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Fourth Circuit: Plan Administrator Must Obtain “Readily Available Information” in Claims Determination

What is a plan administrator’s obligation under ERISA to seek and obtain information potentially relevant to a participant claim where the participant has not provided it? The Fourth Circuit recently provided guidance on that issue in the case of Harrison v. Wells Fargo Bank, N.A. A copy of that opinion is available here.

Nancy Harrison was an online customer service representative for Wells Fargo Bank. In 2011, she underwent a thyroidectomy to remove a large mass that had extended into her chest and which caused chest pain and tracheal compression. She was unable to work and received short-term disability benefits under the Wells Fargo plan. While she was recovering and waiting for a second, more invasive surgery, her husband died unexpectedly, triggering a recurrence of depression and post-traumatic stress disorder (PTSD) related to the death of her children in a house fire a few years before.

Approximately three weeks after Ms. Harrison’s first surgery, Wells Fargo determined that she had recovered and it discontinued her short-term disability benefits. (It later provided short-term disability benefits after Ms. Harrison’s second surgery.) Ms. Harrison submitted a claim for reinstatement of the short-term disability benefits due to her depression, PTSD and related physical ailments. The outside claims administrator denied that claim. Ms. Harrison submitted an administrative appeal to Wells Fargo, supported by documentation from two of her physicians and a detailed letter from a relative who was her primary caretaker. She also disclosed that she was under the care of

Reporting and Disclosure Guidance

Reporting and Disclosure Guidance

October 28, 2014

Authored by: benefitsbclp

On October 17, 2014, the Internal Revenue Service published a guide entitled “Retirement Plan Reporting and Disclosure Requirements Guide.” The Service states that the Guide is intended to be a quick reference tool to assist plan sponsors and administrators and is to be used in conjunction with the Department of Labor’s “DOL Retirement Plan Reporting and Disclosure Guide” [sic]. The DOL Guide was last updated in August 2013 and is actually called “Reporting and Disclosure Guide for Employee Benefit Plans”.

The IRS Guide covers twenty-five basic notices and disclosures, and, of course, not all of them would pertain to a particular plan. The type of plan determines the number and frequency of participant notices/disclosures. The IRS Guide addresses eleven possible reports, and, as with disclosure, the requirement for reporting depends on the nature of the plan.

The DOL’s Guide identifies thirty-three possible disclosures including both Department of Labor and PBGC notices. It identifies nineteen possible DOL and PBGC reports. As with the IRS reports and disclosures, not all of these are required for every type of retirement plan.

Guy Pulling Hair OutAccording to the IRS, the IRS Guide is not intended to be an exhaustive list of reporting and disclosure items but is meant to cover certain basic reporting and disclosure requirements for retirement plans required under the Internal

Bill Gross Announces his Departure from PIMCO – Here’s What it Means for your 401(k) Plan

If you keep an eye on the investment world at all, you’ve certainly heard the news – Bill Gross, co-founder and chief investment officer of Pacific Investment Management (PIMCO), is leaving the very company he started more than 40 years ago.  In technical terms, Gross is what you call a “big deal” in the investment world.  He has been at the helm of PIMCO for more than four decades leading the company to a whopping $2 trillion in assets under management.  Gross has received countless awards and accolades in the industry for his thought leadership and successes, and is also a well-known writer on investment matters.

Until Friday, Gross managed the PIMCO Total Return fund (PTTCX).  This bond fund ranks as one of the largest mutual funds with a reported $221.6 billion in total fund assets.  And, perhaps more importantly for our readership, this bond fund is a pillar in many 401(k) investment platforms.  Speculation and rumors swirl about the circumstances surrounding Gross’ departure from PIMCO (as well as his decision to join Denver-based Janus); however, one thing is certain – Gross’ departure from PIMCO means that many 401(k) plan fiduciaries are (or soon will be) discerning how to react.

Many investment fiduciaries may choose to put the fund on the plan’s “watch list” in the wake of this manager change.  Departure of such an important part of the PIMCO investment team certainly could be grounds for closer scrutiny of the Total Return fund.

We thought these events

Signature Authority Can Trigger ERISA Fiduciary Responsibility

Signature Authority Can Trigger ERISA Fiduciary Responsibility

September 8, 2014

Authored by: benefitsbclp

When is a signature more than just a signature?

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In Perez v. Geopharma, decided on July 25, 2014, Geopharma’s CEO, Mihir Taneja, brought a motion to dismiss an ERISA breach of fiduciary duty claim under the company’s health and welfare plan brought against him by the DOL. In its suit, the DOL alleged that because Taneja had signature authority on Geopharma’s bank accounts – which included the plan’s participant contributions – he was a plan fiduciary. The claim arose from findings that the company: (1) withheld employee premium contributions over a two-month and ten-month period in 2009 and 2010 respectively; (2) failed to segregate the contributions from company assets as soon reasonably possible; and (3) failed to use the funds to pay claims. The DOL alleged that the company also failed to segregate COBRA contributions from general assets and to use the funds to pay claims.

The DOL sought to hold Taneja, the company and two other company officers jointly liable for fiduciary breaches under ERISA including:(1) participating knowingly in an act of another fiduciary, knowing the act was a breach, in violation of 29 U.S.C. § 1105(a)(1); (2) failing to monitor or supervise another fiduciary and thereby enabling a breach in violation of 29 U.S.C. § 1105(a)(2); or (3) having knowledge of a breach by another fiduciary and failing to make reasonable efforts under the circumstances to remedy the

Would’ve, Could’ve, Should’ve

Would’ve, Could’ve, Should’ve

August 29, 2014

Authored by: benefitsbclp

Tatum v. RJR Nabisco Investment Committee, decided by the Fourth Circuit on August 4, involved the divestiture of the Nabisco stock funds following spin off of Nabisco.  Some 14 years after Nabisco and RJ Reynolds merged to form RJR Nabisco, the merged company decided to separate the food and tobacco businesses by spinning off the tobacco  business.  Following the spinoff, the RJR 401(k) plan, which was formed after the spinoff, provided for the Nabisco stock funds as frozen funds, which permitted participants to sell, but not purchase, Nabisco stock.

Although the Plan document provided for the Nabisco stock funds, RJR decided to eliminate the funds approximately 6 months following the spinoff.  The decision was made by a “working group” of several corporate employees and not by either of the fiduciary committees appointed to administer the Plan and review its investments.

During the 6 months following the spinoff, the price of the Nabisco stock declined significantly.  However, the stock was rated positively during this period by analysts who recommended a “hold” or a “buy” for the stock during 1999 and 2000.

After the Nabisco stock funds were divested in January 2000, the price for the Nabisco stock began to rebound.  In December 2000, following a bidding war, Nabisco was sold for a price well in excess of the price that the stock was sold by the Plan in January.  In 2002, this litigation commenced.

District Court Decision.  The

Something Else to Concern Plan Fiduciaries – The Floating NAV Rule

Floating DollarAccording to the Investment Company Institute, approximately 18%% of all mutual fund assets are invested in money market mutual funds.  An even higher percentage reflects the investment in money market mutual funds held by participant-directed defined contribution plans.  Many of these plan participants believe that their retirement money is “safe” in a money market mutual fund since these funds are thought to be “guaranteed” to maintain a fixed target value of $1.00 per share.  Plan participants do not, as a rule, appreciate the risks inherent in money market mutual funds that in certain market conditions might “break the buck.”

On July 23, 2014, the SEC promulgated a rule (the “MMF Rule”) addressing what it believes could be heavy redemptions of money market mutual funds in the event of economic stress.  The MMF Rule intends to make information about money market mutual funds, particularly inherent risk factors, more transparent.

Money market mutual funds offer a return of principal, liquidity and a rate of return based on the market.  The net asset value (NAV) per share of a money market mutual fund changes daily in response to market factors, but the funds are designed to retain a stable share price that is typically $1.00 per share.

Federal rules require money market mutual funds to invest in short-term investments with minimal credit risk and high quality.  But even investments that carry

Have Missing Participants? The DOL Says, “Google Them!”

Missing PersonsLast week, the DOL released Field Assistance Bulletin 2014-01 which updated its 10-year-old guidance on how to deal with the accounts of missing or unresponsive participants and beneficiaries in a terminating defined contribution plan that does not have annuity options.  The 10-year-old guidance was largely rendered moot because of the discontinuance of the Social Security Administration and IRS letter forwarding programs, which were prominent features of that guidance.

The DOL takes this seriously.  As the FAB notes:

Some search steps involve so little cost and such high potential for success that a fiduciary should always take them before abandoning efforts to find a missing participant, regardless of the size of the participant’s account balance. The failure to take such steps would violate the fiduciary obligations of prudence and loyalty, as set forth in section 404(a) of ERISA.

However, other more expensive approaches may be required when the account balance is large enough to justify an additional plan expense and other efforts have failed. (emphasis and hyperlink supplied)

Search Free or Cheap. The required search steps in all cases (as described more fully in the FAB) are:

  1. Use certified mail (the DOL has a model notice available for this).
  2. Check related plan and employer records (such as the group health plan records – although query whether this works under HIPAA).  The DOL does note that if there are “privacy

Proposed Rule Re-defining ERISA “Fiduciary” Delayed (Still)

Regulations and RulesBroker-dealers and financial advisers may have gained some breathing room as a congressional battle to broaden ERISA’s definition of “fiduciary” loses steam.  In the following discussion, we will summarize the current state of that battle.

At issue is the innocuous-sounding “Conflict of Interest Rule” proposed by the Employee Benefit Security Administration (“EBSA”), that has nonetheless sparked searing critiques from the investment advice industry, which contends it could dramatically increase costs and reduce access to quality investment advice for millions of American workers.  The re-proposal of the controversial rule has been delayed again, this time until January 2015, well after the mid-term elections in November.  Assuming a six-month comment period and six months of hearings to develop final regulations, the final rule could be up for a vote in early 2016.  But pundits have expressed doubt that such a controversial rule could be passed in an election year, which means that the Conflict of Interest Rule may be stalled indefinitely.  Amidst this uncertainty and uproar, many in the benefits community are asking where a new rule would draw the line for determining who is a fiduciary, and how it would impact plan sponsors and participants.

The current definition of investment advice fiduciary still stands as it was established under ERISA in 1974.  The regulation sets forth a five-part test, and an individual must satisfy all five

The Moench Presumption is Dead – Long Live the Dudenhoeffer Presumption

On June 25, 2014, a unanimous United States Supreme Court weighed in on the legal standards applicable in stock drop cases in Fifth Third Bancorp v. Dudenhoeffer.

Facts. Beginning in 2007, Fifth Third Bank began experiencing a large number of mishaps, most of them associated with borrowers not repaying their loans when due. As a result, Fifth Third’s stock price suffered the same phenomenon as that of virtually every other publicly traded financial institution in the world during the great recession: it dropped precipitously, falling 74% from July 2007 to September 2009. With the benefit of hindsight, plaintiffs brought a class action lawsuit against the fiduciaries of the Fifth Third 401(k) Plan, alleging that all of this should have been patently obvious based on public and nonpublic information allegedly possessed by the fiduciaries. The plaintiffs asserted that the fiduciaries should have taken one or more of the following actions with respect to the company stock fund in the 401(k) Plan: (1) sell the stock before it declined; (2) refrain from purchasing any more Fifth Third stock; (3) cancel the Plan’s company stock option; and (4) disclose the inside information allegedly in their possession so that the market would appropriately adjust its valuation of Fifth Third stock downward and the Plan would as a result no longer be overpaying for it.

The Supreme Court’s Ruling. Much of the decision focuses on whether the so-called “Moench” presumption of prudence attaches to a fiduciary’s decision to allow or continue

Do you know the Yard-Man (inference, that is)?

As a child, you may have sung “do you know the Muffin Man?,” but as an employer you should make sure you know the Yard-Man inference.

Read the Small PrintThe “Yard-Man inference” comes from the Sixth Circuit’s decision in Auto Workers v. Yard-Man, Inc.  In that opinion, the Sixth Circuit created a presumption that retiree welfare benefits vest on retirement, unless a collective bargaining agreement clearly states otherwise.

However, the inference that these types of benefits vest has not been well received in all courts. For example, the Third Circuit has held the exact opposite: that retiree welfare benefits granted under a CBA expire with the CBA unless the agreement explicitly states otherwise.  Auto Workers v. Skinner Engine Co..

The split between the Circuits has likely contributed to the Supreme Court’s recent decision to review the case of M&G Polymers USA, LLC v. Tackett, which directly addresses the “Yard-Man inference.”

Enter Sen. Rockefeller (D-WV), with the “Bankruptcy Fairness and Employee Benefits Protection Act of 2014” which aims to turn the “Yard-Man inference” into a rebuttable presumption and to require employers to include information about modification of benefits in their summary plan descriptions, among other items.  The Act has been seen by some as an effort to get out in front of the Supreme Court’s review of the “Yard-Man inference.”  The Act would:

  • Require employers to
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