Total Articles: 26
EBSA to Re-Issue Proposed Rule Re-Defining "Fiduciary" Under ERISA
The Department of Labor’s Employee Benefits Security Administration (EBSA) has decided to re-propose a rule that would more broadly define who constitutes a “fiduciary” for the purposes of rendering investment advice under the Employee Retirement Income Security Act (ERISA). The initial proposed rule released in October 2010 has generated a substantial amount of controversy regarding its potential impact on the relationship between retirement savers and plan sponsors.
EBSA Provides Interim Guidance on Electronic Fee Disclosures
The Department of Labor’s Employee Benefits Security Administration (EBSA) has issued an interim policy (Technical Release 2011-03) (pdf) setting forth the conditions that a plan administrator must meet in order to provide electronic disclosures of information required under the EBSA’s final participant-level fee disclosure rule. Generally, this rule requires retirement plan sponsors and fiduciaries to disclose certain plan and investment-related information, including that related to fees and expenses, to participants and beneficiaries in participant-directed individual account plans, such as 401(k)s. The rule allows for the electronic disclosures – including the use of continuous access websites – under certain circumstances. According to the Technical Release, plan administrators will not be subject to an enforcement action based on their electronic disclosures if they comply with the conditions established by the interim policy
Despite Winning on Summary Judgment, ERISA Fiduciaries Not Entitled to Attorneys Fees
Standard Life Ins. Co., 2010 WL 2025127 (2010, S. Ct.) (summary of case), the United States Supreme Court ruled that a court could award attorneys fees and costs under ERISA 502(g)(1) to a fee claimant if the claimant had "some degree of success on the merits" in an ERISA case, even if that party was not the "prevailing party." (The Hardt plaintiff had been someone receiving long-term disability who sued for wrongful denial of her claim). It seemed a success in an ERISA case meant that the recipient of that success could receive attorneys fees and costs.
Participant Fee Disclosure: Fee Transparency - The Final Piece of the Puzzle.
On October 20, the Department of Labor (DOL) published a final regulation requiring plan fiduciaries to make specific fee disclosures to participants in defined contribution plans that permit participant-directed investments. The regulation is generally effective for plan years beginning on or after November 1, 2011 (i.e., 2012 for calendar year plans); however, plan fiduciaries should begin working with service providers and investment managers in early 2011 to secure and arrange the necessary information to be disclosed.
Another Federal Appeals Court Presumes that Fiduciaries Employer Stock Investment Decisions Are Legal.
In Quan v. Computer Sciences Corp., after their employers stock dropped 12% in one day, a group of 401(k) plan participants sued the plans fiduciaries, alleging that by investing plan funds in the stock, they had breached their fiduciary duties.
Courts Must Show Deference to Interpretations by Plan Administrators (Even the Second Time Around).
On April 21, 2010 the Supreme Court affirmed that a court must give deference to an ERISA fiduciary's second interpretation of ambiguous plan language, even if the first interpretation made by the fiduciary is struck down by the court as unreasonable. Using a "one strike doesn't mean you're out" analysis, the Court held that where the plan gives the fiduciary the broad authority to interpret the plan, that authority extends to the fiduciary's alternative interpretation if the first was a mistake. The so-called Firestone standard of judicial review which requires a court to give deference to a plan administrator's interpretation of a plan provision was upheld as a principle not susceptible to special exceptions. A court's duty is to be sure the fiduciary does not abuse its discretion, not to substitute its judgment if the fiduciary gets it wrong the first time because of an "honest mistake."
Supreme Court Unanimously Adopts an "Uncomplicated Rule" - Plan Administrators Should Pay Benefits in Accordance with the Terms of the Plan.
ERISA typically has been a minefield for fiduciary compliance. This has been particularly true when a plan administrator must decide which of two competing claims should be paid when the plan participant is deceased. This week, the United States Supreme Court issued an "uncomplicated," bright line rule for plan administrators to follow in these situations. The Court held that a plan administrator meets its ERISA duty when it pays benefits according the plan documents. Specifically, the Court approved the payment by a plan administrator to the beneficiary named by the participant, despite the fact that the beneficiary was the former spouse of the participant who had waived her right to the benefits in a divorce decree.
Best Practices for Avoiding Fiduciary Litigation under ERISA (Part I).
The times are scary. Bailouts, plan failures, layoffs, bankruptcies, corporate takeovers. The market is a bear. In these trying times, allowing your employees to be free to direct their own financial future is not always foolproof. With corporate scandals and collapses in companies such as Enron and Worldcom, employees are angry, and may look to you for guidance or blame if their 401k accounts lose money or are depleted.
Supreme Courts Anticlimactic Decision in Glenn does not Streamline ERISA Litigation.
On June 19, 2008, the U.S. Supreme Court issued its decision in Metropolitan Life Ins. Co. v. Glenn, which many had hoped would provide more clarity with regard to a courts role in reviewing a plan administrators decision denying benefits, where the plan administrator also pays benefits under the plan. However, the Courts decision in Glenn merely "elucidates" the standards announced by the Court in Firestone Tire & Rubber Co. v Bruch, 489 U.S. 101 (1989), which held that a conflict of interest is a factor to be considered in determining whether to affirm a plan administrators benefits determination. The Court did clarify that an entity administering an employee benefit plan, which both determines whether an employee is eligible for benefits and pays those benefits out of its own pocket, operates under an inherent conflict of interest, a question that was not specifically addressed by the Courts earlier decision in Bruch.
Practical Insights - Courts Defer to Fiduciarys Decision if ERISA Plan Contains Explicit Language.
Problem: Employees participating in ERISA covered benefit plans have the right to dispute the interpretation of a plan provision or an adverse benefits decision made by a plan fiduciary, which can include the plan administrator. If not resolved on appeal at the plan level, these disputes often result in a lawsuit against the fiduciary. Courts may or may not defer to the fiduciarys determination.
New DOL Guidance on Qualified Default Investment Alternatives.
Employers that have adopted qualified default investment arrangements for their 401(k) plans now have a new resource to help work through potential problems, including issues related to investments that predate the qualified default investment alternative (QDIA) rules, the coordination of QDIA and other plan-related notices, grandfathered stable value funds, and so-called round trip restrictions. This resource is in the form of a Q&A released by the Department of Labor (DOL) on April 29 as Field Assistance Bulletin (FAB) 2008-03. That same day, the DOL revised its QDIA regulations to include certain corrective amendments.
DOL Guidance Clarifies Issues Relating to QDIA Regulation.
The Department of Labor (DOL) has issued guidance providing clarification on certain aspects of its 2007 Qualified Default Investment Alternatives (QDIA) regulation. The QDIA regulation is part of the DOLs regulation under Section 404(c) of ERISA. Section 404(c) relieves plan fiduciaries from certain responsibilities and liabilities when participants direct the investment of their plan accounts. When a plan participant fails to provide such direction, the fiduciary is still entitled to Section 404(c) relief if the participants account is invested in a designated default investment, provided that the QDIA regulation is followed.
Seventh Circuit Permits Plan Participants to Proceed with ERISA Action.
In one of the first federal appeals court decisions to address the issue following the U.S. Supreme Court decision in LaRue v. DeWolff, Boberg & Associates, Inc., the Seventh Circuit has held that a group of plaintiffs may proceed with their ERISA breach of fiduciary duty claims against the administrator of their defined contribution plan, even though the losses for which they seek recovery were not incurred by the entire plan. See Rogers v. Baxter International, Inc. (7th Cir. April 2, 2008). The Seventh Circuit also rejected the defendants argument that the plaintiffs could not use ERISA to circumvent the limitations placed on investor actions by the Private Securities Litigation Reform Act of 1995 (PSLRA).
Ruling Allows Individuals To Recover Individual 401(k) Losses.
The U.S. Supreme Court recently disagreed with the Fourth Circuit Court of Appeals' decision that a participant in a 401(k) plan is prohibited from using Section 502(a)(2) of the Employee Retirement Income Security Act (ERISA) to recover losses allegedly caused by his employer's failure to carry out his investment instructions. "Although [Section] 502(a)(2) does not provide a remedy for individual injuries distinct from plan injuries," the majority wrote, "that provision does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant's individual account."
IRS Clarifies When Plan Amendments May be Used to Correct Operational Failures.
The Internal Revenue Service (IRS) recently explained when a plan amendment can be used to correct a failure to follow plan terms in the operation of a retirement plan. (See Retirement News for Employers, Winter 2008). The Employee Plans Compliance Resolution System (EPCRS) is a voluntary correction program that allows plan sponsors to correct plan mistakes that, if left uncorrected, could result in a retirement plan losing its favorable tax treatment. The EPCRS includes a Self-Correction Program (SCP), under which a correction can be made without paying a fee or contacting the IRS. However, SCP is only available to correct a failure to follow the terms of the plan in its operation (operational failure).
Supreme Court Allows Individual Fiduciary Claim for 401(k) Losses.
The Supreme Court has unanimously ruled (although in three separate opinions) that a participant in a 401(k) plan may sue for recovery arising from a breach of fi duciary duty, reversing lower court rulings that dismissed the participants lawsuit.
Supreme Court Permits Plan Participants to Sue for Fiduciary Breach.
The U.S. Supreme Court issued a decision today (February 20, 2008) that will allow individual participants to sue for fiduciary breaches related to their 401(k) plans. In a unanimous ruling in LaRue v. DeWolff, Boberg & Associates, Inc., No. 06-856, the Supreme Court held that while ERISA 502(a)(2) does not allow a remedy for individual injuries apart from plan injuries, it does permit individuals to recover for harm to their plan assets due to a breach of fiduciary duty.
Final Default Investment Rules Provide Additional Protection (pdf).
The US Department of Labor recently issued final regulations providing fiduciary relief to plan fiduciaries.
Practical Insights: Individual Account Pension Plans - Shifting Fiduciary Risk of Loss.
Fiduciaries of individual account pension plans, such as 401(k) plans, can be held liable for losses in an individual participants or beneficiarys account. This potential liability presents an unacceptable risk to the trustees and plan administrators of these plans, especially when the plan is self-directed, i.e., the individual account holder exercises control over the assets.
Final Regulation Issued Concerning Protection of Trustees and Other Plan Fiduciaries in Connection with Default Investment Funds.
The Department of Labor has issued a final regulation, effective on December 24, 2007, that offers important protection to fiduciaries with respect to default investment funds.
Department of Labor Issues Final Regulations on Default Investment Alternatives (pdf).
The Pension Protection Act of 2006 (PPA) amended
ERISA by adding a new section 404(c)(5) to provide
relief for plan fiduciaries who select default investment
options for a participant (or benefi ciary) who fails
to provide investment instruction. After review and
consideration of comments on the proposed regulations
issued in September 2006, the Department of Labor
(DOL) published final regulations relating to
qualifi ed default investment alternatives (QDIAs)
in 401(k) and other defi ned contribution plans on
October 24, 2007.
May a Fiduciary Accept Gifts and Gratuities From Service Providers? (pdf).
May a Fiduciary Accept Gifts and Gratuities From Service Providers?
Managing Fiduciay Risk Under ERISA When A Company's Stock Suddenly Drops In Price (pdf).
The financial collapse of companies where employees' retirement plan assets were heavily invested in their companies stock has increased stock drop lawsuits under the Employee Retirement Income Security Act (ERISA)'s fiduciary duty rules.
Internal Revenue Service and Department of Labor Update Correction Programs (pdf).
Both the Internal Revenue Service (IRS) and the
Department of Labor (DOL) have recently announced
several positive changes to their voluntary correction
programs for retirement plans. On May 5, 2006, the IRS
released Revenue Procedure 2006-27, which updates
and expands its correction program, known as the
Employee Plans Compliance
Resolution System (EPCRS).
On April 19, 2006, the DOL
published an update to its
correction program, known
as the Voluntary Fiduciary
Correction Program (the 2006
VFC Program).
Fiduciary Compliance Program Revised (pdf).
Under the Employee Retirement Income Security Act of 1974 (ERISA), persons who have discretionary
authority over the administration of an employee benefit plan, or any control or authority over the assets of
the plan, may be considered fiduciaries.
Know Your Current Plan Fees (pdf).
Two recent developments highlight and re-emphasize
the duties of plan fiduciaries to maintain their vigilance
in understanding and evaluating all fees paid by a plan.
