Compliance March 25, 2024

ERIC Joins Amicus Brief Defending Yale University

The brief was filed to support Yale in the plaintiffs’ 2nd Circuit appeal of a 2023 jury verdict that was almost entirely in the university’s favor.

Reported by

The ERISA Industry Committee joined a coalition brief filed March 18 in the U.S. 2nd Circuit Court of Appeals, defending the $5.5 billion Yale University retirement plan and arguing that a district court ruling should be upheld. ERIC was joined by business advocate U.S. Chamber of Commerce and the American Benefits Council in filing the brief in the case Vellali et al v. Yale University et al, originally filed in 2016.

A jury in Connecticut federal district court last year found in Yale’s favor in the class action lawsuit brought against Yale’s 403(b) retirement plan, ruling the school mismanaged the plan but caused no losses to plan participants.

Get more!  Sign up for PLANSPONSOR newsletters.

The amicus brief argues the underlying district court decision correctly ruled that disproving loss causation requires defendants to show that a prudent fiduciary “could have” made the same decisions.

The amicus brief filed by ERIC and its allies argues:

  • Congress established a flexible prudence standard for ERISA fiduciaries because of the breadth of decisions that fiduciaries must make in the face of market uncertainty;
  • The case is one of dozens brought in recent years against university plans and part of a broader trend of litigation against plan fiduciaries that are costly to defend and do not actually benefit plan participants; and
  • Relaxing ERISA plaintiffs’ burdens of proof would hurt plans and participants alike.

“ERIC urges the U.S. Court of Appeals to recognize the flexibility and discretion that plan sponsors and fiduciaries are afforded by the Employee Retirement Income Security Act of 1974,” said Tom Christina, executive director of the ERIC Legal Center, in a statement. “If the wrong legal standard is adopted in cases targeting plan sponsors, large employers, like our member companies, would face higher costs, more litigation, and extortionate and baseless settlement demands that would threaten the quality of benefits offered to workers and retirees.”

The case alleged Yale University; a former vice president of human resources and administration; and the retirement plan fiduciary committee breached their fiduciary duty of prudence to participants by allowing unreasonable recordkeeping and administrative fees to be charged to participants in the plan.

The jury found the plaintiffs did not prove that the plan suffered any losses or that there were any damages, and a fiduciary following a prudent process could have made the same decisions as to recordkeeping and administrative fees as the defendants, according to the verdict.

The plaintiffs, represented by law firm Schlichter, Bogard & Denton, filed an appeal with the 2nd Circuit.

Washington, D.C.-based ERIC is a national advocacy organization representing large employers which provide health, retirement, paid leave and other benefits to their nationwide workforces. A request for further comment from ERIC representatives was not returned.

Products March 25, 2024

The 3-Letter Plan Type You Haven’t Heard of

Defined Contribution Groups—DCGs—offer another option for sponsors seeking to simplify some administrative tasks.

Reported by
Art by Nadja Zinnecker
The 3-Letter Plan Type You Haven’t Heard of

For sponsors and sponsors-to-be, there are three main types of composite defined contribution plans to choose from as a way to reduce costs: pooled employer plans, multiple employer plans and defined contribution groups.

While MEPs and PEPs have gotten more attention in recent years, defined contribution groups—sometimes known as Defined Contribution Group of Plans—are groups of single-employer plans. The plan type was created by the Setting Every Community Up for Retirement Enhancement Act of 2019.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

DCGs

Plan sponsors that are members of a DCG are still sponsors of a single-employer plan, but the DCG sponsor, known as a direct-filing entity, files a consolidated Form 5500, called Form 5500-DCG, on behalf of all members of the group. This can reduce the plan sponsors’ recordkeeping and compliance costs. Form 5500-DCG was created by the Department of Labor earlier this year for plan year 2023 filings.

To form a DCG, all plans in a group must be individual account plans with the same trustee; have the same named fiduciaries; have the same plan administrator under the Employee Retirement Income Security Act; the same plan year; and have the same investments or investment options available.

Michael Kreps, a principal in the Groom Law Group, explains it is easier to leave a DCG than a PEP or MEP, but DCGs are “not a huge thing.” The consolidated Form 5500 is “probably helpful, with some cost reduction, but not huge.”

Steve Scott, a partner in Retirement Solutions Group, agrees and says he has not seen much growth for this type of plan organization, though they are a newer option than PEPs and MEPs.

Kreps says that when deciding between the three, sponsors need to consider how much they want to outsource and how much power they want to keep for themselves so they can customize features for their participants and work with what makes sense for them.

MEPs

MEPs are a qualified plan created by two or more employers that are in the same industry or geographic area. A MEP may be set up as a defined contribution or defined benefit plan.

Though they can include many employers, MEPs are legally considered one plan. They therefore file a joint Form 5500, are audited as one plan and offer one investment menu to all members. This framework allows employers to save money on recordkeeping, compliance and other fees by pooling costs with the other participating employers.

PEPs

PEPs were created after MEPs, by the SECURE Act of 2019, to permit unrelated employers to create composite plans and control costs.

Unlike MEPs, PEPs do not require participating employers to have a shared nexus and “can have completely unrelated employers,” Kreps says. A PEP must be set up as a DC plan.

Kreps says for MEPs that already exist, “if you have an association already, you don’t need to be a PEP; you can be a MEP. Unless you want to open up to unrelated employers.”

Though PEPs are more open in terms of who can join, they can be more restrictive than MEPs in terms of options for the employers: “You are completely playing by their rules,” Scott says. A PEP requires the plan to be operated by a pooled plan provider, which can make the plan “a little bit more restrictive.” A PPP is responsible for sponsoring and operating the PEP, must be a financial services company and must be registered with the Treasury and Labor departments.

The PPP for a PEP will offer one investment menu, and “that lineup is going to be vanilla,” Scott says. A PEP will come with its own recordkeeper, asset managers and advisers that employers will not be able to opt out of. Scott strongly recommends that employers make sure they understand what they are buying when joining a PEP.

Despite this, most new composite plans are PEPs, rather than MEPs: “Few and far between would be starting a MEP today,” according to Scott.

Scott says many start-ups and small business are interested in joining PEPs, but the industry is “getting more and more interest now in that 100-250ish-[employee] range,” and “it’s 100% because of the audit.” Scott explains that when plans hit 100 participants, they are subject to more onerous audit requirements, but if they join a PEP, they can outsource that to the PPP and control their costs.

«