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Exceptional Plan Governance: Beat Back the Coming Litigation Onslaught

Gavel and ScalesIt was bound to happen. For several years, the plaintiffs’ bar has sued fiduciaries of large 401(k) plans asserting breach of their duties under ERISA by failing to exercise requisite prudence in permitting excessive administrative and investment fees.  It may be that the plaintiffs’ bar has come close to exhausting the low-hanging lineup of potential large plan defendants, and, if a recent case is any indication, the small and medium-sized plan fiduciaries are the next target.  See, Damberg v. LaMettry’s Collision Inc., et al. The allegations in this class action case parallel those that have been successful in the large plan fee dispute cases. Now that the lid is off, small and medium sized plan fiduciaries should be forewarned of the need to employ solid plan governance to avoid, or at least well defend, a suit aimed at them.

Exceptional plan governance means that, at a minimum, plan sponsors (and designated fiduciaries) should consider the following items to help demonstrate that they are primarily operating their plans to the benefit of participants and their beneficiaries and then to reduce liability exposure for themselves:

  • Understand and exercise procedural prudence – process, process, process
  • Identify plan fiduciaries and know their roles and duties
  • Seek and obtain fiduciary training for all plan fiduciaries
  • Adopt a proper plan committee charter or similar document
  • Appoint fiduciaries and retain service providers prudently

Department of Labor Fiduciary Rule: Employers Should Not Overlook Impact on HSAs

HSAThe new Department of Labor rule defining the scope of who is an ERISA fiduciary (see our prior post here) has caused much consternation among investment professionals.  Much of the new rule is focused on reworking the outer fringes of the ERISA landscape capturing those in the investment industry offering IRA and annuity products.

Given that investment professionals appear to be the primary target of the new fiduciary rule, employers may believe that this is one room in the ERISA house of horrors that they do not have to enter.  To a large extent that is true because the concept of fiduciary status and the fee disclosure rules, as applied to traditional retirement plans, are already well entrenched.  Still, employers need to consider whether certain providers to their retirement plans are newly covered by the revised fiduciary rule and determine whether those relationships are being conducted in accordance with the new rules.

In reviewing existing arrangements, employers having group health plans supplemented by health savings accounts should be aware that health savings accounts are specifically covered by the new fiduciary rule.  As ERISA welfare plans, health savings accounts were outside the reach of the earlier fee disclosure rules.  The rationale for covering health savings accounts under the new fiduciary rule is presumably the belief that a number of employees maintaining these accounts are using them as a

Finally: DOL Releases the Final Fiduciary Rule

April 6, 2016

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Earlier today, the Department of Labor (DOL) released the Conflict of Interest Final Rule.   Click here to explore all 200+ pages.  Among other things, this rule expands the definition of fiduciary, and requires that persons who give investment advice to retirement investors act in the best interests of those investors.

The DOL released significant additional guidance in connection with the Final Rule, including the best interest and principal transaction exemptions, a chart illustrating changes from the proposed rule, and FAQs.  To access that additional guidance click here.  We will examine the Rule in further detail, as well as the industry’s reaction to it, in future posts.

The Force Awakens on 2016

The Force Awakens on 2016

January 4, 2016

Authored by: benefitsbclp

ThinkstockPhotos-101346654The ball dropped on 2016, but don’t drop the ball on your benefit plan compliance.  As part of our annual tradition, we’re pleased to present this year’s Top Ten New Year’s Countdown for the reading pleasure of our fellow ERISA geeks.  You may remember last year’s Top Ten list was set to Pop Culture themes that dominated 2014?  Well, we’ve decided to embrace the Star Wars fever that currently has a firm grip on our society and devote our entire list to Star Wars’-themed tips.  Get your lightsabers ready…

  1. This epic space opera list starts just where you’d expect it:  A long time ago in a galaxy far, far away (called Congress)…there was born a law called the Patient Protection and Affordable Care Act. The law made it through infancy and even toddlerhood…but then it required reporting of a kind never seen before.  If you’re reading this article, you likely have made it through the data collection process and you’re poised and ready to issue/file your first 1094s and 1095s.  If not, hurry hurry as the deadlines are quickly approaching.  While Notice 2016-4 did “automatically” extend the deadlines relating to the 2015 plan year, further extensions are no longer available and penalties could be assessed for failure to timely comply.
  2. The determination letter program dies and the Force Awakens.  Yes, with the determination letter program all but gone, internal document compliance audits

Tibble: Much Ado About Nothing?

OMG HeadlineEveryone seems to be talking about last month’s Supreme Court decision in Tibble v. Edison International, even though its holding wasn’t all that momentous. But I’m not complaining. As an ERISA lawyer, I love when ERISA developments hit mainstream news because, for at least one brief fleeting moment, there is a connection between the ERISA world in which I dwell and the rest of the world.

That said, some question whether Tibble warrants the level of attention it is generating. Some say Tibble merely affirms a well-known principle of ERISA law—that is that an ERISA fiduciary has an ongoing duty to monitor plan investments. Others see Tibble as a reflection of enhanced scrutiny of the duty to monitor plan investments, as well as recognition of a statute of limitations that facilitates enforcement of that duty.

Specifically, the Supreme Court found in Tibble that because retirement plan sponsors, as fiduciaries, have a “continuing duty to monitor trust investments and remove imprudent ones,” plaintiffs may allege that a plan sponsor breached a duty of prudence by failing to properly monitor investments and remove imprudent ones. Further, the Court found that such a claim is timely as long as it is filed within six years of the alleged breach of continuing duty.

Facts: Tibble arose when current and former employees of Edison who were participants in a 401(k) savings plan offered by Edison brought suit against the

Fiduciary Cannot Use ERISA 502(a)(3) To Seek Equitable Relief for Participant

In Duda v. Standard Insurance Company, a recent case decided by the Federal District Court in the Eastern District of Pennsylvania, we are reminded of the limits on the type of relief an employer may obtain for participants in its insured ERISA plans.  In this case, the employer filed suit against the insurer of its long-term disability plan under Section 502(a)(3) of ERISA, which provides the following:

“A civil action may be brought…(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this title or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this title or the terms of the plan.”

A suit brought by a fiduciary under 502(a)(3) is preferable since the de novo standard of review, which is less deferential to the party making the initial benefit determination, would apply.  The court determined that the employer was not a plan fiduciary for purposes of making claims determinations, and therefore could not rely on this provision to sue the fiduciary that held such authority (i.e., the insurer). The court noted that even if the employer was considered to be a fiduciary, ERISA does not afford a fiduciary the right to sue if the relief sought can be obtained directly by the participant under 502(a)(1)(B), which provides the following:

“A civil action may be brought …(1) by a participant

You’ll Need Your BIC® for This BIC

You’ll Need Your BIC® for This BIC

May 7, 2015

Authored by: benefitsbclp

Signing a ContractThe Department of Labor (“DOL“) has responded to the concerns of the broker-dealer community as expressed in myriad comment letters concerning the 2010 proposed fiduciary regulations by adding the Best Interest Contract (BIC) exemption to the new proposed rule. The DOL suggests that this addition will minimize compliance costs and allow firms to set their own compensation structures (meaning commission-based fees, revenue sharing, 12b-1 fees and subTA fees) while acting in their client’s best interest. This exemption will be available when advising IRA owners, plan participants and small plans.

Here’s the catch that has drawn a mostly negative reaction from the broker-dealer community:

First: The BIC will be a formal contract committing the advisor and her firm to act with the care, skill, prudence and diligence that a prudent person would exercise based on the circumstances. The advisor and her firm must avoid misleading statements about fees and conflicts of interest. The DOL requires compliance with “impartial conduct standards.” These standards also mandate reasonable compensation for the service rendered.

The concerns: This is a roadmap for the plaintiffs bar as prudent persons can disagree on what is prudent in various circumstances, and reasonable fees may be reasonable to some and not to others. The high cost of “fee litigation” is already a known quantity. Besides, this is a contract, and contracts can be expensive on the front end to

Are You My Fiduciary?

Are You My Fiduciary?

May 5, 2015

Authored by: Lisa Van Fleet

Baby DuckHow many of you remember the classic children’s’ story “Are you My Mother?” by P.D. Eastman?  In that delightful story, we follow a confused but determined baby bird who is looking for his mother.  He sets off to find her, asking various creatures along the way (a dog, a cow, a plane) whether they are his mother, and in the end happily finds his way beneath her protective wing.

The parallels between this story and the proposed Conflict of Interest Regulations are clear (at least to some of us).  The proposed guidance examines the various service providers encountered by retirement plans and IRA owners, as well as their participants and beneficiaries (“retirement investors”) and evaluates whether or not such service providers are fiduciaries who offer a protective wing.  Moreover, the guidance expands the types of services which will be treated as fiduciary in nature, thus increasing the odds that the retirement investors will in fact find the fiduciary protection they seek.

ERISA has always defined a fiduciary to include:

  • a named fiduciary,
  • a person who exercises discretion with respect to management or administration of the plan,
  • a person who exercises discretion with respect to management or disposition of plan assets, or
  • a person who provides investment advice for a fee.

Years ago, regulations were issued to further define who would be regarded as a fiduciary by virtue of

DOL’s Expansion of the Definition of Investment Advice (or “Fiduciary”)

Who's Holding Your Piggy Bank?Acting on reaction to a proposed and subsequently withdrawn regulation from October 2010 and attempting to address concerns expressed by both interested parties to the initial proposed regulation and an economic analysis by the Council of Economic Advisors (that the Investment Company Institute considers flawed), the Department of Labor has issued a new proposed regulation expanding the definition of investment advice. The DOL’s stated purpose in doing so is to protect retirement plan and IRA investors from practices engaged in by some advisors whose interest in providing investment advice is conflicted and not in the best interest of the participant or IRA owner.

The proposed rule does not expand the definition of fiduciary per se, but instead it expands the areas of advice that are rendered by ERISA fiduciaries and covers most significantly investment recommendations, investment management recommendations and recommendations of parties who provide advice for a fee or manage plan assets. This has the effect of expanding the net to cover more advisors as fiduciaries. People who provide advice in these areas will fall under the ambit of “fiduciary” in the following situations:

  1. They represent that they are acting in a fiduciary capacity; or
  2. The advice they give is provided pursuant to an agreement, arrangement or understanding that the advice is individualized and directed to the plan participant or IRA owner for consideration

The Ball Dropped on 2015 – Now Here’s Our “Top Ten” List for Fiduciaries

Happy New Year! As part of our annual tradition in helping retirement plan fiduciaries get started down the right path in the new year, we’re pleased to present our Top Ten New Year’s Countdown. But, wait, what’s better than a Top Ten Countdown list to kickoff 2015? How about a Top Ten list set to Pop Culture themes that dominated 2014? Well, here goes nothing…. Because we’re happy (clap along if you feel like a fiduciary without a roof):

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1. It’s all About The Fees, about the Fees, No trouble. Another year, another reminder (thank you, Meghan Trainor) that fees should be closely scrutinized by plan fiduciaries. Participant fee disclosures are not the new kid on the block anymore; however, fiduciaries should still ensure that all required fee disclosures are complete, accurate and made timely. Plan fiduciaries should also periodically monitor all fees charged against the plan’s assets to ensure reasonableness.

2. The DOL Ice Bucket Challenge – I challenge you, within 24 hours – to get your payroll remittances in…. The DOL has not receded from its firm position that employee deferrals segregated from corporate assets should be paid into the plan “as soon as reasonably practicable”. So, now is as good a time as any to visit with payroll and/or HR to make sure an air-tight process is in place for timely transmitting employee contributions and loan repayments to the plan. Sure,

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