Compliance July 29, 2016

9th Circuit Weighs In on Dignity Health’s Church Plan Status

The appellate court agreed with a lower court that the health provider’s pension plan did not fit the definition of ‘church plan’ under ERISA.
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The 9th U.S. Circuit Court of Appeals has ruled that Dignity Health’s pension plan is subject to the requirements of the Employee Retirement Income Security Act (ERISA) and does not qualify for ERISA’s ‘church plan’ exemption.

Agreeing with other circuits, the appellate court held that the plain language of ERISA requires that a “church plan” be established by a church or by a convention or association of churches. The 9th Circuit agreed with a district court ruling that Dignity Health had not argued it could meet that requirement.

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In its opinion, the appellate court also rejected Dignity Health’s argument that it should defer to a 1983 general counsel memorandum (GCM) from the Internal Revenue Service (IRS) in which the IRS determined that the retirement plans in question had not been established by a church but opined that the plans could qualify as church plans if they were maintained either by a church or a church-affiliated principal-purpose organization. The court said an agency’s interpretation of statute is entitled to deference “when it appears that Congress delegated authority to the agency generally to make rules carrying out the force of law, and that the agency interpretation claiming deference was promulgated in the exercise of that authority.” The court noted that the GCM included a disclaimer that it is “not to be relied upon or otherwise cited by precedent by taxpayers.”

The 9th Circuit noted that the district court did not reach the question of whether the “church plan” exemption in ERISA is unconstitutional—a question raised by a recent filing of another lawsuit challenging a plan’s ‘church plan’ status. Dignity Health also urged the appellate court to review the district court’s rulings that the lawsuit was timely, that the plan was not established by a church and that the plan is not maintained by a principal-purpose organization, but the appellate court concluded that “interlocutory consideration of these issues is unwarranted.”

The case was remanded back to the district court for further proceedings. The 9th Circuit’s opinion is here.

Compliance July 29, 2016

State Street Settles FX Charges

The bank will pay at least $60 million to ERISA plan clients.
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U.S. Attorney Carmen M. Ortiz for the District of Massachusetts, Director Andrew J. Ceresney of the Division of Enforcement for the Securities and Exchange Commission (SEC) and Secretary Thomas E. Perez of the U.S. Department of Labor (DOL), announced that State Street Bank and Trust Company agreed to pay a total of at least $382.4 million to settle a lawsuit alleging fraudulent foreign currency exchange charges.

The settlement includes $155 million to the Department of Justice, $167.4 million in disgorgement and penalties to the SEC and at least $60 million to Employee Retirement Income Security Act (ERISA) plan clients in an agreement with the DOL, to settle allegations that it deceived some of its custody clients when providing them with indirect foreign currency exchange (FX) services.

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According to a statement from the Justice Department, as part of the settlement with the Department, State Street admitted that contrary to its representations to certain custody clients, its State Street Global Markets division (SSGM) generally did not price FX transactions at prevailing interbank market rates.  Instead, State Street admitted that SSGM executed FX transactions by applying a predetermined, uniform mark-up (if the custody client was a FX purchaser) or mark-down (if the custody client was an FX seller) to the prevailing interbank rate for FX. 

State Street is also alleged to have falsely informed custody clients that it provided “best execution” on FX transactions, that it guaranteed the most competitive rates available on FX transactions and that it priced FX transactions based on a variety of factors when, in fact, prices were largely driven by hidden mark-ups designed to maximize State Street’s profits.

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