COLLECTED WISDOM™ on Fiduciary Related News and Intelligence
These are general fiduciary news items. Other topical areas you may find of interest that are not fully covered here include ERISA 404(c) Compliance and Fiduciary Duty, 401k Investment Committees, Fiduciary Responsibility and Liability Issues, and DOL's Final Fiduciary Rule and Best Interests Contract Requirement.
A Texas federal judge recently upheld a DOL final rule concerning environmental, social, and governance considerations in investment decisions by plan fiduciaries. Nonetheless, plan sponsors should understand that considering ESG factors remains permissible rather than compulsory and always should be secondary to the plan's financial interests.
Source: Hallbenefitslaw.com, December 2023
In September 2023, former employees of Bed Bath & Beyond sued members of the company's 401k committee, the committee responsible for the prudent management of the company's 401k plan. The former employees allege they lost more than $5 million following the company's bankruptcy filing in April 2023, a loss the committee could have avoided. Here is a cautionary tale of Bed Bath & Beyond's bankruptcy.
Source: Woodruffsawyer.com, November 2023
A Victory for Plan Fiduciaries: The Second Circuit Clarifies the Pleading Standard for Prohibited Transaction Claims
For years, courts have struggled with the appropriate standard to apply to ERISA-prohibited transaction claims at the pleading stage. In Cunningham v. Cornell University, a case that involved a 403b defined contribution plan, the Second Circuit addressed the pleading standard necessary to sufficiently allege a party-in-interest prohibited transaction claim. The Second Circuit issued a well-reasoned opinion that may have significant implications for ERISA-prohibited transaction claims at the pleading stage.
Source: Groom.com, November 2023
This post discusses the "fiduciary acknowledgment" definition of fiduciary invest. advice in the DOL's proposed fiduciary regulation. More specifically, the proposed regulation says that a person will be an ERISA and Code fiduciary if "The person making the recommendation represents or acknowledges that they are acting as a fiduciary when making investment recommendations."
Source: Fredreish.com, November 2023
The DOL's new "retirement security rule" package is the latest chapter in an almost 15-year effort by the DOL to amend the five-part test in its 1975 regulation for determining whether a person is a "fiduciary" by providing invest. advice for a fee. Very generally speaking, the Proposed Rule would significantly expand the circumstances under which a person could be treated as providing invest. advice that is subject to ERISA's fiduciary standards.
Source: Erisapracticecenter.com, November 2023
Plaintiff firms continue to be creative in bringing forth fiduciary claims against organizations and those who oversee their retirement programs. It's not enough to just have the right insurance coverage. Organizations need to institute the right internal governance processes to manage their fiduciary liabilities and risks.
Source: Newfront.com, October 2023
ERISA needs to catch up with the information age by identifying plan data as a plan asset, resolving the current ambiguity on that point that has led courts to decide otherwise, and developing the related fiduciary duties, argues Michael Schloss of The Wagner Law Group.
Source: Wagnerlawgroup.com, October 2023
In the current campaign by annuity advocates to increase the use of annuities within 401k and 403b plans, the advocates argue that plan participants desire guaranteed income for life. But do plan sponsors and plan participants understand how such annuities work and the associated costs involved? As the late fee-only insurance adviser Peter Katt used to caution, "But at what cost?"
Source: Fiduciaryinvestsense.com, September 2023
Why a Meaningful Benchmark Is Needed in the Intel Investment Imprudence Case to Prevent a Hindsight Attack Against Fiduciaries
Participants label Intel's use of hedge funds and alternative investments to hedge volatility as "institutional gambling," but compare the results to funds with higher-equity allocations that ironically are higher-risk investments. Just because the higher-risk funds did better in a long bull-market is not evidence of fiduciary imprudence, but rather the classic deficiency of ERISA malpractice lawsuits that use outcomes as a proxy for fiduciary imprudence.
Source: Euclidspecialty.com, August 2023
Although retirement plan excessive fee cases remain an ongoing concern for plan sponsors, the recent jury trial victory for Yale in Vellali v. Yale University provides hope for plans with strong, prudent plan governance. Given the pace of new excessive fee lawsuits and the verdict in Yale, plan sponsors should review their plan governance procedures as soon as possible for compliance with the roadmap outlined here.
Source: Dwt.com, August 2023
The antiseptic compliance regime spelled out by the DOL and ERISA has to date defined fiduciary services. Perhaps, if we're going to consider what is "beyond" that sterile definition, we might want to go back to the future. In a sense, rediscovering where "fiduciary" initially came from might suggest where it is headed.
Source: Fiduciarynews.com, August 2023
Notwithstanding the current economic uncertainty, corporate transaction activity has remained steady, meaning buyers continue to address issues relating to a target company's qualified retirement plans, such as a 401k plan. Treatment of a target company's 401k plan affects both employers and employees, so, ideally, parties in a transaction will consider preferred strategies well in advance of closing. This article discusses two approaches: terminating the plan or maintaining it after the transaction.
Source: Ogletree.com, July 2023
This guide explains everything you need to know about being a 401k fiduciary. This includes understanding your legal responsibilities and finding ways to reduce your liability and make compliance easier for your plan.
Source: Forusall.com, July 2023
Politically-motivated lawsuits were filed earlier this year to invalidate the Biden administration's ESG regulations. The plaintiffs in these lawsuits don't even claim specific losses from having made ESG investments. After that, it seemed that it was only a matter of time before the first lawsuit against a corporate plan sponsor was filed. Now we have one. A new lawsuit targets American Airlines and aggressively challenges its 401k ESG investment offerings.
Source: Cohenbuckmann.com, June 2023
At PSCA National just last week, ARA CEO Brian Graff and EBSA Assistant Secretary Lisa M. Gomez discussed a wide range of topics, including the many misunderstandings about cyber liability insurance (which could be a huge fiduciary failure) and the ESG rule.
Source: Napa-net.org, May 2023
Resistance to retirement plan innovations (like automatic enrollment) has long been excused as being too paternalistic, but there might be a better standard -- a maternal standard of care.
Source: Napa-net.org, May 2023
ERISA Section 3(38) fiduciary designation can often mean more work for an adviser since it assigns decision-making responsibility. It also means a conversation with a plan sponsor that likely leads to a higher fee. Even so, the industry is trending toward more advisers seeking, and taking on, the role of the 3(38) to manage what are increasingly complex, and important, investment strategies.
Source: Planadviser.com, May 2023
Plan advisers often recommend that clients use fiduciary outsourcing services, alleviating the administrative burden on both advisers and clients, according to new industry research. More than 20% of advisers said clients spend between a quarter and half of their time on plan administrative tasks that could be outsourced.
Source: Planadviser.com, March 2023
A federal court has vacated part of the 2021 DOL rollover guidance for investment advice fiduciaries. In one of those FAQs, DOL said a recommendation to roll over a participant's retirement plan account to an individual retirement account may be fiduciary investment advice when the advisor expects to give ongoing advice after the rollover. According to the court, this guidance contradicts the agency's current regulation.
Source: Mercer.com, March 2023
In recent weeks, opponents of the DOL's ESG rule have brought new challenges in the courts and Congress. Most of the provisions of the DOL's final rule addressing fiduciary duties for ERISA retirement plans concerning investment selection and consideration of ESG factors as well as exercises of shareholder rights, which the agency issued last fall, became effective as of January 30, 2023.
Source: Ropesgray.com, February 2023
Understanding how (and when) to increase the intensity of a missing participant search is vital to fulfilling a plan sponsor's fiduciary duty to ensure that plan participants receive the retirement benefits that they're owed.
Source: 401kspecialistmag.com, February 2023
Employers have embraced 401k plan benefits changes for 2023, but are still shying away from annuities, according to Alight. Survey data showed that among employers, 47% cite fiduciary concerns as a major reason for not adding annuities. The figure has remained stagnant since the 2018 report, Alight found.
Source: Planadviser.com, January 2023
This is the time of year when resolutions for the cessation of bad behaviors and the beginning of better ones are in vogue. Here are three for plan fiduciaries for 2023.
Source: Napa-net.org, January 2023
In response to the continued proliferation of lawsuits against retirement plan fiduciaries, fiduciary liability insurers are raising rates, limiting coverage, and expanding their due diligence of fiduciary processes. This article provides a checklist that includes tips and best practices for policyholders to ensure they are in a strong position to obtain retirement plan fiduciary coverage when it comes time to review and avoid coverage denials when it comes time to pay benefits.
Source: Bradley.com, December 2022
ERISA Fiduciaries May Consider ESG Factors in Selecting Investments and Exercising Shareholder Rights
This final rule effectively overturned two rules published in the last months of the Trump administration, which essentially prohibited the consideration of ESG factors when ERISA fiduciaries selected investments or exercised shareholder rights. In effect, the Biden administration has now enabled fiduciaries managing ERISA funds to consider "factors [that] may include the economic effects of climate change and other ESG considerations on the particular investment or investment course of action."
Source: Mintz.com, December 2022
Oops! That didn't go as planned. A major player in the cryptocurrency world took a spectacular nosedive amidst celebrity, politics, and intrigue. This happened as the hard-to-understand virtual currency has already suffered from a series of negative headlines. The collapse of FTX only makes it worse.
Source: Fiduciarynews.com, November 2022
Litigation of 401k plan fees and investment fund performance is on the rise. This webcast provides a review of recent 401k litigation cases, trends involving both active and index/passive target-date funds, and fiduciary best practices to avoid litigation.
Source: Fiducientadvisors.com, November 2022
It's so easy to pay it no mind. Employees leave the firm but don't take their 401k account with them. Many argue this is the prudent thing for the employee to do since the plan will often pay institutional rates for mutual funds while rolling the assets over into an IRA may be subject to higher retail rates. But what about from the plan sponsor's perspective?
Source: Fiduciarynews.com, November 2022
You know that old saying that when you assume... well, that applies double (and then some) to ERISA plan fiduciaries. In this podcast, Nevin Adams and Fred Reish discuss five bad assumptions with reminders about how to avoid winding up in trouble.
Source: Napa-net.org, September 2022
Fiduciaries are not responsible for delivering the absolute best investment performance. They are responsible for following a prudent decision-making process that is reasonable and well-documented, and for making decisions with the best interest of participants in mind. Focusing primarily or solely on past investment returns could result in several fiduciary mistakes noted here.
Source: Conradsiegel.com, September 2022
The Supreme Court's Hughes v. Northwestern University holding has already revealed its expected impacts: (1) retirement plan fee lawsuits are more likely to survive a motion to dismiss; and, as a result (2) retirement litigation continues to accelerate. A recent collection of litigation activity provides another opportunity for plan fiduciaries to identify helpful protective steps and best practices.
Source: Qualifiedplanadvisors.com, September 2022
There's an old saying that when you assume... well, here are some assumptions that can create real headaches for retirement plan fiduciaries.
Source: Napa-net.org, August 2022
Morningstar's Active/Passive Barometer is a semiannual report that measures the performance of active funds against comparable passive funds. Over the years, the report has found that most active funds underperform their passive counterparts and that higher-cost funds are more likely to underperform. This article reviews what 401k fiduciaries can take from the report.
Source: Employeefiduciary.com, August 2022
These amendments would significantly impact entities that rely on the QPAM Exemption, as well as plans, plan fiduciaries, counterparties to transactions involving QPAMs, and others. The amendments would impose significant compliance burdens and costs on QPAMs, including the need to amend existing agreements to comply with the conditions. Additionally, the indemnification and hold harmless provisions are likely to increase the potential liabilities of a QPAM that becomes disqualified.
Source: Fiduciarygovernanceblog.com, August 2022
The DOL is pushing back against litigation challenging specific elements of its FAQs regarding the fiduciary rule. The suit (Am. Sec. Ass'n v. U.S. Dep't of Labor) was one of two filed earlier this year challenging the DOL's PTE 2020-02. While both were filed on behalf of individuals whose businesses were detrimentally impacted by the expanded definition of fiduciary, specifically in this case in FAQs issued after the regulation. The suit alleged that the Labor DOL regulated via the FAQs, rather than going through the standard, required, notice and comment period.
Source: Ntsa-net.org, July 2022
Several recent lawsuits brought under ERISA have addressed the issue of which retirement plan participants have "standing" to bring an ERISA action against their plan's fiduciaries. These cases generally focus on the issue of whether the participant-plaintiffs who brought the suit have a "concrete stake" in the dispute, as in two recent cases involving participant-plaintiffs in 401k-type defined contribution plans who did not invest in all the funds for which they are suing. Fiduciaries should consider who would have a stake in litigation.
Source: Shrm.org, June 2022
Bitcoin in 401ks would test the prudence standard of the Employee Retirement Income Security Act, a lawyer said. Plan sponsors that allow cryptocurrency in their 401ks could be exposing themselves to a "very serious risk of a fiduciary breach."
Source: Wagnerlawgroup.com, June 2022
Eleanor has operated her fledgling business, The Good Place, for about seven years. She established a 401k plan somewhere around year two at the recommendation of her CPA. The CPA set up the plan for her with a bundled service provider. Whatever the CPA put on the paperwork (without ever discussing it with Eleanor), was how the Plan was established and how it remains. Relying on her payroll manager to just keep the contributions flowing, Eleanor was very pleased with herself. But, the Good Place gets randomly chosen by the DOL for a fun-filled investigation. In reading over the DOL letter from the investigator, Eleanor is baffled by half of the requested items and calls her CPA.
Source: Ferenczylaw.com, May 2022
If you aspire for an appointment to serve on your employer's committee that oversees its retirement, pension, and health plans, you are in a select company. Surveys reveal that few managers and executives who serve on these committees sought their appointment. But let's say that you are appropriately ambitious and would enjoy cracking the circle of an elite group of managers by gaining assignment to your enterprise's fiduciary committee. What do you need to know?
Source: Rolandcriss.com, May 2022
The 2022 Qualified Plan Fiduciary Summit connected plan sponsors with retirement industry thought leaders, advisors, recordkeepers, ERISA attorneys, money managers, and other service providers. This article recaps the key themes from the event and items for plan fiduciaries to consider as they navigate a challenging labor market, an active litigation and regulatory environment, and increased employee needs and expectations.
Source: Qualifiedplanadvisors.com, May 2022
Plan sponsors offering bitcoin in-plan as part of the core investment menu would expose the plan, investment committee, and plan participants to myriad risks, says Jerry Schlichter, managing partner at Schlichter Bogard & Denton, who has made a practice of suing plan sponsors for fiduciary breach. Plan sponsors could be vulnerable to greater litigation risks from the plaintiffs' bar, he explains. Plan sponsors immediately checked with their plan adviser to know if there is any potential cryptocurrency exposure.
Source: Planadviser.com, April 2022
Cryptocurrency. The word brings up thoughts of potential wealth, mystery, and hi-tech. It's the sexy new kid on the block for a new generation of investors. It's one of the current hot topics in the 401k plan industry. It also brings a lot of questions and investment risks. Despite these questions and risks, the popularity of wanting cryptocurrency investments in 401k plans is growing. Before plan fiduciaries think about adding crypto to their 401k plan, they need to consider the three risks and issues reviewed here, which far outweigh any potential benefits to the plan participants.
Source: Linkedin.com, April 2022
Litigation arising from the management of employee benefit plans has increased dramatically in recent years notably "excessive fee" litigation. New federal laws, regulations, guidelines, and established case law are expected to escalate the risks in 2022 and beyond. What should you do from an insurance perspective?
Source: Fiducientadvisors.com, April 2022
Recently, the DOL issued new guidance regarding the holding or investing in cryptocurrency by 401k retirement plans. This new guidance specifically impacts retirement plans that permit participants to use self-directed brokerage accounts to trade individual stocks on their own. Under the new guidance, employers could have fiduciary responsible for participant cryptocurrency trades made through their self-directed accounts.
Source: Graydon.law, April 2022
401k conflicts of interest misalign the interests of employers and 401k providers. While employers have a fiduciary responsibility to choose a 401k provider with "reasonable" administration fees and cost-efficient investments to make retirement as affordable as possible for plan participants, conflicted 401k providers have a financial incentive to push overpriced administration services and investments when lower-priced - but otherwise comparable - alternatives are available. How do employers avoid this trap? Here are four ways a 401k provider can profit unduly at the expense of plan participants.
Source: Employeefiduciary.com, April 2022
Cryptocurrencies have been promoted and have garnered significant attention in recent years as innovative investments that offer unique potential for outsized profits, but it's the opinion of the Department of Labor and many investment professionals that the potential pitfalls associated with these investments are not widely understood or appreciated by investors.
Source: Schneiderdowns.com, March 2022
According to CAR 2022-01, the DOL's concerns about the prudence of a fiduciary's decision to expose a 401k plan's participants to direct investments in cryptocurrencies or other products whose value is tied to cryptocurrencies stem from the significant risks of fraud, theft, and loss that have been endemic to these asset classes at least as of this early stage in their evolution. CAR 2022-01 elaborates on several aspects of cryptocurrencies that are at the heart of the DOL's apprehensions.
Source: Ropesgray.com, March 2022
Are plan fiduciaries protected from excessive fee lawsuits just because they offer participants a menu of investment funds that includes some low-fee investment choices? Or are plan sponsors and other fiduciaries required to do more than that? The answer to these questions may determine whether an excessive fee lawsuit is dismissed quickly and before an expensive, time-consuming trial.
Source: Penchecks.com, March 2022
To help increase awareness and understanding about basic fiduciary responsibilities when operating a retirement or health benefit plan, the Department of Labor is presenting the "Getting It Right – Know Your Fiduciary Responsibilities" webcast series. The three-part series will help employers and service providers understand how the fiduciary responsibility provisions of ERISA apply to employer-sponsored retirement and health plans and provide information about how to avoid common problems in managing a plan.
Source: Planadviser.com, March 2022
What the DOL's new ESG rule doesn't do is solve the real problem with ESG, namely that there's no consensus on what it means. This can have ramifications for plan sponsors and all 401k fiduciaries. Because of this, many are asking, will fiduciary liability increase?
Source: Fiduciarynews.com, March 2022
The Supreme Court recently handed down its eagerly-awaited decision in Hughes v. Northwestern University. Plan sponsors and 401k and 403b plan administrators had hoped the decision would create clearer pleading standards to free them from the endless line of ERISA class actions alleging fiduciary malfeasance when selecting investment menus and plan service providers. It didn't and now those fiduciaries have some more thinking to do.
Source: Cohenbuckmann.com, March 2022
CAPTRUST's Drew McCorkle enlightens readers on the attention cybersecurity is receiving at the DOL, the ways new cases, decisions, and settlements are impacting the fiduciary insurance market, and what changes to look out for regarding annual financial statement audits required for all plans with more than 100 participants.
Source: Captrust.com, February 2022
The decision in Hughes makes clear that merely providing investors with a broad menu of investment options does not excuse a fiduciary's allegedly imprudent decisions. A retirement plan that includes prudent investment options alongside imprudent options may be insufficient because a fiduciary must protect investors by continually monitoring and removing those imprudent investments. This duty is not discharged simply because investors have the choice to select their investments.
Source: Paulweiss.com, January 2022
For most employers, January kicks off a brand new 401k plan year. Now that all of the year-end plan amendments, participant notices, and new deferral elections are behind you, this is a great time to take a step back and look at the big picture for your 401k plan's governance and decision-making process and make sure your 401k plan decision-makers are properly authorized to make those decisions.
Source: Foley.com, January 2022
In response to questions and reactions that the DOL received from a range of stakeholders regarding the 2020 Letter, as well as a Risk Alert that the SEC issued in June 2020 regarding compliance issues for managers of private equity and hedge funds, the Supplemental Statement advised that the 2020 Letter should not be "misread . . . as saying that PE -- as a component of a designated investment alternative -- is generally appropriate for a typical 401k plan." So how did we get here, and what does this mean?
Source: Erisapracticecenter.com, January 2022
SAS 136 transfers a significant amount of liability for an audit's accuracy from an auditor to a plan's fiduciaries. SAS 136 intends to enhance the quality of audits of ERISA plans by adding new procedures to CPAs' audits beginning December 15, 2021. The burden for producing the added plan-related documentation required will likely fall to employers' human resources departments.
Source: Rolandcriss.com, January 2022
The DOL recently issued year-end relief to investment advice fiduciaries with its release of Field Assistance Bulletin No. 2021-02 on October 25, 2021. Previously, the DOL adopted Prohibited Transaction Exemption 2020-02 on December 18, 2020, which set forth several requirements that financial institutions and investment professionals must satisfy when providing fiduciary invest. advice, including advice to roll over a retirement plan account into an Individual Retirement Account. Although PTE 2020-02 became effective February 16, 2021, interim transitional relief delayed its effective date through December 20, 2021. The Notice further extended transitional relief to as late as June 30, 2022.
Source: Olshanlaw.com, December 2021
On November 16, 2021, the United States District Court for the Northern District of California rendered its decision in In Re Linkedin ERISA Litigation, granting in part/denying in part defendants' motion to dismiss. Among other issues, Linkedin involves a claim that Linkedin plan fiduciaries breached their duty of prudence by selecting/retaining an "underperforming" target-date fund. This sort of claim is being brought more frequently by plaintiffs' lawyers in 401k breach-of-duty-of-prudence litigation. This article discusses the court's decision on this issue.
Source: Octoberthree.com, December 2021
This article will help employee benefit plan fiduciaries better understand their responsibilities and manage the risks of non-compliance with ERISA requirements. The general approach to handling risk is a cycle of identifying, assessing, controlling, and reviewing controls over risks. Based on the assessment of a given risk, there are four ways to manage it: you can avoid, reduce, transfer, or accept the risk.
Source: Berrydunn.com, December 2021*
Increasing retirement plan-focused litigation has put insurance carriers and fiduciary service providers in difficult positions. In this article published in PLANSPONSOR, McDermott Partner Erin Turley said such litigation continues to be a "major focus" in the fiduciary insurance marketplace. "It is a challenging market right now, to the point that we are looking at trying to think about ways that insurance products might be differently structured, to address what we hope will only be a short-term tightening in the market."
Source: Mwe.com, December 2021
There is nothing a plan sponsor or ERISA fiduciary can do to prevent allegations of a fiduciary breach. However, there are many things they can do to be prepared to rebut such claims. Two recent fiduciary victories provide valuable insights into how a court would evaluate the decisions and processes of plan committees.
Source: Spotlightonbenefits.com, November 2021