fiduciary Archives - EMPLOYEE BENEFITS BLOG

Understanding a Trustee’s Role in Management Incentive Plans

by McDermott Will & Emery | Jun 9, 2022 | Benefit Controversies, Employee Benefits, Employee Stock Ownership Plans (ESOPs), Executive Compensation, Fiduciary and Investment Issues, Retirement Plans

On May 5, 2022, McDermott Partner Erin Turley delivered a presentation during the 2022 TEA National Conference titled “Understanding a Trustee’s Role in Management Incentive Plans.” Her presentation focused on the trustee’s role in Management Incentive Plans (MIPs), how retention and performance stock appreciation rights (SARs) impact an employee stock ownership plan (ESOP) and ways to avoid trustee pitfalls with a MIP. Erin also discussed types of synthetic equity design decisions, incentive stock options, non-statutory stock options and phantom stock/SARs.

The presentation concluded with the following fiduciary considerations:

Since the issuance of any equity or synthetic equity can have a potentially dilutive impact on the ESOP, it is important for any plan to be in the best interest of the ESOP plan participants.
As a result, one of the primary objectives of the plan should be to identify and select a group of people to be incentivized and rewarded to drive value for everybody.
For example, in the case of a SAR, you are rewarding a group of individuals based only on appreciation in the value of the company stock. If the value goes up, that’s good for everybody.
The overall compensation program should be in line with compensation practices for comparable-type positions in the industry, perhaps taking geography into account.

For questions about employee benefits matters, please contact Erin or McDermott’s employee benefits practice team.

The Fiduciary Duties of 457(b) Plans and How to Mitigate Potential Risks

by Todd Solomon | May 19, 2022 | Employee Benefits, Executive Compensation, Fiduciary and Investment Issues, Retirement Plans

Fiduciaries of 403(b), 401(a) and 457(b) retirement plans have come under increased scrutiny in recent years, in part due to participant lawsuits filed against plan sponsors and the resulting media attention. In this presentation with the 457 Consulting Group, McDermott Partner Todd Solomon discusses the fiduciary duties of plan sponsors and how to mitigate potential risks. The content in these slides applies to governmental 457(b) plans.

Access the slides.

Corporate Governance and the Permanency of COVID-19

by Michael W. Peregrine | Oct 26, 2021 | Employment

As COVID-19 becomes an endemic threat, corporate officers should accept the fact that the virus will be a permanent enterprise risk for the indefinite future.

In this FT Specialist article, McDermott Partner Michael Peregrine says corporate boards should place their focus on business and operational challenges that result from the pandemic. These include:

Enhanced workplace safety in response to delta’s extreme transmissibility;
An equitable, enforceable and sustainable approach to employees who do not get vaccinated;
The feasibility of current return-to-work plans;
Work-from-home arrangements as a more permanent employment model; and
The pandemic’s outsize impact on female employees.

Access the article.

Health Plan Sponsor Assessed Attorneys’ Fees for Pursuing Meritless ERISA Claims against Plan Administrators

by Richard J. Pearl | Mar 11, 2021 | Benefit Controversies, Employee Benefits, Health and Welfare Plans

The US Court of Appeals for the Eighth Circuit upheld an award of attorneys’ fees payable by a health plan sponsor to the plan administrators that the plan sponsor had sued. The plan sponsor aggressively pursued meritless Employee Retirement Income Security Act of 1974 (ERISA) claims.

Access the article.

The Biggest ERISA Decisions of 2019

by Richard J. Pearl | Jan 14, 2020 | Benefit Controversies, Employee Benefits, Fiduciary and Investment Issues, Retirement Plans

In a relatively slow year for benefits rulings, multimillion-dollar settlements were the star of the show. And amid the slew of settlements this year, two court rulings stood out.

McDermott’s Richard J. Pearl contributes to a Law360 article that breaks down the Ninth Circuit ruling allowing benefit plan managers to force fiduciary-breach suits into solo arbitration and the Tenth Circuit holding that insurers who determine workers’ profits from 401(k) investments aren’t fiduciaries.

Access the full article.

Originally published by Law360, December 2019

Are Your Employee Communications Up to Snuff? — ERISA Disclosure Practices

by McDermott Will & Emery and Allison Wilkerson | Oct 12, 2017 | Employee Benefits, Employee Stock Ownership Plans (ESOPs), Fiduciary and Investment Issues, Health and Welfare Plans, Retirement Plans

Mary Samsa and Allison Wilkerson discussed that the majority of ERISA disclosures are in fact employee communications – many of which are viewed as “routine” by employers. As such, plan sponsors are continually balancing the best way in which to relay complex benefit plan information in a manner to best be understood by employees but equally satisfy the applicable regimented disclosure requirements. Some key takeaways from their presentation included not only the compliance and content requirements, but methods for delivering communications to employees, traps for the unwary (i.e., inconsistent information communicated, the advantage of having these communications reviewed by legal counsel, and oversight of third parties who assist in preparing communications) and some common sense approaches for routine reviews of communications and continuing education to participants so that periodic communications are not always monumental tasks.

View the full presentation.

View From McDermott: Fifth Circuit Focuses on Process in ESOP Valuations

by Allison Wilkerson | Jul 28, 2016 | Employee Stock Ownership Plans (ESOPs), Labor, Retirement Plans

Though the Supreme Court’s 2014 unanimous ruling in Fifth Third Bank v. Dudenhoeffer announced the Employee Retirement Income Security Act (ERISA) standards for stock valuation in the context of a large public employee stock ownership plan (ESOP), the vast majority of ESOPs are still grappling with valuation issues. ESOPs that hold stock of closely-held corporations—approximately 90% of all ESOPs— remain almost unaffected by Dudenhoeffer’s valuation discussions, and face continued scrutiny by the Department of Labor (DOL). Appraisal of closely-held stock is an inexact science that involves an inherent level of uncertainty in assessing a variety of potential fact patterns.

This article summarizes valuation issues in acquisitions of closely-held corporation stock by ESOPs in the context of Perez v. Bruister, a recently decided Fifth Circuit case. The case stressed the importance of ‘‘process’’ in valuation determinations being utilized for acquisitions of a corporation’s stock by an ESOP. In reviewing the case, this article provides a detail of the process that should be followed to ensure consideration of the appropriate factors by fiduciaries in reviewing valuations for ESOP transactions. The article concludes with a discussion of guidance provided by the court in Bruister that may be instructive as to best practices for ESOP fiduciaries charged with establishing the value to be used by an ESOP holding shares of stock of a private company.

View full report.

DOL Releases Final Regulations to Expand ERISA ‘Fiduciary’ Definition

by McDermott Will & Emery, Brian Tiemann and Joseph K. Urwitz | May 10, 2016 | Labor, Retirement Plans

After more than five years of development and revision, the US Department of Labor (DOL) released final regulations to redefine a “fiduciary” under the Employee Retirement Income Security Act of 1974, as amended (ERISA) and the Internal Revenue Code of 1986, as amended (the Code).

Read the full article.

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.

The Directed Trustee in the Post-Dudenhoeffer World

by Joseph K. Urwitz | Jan 22, 2015 | Employee Stock Ownership Plans (ESOPs), Fiduciary and Investment Issues, Retirement Plans

Court cases challenging the actions of Employee Retirement Income Security Act fiduciaries have continued unabated since the scandal of Enron in 2002. Since then, a large number of cases are in the “stock drop” area, which encompasses cases relating to employer securities investments when the stock price drops severely. The litigation has focused on whether a presumption of prudence exists that protects fiduciaries holding employer securities investments on behalf of a retirement plan. In June 2014, the U.S. Supreme Court ruled in the case of Fifth Third Bancorp v. Dudenhoeffer that ERISA doesn’t provide a presumption of prudence to protect fiduciaries of plans investing in employer securities. Now that the Dudenhoeffer decision resolves the presumption issue, it is reasonable to expect that ERISA cases may return to focus on the fiduciary duties of a directed license.

Read the full article.

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