Administration October 6, 2023

Citi Gets DOL Approval for Diverse Manager Plan Fee Payments

The bank’s attorneys tout a positive response from the DOL on the program designed to promote diverse asset managers in Citi’s benefits plans.

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The Department of Labor has approved a Citigroup Inc. program that promotes diverse investment management firms among the investment managers for Citibank-sponsored ERISA-covered employee retirement plans.

Citi had sought review from the regulator for its Diverse Asset Manager Program in which the bank commits to pay all or part of the fees of diverse asset managers for the ERISA plans it sponsors. The DOL gave its stamp of approval in an advisory opinion issued September 29, noting that plan sponsor decisions to pay fees and expenses are not subject to ERISA fiduciary standards, if all substantive ERISA requirements are met.

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“In the Department’s view, the Investment Committees’ members will not violate their fiduciary duties under ERISA section 403(c)(1) or 404 solely by virtue of considering as one factor in the selection process that an investment manager’s fees otherwise payable by the Plan will be reduced or paid in full by Citi under the program,” Karen Lloyd, chief of the DOL’s division of fiduciary interpretations, wrote in the opinion.

Lloyd wrote that the DOL would view appropriate consideration of the program and any related commitments “as another relevant financial factor in evaluating the fees to be incurred by the Plan in choosing among investment managers.”

Thompson Hine LLP, the law firm representing Citi, called the opinion “groundbreaking.” The firm wrote in an announcement that the opinion is the “first time” the DOL has weighed in on how much latitude a plan sponsor has in which plan-related fees it will pay or not pay.

The attorneys also said that the DOL laid out “explicit guidance” on how a plan sponsor can structure a “program based on the plan sponsor’s corporate interest in a manner that avoids application of ERISA’s fiduciary rules to that program.”

In the opinion, the DOL clarified that the selection of a plan investment manager or any plan service provider is subject to ERISA fiduciary responsibility, including assessing the provider’s qualifications, the quality of the services offered and the reasonableness of fees. How those fees are paid, however, are “settlor decisions not subject to ERISA fiduciary standards,” Lloyd wrote.

Citi’s attorneys noted that the program on which the DOL ruled is part of its Action for Racial Equity, designed to address the racial wealth gap among the businesses in which Citi operates.

Lloyd, of the DOL, emphasized that mission in the opinion, writing that “Citi’s experience has been that diverse managers’ market share lags their representation in the asset management industry for reasons unrelated to risk-adjusted returns.”

The regulator noted that, while it is possible under ERISA to make the decision to select diverse managers, it must adhere to the usual standards of a fiduciary choosing a plan service provider.

The DOL “would not view the Investment Committees’ members’ best judgment as fiduciaries as being influenced merely because they were aware of the program’s potential for generating reputational benefits to Citi,” the DOL wrote. “However, it would be inconsistent with the duties and prohibitions of ERISA sections 403, 404 and 406 for Investment Committee members to exercise their fiduciary authority for the purpose of advancing Citi’s corporate public policy goals.”

The regulator also made clear it was not advocating for the selecting of diverse managers as a fiduciary obligation in and of itself, but rather, an example of a choice made by a plan sponsor within the bounds of ERISA obligations.

“It is important to emphasize that this letter should not be read as expressing the view that it is inconsistent with ERISA’s fiduciary standards for an Investment Committee to ever consider diversity, equity, and inclusion factors as material to the merits of choosing a particular investment manager from a financial perspective,” the DOL wrote. “Citi did not ask for an opinion on that subject, and this letter does not address the issue. Similarly, this letter should not be read as expressing the view that a program like the one described in this letter is required for a fiduciary to select a diverse manager.”

Compliance October 6, 2023

Colgate-Palmolive Files Summary Judgment Motion for $750,00 Retirement Breach Lawsuit

Attorneys for the Colgate-Palmolive Employee Relations Committee seek to end the plan sponsor’s involvement in a lawsuit alleging fraudsters stole a participant’s retirement plan assets.

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Lawyers representing the employee relations committee of the Colgate-Palmolive Co. this week sought to remove the plan sponsor from the litigation because the company committee bears no responsibility for the breach that cost a participant $750,000, the attorneys wrote.  

The breach in which $750,000, accumulated for retirement by plaintiff Paula Disberry, a former Colgate-Palmolive employee, was given to someone else happened due to actions of recordkeeper Alight Solutions, Groom Law Group attorneys claimed in the motion for summary judgment filed on October 3.

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“The committee is entitled to summary judgment because the evidence does not show that the committee breached any fiduciary duty, or that any act (or omission) of the committee caused the harm of which plaintiff complains,” Colgate-Palmolive attorneys wrote. “The crux of plaintiff’s complaint is that it was a fiduciary breach for the plan’s recordkeeper (Alight) to mail a temporary PIN to her physical mailing address in South Africa. There is no evidence the committee was even aware of this transaction.”

Groom lawyers claimed that the plaintiff did not plead sufficient facts to allege that the committee breached the prudence standard of the Employee Retirement Income Security Act, according to the motion.

“The question is not whether some additional protective step can be identified with the benefit of hindsight,” the attorneys wrote. “ERISA’s fiduciary duty of care requires prudence, not prescience. Rather, the question is whether the plan acted in an objectively unreasonable manner by failing to protect against a reasonably foreseeable risk.”

Disberry’s attorneys charged the defendants—including the company committee, Alight and custodian Bank of New York Mellon Corp.—with responsibility for the breach, missing several red flags that something was wrong. They cited the perpetrator’s request for a change of phone number, email address, mailing address, bank account number and an immediate cash distribution of the entire $750,000 account balance.

“There is no evidence that the committee acted or failed to act in an objectively unreasonable manner with respect to the distribution at issue,” the Groom attorneys wrote. “There is no evidence that the Committee was itself responsible for the interactions with the call center and website that plaintiffs contends should have been ‘red flags’”.

The defendants’ motion argued the committee had no role in the distribution of plan assets. Further, attorneys argued the alleged theft is insufficient to show that a fiduciary breach on behalf of the committee occurred.

“A party files a motion for summary judgment when the party believes it can prevail in the lawsuit when the material facts are not in dispute or even if the court assumes that the facts presented by the opposing party are true,” says Douglas Neville, practice group leader at law firm Greensfelder, Hemker & Gale PC, by email. “In this case, the facts appear to be crucial to the determination of whether the Colgate-Palmolive plan fiduciaries acted prudently. Therefore, it seems unlikely that the court will grant the motion.”

Lawyers representing the committee filed five separate motions on October 3 in support of the overall argument that the company committee defendant was not responsible for the fiduciary breach that resulted in distributing Disberry’s retirement plan assets to the perpetrator, Groom argued.

“A motion to preclude an expert is usually based on a challenge to the expert’s qualifications, methods, or the relevance of expert testimony to the case,” adds Neville, who is not involved in the litigation. “In this case, the motion seeks to exclude a report produced by the plaintiff’s expert. The defendant argues in its motion that the report should be excluded because it is based on inadmissible legal and other unsubstantiated conclusions, because it is irrelevant, and because it contains factual errors. Although it is difficult to determine whether the motion will succeed without knowing more specific facts of the case, this motion appears to have a better chance of success than the motion for summary judgment.”

In the 2020 plan year, the Form 5500 filing to the Department of Labor, the latest data available, showed that the Colgate-Palmolive Employees Savings & Investment Plan held more than $3.3 billion in assets for 7,373 participants.

The lawsuit, contested in U.S. District Court for the Southern District of New York, is Paula Disberry v. Employee Relations Committee of the Colgate-Palmolive Co. et al.

The employee relations committee of the Colgate Palmolive Co. is represented by attorneys with Groom Law Group, based in Washington, D.C.; defendant Alight Solutions LLC is represented by attorneys with law firm Jenner & Block LLP, based in Chicago; and defendant Bank of New York Mellon Corp. is represented by attorneys with the law firm Mayer Brown, in Chicago.

The plaintiff is represented by attorneys with law firm Renaker Scott LLP, based in San Francisco, and Brustein Law PLLC, based in New York City.

Representatives for neither Alight, Colgate-Palmolive, Groom nor Renaker responded to requests for comment.

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