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Category Archives: ERISA Fiduciary Compliance

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ERISA plan service provider avoids fiduciary status—what it means for service providers and plan sponsors

Posted in ERISA Fiduciary Compliance, Retirement Plans

A recent Third Circuit decision (Santomenno v. John Hancock, et. al.) has been described as a win for service providers to ERISA plans. It certainly is important because this decision, along with other fairly recent decisions, helps to illustrate when service provider actions become significant enough to make them fiduciaries. A somewhat less discussed point, however, is that this decision also serves as a reminder to plan sponsors about their fiduciary duties and the need to be vigilant in monitoring fees. This blog will provide a brief summary of the decision and the lessons it offers both to …


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Electronic filing requirements take another step –this time it’s top hat plans

Posted in ERISA Fiduciary Compliance, Retirement Plans

Section 110(a) of ERISA authorizes the Department of Labor (the “DOL”) to permit an alternative form of compliance with the reporting and disclosure obligations of Part 1 of Title I of ERISA for “top hat” plans (i.e., “unfunded” plans established for a select group of management or highly compensated employees). Under that authority, the DOL issued a regulation way back in 1975 (29 CFR 2520.104-23) to provide such an alternative method of compliance with reporting and disclosure requirements for top hat plans. Under that guidance, top hat plans are not required to file annual reports (tax-qualified plans use …


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Here we go again: Does the DOL’s request for information regarding self-directed brokerage accounts mean new fee disclosure requirements are coming soon?

Posted in ERISA Fiduciary Compliance

If you’re a fan of the tv show “The Simpsons,” you might remember an early episode where Homer Simpson launched a crusade against every public safety issue in the city. The result was practically every square inch of the town contained signs alerting people to every dip, pothole, and other nuisance on the roads. After watching that episode again recently (we won’t admit which one of us got sucked into the tv marathon), we were reminded of a first year torts class in law school that discussed the efficacy of public safety notices. The professor made the comment, “A wealth …


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SEC money market reform – ERISA impact

Posted in ERISA Fiduciary Compliance

Our sister blog reported recently that the Securities and Exchange Commission (the “SEC”) published final regulations that reform money market mutual funds (“MMFs”). The regulations provide for two core reforms: (1) “Institutional” MMFs, other than those invested primarily in government securities, are prohibited from using a stable net asset value (“NAV”), and (2) MMFs must impose redemption fees or liquidation gates when the fund’s liquidity falls below certain levels. The specific details of these rules are beyond the scope of this blog. Instead, the message of this blog is that these regulations could affect many ERISA plans because MMFs are …


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DOL updates missing participant guidance

Posted in ERISA Fiduciary Compliance

On Thursday, the Department of Labor issued a Field Assistance Bulletin updating its prior guidance on locating missing participants. As before, the guidance technically only applies in the context of terminating defined contribution plans, though the guidance can be instructive for fiduciaries trying to locate missing or unresponsive participants in other retirement plan contexts as well. A central reason for the update from the Department is that two of the mandatory locator options noted in the now 10-year-old prior guidance are no longer available (the Social Security letter forwarding program ceased in May of this year, and the IRS letter …


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Could’ve, would’ve. What should a fiduciary do? Fourth Circuit decision could spell more uncertainty for retirement plan fiduciaries.

Posted in Benefits Issues Related to Mergers and Acquisitions, ERISA Fiduciary Compliance, ERISA Litigation, Retirement Plans

Coming on the heels of the U.S. Supreme Court’s Dudenhoeffer decision, which eliminated a pro-fiduciary presumption with respect to company stock holdings in qualified retirement plans, the 4th Circuit issued a decision last week that could cause even more unrest for plan fiduciaries. The case, Tatum v. RJR Pension Investment Committee, et al., represents a potential elevation of the standard “prudent fiduciary” rule as it had been widely understood it to govern ERISA retirement plans.

In short, the 4th Circuit in this case purports to require a fiduciary to determine whether a prudent fiduciary more likely than not would …


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The first progeny of the Hobby Lobby decision

Posted in ERISA Fiduciary Compliance, Health Care Reform

As we noted in a previous blog entry, the United States Supreme Court recently ruled in two companion cases, Sebelius v. Hobby Lobby Stores and Conestoga Wood Specialties v. Sebelius (referred to hereafter as Hobby Lobby) , that regulations issued under the Affordable Care Act (the “ACA”) that compel closely held corporations to provide contraception coverage for their employees violated the Religious Freedom Restoration Act of 1993.  The Court concluded that closely held corporations cannot be required to provide contraceptive coverage if doing so would be contrary to sincerely held religious beliefs of the corporation’s owners.  The dispute …


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ERISA preemption of state law regarding multiemployer health, welfare and retirement benefits

Posted in ERISA Fiduciary Compliance, ERISA Litigation

The Pennsylvania General Assembly has given us another opportunity to expand our employee benefit plan boundaries discussion. This time, the discussion applies to multiemployer plans in the construction industry. It has been reported that Rep. William Keller, D-Philadelphia, introduced a bill in the General Assembly to amend the state’s Mechanics’ Lien Law to classify union benefit fund trustees as subcontractors allowed to pursue claims for nonpayment against employers and property owners. This action followed a Pennsylvania Supreme Court ruling that unions and benefit fund trustees do not qualify as subcontractors as a result of collective bargaining agreements with employers.

There …


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The ESOP sponsor / fiduciary boundary dispute, employer contribution edition

Posted in ERISA Fiduciary Compliance, ESOPs

As a follow up to our blog on the ERISA sponsor / fiduciary boundary dispute, here is another case, Coulter v. Morgan Stanley & Co. Inc., from the Second Circuit. The employer decided to make contributions in the form of company stock, rather than cash. Then the employer’s stock price plunged in conjunction with the economic downturn. Plaintiffs alleged the employer breached its fiduciary duty by making the investment in stock. The district court dismissed the claims on the basis of the Moench presumption of prudence.

The Appellate Court affirmed the dismissal of the claims, but on a …


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New wrinkle for the Delinquent Filer Voluntary Compliance Program—trap for the unwary

Posted in ERISA Fiduciary Compliance, ERISA Litigation, Retirement Plans, Tax Issues

Plan administrators who fail to timely file Form 5500 annual returns/reports are subject to penalties under both Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code (the “Code”). The Department of Labor (the “DOL”) has the authority to assess civil penalties of up to $1,100 per day against plan administrators that fail to file complete and timely returns/reports. In addition, the Internal Revenue Service (the “IRS”) may impose further penalties of $25 per day up to a maximum of $15,000 per return against administrators that fail to file complete and timely returns/reports.…


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Facebook brag underscores the enforceability of confidentiality clauses in settlement agreements

Posted in ERISA Fiduciary Compliance, ERISA Litigation

Settlement agreements are fairly common in the ERISA / employee benefits area. We typically do not need “unique” provisions for these agreements, beyond making sure all the proper parties are named and that ERISA is referenced. But two issues typically require extra attention: confidentiality provisions, and payment method (including tax withholding and reporting). As discussed in our sister blog, a party might quietly violate a confidentiality provision, and get away with it without causing any real harm. But when a party shares settlement information with a child who has both a Facebook page and poor judgment, the ramifications can …


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ERISA preemption is complicated – except when it isn’t

Posted in ERISA Fiduciary Compliance, ERISA Litigation, Other Articles

In light of health care reform, we anticipate ERISA preemption cases to start popping up more frequently. Two recent decisions demonstrate that ERISA preemption is complicated, except when it isn’t. In Liberty Mutual Ins. Co.v Donegan, Second Circuit Judge Dennis Jacobs explains the complicated nature of ERISA preemption. This opinion may be helpful for anyone to develop a better understanding of the topic and its history. (Shameless plug alert: you also may want to see the preemption chapter that I edit in ERISA: A Comprehensive Guide.)

Then there is the decision that demonstrates when preemption isn’t complicated.  Seventh


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ESOP Trustee Indemnification Stymied by Arbitrator’s Legally Unsupportable Analysis – Schafer v. Multiband Corp.

Posted in ERISA Fiduciary Compliance, ESOPs, Retirement Plans

I am not a fan of binding arbitration in the context of ERISA plans, and a new Sixth Circuit decision, Schafer v. Multiband Corp., demonstrates why.

Two individuals (Schafer and Block) founded a company. As part of a series of corporate transactions, two employee stock ownership plans (“ESOPs”) were formed. Schafer and Block were appointed as trustees of the ESOPs, and entered into indemnification agreements with mandatory arbitration clauses. While the DOL was investigating its suspicion that the ESOPs had purchased stock at inflated prices, and with knowledge of this, Multiband entered into a purchase agreement to buy the …


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Frommert v. Conkright “Actuarial Heresy” is Back Again

Posted in ERISA Fiduciary Compliance, ERISA Litigation, Retirement Plans

Frommert v. Conkright, the Xerox “actuarial heresy” floor-offset plan case is back. This time, the Second Circuit has ruled that the new interpretation of the plan is unreasonable, and that ERISA’s “notice provisions” were violated.

Stating, “SPDs are central to ERISA,” the Court concluded that the SPD (summary plan description) did not satisfy 29 C.F.R. § 2520.102-3(l) because the SPD did not describe the offset provision in question in more detail. The Court held, “the Plan and its related SPDs violate ERISA’s notice provisions” and “Plaintiffs’ notice claims fall under Section 502(a)(3).” Frommert has been remanded to the district …


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Sixth Circuit 502(a)(3) Windfall in Rochow v. Life Insurance Company of North America — ERISA’s Delicate Balance Goes So Far Off Kilter That I Am Queasy

Posted in ERISA Fiduciary Compliance, ERISA Litigation

When you think about it, balance is really important. It is hard to imagine how we all stand steady on a planet that is rotating on its access and rotating around the sun. The last earthquake I experienced left me queasy afterward, and that is how I feel after reading a new decision. Curses (or thank you?) to Brian Hall, editor of our sister blog, employerlawreport.com, for forwarding.

Within days of writing the Dudenhoeffer v. Fifth Third Bank blog about a threat to ERISA’s delicate balance and importance of boundaries, we have yet another Sixth Circuit decision that blazes …


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Fiduciary Update– DOL Advisory Opinion 2013-03A and Revenue Sharing Arrangements

Posted in ERISA Fiduciary Compliance

We have blogged in the past about how important it is for ERISA fiduciaries to monitor the fees and compensation that their plans’ service providers receive for their services. Recently, the Department of Labor (“DOL”) issued guidance about revenue sharing payments in Advisory Opinion 2013-03A (the “Opinion”). The Opinion first answers a narrow question about potential issues for financial service providers. It then spends considerable time warning fiduciaries to be careful about how they negotiate with service providers over the use of revenue sharing payments. While we do not want to understate the importance of reminding fiduciaries of their duties, …


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DOL Sues Insurance Brokerage Firm – Selection of an Annuity Provider for a Terminating Pension Plan is a Fiduciary Duty

Posted in ERISA Fiduciary Compliance

The Department of Labor (“DOL”) has sued an insurance brokerage firm, and its owner, for allegedly breaching fiduciary duties associated with purchasing an annuity contract for a terminating defined benefit plan. The complaint alleges that in 2003, the firm entered into an agreement to function as an ERISA fiduciary with respect to the purchase, for a fixed fee of $50,000, with no additional compensation. The firm then purportedly arranged to receive an additional $522,047 of compensation from the insurance company that was eventually selected, and falsified information submitted by other bidders so that this insurance company would appear to be …


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Congress Finally Passes Pension Funding Stabilization Provisions

Posted in ERISA Fiduciary Compliance, Health and Welfare Plans

Now that the excitement (or was that dread?) surrounding the Supreme Court’s ruling upholding the constitutionality of the health care reform legislation has dissipated somewhat, it seems timely to talk a little about pensions. At long last, and after several stalled efforts, meaningful pension funding stabilization legislation was enacted this summer. Congress passed and President Obama signed the Moving Ahead for Progress in the 21st Century Act (one has to wonder who comes up with these names over in Congress). The act, also known as “MAP-21″, makes important changes to how the interest rates used in defined benefit pension plan …


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Fee Disclosures Are Almost Here — What Should Plan Sponsors Do Now?

Posted in ERISA Fiduciary Compliance, Health and Welfare Plans, Other Articles

The quickly approaching deadline for written fee disclosures by covered service providers creates new homework for plan sponsors–in the form of enhanced fiduciary review obligations and a suggested need to review (and/or create) written service agreements.

By now folks who work in the tax-qualified retirement industry are well (and perhaps painfully) aware that the United States Department of Labor (“DOL”) issued final service provider fee disclosure regulations early this year.  As the deadline for service providers to provide the required disclosures (i.e., July 1, 2012) draws close, it seems like an opportune time to consider what plan sponsors …


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Fiduciary Litigation Update — Tussey v. ABB, Inc.

Posted in ERISA Fiduciary Compliance, ERISA Litigation

A recent case, Tussey v. ABB, Inc., has received much warranted and unwarranted attention in the Section 401(k) plan arena. In Part 1 of this legal update, we will explain the basics of what happened in this case. In Part 2, we will provide practical aspects of Tussey and deliver specific recommendations on how plan sponsors and fiduciaries can help minimize their potential fiduciary liability.

Part 1: Case Summary

By way of background, this case was one of 15 different cases filed in 2006 by a single law firm. These lawsuits were aimed at large employers alleging …


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ERISA Multi-employer Plan Contingent Liability Indemnification Provision is Not Prohibited by Public Policy

Posted in ERISA Fiduciary Compliance

Multi-employer plans have been catching my eye lately. These plans, sometimes called “Taft-Hartley plans,” are maintained pursuant to collective bargaining agreements between unions and various employers. In Shelter Distribution, Inc. v. General Drivers, Warehousemen & Helpers Local Union No. 89, the collective bargaining agreement provided that the union would indemnify the company for any contingent liability under the Multi-employer Pension Plan Amendments Act of 1980. The Sixth Circuit rejected the union’s argument that it is a violation of public policy for a union to indemnify an employer for contingent liability in an ERISA plan. In arriving at its decision, …


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Allowing Employee Investment in an ESOP or 401(k) Employer Stock Fund Becomes a Bigger Gamble – Sixth Circuit Decision in Pfeil v. State Street Bank & Trust Co.

Posted in ERISA Fiduciary Compliance, ERISA Litigation, Retirement Plans

The Sixth Circuit has reversed the district court’s dismissal of the GM ERISA stock-drop suit, Pfeil v. State Street Bank & Trust Co., and is allowing the case to proceed.  You may recall that we cautioned fiduciaries of ESOPs and 401(k) plans allowing investment in employer stock to keep an eye on this case because it could be a game-changer. And now it is.

The GM plan offered a number of investment options, one of which was the GM stock fund. The GM stock fund was not a default fund, and participants could change investments on any business day. …


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The Top-Hat Plan Test for Your ERISA Executive Deferred Compensation Plan – Daft v. Advest, Inc.

Posted in ERISA Fiduciary Compliance, ERISA Litigation, Executive Compensation

A recent Sixth Circuit decision provides a tutorial on designing and administering an ERISA executive compensation top-hat plan. In Daft v. Advest, Inc., a U.S. Court of Appeals for the Sixth Circuit reversed the District Court’s decision that the executive compensation plan was an ERISA plan but was not a top-hat plan, on the grounds that the District Court should have remanded the matter to the plan administrator for expansion of the administrative record and its own determination on this issue. This is good news for the employer, and presumably good news for the other plan participants, because an …


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Requests for Proposal for 401(k) Plans

Posted in ERISA Fiduciary Compliance, Retirement Plans

It was great to see everyone who was able to attend our Employment Relations seminar in Columbus yesterday—”Strategies to Help You Build a Winning Team.” We thought we would share one of the questions that was asked: is it necessary to seek requests for proposal (“RFPs”) for a 401(k) plan on a certain schedule?

This question goes to the issue of fiduciary responsibility to be prudent in its selection and monitoring of investments, and to pay only reasonable expenses out of plan assets. ERISA Section 404(a)(1)(B) requires that a fiduciary must act “with the care, skill, prudence and diligence under …


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