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Pooled plan sued for declaring special val


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https://www.napa-net.org/news-info/daily-news/401k-plan-sued-covid-19-related-missteps

I don't think the participants can win this but if you've been sued you lost.  Monday morning quarterbacking it, they communicated poorly (I'm not a lawyer but it seems that some of those communications might have left them exposed), and totally dropped the ball on moving assets to cash when they KNEW these distributions were pending.  

Ed Snyder

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This is interesting.  As an aside the ESOP world is full of talk should ESOPs get an interim stock value in the summer of 2020.  The same dynamic is going on.  The 12/31/2019 value can't reflect any of the events in 2020.  So is a new stock price which will be used to make the payments in 2020 a better price.  I have ESOP clients who if they do this the savings could be in the millions of dollars.   But the same kind of issue comes up in my mind.  There never is a push to do this when times are good only when bad. 

It will be interesting to see if the court makes note they specifically refused to do a special allocation date in 2019 when the market was up but did it when it was down.  

 

Thanks for sharing.  

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On 6/19/2020 at 3:14 PM, RatherBeGolfing said:

So many issues beyond the actual special val if we take plaintiffs allegations at face value...

Exactly.  There is absolutely positively nothing wrong with doing a special val.  But when you repeatedly say "you'll get your 12/31/19 account value," that causes a problem, or at the very least a perception of a problem.  All easily avoidable by anticipating this known event and setting aside cash.  Again, not a lawyer, but I'm familiar with the phrase "bad facts make bad law" (or something like that) and the facts here could lead to the perception that you can't do a special val.

Ed Snyder

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2 minutes ago, Bird said:

Exactly.  There is absolutely positively nothing wrong with doing a special val.  But when you repeatedly say "you'll get your 12/31/19 account value," that causes a problem, or at the very least a perception of a problem.  All easily avoidable by anticipating this known event and setting aside cash.  Again, not a lawyer, but I'm familiar with the phrase "bad facts make bad law" (or something like that) and the facts here could lead to the perception that you can't do a special val.

Agreed, I think this could have been avoided or at a minimum handled much better.  

 

 

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Reponding to @Belgaraths question here in an effort to keep discussion in one thread for simplicity :)

1 hour ago, Belgarath said:

I know Larry and some others here do a lot of pooled plans, and I'm just curious to hear your opinions (if you have any at this early stage) of this suit:

[Lipshires v. Behan Bros. Inc. Retirement Plan, No. 20-252 (D.R.I. complaint filed Jun. 8, 2020)]

Initial thoughts: 

I think some of the claims are non-starters, and others are troubling (though Im not sure if its enough move forward on).

NEVER encourage former employees to keep their money in the plan!  I mean why?  It creates so much extra work and potential for mistakes.  Once they gone, get them out.  I dont know how nuanced the "if the market is up you can always keep the money in the plan" statement was, but that is a big no-no to me.  It has to be communicated, but I would stay far away from anything that could be interpreted as a suggestion or advice.

They screwed up by not providing paperwork when requested.  Let them fill out the form! It cant be processed yet, but here ya go!  Just not smart as it shows a failure to act on a participant request.

Plaintiffs requested a special in 2019 when the market was up, but we don't know how the plan was invested or if plan the plans investments were up as much as the market.  Similarly, we don't know if the assets in 2020 tracked the market losses.  Stating that the market was up as much as 15% in 2019 and that at the time the special val was determined the Dow average was down 14% and the S&P 500 was down 9% isn't indicative of wrongdoing or inconsistent application of the special valuation.  It might help them get past a motion for summary judgment though, as it is a question of fact.

Obviously, I dont buy the claim that completing the year end valuation by March 24th is an unreasonable, unfair, arbitrary, capricious delay.  Further, the allegation that the since the special val can be done in 30 days it is unreasonable to go beyond 30 days for the year end val is just ridiculous as we all know.

Other allegations such as breach of fiduciary duty because of a conflict of interest when the trustee is also a participant should be defeated easily.

Biggest issues I see are the "you can always keep the money in the plan" statement, and the refusal to provide distribution forms. 

 

 

 

 

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On ‎6‎/‎19‎/‎2020 at 2:14 PM, RatherBeGolfing said:

So many issues beyond the actual special val if we take plaintiffs allegations at face value...

 

Right. As I've stated before on this topic, I believe there is pretty soild precedent coming out of the October, 1987 crash (when a much larger percentage of plans were pooled) that support the principle of doing special valuations where there has been a dramatic market change. Don't have the time right now to dig up the cases, but I recall their being out there.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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