomes." (Roy Harmon III via Health Plan Law)
Suit Claims IGT Employees Harmed by Retirement Plan Investment
Excerpt: "There's a new twist in the shareholder legal actions against International Game Technology over the decline in IGT's stock price since 2007. The casino supplier is now being sued by two groups of employee retirement plan participants who say the plan made a poor investment decision when it invested in the company's own stock. Two lawsuits seeking class-action status to represent past and current IGT employees were filed against IGT on Friday in U.S. District Court for Nevada, charging the employees were harmed when the company's retirement plan invested in IGT stock at a time when IGT stock allegedly was inflated by false statements about the company's prospects." (Las Vegas Sun)
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