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Compliance Update | Published in June 2017

Compliance Update

Summaries of the latest news from Washington and the courts—what’s coming, what’s contemplated and what’s critical for plan sponsors to know

By PLANSPONSOR staff | June 2017
Art by Ran Zheng
Moving Forward on Fiduciary Rule Compliance
The Department of Labor (DOL) confirmed that it will not seek to further delay the June 9 applicability date of the new fiduciary rule defining investment advice and establishing the best interest contract (BIC) exemption and other related exemptions under the Employee Retirement Income Security Act (ERISA). The effect is that the policing power of the DOL will be greatly expanded, reaching over individual retirement accounts (IRAs) and the vast majority of investment and advice providers to defined contribution (DC) retirement plans. Technically speaking, the DOL has formally started the implementation process, issuing a temporary enforcement policy and a new set of conflict of interest FAQs that focus on the transition period stretching from June 9 to January 1, 2018. This action follows the DOL’s April 7 final rule, which delayed the applicability date by 60 days, from April 10 to June 9.
 
DOL Asks About Retirement Strategies
The Department of Labor (DOL) has submitted for review by the Office of Management and Budget (OMB) an information collection request (ICR) titled “On the Road to Retirement Surveys.” As the DOL explains, “The EBSA [Employee Benefits Security Administration] seeks to undertake a long-term research study that will track U.S. households over several years in order to collect data and answer important research questions on how retirement planning strategies and decisions evolve over time.” Public comments on the request are invited, the DOL notes, and EBSA will pilot the underlying initiative.
 
IRS Sets 2018 HSA Limits

The Internal Revenue Service (IRS) issued Revenue Procedure 2017-37, which provides the 2018 inflation-adjusted amounts for health savings accounts (HSAs), held in conjunction with high-deductible health plans (HDHPs), as determined under Section 223 of the Internal Revenue Code (IRC). For calendar year 2018, the annual limitation on deductions for an individual with self-only coverage under an HDHP is $3,450, and the annual limitation on deductions for an individual with family coverage is $6,900. The IRS definition of an HDHP for 2018 is a health plan with an annual deductible of $1,350 or more for self-only coverage/$2,700 or more for family coverage, and the annual out-of-pocket expenses—deductibles, co-payments and other amounts, but not premiums—are $6,650 or less for self-only coverage/$13,300 or less for family coverage.
 
Addressing Plan Leakage
U.S. Senators Bill Nelson, D-Florida, and Mike Enzi, R-Wyoming, introduced legislation to address leakage from defined contribution (DC) retirement plans. The Shrinking Emergency Account Losses (SEAL) Act would give workers who leave their jobs up until they file their federal taxes to repay loans they had taken out of their company-sponsored retirement plan, according to news reports. The SEAL Act, further, would allow workers to keep making contributions immediately after taking a loan and would let them continue to contribute to their defined contribution plans during the six months following a hardship withdrawal. The act additionally would limit to three the number of loans a worker could take from a DC plan and would outlaw debit cards linked to a plan’s assets.

Legislation to Stop Multiemployer Plan Benefit Cuts

Senator Bernie Sanders, I-Vermont, and Representative Marcy Kaptur, D-Ohio, introduced the Keep Our Pension Promises Act, which would reverse a provision passed in 2014 that could result in deep pension cuts for millions of retirees and workers in multiemployer pension plans. According to the Pension Rights Center, to date, 15 plans, covering more than 500,000 workers and retirees, have applied to cut retiree pensions, and more than 60 plans, covering nearly 1 million workers, are eligible to do the same. In February, Iron Workers Local 17, in Cleveland, became the first plan to implement 50% to 60% cuts to retiree pensions. Cuts are allowed under the Multiemployer Pension Reform Act of 2014 (MPRA) for multiemployer defined benefit (DB) plans in critical and declining status. The new legislation aims to protect such pensions by creating a legacy fund within the Pension Benefit Guaranty Corporation (PBGC); the fund would be financed by closing two tax loopholes that allow the wealthiest Americans to limit what they pay in taxes.
 
RJR Wins Third Appellate Decision In ERISA Case

The 4th U.S. Circuit Court of Appeals once again sided with RJR Tobacco retirement plan fiduciaries in an Employee Retirement Income Security Act (ERISA) lawsuit related to the spinoff of Nabisco assets from the tobacco portions of the business and as holdings in the retirement plan. Circuit Judge Diana Gribbon Motz wrote in the latest opinion, “The beneficiaries of an ERISA retirement plan appeal the judgment, issued after a full bench trial, that the fiduciary’s breach of its duty of procedural prudence did not cause the substantial losses in the retirement plan resulting from the sale of non-employer stock funds. We had previously remanded the case to the district court so that it could apply the correct legal standard for determining loss causation, but we expressed no opinion as to the proper outcome of the case. On remand, applying the correct standard, the court found that the fiduciary’s breach did not cause the losses because a prudent fiduciary would have made the same divestment decision at the same time and in the same manner. For the reasons that follow, we affirm. …”
 
Duke University 403(b) Plan Excessive Fee Suit Moves Forward

A federal court judge has decided that several claims in a lawsuit against Duke University regarding excessive fees are plausible. The judge in the U.S. District Court for the Middle District of North Carolina denied a motion to dismiss the claim that Duke 403(b) plan fiduciaries failed to engage in a prudent and loyal process for selecting a recordkeeper. The plaintiff claims that using four recordkeepers instead of one subjected participants to the same services at a higher cost and that the plan fiduciaries failed to solicit competitive bids from vendors on a flat per-participant fee. The judge also left intact the claim that, “rather than consolidating the plan’s more than 400 investment options into a core investment lineup in which prudent investments were selected for a given asset class and investment style, as is the case with most defined contribution (DC) plans, defendants retained multiple investment options in each asset class and investment style, thereby depriving the plan of its ability to qualify for lower-cost share classes of certain investments, while violating the well-known principle for fiduciaries that such a high number of investment options causes participant confusion.”
 
FedEx Faces Challenge of Pension Calculations Under USERRA

Two employees have filed a proposed class action lawsuit under the Uniformed Services Employment and Re-employment Rights Act (USERRA) on behalf of a class of current and former employees of Federal Express Corp. (FedEx) who did not receive the full pension and retirement contributions mandated by the act for the periods in which the FedEx employees took leave from the company to serve in the U.S. armed forces. The lawsuit claims that, since 2002, FedEx and the pension plan defendants have applied a policy for making pension and retirement contributions for periods of qualified military service that did not comply with USERRA, because they neglected to apply the 12-month look-back formula that USERRA requires. Instead, FedEx applied a formula that is not a true 12-month look-back to determine the pension and retirement contributions and credits of employees whose compensation is not reasonably certain.

Participants Sue Princeton Trustees For ERISA Breaches

A new lawsuit has been filed in the U.S. District Court for the District of New Jersey, Nicolas v. The Trustees of Princeton University. The action was taken by attorneys with Schneider Wallace Cottrell Konecky Wotkyns LLP and Berger & Montague PC—two firms behind some of the best-known examples of Employee Retirement Income Security Act (ERISA) litigation. This lawsuit includes broad swaths of text borrowed directly from those previous challenges. Here is how the classic claim is leveled: “Instead of leveraging the plans’ massive bargaining power to benefit participants and beneficiaries, defendant failed to investigate, examine and understand the real cost to plans’ participants for administrative services, thereby causing the plans to pay unreasonable and excessive fees for investment and administrative services.”

University of Chicago Faces Excessive Fee Lawsuit

Another university is charged with breaching its fiduciary duties under the Employee Retirement Income Security Act (ERISA) for allowing plan participants to pay excessive investment and administration fees. The proposed class action lawsuit against the University of Chicago says, “Because the marketplace for retirement plan services is established and competitive, and because the Plans have billions of dollars in assets, the Plans have tremendous bargaining power to demand low-cost administrative and investment management services and well-performing investment funds.” However, the lawsuit contends, rather than negotiating separate, reasonable and fixed fees for recordkeeping, participants paid an asset-based fee for administrative services that continued to rise with the increase in value of participants’ accounts, even though no additional services were offered. —PS

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