Compliance June 24, 2021

Court Finds Executive Made a Valid Claim for SERP Benefits

A judge found that an email requesting information about obtaining benefits constituted a ‘written request’ as required by the plan document and that Nissan didn’t respond within the required 90-day window.

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A former Nissan North America executive made a valid claim for supplemental executive retirement plan (SERP) benefits and did not fail to exhaust his administrative remedies, as Nissan claimed, a federal judge has found.

The Nissan defendants argued that the plaintiff failed to follow the plan’s claims procedure and has never initiated a claim for benefits. They moved for the case to be dismissed for failure to exhaust any administrative remedies. However, the plaintiff said his remedies should be deemed exhausted because he made a request for benefits under the terms of the plan, and the defendants did not timely respond within 90 days, as established by the plan.

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In his opinion, Judge Eli Richardson of the U.S. District Court for the Middle District of Tennessee listed several relevant communications the plaintiff had with employees of Nissan regarding the payment of benefits under the plan. In response to some communications, the director of executive compensation at Nissan replied that the request was being considered, but for other communications, the plaintiff received no response.

The defendants asserted that the plaintiff never submitted a written claim for benefits to initiate the review process under the claims procedure. They characterized the communications that the plaintiff sent as being merely questions and general communications about his benefits. According to the court opinion, the defendants said the only communication that could constitute a request for benefits is an email from the plaintiff’s counsel, and they claimed the plaintiff acted prematurely in filing the lawsuit 64 days after the email from his counsel, instead of waiting 90 days.

Richardson noted that the plan document indicates only that “the participant shall make a written request for benefits under this plan.” It then lays out the claims procedure, indicating that a claim “shall be presented to the claims official appointed by the administrative committee in writing.” Richardson found the language of the plan document ambiguous, noting that the plan document does not clarify who should present this claim in writing to the claims official. He said the defendants “would be well-advised to substantially tighten up both the articulation and the execution (in particular cases) of their claims procedure.”

Richardson also found that the plaintiff’s emails, starting with his first email, constituted a “written request” for benefits and apprised the defendants that he was invoking his right to his benefits, by referencing the plan and asking how he would receive his benefits. The judge found that the defendants did not substantively respond to the plaintiff’s repeated communications about his claim, except for sending a delayed letter—outside the relevant 90 day window—indicating that the “senior vice presidents” had voted to deny the plaintiff’s claim. “Therefore, [the] plaintiff has exhausted his administrative remedies,” Richardson concluded.

Administration June 23, 2021

PSNC 2021: How Outsourcing Fits into Your Plan Administration

Today’s recordkeepers, advisers and plan sponsors all view outsourcing as part and parcel of a retirement plan’s day-to-day operations.

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It used to be that managing operations was an all-or-nothing question for retirement plan sponsors. Sponsors would ask themselves, “Do we take on the expense of outsourcing the investment lineup or other part(s) of running the plan so that we can focus on running our company profitably instead of having to worry about this benefit? Or, do we have the expertise among our human resources (HR), legal and finance team (i.e., the chief financial officer, CEO or owner), and, perchance, the ability to leverage the expertise of a pension committee, to keep it in-house?”

Experts at at the virtual 2021 PLANSPONSOR National Conference (PSNC) session, “How Outsourcing Fits Into Your Plan Administration,” said this is no longer the question sponsors are asking themselves.

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Today, outsourcing investments and other aspects of a plan, be it partnering with a retirement plan adviser specialist/consultant, an auditor or ERISA [Employee Retirement Income Security Act] lawyer, is a way of doing business for most retirement plans, and the question has, instead, become, “What do I ask when I issue an RFP [request for proposals] for an outsourcing partner?”

Where to Find a Fiduciary Adviser?

When the Anglican Church in North America was first looking for a fiduciary adviser, it issued an RFP that took years to pull back in, said Canon Alan Hawkins, chief operating officer (COO) of the Anglican Church in North America. To try to make sense of it all, the Anglican Church hired a pro bono attorney, but that didn’t do much good, either, Hawkins said.

The attorney threw around terms like Sarbanes-Oxley (which refers to breaking down the walls between banks and brokerage firms and is the name of a law that was passed in 2002), and “liability threshold.” These were “terms we were not very conversant in,” and that simply confounded Hawkins and the rest of his team, he said.

So, the Anglican Church in North America issued a new fiduciary RFP this past fall, seeking the expertise of either a 3(21) fiduciary, which gives guidance on which investments to put on the menu and leaves the final decision up to the sponsor; or a 3(38) fiduciary, which handles the entire process from start to finish and apprises the retirement committee of the reasons for its decisions. 

Now that the Anglican Church had a clearer idea of what to ask for in an outsourced fiduciary partner, it settled on a 3(21) fiduciary, Hawkins recalled.

Rich Rausser, senior vice president, client services at Pentegra, a retirement plan practice that provides both 3(21) and 3(38) services to sponsors, recalled how Pentegra once audited the past history of a plan and found $90,000 worth of IRS penalty letters. While the sponsor’s committee members might have had the institutional knowledge to remember penalty letters, none of them could have realized they added up to a whopping $90,000, he said.

This is why, when hiring a fiduciary adviser in particular, noted Curt Young, a partner at Aon Retirement Solutions, it is important to select one that can go through the rigors of a prudent process and put doing what is right for the plan and its participants front and center of everything.

Young noted that many sponsors are now hiring 3(16) fiduciaries, which are in charge of handling the detailed administration of a retirement plan, such as IRS and Department of Labor (DOL) audits and filing the Form 5500 with the IRS. “There are many new 3(16) players on the scene,” Young said. This is why sponsors might consider the advice, even if it’s just contractual, of a retirement practice such as Pentegra, he noted.

“Not all fiduciaries are created equal,” Hawkins added.

With the Setting Every Community Up for Retirement Enhancement (SECURE) Act and Coronavirus Aid, Relief and Economic Security (CARES) Act putting pooled employer plans (PEPs) and multiple employer plans (MEPs) on the scene, now, more than ever, these are new considerations for plan sponsors, and retirement plan specialists can help, Young noted. “Experience matters,” he said.

The bottom line when it comes to outsourcing a retirement plan responsibility, be it small or large, Hawkins said, is that it can result in tremendous growth and higher profits for a company or nonprofit organization.

Take the Anglican Church. Since working with a retirement plan adviser, it has experienced 40% growth in the number of churches participating in the plan, now totaling 400, with 1,000 church staff members.

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