July 16, 2014 (PLANSPONSOR.com) – A federal appeals court has revived a stock drop case, filed against oil company BP Plc, based on a new precedent set by the U.S. Supreme Court.
The U.S. District Court for the Southern District of Texas had dismissed Whitley v. BP Plc on the grounds that the
plaintiffs had not overcome the “presumption of prudence” standard, as
established in Moench v. Robertson, relating to investment in company stock.
The district court also denied
the plaintiffs’ request to amend their complaint.
Following plaintiffs’ appeal to the 5th U.S. Circuit Court of Appeals, the Moench
standard was impacted by a U.S. Supreme Court ruling in the separate case of
Dudenhoeffer v. Fifth Third Bancorp. This June 2014 ruling dispatched Moench
and held that “ERISA fiduciaries managing a plan invested in company stock are
subject to the same duty of prudence as any other ERISA fiduciary, except that
they need not diversify the fund’s assets.” The Supreme Court ruling also set a standard for pleadings in stock drop cases. The 5th
Circuit vacated
the district court ruling and remanded the case back to that
court for reconsideration in light of Dudenhoeffer.
Former BP Plc employee Ralph Whitley filed suit against the oil company in June 2010 (see “Ex-Employee
Sues BP Over Plan Losses”). The suit alleged that since the defendants
(which include: BP Plc; BP America, Inc.; Anthony Hayward; Andy Inglis; Carl
Henric Svanberg; and State Street Bank and Trust Company) were fiduciaries of
the company’s retirement plans under the Employee Retirement Income Security
Act (ERISA), they should have known that the BP Stock Fund, which
consisted of BP American Depository Shares, was no longer a prudent investment
due to its decreasing value after the 2010 Deepwater Horizon oil spill. The suit alleged that the defendants breached their fiduciary duty by not taking action
to remedy this situation (i.e., dropping the stock fund from the plan
investment menu).
The 5th Circuit‘s ruling in Whitley v. BP
Plc is here.
Employers Looking for New Way to Provide Retirement Benefits
July 16, 2014 (PLANSPONSOR.com) – The employer-sponsored retirement benefits landscape is changing and PwC suggests “new paternalism” may be the answer to helping employers achieve retirement savings success.
During
a webcast about PwC’s Global Pension Survey results, Isaac Buchen, principal at
PwC Human Resource Services in New York, said PwC is seeing that clients are
looking for something new and asking if the risks of their current retirement
plan offerings outweigh the value of their benefits program to employees. In
the U.S., many defined benefit (DB) plans are frozen or closed, or plan
sponsors are adopting risk transfer strategies. The cost of providing DB plans is
increasing as employees live longer. In addition, the work force is changing;
workers are not staying with one employer for a long period of time.
According
to Elizabeth Mack, manager at PwC Human Resource Services in New York, the vast
majority of employers surveyed for PwC’s Global Pension Survey indicated what they
are doing now in terms of retirement benefits is not what they expect to be
doing in 10 years. There will be more defined contribution (DC) plans and fewer
DB plans—91% of respondents indicated they expect fewer active employees covered by
DB plans in the next 10 years. Respondents also indicated they will take actions to
mitigate risks (31% expect to spend less on former employees and 50% will spend
less on active employees in next 10 years), and will focus more on the adequacy
of their DC plan provisions.
Mack
noted that in comments to the survey, respondents expressed concerned about the
adequacy of benefits and work force planning. One respondent said, “Employees
have to become more interested and in control of their future retirement.”
The new paternalism concept
PwC promotes is about investing in helping employees make better decisions. Just
as employers offer health care wellness programs to encourage employees to make
better decisions about their health, employers should offer financial wellness
programs, that not only include retirement plan education but overall financial
education. New paternalism is about offering easy access to good alternatives
for saving for retirement, increasing employee appreciation of the quality of the
employer retirement benefit offering and promoting higher savings levels by
employees, while offering a plan that is affordable for the employer, Mack
said.
“It’s
about giving employees a push and making it easy so they don’t say, ‘Oh, I’ll
worry about this later,’” she added.
New
paternalism could also include other benefit offerings to help employees be
financially successful, according to Mack, such as life insurance or partnering
with mortgage providers to get employees better rates so they can have more
money in their pocket or more money to save. In addition, under new
paternalism, employers offer employees flexibility about when to save and how
much. “While we don’t want to encourage people to not save more, if they have
debt or other financial obligations now and will earn more in the future, we
can educate them about how to boost savings later and let them know their
options,” Mack explained.
New
paternalism may also include “compulsory” education, retirement counseling and
education for part-time or semi-retired employees that may not have access to the
retirement plan.
According
to PwC, things employers should consider for adopting a new paternalism
approach include:
What
savings arrangements to offer;
What
financial education to provide;
Whether
to make advice available, and at what cost;
Whether
to tailor benefits and education offerings differently for different employees;
Whether
to help employees with debt as well as savings management;
Reputation
risk around selecting and monitoring counterparties (what vendors will you use
for education);
Whether
in-house staff will do education or whether to outsource?
Survey
Results
Buchen
said 114 global multinational companies participated in survey; 32 were U.S.-based
companies. Among U.S. firms, 72% agreed or strongly agreed defined contribution
plans are their preferred way to provide retirement benefits to employees. Only
9% said the same about defined benefit plans being their preferred way to
provide retirement benefits to employees. Six in 10 U.S. respondents said the
type and level of benefits they provide is driven by what competitors do.
All
respondents said providing retirement benefits is at least somewhat important
to retaining good employees. Respondents also indicated providing retirement
benefits is at least somewhat important to maintaining their reputation as an
employer (88%), hiring people they want (94%), the overall success of the
business (90%), ensuring an orderly succession in their work force (84%), and driving
the right behaviors among their employees (66%).
While
72% of U.S. respondents said it is very important to empower employees with
knowledge and resources to make their own decisions about their retirement
savings, only 13% indicated they are very effective at doing this. Nearly
six in 10 indicated it is very important that employees share in the cost of
providing their retirement benefits, but only 34% reported they are effective
at making this happen, while 44% said they are not effective enough. Mack said these
issues can be addressed by new paternalism.
U.S.
respondents indicated they are most concerned about the risks of their DB plans
on their balance sheets (91%), cost base (85%), profits (82%) and cash flows
(85%). They are at least somewhat concerned about the impact on of uncertain
investment returns (97%), continued low interest rates (100%), people living
longer (88%), and changing regulations that increase funding requirements (82%)
on their pension financing.
The
survey found U.S.-led companies are more in support of freezing (75%) and
closing DB plans (88%) as well as moving from DB to DC (63%) or offering a
lump-sum cash out (59%), while other options like hedging (34% of U.S.
respondents are in support of) and transferring to an insurance company (38%)
remain more popular for European-led companies. Buchen said he expects to see
uptick in risk transfers if and when interest rates rise, as DB plan sponsors will
then have lower pension liability and it will cost less to purchase annuities.