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The Fiduciary Quicksand of Acquiring, Holding and Selling Employer Stock

"The Supreme Court's new plausibility standards allow trial courts to rely on Modern Portfolio Theory and the associated concept of efficient markets in considering claims that the fiduciaries imprudently paid too much for employer stock. As such, these new standards, which are themselves a daunting set of hurdles for plaintiffs to overcome, appear aimed at [Eligible Individual Account Plans (EIAPs)] holding publicly traded shares. The Court left the plausibility of imprudence claims against fiduciaries of EIAPs holding privately-held employer stock much more unclear."

First Circuit Finds Collection of Infrastructure Fees Does Not Create ERISA Fiduciary Relationship

"The court found that the relevant contracts do not enable Fidelity to unilaterally change its investment management and administrative charges.... The court found that Fidelity's responsibilities as a directed trustee do not extend to its charging of an infrastructure fee. " [In re Fidelity ERISA Fee Litigation, Wong v. FMR LLC, No. 20-1286 (1st Cir. Mar. 5, 2021)]

'Unsafe' in Any Fund Line Up: Dominated Funds in 401(k) Plans

"It can always be argued that the losses from Dominated Funds are the result of participant investment decisions. It's an obvious truism that but for the participant's decision, there would be no losses. But, does that seem to be a reasonable application of ERISA's fiduciary standard of prudence in choosing to include/retain a fund in the line up that is ex ante a poor investment choice?"

Section 408(b)(2) Disclosures: Dropping a Dime on Delinquent Covered Service Providers

"[T]he threat of reporting [a delinquent Covered Service Provider (CSP) to EBSA] provides leverage to obtain accurate disclosures ... [A Responsible Plan Fiduciary (RPF)] that continues to utilize the services of a delinquent CSP after the 90-day grace period, loses the relief available under the special class exemption, and the ongoing relationships would almost certainly constitute a prohibited transaction.... [It's] clear the EBSA has launched an initiative to examine plan providers and this reporting requirement supports that initiative."

'Dear Prudence:' -- For the Benefit of Mr. Moench

"Whether or not you think Moench and its progeny came out the right way, there is a significant flaw in the [Third Circuit's] rationale. The [Court] arguably got off on the right foot by looking to [the employer's] intent in establishing the ESOP, but, in divining that intent, it treated ERISA/Code-mandated boilerplate language in the plan (investing 'primarily in employer securities') as evidence that this objective was ascendant over the plan's ERISA/Code-mandated raison d'etre viz. providing retirement benefits to the participants. Whether the 'settlor's intent' can be discerned by looking to a few isolated sentences in a complex ESOP document that describe this subsidiary goal (because it has to) while ignoring the vast bulk of the document's provisions that describe the terms of conditions for payment of future retirement benefits in detail, seems dubious to say the least."

Supreme Court Shuts Down 'Moensch'-Kin Land -- Whither Employer Stock Drop Litigation?

"With thinly veiled, almost Kingsfield-like, sarcasm, Justice Breyer tossed the 'Moensch Presumption' into the dustbin of judicial history based on a review of the text of ERISA as it has existed since enactment in 1974. Unanimously telling the lower courts that followed Moensch that they had been improvidently granting motions to dismiss for up to 20 years, while they marched up a yellow brick road to 'presumptive prudence,' because they didn't read the statute with sufficient care, is about as shrill as the Court gets in admonishing them about mushy thinking." [Fifth Third Bancorp v. Dudenhoeffer, No. 12-751 (U.S. June 25, 2014)]

Playing the Game of Pension Risk

"[F]or a large swath of mature companies who dumped their defined benefit plans years ago and replaced them with 401(k) plans, they would do well to review whether, in retrospect, the pension risks they accepted align with its appetite and tolerance for risk on an enterprise level.... While this is inevitably an exercise in squeezing the risk balloon, it's better that management use a firm hand to align the balloon's proportions with its global risk portfolio, than allow them to fall prey to agendas arising within a retirement plan information silo."

'Change of Control' Severance Plan Isn't Governed by ERISA, Court Rules

"To decide whether ERISA applied, the court looked to whether the Executive Retention Plan involved an 'ongoing administrative program,' and concluded that it did not. First, the court concluded that the plan did not require managerial discretion as to amount of severance, timing of payouts, or the form of severance. Moreover, most of the factors supporting a 'Good Reason' separation did not involve any discretionary determination. Second, an employee wouldn't see the plan as involving an ongoing commitment to provide benefits -- only one severance payout was involved, and the plan only came into play for a two-year period. Third, the plan didn't have the usual earmarks of an ERISA plan, such as a plan administrator, fiduciary, administrative review, or procedure to submit claims. Fourth, the plan was not a pension plan because it was not contingent on retirement and did not involve deferred income." [Hall v. LSREF4 Lighthouse Corporate Acquisitions, LLC, No. 16-6461 (W.D.N.Y. Nov. 10, 2016)]

District Court Holds That TIAA Was Not Acting as a Fiduciary in Soliciting Rollovers

"Under its interpretation of ERISA's functional fiduciary guidelines, the court held that the funds taken out of the ERISA plans for rollover purposes were no longer plan assets and 'TIAA's pitch to plan members to roll assets out of their plans and into Portfolio Advisor necessarily did not create a fiduciary relationship.' ... With regard to TIAA's use of participants' personal information gleaned through its position as administrator of the ERISA plans, the court concluded that 'plan assets' include money and invested capital, but not participant information." [Carfora v. Teachers Insurance and Annuity Association of America, and TIAA-CREF Individual & Institutional Services, LLC, No. 21-8384 (S.D.N.Y. Sep. 27, 2022)]

Mental Health Parity, Fiduciary Certifications, and Short-Term Implications

"For plans subject to ERISA, the new rules now require a plan's fiduciary to certify within this analysis that they have [1] engaged in a prudent process for selecting a vendor to complete this analysis and [2] monitored their vendor as they complete the analysis. In most cases, the employer, as the plan sponsor and administrator, will be the designated fiduciary responsible for performing these duties and certifying that they have done so. So, what does the certification of a prudent process of selection and subsequent monitoring of service providers look like?"