Fiduciary and Investment Issues Archives - Page 11 of 23

White House Urges Suspension of DOL Fiduciary Rule

by Brian Tiemann | Feb 8, 2017 | Employee Benefits, Fiduciary and Investment Issues, Retirement Plans

The future of the fiduciary rule—originally set to be implemented this upcoming April—remains uncertain after the White House directed the United States Department of Labor (DOL) to reevaluate, defer implementation and consider rescinding the controversial new fiduciary rule on February 3, 2017. In response to the White House, the acting US Secretary of Labor announced that the DOL will now consider its legal options to delay the applicability date to comply with the President’s directive. McDermott’s ERISA practice will closely monitor these developments and provide additional guidance as it becomes available.

Read full article here.

ERISA Basics National Institute: Section 401(k) Plans

by Diane Morgenthaler | Nov 15, 2016 | Benefit Controversies, Fiduciary and Investment Issues, Retirement Plans

A 401(k) plan has a qualified cash or deferred arrangement that is part of a profit sharing plan or stock bonus plan. Under the Internal Revenue Code Section 401(k)(2), an employee may elect to make contributions to the plan, the covered employee’s contributions are not distributable before severance from employment, disability, death, attainment of age 59 ½, financial hardship, or termination of the plan, and under which the covered employee’s contributions are nonforfeitable.

This presentation will address the following objectives:

Who gets the money?
What money do they receive?
Where does the money go?
When do they get the money?
How is the money administered?

View the presentations slides.

Financial Planning & Analysis

by Brian Tiemann and Todd Solomon | Oct 19, 2016 | Fiduciary and Investment Issues, Retirement Plans

On Monday, October 24, Chicago partners Todd Solomon and Brian Tiemann will speak at the Association of Financial Professionals conference in Orlando, Florida. Joined by Kendall Frederick, Senior Manager of Finance Integration at Hanesbrands Inc., the panel will discuss how to use financial planning and analysis analytics to help plan fiduciaries assess the need and potential effectiveness of plan design changes for 401(k) plans, including automatic enrollment and reenrollment strategies. The panel will discuss the analytics considered by Hanesbrands prior to its recent participant reenrollment and introduction of white label funds under its 401(k) plan as a case study.

Conference attendees can join the speakers for this discussion on Monday, October 24 at 8:30 a.m. Eastern in Room W307CD at the Orange County Convention Center, located at 9400 Universal Blvd, Orlando, FL 32819. More information is available here.

Employee Benefits Innovators Roundtable: Fiduciary Update and the DOL Fiduciary Rule

by McDermott Will & Emery | Jul 7, 2016 | Fiduciary and Investment Issues, Labor, Retirement Plans

The US Department of Labor’s new fiduciary rule is aimed at financial advisors, including brokers, who provide retirement plan services. However, the new rule will impact compliance obligations and potentially, costs for plan sponsors, as highlighted in the following presentation.

View presentation slides.

401(k) Plan Sponsors and Fiduciaries Face an Alarming Number of Stable Value Fund and Other Class Action Lawsuits

by McDermott Will & Emery and Todd Solomon | Jun 7, 2016 | Benefit Controversies, Fiduciary and Investment Issues, Retirement Plans

In the last several months, plaintiffs have filed multiple class action lawsuits against plan sponsors, plan fiduciaries and stable value fund providers. These lawsuits, which have involved 401(k) plans sponsored by large corporations, have alleged that:

Plan fiduciaries breached their fiduciary duties under the Employee Retirement Income Security Act of 1974, as amended (ERISA), by investing in poorly performing stable value funds, failing to monitor the investments during periods of poor performance and high fees, and improperly benchmarking stable value funds against other lower cost and higher yielding investment options; and
Stable value fund providers violated their fiduciary duties under ERISA by offering imprudent, low-yielding investments and charging inappropriately high fees.

These lawsuits have also included allegations that plan fiduciaries breached their fiduciary duties of loyalty and prudence under ERISA by:

Causing plans to pay unreasonably high investment management fees when compared to available lower-cost alternatives such as institutional share classes, collective trusts and separate accounts; and
Failing to monitor the asset-based and other fees charged by plan record keepers (revenue sharing) to account for economies of scale. Some complaints have alleged that adequate monitoring should include a periodic competitive bidding process.

Plan sponsors and plan fiduciaries face a particularly difficult bind with respect to the offering of a stable value investment option as, ironically, they have been challenged for offering stable value funds and equally fornot offering them. For example, in addition to the stable value fund allegations described above, plaintiffs have sued some plans for failing to offer stable value funds, because money market funds—a fixed income investment alternative—have produced historically low returns. In fact, such lawsuits note that most large 401(k) plans offer stable value funds and criticize plan sponsors for their failure to conform.

As a result of this wave of lawsuits, plan sponsors and plan fiduciaries should evaluate the process they use to decide to invest in stable value funds, as well as the process they use to monitor investment management and recordkeeping fees more generally. Plan sponsors and plan fiduciaries must carefully select expert investment advisers and understand the expert’s advice before applying it. Plan fiduciaries that do not currently offer a stable value investment option should examine their fund lineups to ensure that the lineups provide an adequate fixed income investment at a reasonable cost to plan participants.

In addition, plan sponsors and plan fiduciaries should establish and maintain an investment policy, which they should use to rigorously monitor investment options and related fees. Plan fiduciaries should also document the process for making fiduciary decisions and be able to demonstrate that they considered quality, service and price in selecting and monitoring investment options. This documentation of the investment selection and monitoring process is crucial to defending against the recent onslaught of stable value fund and other related lawsuits.

View From McDermott: Is Tibble the End of Revenue Sharing?

by Lisa Loesel and Mary K. Samsa | Mar 30, 2016 | Fiduciary and Investment Issues, Retirement Plans

Ten short years ago, revenue sharing seemingly presented a “win win” opportunity for third-party administrators (TPAs) and defined contribution plan sponsors. TPAs generally retained all revenue sharing payments received from plans’ investment fund companies in exchange for administrative services provided to the investment funds. In recognition of the revenue sharing received from the investment fund companies, TPAs often provided “free” plan administrative services to plan sponsors. Starting in the mid-2000s, however, more plan sponsors began to question the amount of money received by the TPAs under this arrangement, and plaintiffs’ lawyers and the DOL began to monitor and scrutinize revenue sharing.

This article summarizes the evolution of revenue sharing over the past ten years and examines its future through the lens of the recent U.S. Supreme Court decision in Tibble v. Edison and the subsequent uptick in 401(k) fee litigation.

Read the full article.

Supreme Court Emphasizes Heightened Pleading Standard for Stock Drop Cases

by McDermott Will & Emery | Mar 4, 2016 | Employee Stock Ownership Plans (ESOPs), Fiduciary and Investment Issues, Health and Welfare Plans

On January 25, 2016, the Supreme Court of the United States issued a per curiam opinion in Amgen Inc. v. Harris, holding that the Amgen, Inc. employees who filed suit after the value of the employer stock in which they had invested dramatically decreased, failed to sufficiently plead a breach of fiduciary duty claim under ERISA in light of the Court’s decision last term in Fifth Third Bancorp v. Dudenhoeffer.

Read the full article.

Increase in PBGC Premiums Effective for 2017 and Later Years

by Stephen Pavlick and McDermott Will & Emery | Dec 3, 2015 | Employee Benefits, Fiduciary and Investment Issues, Retirement Plans

President Barack Obama signed into law the Bipartisan Budget Act of 2015 (the Budget Act), which raised Pension Benefit Guaranty Corporation (PBGC) premium rates beginning in 2017.

Background

Single-employer defined benefit pension plans must pay annual premiums to the Pension Benefit Guaranty Corporation (PBGC), the U.S. government agency that insures these plans. All single-employer defined benefit pension plans pay an annual fixed premium. Those plans with unfunded vested benefits at year-end must pay an additional variable rate premium. The due date for payment of these premiums has generally been the fifteenth day of the tenth full calendar month of the premium payment year.

In 2016, the fixed premium is set at $64 per participant. The variable rate premium is based on the amount of potential liability that the plan creates for the PBGC. Calculated on a per-participant basis, the variable rate premium is a specified dollar amount for each $1000 of unfunded vested benefits under the plan as of the end of the preceding year, subject to a $500 per-participant cap. For 2016, it will equal $30 per $1000 of underfunding, subject to the cap. Both premiums are indexed for inflation.

Changes to PBGC Rates

The Budget Act makes the following changes:

Single-employer fixed premiums will be raised to $69 per participant for plan years beginning in 2017, $74 per participant for plan years beginning in 2018 and $80 per participant for plan years beginning in 2019. In 2020, the fixed premium will be re-indexed for inflation.
Single-employer variable rate premiums, which will continue to be adjusted for inflation, will increase by an additional $3 for plan years beginning in 2017 (from $30 to $33 per $1000 of underfunding, subject to indexing); by an additional $4 for plan years beginning in 2018 (from $33 to $37 per $1000 of underfunding, subject to indexing); and by an additional $4 for plan years beginning in 2019 (from $37 to $41 per $1000 of underfunding, subject to indexing). There are no scheduled increases (other than indexing) for years after 2019.
To include the 2025 premium revenue within the 10-year budget window, the premium due date for plan years beginning in 2025 will be the fifteenth day of the ninth calendar month beginning on or after the first day of the premium payment year.

For more information regarding the PBGC premium increases described above or the other employee benefits provisions included in the Budget Act, please contact your regular McDermott lawyer or one of the authors.

Reportable Event Changes for Pension Plans Effective January 1, 2016

by McDermott Will & Emery, Diane Morgenthaler and Patrick Ryan | Dec 2, 2015 | Fiduciary and Investment Issues, Retirement Plans

Effective January 1, 2016, the Pension Benefit Guaranty Corporation (PBGC) altered the reportable event rules for defined benefit pension plans. Although new PBGC regulations make electronic filing of all reportable event notices mandatory, the regulations also substantially reduce the reporting requirements for pension plan administrators, sponsors and contributing employers.

Read the full article.

Recent Case Law Suggests Corporations Should Implement Limits on Director Equity Awards

by Andrew Liazos | Sep 8, 2015 | Employee Stock Ownership Plans (ESOPs), Executive Compensation, Fiduciary and Investment Issues

Recent case law suggests that corporations should consider implementing limits on director equity awards similar to those implemented for executives. The current practice is to include director equity awards in stockholder approved “omnibus” stock plans that also cover executive officers and key employees. However, unlike for certain executives, there are no regulatory requirements regarding limits on directory equity compensation.

Two recent cases brought by shareholders arguing that corporations essentially overpaid their directors are leading companies to revisit the practice of not having any limits on director equity compensation. Both cases survived motions to dismiss; one case is settled while the other remains active. In an article published by Bloomberg BNA, Andrew C. Liazos, partner at McDermott Will & Emery, noted that additional cases are being filed regarding director compensation using a variety of state corporate law claims.

Given the case law and threat of additional litigation, corporations should begin designing limits for director equity compensation. For more discussion on this topic, read the attached presentation co-authored by Mr. Liazos.

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