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Pensions Are Making Riskier Real Estate Bets
"Pension funds are making riskier bets on real estate as investor demand for alternative assets rises ... They've been shifting a portion of their core real estate holdings to properties under development or renovation ... [P]ensions may pick up an additional 200 basis points to 300 basis points of yield by doing so." (Institutional Investor)
Index Funds Nearly Universal in Large 401(k) Plans
"More than 95% of 401(k) plans with more than $10 million in plan assets offered index funds in their plan lineups in 2016, and 77% of 401(k) plans with less than $1 million offered them." (planadviser)
[Guidance Overview] SEC's New Broker Rule: Issues for Plan Fiduciaries
"In light of the new (and significantly elevated and detailed) broker standard of conduct rules, the application of the plan fiduciary's duty to monitor 'whether the adviser continues to meet applicable federal and state securities law requirements' deserves special attention. At a minimum, sponsor/plan fiduciaries will want to ... discuss with service providers how the conduct of broker-affiliated service providers will be monitored.... [C]ould plan fiduciaries' obligation to monitor compliance with federal securities laws become a target for plaintiffs' lawyers? " (October Three Consulting)
Retirement Assets Total $29.1 Trillion in First Quarter 2019
"Assets in individual retirement accounts (IRAs) totaled $9.4 trillion at the end of the first quarter of 2019, an increase of 8.3 percent from year-end 2018. Defined contribution (DC) plan assets were $8.2 trillion at the end of the first quarter of 2019, up 8.2 percent from year-end 2018. Government defined benefit (DB) plans ... held $6.3 trillion ... Private-sector DB plans held $3.2 trillion in assets ... and annuity reserves outside of retirement accounts accounted for another $2.1 trillion." (Investment Company Institute [ICI])
Reg BI: How Rollovers Are Changing Under the New SEC Rules
"The new rules encompass three elements of a rollover recommendation... [1] take money out of a 401(k) plan (i.e., it's not in an investor's best interest to be in the plan); [2] put that money in an IRA (i.e., the IRA is the best place to put the money); [3] invest the money (i.e., investment choice).... [A] broker must do a comparative analysis between a client's 401(k) and an IRA based on several factors." (InvestmentNews; subscription may be required)
Index Fund Rise Coincides with 401(k) Suits
"More 401(k) lawsuits were filed in 2016 and 2017 than during the 2008 financial crisis, and the steady drumbeat of litigation could be affecting how workers save and invest. For one thing, the suits have coincided with a dramatic increase in equity index funds ... Last year, nearly one out of three U.S. stock funds were index funds, double the share 10 years ago." (Squared Away Blog, by the Center for Retirement Research at Boston College)
Eighth Circuit Invokes Dudenhoeffer to Reject Fiduciary Claims in Stock Drop Case
"[T]he courts' application of Dudenhoeffer to these claims raises some questions. What are the special circumstances that can preserve a claim based solely on public information? And, in the absence of (as yet undefined) special circumstances, what is left of plan fiduciaries' duty to monitor publicly traded stock investments and weed out imprudent ones? Did the Supreme Court intend to insulate fiduciaries from claims that publicly traded stocks are unsuitable investments if the evidence of that unsuitability is entirely public? Until the courts have more fully explored the answers to these and other questions, cautious plan fiduciaries are unlikely to assume that the presumptive accuracy of market prices now allows them to pay less attention to factors other than price." (Thomson Reuters / EBIA)
[Opinion] SIFMA Disputes Claim Broker-Dealers May Threaten to Boycott States with Local Fiduciary Rules
"Based on only rank speculation, [Ron Rhoades] suggests that the efforts of industry participants -- individually and through established and respected trade groups like SIFMA and FSI -- to inform state policymakers about the potential unintended consequences of local fiduciary rules could reflect a violation of the antitrust laws." (RIABiz)
[Guidance Overview] Update on State Fiduciary Duty Regulations
"Massachusetts Secretary of State William Galvin announced on June 14, 2019 a preliminary solicitation of public comments on a regulation that would apply a 'fiduciary' duty to broker-dealers and advisers in Massachusetts ... The Regulation is substantially similar to New Jersey's, but includes some important differences[.]" (Morgan Lewis)
[Guidance Overview] SEC Adopts New Form CSR and Fiduciary Duty Interpretations Under the Investment Advisers Act
"The SEC adopted new Form ADV Part 3 (Form CRS) to require advisers to create a brief relationship summary containing information for retail investors.... [A]dvisers may not include disclosure in Part 3 other than disclosure that is required or permitted by the instructions and the applicable item.... The SEC also released an interpretation of the fiduciary duty of investment advisers ... [which] is not intended to establish new standards of conduct for investment advisers, but, rather reaffirm, clarify, and synthesize the SEC's understanding of the fiduciary duty as it has been established in previous rulings and regulations." (Troutman Sanders)
The Effect of Default Target Date Funds on Retirement Savings Allocations
"Participants who had joined plans with a money market default largely switched out of the default option ... Target date defaults raised the amount participants contributed to equity by 13 percentage points on average ... With a money market default, the size of the investment menu had a slight effect on the number of funds in which participants invested; this effect vanished under target date defaults." (TIAA Institute)
Will the SEC's Regulation Best Interest Have a Significant Impact?
"For broker/dealers, this rule raises questions about how to advise on rollovers, and how to demonstrate to a regulator that a rollover is in the best interest of the client. For instance: The benefit of a rollover may in part be due to the value of advice or asset-allocation recommendations that match a client's goals.... [In] some cases moving assets to a higher-cost IRA from a lower-cost, employer-sponsored plan might make sense if the advice adds more value to the customer than it costs.... [B]rokers may need tools to help evaluate the cost of the employer plan versus the value of putting the individual into an IRA, which offers more flexibility and potential for advice but at higher costs." (Morningstar)
The SEC's New Investment Advice Rules Are Here
"BDs and RIAs who provide participant level advice services to retirement plans will be reviewing the rule and working quickly to evaluate and implement any necessary changes. Many have been preparing since the draft rule came out last year. If you have participant advice built into your plan, we recommend you: [1] Request the advice provider comply with the new regulations. [2] Determine if the advice provider appears to be taking proper action. [3] Document this process in your fiduciary files." (Lockton)
Delaware Chancery Court Refuses to Dismiss Derivative Action Alleging Breach of Fiduciary Duty and Unjust Enrichment Related to Stock Option Repricing
"[T]he Delaware Chancery Court ruled that the plaintiff's derivative action largely survived a motion to dismiss because it is reasonably conceivable that several directors and officers of Anixa Biosciences, Inc. breached their fiduciary duties and were unjustly enriched by delaying the announcement of a key patent's issuance, permitting the repricing of the defendants' stock options for their benefit before the public announcement was made." [Howland v. Kumar, No. No. 2018-0804-KSJM (Del. Ch. June 13, 2019)] (Thomson Reuters Practical Law)
Valuation and UBTI Issues of IRA Direct-Owned Real Estate
"[D]irect-owned IRA real estate increases the likelihood of running afoul of the prohibited transaction rules. IRA owners, for instance, are prohibited from personally using their IRA-owned real estate, or performing even the smallest of repairs on the property themselves. Purchasing or leasing such properties personally is also off-limits, even when such arrangements are done as an 'arms-length' transaction at a fair market value/rate. But the list of potential challenges doesn't stop there." (Nerd's Eye View)
[Opinion] Broker-Dealers' New Power Tactic: Threatening to Quit States Altogether in Order to Thwart State Fiduciary Rules for Advisors
"Threats by Morgan Stanley and their cohorts and lobbyists to pick up their toys and go home if states seek to impose on them a higher standard of fiduciary care are not being made from strength.... What if Nevada, New Jersey or Massachusetts calls their bluff and says, in effect, don't let the door hit you in your posterior on the way out? Some of those deactivated brokers might become RIAs or join a new brokerage firm with hardly a consumer complaint." (RIABiz)
[Guidance Overview] Fiduciary Duties: The SEC Weighs In Again (PDF)
"[T]he Final Interpretation recognizes that disclosures should be 'clear and detailed enough for the client to make an informed decision to consent' and notes that whether a client has provided informed consent will depend on the facts and circumstances, including the sophistication of the client.... The SEC's recognition of the important differences between retail and institutional clients will likely be important to the application of the Final Interpretation." (Debevoise & Plimpton LLP)
[Guidance Overview] A Close Look at the SEC's New Regulation Best Interest and Related Rules and Guidance
"Although the components of the broker's duty to retail customers is similar to and to some extent based on the Financial Industry Regulatory Authority's suitability rule, ... Regulation BI provides a greater level of detail around avoiding or remediating conflicts of interest, as well as other elements of the duty.... Existing brokers must file Form CRS through Web CRD by June 30, 2020, and deliver a copy to retail investors no later than July 30, 2020." (Goodwin Procter)
Settlement of MFS Excessive Fee Suit Includes Plan Design Changes
"The lawsuit had alleged that MFS defendants seeded the company's own retirement plans primarily with MFS investment offerings, without investigating whether plan participants would be better served by investments managed by unaffiliated companies.... Beyond the monetary payment to the plan, ... the plans' qualified default investment alternative options will be one or more target-date funds that are unaffiliated with MFS ... [and] MFS will retain a third-party investment consultant ... to provide an annual evaluation of the plans' investment lineup and review the plans' investment policy statement." (PLANSPONSOR; free registration may be required)
A Fiduciary Approach to Alternative Investments: Friend or Fad?
"[At] their respective initial stages, there's not much difference between a terrific trend and a false fad. For someone tasked with protecting the best interest of investor, it's critical to distinguish between a long-term investment trend and a short-term fad. How does a fiduciary do it?" (Fiduciary News)
Massachusetts Proposes Fiduciary Duty Rule Applicable to Broker-Dealers and Investment Advisers
"Massachusetts' fiduciary duty proposal is the first such action of any state in the wake of the [SEC's] adoption of Regulation Best Interest, and its close similarity to New Jersey's proposal may suggest a model is emerging." (Stradley Ronon)
New Jersey Adds Public Hearing on Fiduciary Rule Proposal
"The rule proposed by the New Jersey Bureau of Securities would require all financial advisors registered in the state to act as fiduciaries, making New Jersey one of the first states to propose a uniform fiduciary standard for all financial services professionals." (
Supreme Court Fills Docket with ERISA Cases
"After more than two years since ... its last decision in a case involving [ERISA], the court's next term looks to be flush with ERISA issues.... The Supreme Court has granted certiorari in two ERISA cases in as many weeks, and it seems likely the court may grant review in at least one other case." (Greensfelder)
[Opinion] It's Proxy Season -- Here's Why That Matters for Public Pensions
"The two largest proxy advisory firms ... control 97% of the advisory market.... These two companies recommend proxy proposals, provide suggestions to clients about how to vote on those proposals, and in some cases, vote their clients proxy.... [T]hey have the ability to control the entire proxy process which has led them to have a duopoly on how institutional investors vote.... [T]hese firms should be held to the same fiduciary standard to which money managers are held ... [T]hey should have to register with FINRA, and the SEC should assign fiduciary responsibility to them for their fiduciary advice." (Institute for Pension Fund Integrity)
[Guidance Overview] SEC Takes the Reins in Debate over Retail Advice Standards
"The SEC views Form CRS as the first layer in a 'layered disclosure' regime that should cross-reference additional disclosures for more detailed information.... In developing a layered disclosure approach, firms might consider leveraging existing customer disclosures ... and disclosures developed for other purposes ... Firms might also keep in mind the challenges in mapping and maintaining consistency among disclosures where changes and updates are made." (Morgan Lewis)
Pension Funding Index, June 2019
"In May, the funded status of the 100 largest corporate defined benefit pension plans decreased by $65 billion as measured by the Milliman 100 Pension Funding Index (PFI). The deficit widened to $210 billion from $145 billion at the end of April due to a sharp decrease in the benchmark corporate bond interest rates used to value pension liabilities. As of May 31, the funded ratio fell to 87.9%, down from 91.4% at the end of April. This is the third largest monthly decline in dollars in the past five years." (Milliman)
[Guidance Overview] SEC Adopts Rules and Interpretive Guidance Designed to Enhance and Clarify the Obligations of Financial Professionals
"[T]he Commission acknowledged that the broker-dealer and investment adviser business models are inherently different and as a result, adopting a rule that would provide for a uniform fiduciary standard would not be in the best interest of retail customers.... [T]he Commission is undertaking significant retail investor educational efforts to help investors understand the differences between broker-dealers and investment advisers. This will include online videos explaining basic information." (Paul Hastings LLP)
[Guidance Overview] SEC Adopts Regulation Best Interest and Form CRS; Issues Investment Advisers Act Interpretations
"FINRA has indicated that it will need to review and possibly remove its own suitability standard for member broker-dealers.... [C]ertain U.S. states have proposed their own legislation ... [raising] preemption concerns, which the releases expressly declined to address ... [I]nterpretation and application of the rule will be determined by examination and surveillance teams of FINRA and the SEC.... [T]his approach can lead to inconsistent interpretations and applications of the rule, regulation by enforcement action, and informal, less transparent staff-level guidance." (Sidley Austin LLP)
[Guidance Overview] IRS Issues Proposed Regs Clarifying What Foreign Pension Funds Are Eligible for Tax Exemption on U.S. Real Property Investments
"The key to this foreign pension fund exemption is to be a 'qualified foreign pension fund' or 'QFPF'. Entities all of the interests of which are held by a qualified foreign pension fund ('qualified controlled entities' or 'QCEs') are also treated as QFPFs.... The principal clarifications in the proposed regulation definitions of QFPF and QCE include: [1] Indirect ownership of qualified controlled entities ... [2] Multiple QFPF owners ... [3] Creditor interests in a qualified controlled entity ... [4] De minimis ownership of a qualified controlled entity by non-QFPFs not allowed ... [5] Anti-avoidance rule -- selling a corporation holding U.S. real property to a QFPF or QCE ... [6] Establishment to provide retirement or pension benefits ... [7] Five percent limitation and related parties ... [8] Annual reporting requirement ... [9] Tax deduction or exemption requirement ... [10] No safe harbors." (Groom Law Group)
[Guidance Overview] SEC Finalizes Broker-Dealer Standard of Conduct Rule
"[Regulation Best Interest] will significantly change the standard of conduct rules for brokers and thus is likely to change how brokers and their affiliates interact with plan participants.... [R]etirement plan fiduciaries generally have a legal obligation under ERISA to monitor the conduct of plan service providers. That duty to monitor may extend to monitoring compliance with federal securities laws.... [This article reviews] the new standard of conduct rules for brokers, focusing on how it will apply to broker interaction with plan participants." (October Three Consulting)
Inflation and Retirement Annuities
"The only retirement contract that both insures against longevity risk and hedges against inflation is a life annuity that is linked to the consumer price index (CPI).... An annuity that is not linked to the CPI [a 'nominal annuity'] ... is measured in units that are different from Social Security, so it would be a mistake to add the two in computing a replacement ratio.... The vast majority of income annuities sold are fixed in nominal dollars.... The purpose of this article is to explore the reasons behind this puzzle and to suggest ways to solve it." (Professor Zvi Bodie, via SSRN)
[Guidance Overview] The Final Reg BI Package: What to Know and What's Next
"[T]he changes from the proposals to finalization were limited.... [T]he SEC elected not to define [the term 'best interest'] in the final rule text ... [The SEC also] did not ... adopt a uniform standard of conduct for broker-dealers and investment advisers.... [T]he Chairman and the final rule release cited to the now-vacated fiduciary rule by the [DOL] and the positive working relationship between the staffs of the SEC and DOL.... As a result of this collaboration, one of the enhancements from the proposal ... involved the SEC's increasing focus on retirement accounts and specifically rollovers:" (Drinker Biddle)
[Guidance Overview] The 'Solely Incidental' Broker-Dealer Exclusion in the SEC Rulemaking Package
"In general, a broker-dealer's advice about the value and characteristics of securities or the advisability of transacting in securities falls within the 'solely incidental' Exclusion 'if the advice is provided in connection with and is reasonably related to the broker-dealer's primary business of effecting securities transactions.' While the determination is based on a fact-and-circumstances analysis, the Interpretation provides guidance regarding the application of the Exclusion in the context of: [1] exercising investment discretion over customer accounts, and [2] account monitoring." (Spencer Fane)
Supreme Court to Review What It Takes for a Plan Participant to Have 'Actual Knowledge' of a 401(k) Plan's Investments
"A decision by the Supreme Court in favor of the participant ... would mean that compliance with the [DOL] standards for disclosing the investments in a 401(k) plan, which themselves are quite detailed and complex, is not sufficient to put a plan participant on actual notice, so as to begin the limitation period for a lawsuit under ERISA challenging the propriety of those investments. Faced with that eventuality, employers with 401(k) plans would predictably be left wondering what steps they would need to take to be deemed to have provided that 'actual' notice." [Sulyma v. Intel Corp. Investment Policy Comm., No. 17-15864 (9th Cir. Nov. 28, 2018; cert. pet. granted June 10, 2019)] (Blank Rome LLP)
Supreme Court Will Again Review the Pleading Standard for Retirement Plan 'Stock Drop' Claims
"The justices will review the Second Circuit's unexpected holding that a complaint, which alleged that plan fiduciaries violated ERISA by failing to disclose information about overvalued employer stock held in a 401(k) plan, satisfied the high 'more harm than good' pleading standard enunciated in Fifth Third Bancorp v. Dudenhoeffer ... If upheld, this ruling -- which runs contrary to the recent trend in employer stock drop cases -- likely would lead to an increase in filings of such cases and in the number of such cases that survive early motions to dismiss." [Jander v. Retirement Plans Committee of IBM, No. 17-3518 (2d Cir. Dec. 10, 2018; cert. pet. granted June 3, 2019)] (Eversheds Sutherland)
[Guidance Overview] Regulation Best Interest and More: A Present to Investors from the SEC
"[W]hile this guidance is much more broad-based, the SEC Rule does discuss retirement plan issues, most particularly rollovers and account selection.... The new SEC Rule has no impact on TPAs operating as such. However, the DOL has announced that it is planning to issue a new proposed fiduciary rule, perhaps in December. It is anticipated that the new DOL guidance will coordinate with the SEC Rule." (Ferenczy Benefits Law Center)
[Guidance Overview] The SEC Rulemaking Package: Form CRS
"The SEC created Form CRS for the purpose of informing retail investors about the differences between brokerage and investment advisory firms and their services.... The Form is designed to provide information regarding: [1] the types of client and customer relationships and services the firm offers, [2] the fees, costs, conflicts of interest, and required standard of conduct associated with those relationships and services, [3] whether the firm and its investment professionals currently have reportable legal or disciplinary history, and [4] how to obtain additional information about the firm." (Spencer Fane)
[Guidance Overview] The Investment Adviser Standard of Conduct in the SEC Rulemaking Package
"[T]he SEC recognized that an investment adviser's fiduciary duty must be viewed in the context of the scope of the relationship between the adviser and the client. However, the SEC also determined that the fiduciary duty is principles-based. Thus, the duty is flexible enough to apply regardless of the type of client or service provided, including the clients and services of automated advisers (i.e., robo-advisers)." (Spencer Fane)
Fiduciaries Must Confront Fears and Fads of Market Cycles
"During late bull markets, investors begin using a different calculus in search of greater returns. It's quite the opposite from the way they think during market lows. A fiduciary must navigate through the fears and fads of these treacherous extremes. Why, for example, would investors flee falling markets just as valuations become attractive?" (Fiduciary News)
Best Practices for Plan Sponsors, Part 9
"As with the Anthem case, the Vanderbilt settlement teaches fiduciaries that they need to pay attention to the share classes of the mutual funds they include in their plans, including private sector 403(b) plans. A committee should devote at least part of one meeting a year to a report by its investment advisor on the share classes of their plan's investments and the share classes that are available to the plan. This is a high risk area and should be treated accordingly, that is, with close attention and care." (
[Guidance Overview] SEC Rulemaking Package: Regulation Best Interest
"As in the proposed rule, determining whether a broker-dealer makes a 'recommendation' will be based on how that term is currently interpreted under broker-dealer regulations.... [The SEC] identified various types of communication that it does not consider to constitute a recommendation, provided, that the communication -- on its own or in combination with other communications -- does not include a recommendation of a particular security or investment strategy." (Spencer Fane)
Intel 401(k) Fiduciary Breach Appeal Moving to Supreme Court
"Intel said the participant's lawsuit was filed beyond the three-year limitations period allowed by ERISA from the time a plaintiff had 'actual knowledge of a breach or violation.' Intel told the court that the plaintiff 'chose not to read or could not recall having read the information'[.]" [Sulyma v. Intel Corp. Investment Policy Comm., No. 17-15864 (9th Cir. Nov. 28, 2018; cert. pet. granted June 10, 2019)] (Pensions & Investments)
Supreme Court to Hear Intel Appeal of Ninth Circuit's 'Actual Knowledge' Standard for ERISA Statute of Limitations
"Intel is fighting claims ... that the company made overly risky investments, with too much money in hedge funds and private equity. Intel says the lawsuit was filed after a three-year statute of limitations had expired. [Plaintiff Christopher Sulyma], who worked at Intel from 2010 to 2012, had access to electronic documents describing the investments more than three years before he sued. But he says he doesn't recall reading those documents and didn't learn about Intel's hedge-fund and private-equity investments until they became the subject of news reports in 2015, the year he sued in federal court in California." [Sulyma v. Intel Corp. Investment Policy Comm., No. 17-15864 (9th Cir. Nov. 28, 2018; cert. pet. granted June 10, 2019)] (Bloomberg; subscription may be required)
Supreme Court Will Hear ERISA Statute of Limitations Case
"Issue presented: Whether the three-year limitations period in Section 413(2) of [ERISA], which runs from 'the earliest date on which the plaintiff had actual knowledge of the breach or violation,' bars suit when all the relevant information was disclosed to the plaintiff by the defendants more than three years before the plaintiff filed the complaint, but the plaintiff chose not to read or could not recall having read the information." [Sulyma v. Intel Corp. Investment Policy Comm., No. 17-15864 (9th Cir. Nov. 28, 2018; cert. pet. granted June 10, 2019)] (SCOTUSblog)
Why Employers Should Think Twice About Adding Annuity Payments to Their 401(k) Plans (PDF)
"[A]lthough Section 401(k) plan fiduciaries, by following the DOL and SECURE Act safe harbors, receive significant protection in the event an insurance company becomes financially unable to make annuity payments, there is nevertheless a substantial amount of other due diligence, outside of the scope of the safe harbors, that fiduciaries will need in undertake to satisfy their duties of oversight under ERISA." (Blank Rome LLP, via Bloomberg Tax Management Compensation Planning Journal)
[Guidance Overview] SEC Adopts Regulation Best Interest
"[B]roker-dealers will be required to act in the best interests of retail customers when making investment recommendations and may not put their financial interests 'ahead of the interests of a retail customer when making recommendations.' Reg BI includes.... [1] Disclosure Obligation ... [2] Care Obligation ... [3] Conflict of Interest Obligation ... [4] Compliance Obligation: ... The Commission also issued two interpretations." (McGuireWoods)
[Guidance Overview] SEC Issues Final Regulation BI
"The types of securities transactions covered under Regulation BI include recommendations to roll over or transfer assets from one type of account to another, (e.g., a recommendation to rollover or transfer assets in an ERISA account to an IRA), recommendations to open up a particular type of account (broker or advisory), and recommendations to take a retirement plan distribution for purposes of opening a securities account. A broker-dealer is not able to waive compliance, nor can a retail customer agree to waive protection under the Regulation BI." (The Wagner Law Group)
[Guidance Overview] SEC Adopts Broker-Dealer Best Interest Standard, Disclosure Duties for Broker-Dealers and Investment Advisers, and Publishes Key Interpretations
"Broker-dealers ... must begin complying with Regulation BI, and broker-dealers and SEC-registered investment advisers will be required to prepare, deliver to retail investors, and file relationship summaries pursuant to Form CRS requirements by June 30, 2020. The Interpretations, on the other hand, will be effective immediately upon publication in the Federal Register." (K&L Gates)
Broker Conflict-of-Interest Rules Approved by Divided SEC
"Wall Street's main overseer approved new conflict-of-interest rules for brokers, a sweeping regulatory overhaul that drew criticism from investor advocates for being too lax.... Support from the industry, which successfully sued to overturn Obama-era rules that were more stringent, only heightened concern among opponents that the SEC measures are a giveaway to bankers that will confuse investors. Some are already contemplating a legal challenge and have been mobilizing a public relations campaign against the regulator." (Bloomberg; subscription may be required)
[Guidance Overview] SEC Adopts Regulation Best Interest
"[W]hile the final version of Reg BI is only about three pages, the accompanying release runs over 700 pages. The first 350 pages of the release in particular contain a good deal of substantive discussion that firms will need to review to implement Reg BI.... Part I of this memorandum provides a brief summary of Reg BI; Part II discusses problematic aspects of Reg BI; Part III provides an overview of the SEC Commissioners' statements regarding Reg BI; and Part IV provides some compliance suggestions.... [A]ttached to the end of the memorandum [is] a comparison of the adopted version of the Regulation BI as against the proposed version." (Cadwalader, Wickersham & Taft LLP)
Supreme Court Likely to Consider Ability to Sue Even When DB Plan Remains Fully Funded After Alleged Fiduciary Breach
"The U.S. Solicitor General is recommending that the Supreme Court accept an ERISA case questioning whether pension plan participants can sue plan fiduciaries if they have not experienced financial harm.... [T]he 8th U.S. Circuit Court of Appeals said participants did not have statutory standing to assert breach of fiduciary duty based on an alleged failure to diversify investments, since the participants had not suffered any individual financial harm." [Thole v. U.S. Bank, N.A., No. 16-1928, (8th Cir. Oct. 12, 2017; cert. pet. filed June 22, 2018)] (Pensions & Investments)
BlackRock Employees Seek Class Certification in $100M ERISA Suit
"Employees of BlackRock Inc. urged a California federal judge on Monday to allow them to proceed as two classes in their lawsuit alleging the investment firm violated [ERISA] and cost retirement plan participants more than $100 million. [Plaintiffs] asked U.S. District Judge Haywood Gilliam to certify one class of employees who participated in BlackRock's collective trust investment funds and another class who participated in the company's 401(k) plan, known as the BlackRock Retirement Savings Plan." (Cohen Milstein)
[Official Guidance] Text of IRS Proposed Regs: Application of Amended Section 897 to Foreign Pension Funds Holding U.S. Real Property
25 pages. "This document contains proposed regulations regarding the exception from taxation with respect to gain or loss of a qualified foreign pension fund attributable to certain interests in United States real property. The proposed regulations also include rules for certifying that a qualified foreign pension fund is not subject to withholding on certain dispositions of, and distributions with respect to, certain interests in United States real property. The proposed regulations affect certain holders of certain interests in United States real property and withholding agents that are required to withhold tax on certain dispositions of, and distributions with respect to, such property." (Internal Revenue Service [IRS])
[Official Guidance] Text of SEC Interpretation Regarding the 'Solely Incidental' Prong of the Broker-Dealer Exclusion from the Definition of Investment Adviser (PDF)
27 pages. "[The SEC] is publishing an interpretation of section 202(a)(11)(C) of the Investment Advisers Act of 1940 ... which excludes from the definition of 'investment adviser' any broker or dealer that provides advisory services when such services are 'solely incidental ' to the conduct of the broker or dealer's business and when such incidental advisory services are provided for no special compensation." (U.S. Securities and Exchange Commission [SEC])
[Official Guidance] Text of SEC Interpretation Regarding Standard of Conduct for Investment Advisers Under the Advisers Act (PDF)
41 pages. "On April 18, 2018 ... the Commission published for comment a separate proposed interpretation regarding the standard of conduct for investment advisers under the Advisers Act (Proposed Interpretation).... [It] is appropriate and beneficial to address in one release and reaffirm -- and in some cases clarify -- certain aspects of the fiduciary duty that an investment adviser owes to its clients under section 206 of the Advisers Act. After considering the comments received, [the SEC is] publishing this Final Interpretation with some clarifications to address comments." (U.S. Securities and Exchange Commission [SEC])
[Official Guidance] Text of Final Rule on SEC Form CRS Relationship Summary; Amendments to Form ADV (PDF)
524 pages. "The relationship summary [on Form CRS] is intended to inform retail investors about: [1] the types of client and customer relationships and services the firm offers; [2] the fees, costs, conflicts of interest, and required standard of conduct associated with those relationships and services; [3] whether the firm and its financial professionals currently have reportable legal or disciplinary history; and [4] how to obtain additional information about the firm.... Retail investors will receive a relationship summary at the beginning of a relationship with a firm, communications of updated information following a material change to the relationship summary, and an updated relationship summary upon certain events. The relationship summary is subject to Commission filing and recordkeeping requirements." (U.S. Securities and Exchange Commission [SEC])
[Official Guidance] Text of SEC Regulation Best Interest: The Broker-Dealer Standard of Conduct (PDF)
771 pages. "Regulation Best Interest enhances the broker-dealer standard of conduct beyond existing suitability obligations, and aligns the standard of conduct with retail customers' reasonable expectations by requiring broker-dealers, among other things, to: [1] act in the best interest of the retail customer at the time the recommendation is made ... and [2] address conflicts of interest by establishing, maintaining, and enforcing policies and procedures reasonably designed to identify and fully and fairly disclose material facts about conflicts of interest, and in instances where we have determined that disclosure is insufficient to reasonably address the conflict, to mitigate or, in certain instances, eliminate the conflict.... The standard of conduct draws from key principles underlying fiduciary obligations[.]" (U.S. Securities and Exchange Commission [SEC])
[Guidance Overview] SEC Statement and Fact Sheet on Best Interest Rule and Interpretations
"Individually and collectively, these actions are designed to enhance and clarify the standards of conduct applicable to broker-dealers and investment advisers, help retail investors better understand and compare the services offered and make an informed choice of the relationship best suited to their needs and circumstances, and foster greater consistency in the level of protections provided by each regime, particularly at the point in time that a recommendation is made." [Also available: statements of SEC Commissioners Elad L. Roisman and Robert J. Jackson Jr., and a statement by Investor Advocate Rick Fleming.] (U.S. Securities and Exchange Commission [SEC])
SEC Approves Long-Awaited Investment Advising Regulation and Accompanying Guidance
"The scope of Regulation Best Interest is modified to include account recommendations, including rollovers or transfers from workplace retirement plan accounts to IRAs and recommendations to take a plan distribution.... The consideration of cost is explicitly required as part of a broker-dealer's care obligation." (Ascensus)
SEC Passes Reg BI Package: Best-Interest Standard to Replace Suitability Standard
"The package, commonly known as Reg BI, features a best-interest standard that compels brokers to put clients' financial interests ahead of their own and requires them to mitigate financial conflicts. Currently, brokers are subject to a suitability standard that means they must provide advice that is merely suitable to their clients' situations. Critics ... say the proposal is too ambiguous and does not establish a legally enforceable standard." (Pensions & Investments)
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