Administration May 19, 2008

Business Trade Groups Push for Deere Fee Suit Dismissal

May 19, 2008 (PLANSPONSOR.com) - Three business trade groups have leaped into the fray over excessive fees in the Deere & Co. 401(k) plan with an argument to a federal appellate court that a participant fee lawsuit should be thrown out.
Reported by

The ERISA Industry Committee, the American Benefits Council and the National Association of Manufacturers made that argument in a friend of the court brief filed with a 7 th U.S. Circuit Court of Appeals that is currently considering the participants’ cases against the manufacturer.

The two employee benefits trade groups and the manufacturers’ organization contend that the Deere workers’ excessive fee claims are vague and contain an “utter lack of substance.” The trio also broadly labeled similar 401(k) fee cases against large corporations “fishing expeditions.”

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

“Having opened the courthouse doors with the assertion that 401(k) plan fees are ‘unreasonable,’ plaintiffs in this lawsuit and its counterparts have eagerly deployed discovery tools to obtain untold thousands of documents and hundreds of pages of transcribed deposition testimony in hopes of finding actionable wrongdoing,” wrote lawyers Thomas L. Cubbage III and John M. Vine who filed the 7 th Circuit brief. “Notably, those efforts have not been confined to the topic of revenue sharing: plaintiffs have applied post-filing investigatory efforts toward top-to-bottom scrutiny of plans’ administration and investments over lengthy periods of time.”

The brief contends that allowing suits like that filed by the Deere participants to proceed would have a detrimental effect on the employee benefit arena.

"Given the fact-which Plaintiffs emphasize-that defined contribution plans are becoming the predominant nongovernmental source of retirement income for today's workers, a legal regime that allows groundless allegations of fiduciary misfeasance to trigger discovery and litigation costs hardly represents sound public policy," the lawyers wrote. "If full-blown litigation proceedings can be triggered merely by an allegation that fiduciaries have failed to engage vendors at the lowest possible prices, or have failed to make cost the primary criterion in selecting plan vendors, the resulting perverse incentives are obvious."

The lawyers continued: "At best, if vendors are required to be chosen solely on the basis of cost, plans will be exposed to the grave risk of receiving sub-standard services (whether for administration or investment management). At worst, more employers will conclude that the risks attendant to sponsoring defined contribution plans are unwarranted, and there will be a decline in employers' willingness to sponsor defined contribution plans-just as it has for defined benefit pension plans."

Quentin Riegel, vice president of litigation and general counsel at the National Association of Manufacturers, a trade group that represents more than 11,000 U.S. companies, told Bloomberg that the groups decided to get involved because of the affect of the Deere case on other excessive fee litigation around the country. "This case will impact a number of the other cases on 401(k) fees," Riegel told Bloomberg. "We felt that the sooner we offered our view, the better."

U.S. District Court Judge John C. Shabaz granted a motion last summer to dismiss the case (See Judge Throws Out Deere-Fidelity Fee Suit ).

DOL filed a friend of the court brief in March arguing for the lower court to be overturned (See DoL: ERISA Fiduciaries Could Have Disclosure Mandate not Specified in Law ).

The trade group brief is available here . The DoL brief is here .

Benefits May 16, 2008

CalPERS Not Ready to Take Position on AB 2940

May 16, 2008 (PLANSPONSOR.com) - The board of the nation's largest public pension plan has decided to keep its powder dry - for now, anyway - on legislation that would open up the program to some in the private sector.
Reported by

Yesterday the board of the California Public Employees’ Retirement System (CalPERS) decided to take a neutral stand on AB 2940, a bill authored by Assemblyman Kevin de Leon, D-Los Angeles, that would make California the first state in the nation to open its public retirement plan to workers in the private sector. The bill is aimed at the 6 million employees in California who aren’t offered a pension or retirement savings plan at work (see Bill Would Open CalPERS to Private Sector Workers ).

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

A recommendation to the Benefits and Program Administration Committee noted that AB 2940 would allow CalPERS to administer the Program through various structures that “…could limit its direct involvement in the management and fiduciary decisions that employers and qualified retirement plan providers generally make.” Further that “most of the bill’s requirements can be met through contracts with private-sector service providers, with management and oversight provided by CalPERS’ professional staff.” The analysis presented said that, “In effect, AB 2940 would allow the Board to determine CalPERS’ level of involvement in the operations of the Program, from developing and administering the Program completely in-house, to contracting-out all these functions to a third party, or a combination of the two approaches.”

Cost Considerations

The report to the board said that CalPERS’ costs for developing, administering, and marketing the program contemplated under AB 2940 could be divided into two phases: (1) initial development and start-up costs; and (2) ongoing administration or operating costs. According to the report, “The estimated start-up costs would be approximately $1.74 million for 13.2 PYs over an implementation period of approximately 18 to 30 months,” including approximately $500,000 in one-time costs associated with securing the services of outside tax and securities counsel to, among other things, assist CalPERS in obtaining the necessary federal regulatory approvals.

Once the program was operational, CalPERS’ ongoing administrative costs would range from $806,000 to $1.46 million annually, for 7.7 to 15.4 PYs, according to the report. The report also noted that continuing annual appropriations may be required for an indefinite period pending the build-up of assets sufficient to generate fee revenues off-setting CalPERS’ annual operational costs.

The full analysis is online HERE .

The presentation to CalPERS' Benefits and Program Administration Committee contained the following analysis of various other retirement savings proposals similar to AB 2940 that have recently been introduced or considered in a number of other states:

- The Legislature recently considered and rejected Senate Bill 728, which would have established the Maryland Voluntary Employee Accounts Program (MVEAP) administered by the Maryland Teachers and State Employees Supplemental Retirement Plans. Authorized plan structures under the MVEAP would have included 401(a) plans, including 401(k) plans, as well as trusts or savings incentive match plans under 408(p) of the Code. Instead, and at the Legislature's instruction, the Maryland Supplemental Retirement Plans recently conducted a study of Voluntary Employee Accounts to examine cost efficiencies, potential for state liability, and organization and administration requirement with regard to a state-sponsored program.

The study concluded that each participating businesses would have to routinely and regularly sign and return documents to a central administrator, provide annual reconciliation of contribution history, and follow instructions on distribution and collection of miscellaneous employee communication materials. It estimated that the MVEAP would require a subsidy of between $300,000 and $500,000 a year for at least five to seven years. Estimated costs included: design and drafting of special plan documents that describe the structure of the accounts, specific control mechanisms, and specific employer responsibilities; draft, submit and obtain rulings from the IRS and Department of Labor that approve plan documents with an estimated duration of 12 to 18 months.

- The Legislature has considered five universal retirement savings proposals since 2003. Last year, it appropriated money for the Washington Department of Retirement Systems (DRS) to produce a report scheduled for release this December, which studies the various legal issues and obstacles that must be addressed in order to implement such a plan. The current legislative vehicle is House Bill 2044, which would create the Washington Voluntary Accounts Program (WVAP) to offer employees a vehicle for saving and private employers a method for offering benefits. The bill designates the State Treasurer as the custodian of the WVAP account, and allows the DRS to implement and operate the WVAP either in-house or through an external third party contract. It also makes implementation and operation contingent on funding and allows the DRS to freeze or reduce enrollments and establish a waiting list if continued enrollment would cause expenditures to exceed revenues.

- HB 70 expands participation in 457 and 403(b) deferred compensation plans the State offers to its own employees to nonprofit corporations or other employers authorized by the IRC to participate in such DC programs.

- SB 24 would allow small business employees to participate in a newly established 401(a) pension plan administered by the Michigan State Department of Management and Budget.

Connecticut - SB 652 is a one paragraph measure that requires the State Controller to establish a tax-qualified defined contribution retirement program to provide retirement investment plans to self-employed individuals, small employers with no more than 100 employees, and non-profit organizations. The Controller is authorized to contract with a third-party administrator to manage the plans, and recover implementation and operating costs from plan assets.

- SB 652 is a one paragraph measure that requires the State Controller to establish a tax-qualified defined contribution retirement program to provide retirement investment plans to self-employed individuals, small employers with no more than 100 employees, and non-profit organizations. The Controller is authorized to contract with a third-party administrator to manage the plans, and recover implementation and operating costs from plan assets.

«