Compliance March 14, 2013

Fidelity Faces Another Float Income Suit

March 14, 2013 (PLANSPONSOR.com) – Another lawsuit has been filed against Fidelity Investments regarding its use of float income.
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Three participants from three different 401(k) plans allege that Fidelity engaged in or caused the plans to engage in prohibited transactions involving plan assets, by using float income to pay its operating expenses and by failing to distribute float income solely for the interest of the plans. As in the previous claim filed against Fidelity (see “Fidelity Facing Suit Regarding Float Income”), the lawsuit used the trial record from Tussey v. ABB, in which the U.S. District Court for the Western District of Missouri held that Fidelity breached its fiduciary duties “when it failed to distribute float income solely for the interest of the Plan” and “when it transferred float income to the Plan’s investment options instead of the Plan.”   

When plan assets are deposited on an interim basis in interest-bearing accounts before invested or disbursed as directed by the plans’ participants, the income earned on or derived from the assets while invested in such accounts is “float income.” (See “Be Careful Not to ‘Float’ into an ERISA Violation”)  

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The lawsuit asks for class action status for the plaintiffs, on behalf of themselves and “Employee pension benefit plans covered by the Employee Retirement Income Security Act of 1974 subject to Internal Revenue Code §§ 401(a), (k), for which Fidelity serves as trustee or service provider, and the participants in those plans.”

The latest complaint, filed in U.S. District Court for the District of Massachusetts, is here.
Compliance March 14, 2013

Is Your Health Plan SPD ERISA-Friendly?

March 14, 2013 (PLANSPONSOR.com) – Does your company have a legitimate summary plan description (SPD) for its health care plan, or simply a certificate of coverage?
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Under the Employee Retirement Income Security Act (ERISA), employers must provide a plan document and SPD for their health insurance plans. Despite these requirements, employers may simply have a certificate of coverage—written by the insurance carrier—rather than an actual SPD, Richard Schwartz, partner at Seyfarth Shaw’s Employee Benefits & Executive Compensation department, said during the firm’s health care event, “Provide Health Coverage or Pay a Tax Penalty: What Employers Need to Know About Health Care Reform.”

The certificate of coverage from the insurance company satisfies insurance laws, but is not always drafted with ERISA in mind, he said. Beyond ERISA requirements, these documents sometimes fail to contain language that is protective of employers, he added.

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“There’s some exposure out there, if upon audit the DOL asks [an employer] for their SPD,” Schwartz told PLANSPONSOR.

The employer could also run into trouble if an employee asks for an SPD that does not exist. The worst-case scenario would be if a claim goes to litigation and the employer cannot provide an SPD, he warned.  

There are two kinds of risk, Schwartz explained: The risk of a problem arising, and your exposure should it arise. “Sometimes you can’t mitigate the risk of something happening,” he said, but you can be prepared if it does.

When preparing or reviewing SPDs, Seyfarth Shaw said plan sponsors should: 

  •  Review the insurance certificates and make sure their understanding of the program is the same as the insurer’s or third-party administrator’s (TPA’s) understanding of it;
  •  Identify any substantive or legal provisions that are missing or inadequate;
  •  Identify any desirable or protective language that is missing or inadequate; and,
  •  Ask the insurer or TPA if they will correct any inadequate provisions or add any “missing” provisions.  

 

Plan sponsors that do not have actual SPD documents for their health care plans can contact their ERISA attorneys. “This is an extremely important subject,” Schwartz concluded. 

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