A federal judge, after a detailed four-day bench trial involving multiple witnesses and extensive evidence, has concluded that plan fiduciaries can breach their duty of loyalty to plan participants even when they follow a prudent process. This decision, discussed by Nevin Adams and Fred Reish in this Podcast, indicates a significant legal nuance where meeting procedural prudence does not absolve fiduciaries from their loyalty obligations. The implications of this ruling are critical for retirement plan fiduciaries, as it suggests that merely adhering to prudent practices may not be sufficient to protect them from potential liability regarding loyalty to participants.
Practitioners often advise creating a fiduciary committee to manage ERISA-covered employee benefit plans for several reasons. By designating the committee as the responsible party for functions like plan administration, monitoring, and compliance, the governance structure aligns with the contractual responsibilities. This approach can help differentiate the committee's role from that of the company or individuals, potentially shielding them from being treated as fiduciaries to the plan and managing liability risks.
On January 10, 2025, the U.S. District Court for the Northern District of Texas ruled in the case of Spence v. American Airlines, Inc., finding that fiduciaries of two American Airlines 401k plans breached their duty of loyalty. The court concluded that the fiduciaries failed to adequately monitor and address the impact of BlackRock Institutional Trust Company's use of shares in the plans' index funds to further its Environmental, Social, and Governance initiatives, prioritizing socio-political outcomes over financial returns. This ruling marks a significant development in the ongoing debate regarding ESG investments within retirement plans and raises important implications for ERISA fiduciaries and plan sponsors.
An accountant's role in the annual Form 5500 for employee benefit plans is significant but often misunderstood. While accountants and auditors play a crucial part in preparing the report from financial and regulatory perspectives, their responsibilities are limited. They are responsible for detecting material fraud in financial statements but do not guarantee a plan's qualified status or the conduct of fiduciaries. The specific scope of an accountant's responsibility is shaped by the interplay between DOL regulations and the standards of the accounting profession.
Source: Employeebenefitslawgroup.com, January 2025
Plan sponsors face various challenges when deciding to switch service providers for their employee benefit plans. Signs that it may be time to switch include high fees, inadequate data security, poor performance, or integration issues. Although the transition can seem daunting, utilizing provider reviews and trusted guides can facilitate the process. Once the decision to switch is made, careful planning is essential. Here are some key steps to consider for a smooth transition.
On January 13, the IRS issued proposed regulations concerning catch-up contributions under the SECURE 2.0 Act, set to take effect in 2026. Aimed at improving retirement readiness, these regulations raise numerous questions about their administration, necessitating further guidance for proper implementation. Notably, the regulations include rules mandating that catch-up contributions from certain higher-income participants be designated as after-tax Roth contributions, along with guidance for plan administrators regarding compliance with this new Roth catch-up rule.
The IRS has released new proposed regulations providing guidance on catch-up contributions outlined in the SECURE 2.0 Act of 2022. These regulations address several modifications made to catch-up contribution provisions by the Act.
During a January 22 hearing, the Senate Committee on Health, Education, Labor and Pensions (HELP) outlined key priorities for the current congressional session, with a focus on retirement-related issues. Their priorities include improving benefits portability, redefining "independent contractor," ensuring adequate funding for the Pension Benefit Guaranty Corporation, reforming pharmacy benefit managers, and addressing the rising costs of prescription drugs.
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Collected Wisdom™
Our researchers look for what they think are some of the better resources available to assist you in administering your plan or helping your clients. We group these resources in our COLLECTED WISDOM™ topics to make it easy for you to locate the information you need. Each item in a category contains a summary and date of when it was placed in the group.
We also maintain some older material in these collections for perspective and context.
