Compliance April 29, 2020

DOL Provides Relief for Certain Retirement Plan Requirements

Relief is provided for verification requirements for loans and distributions and timing for forwarding contributions and loan repayments, among other things.

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The Department of Labor’s (DOL)’s Employee Benefit Security Administration (EBSA) has issued EBSA Disaster Relief Notice 2020-01 to provide relief for various requirements and deadlines under the Employee Retirement Income Security Act (ERISA).

The guidance applies to employee benefit plans, employers, labor organizations and other plan sponsors, plan fiduciaries, participants, beneficiaries and service providers subject to ERISA from March 1, the beginning of the national emergency declared by President Donald Trump, until 60 days after the announcement of the end of the COVID-19 national emergency or such other date announced by the DOL in a future notice. The guidance did not delay the due date of July 31 for filing Form 5500 for retirement plans with a December 31 plan year-end.

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According to the notice, if a retirement plan fails to follow procedural requirements for verification for plan loans or distributions imposed by the terms of the plan, the DOL will not treat it as a failure if:

  • that failure is solely attributable to the COVID-19 outbreak;
  • the plan administrator makes a good-faith diligent effort under the circumstances to comply with those requirements; and
  • the plan administrator makes a reasonable attempt to correct any procedural deficiencies, such as assembling any missing documentation, as soon as administratively practicable.

The relief for verification procedures does not include spousal consent or other statutory or regulatory requirements under the jurisdiction of the Treasury Department and IRS.

Regarding plan amendments, the notice says if a plan is amended to provide the relief for plan loans and distributions described in section 2202 of the Coronavirus Aid, Relief and Economic Security (CARES) Act, the DOL will treat the plan as being operated in accordance with the terms of such amendment prior to its adoption if: the amendment is made on or before the last day of the first plan year beginning on or after January 1, 2022, or such later date prescribed by the Secretary of the Treasury, and the amendment meets the conditions of section 2202(c)(2)(B) of the CARES Act.

Generally, employee contributions and loan repayments must be forwarded to the plan on the earliest date on which such amounts can reasonably be segregated from the employer’s general assets, but in no event later than the 15th business day of the month following the month in which the amounts were paid to or withheld by the employer. The DOL says it recognizes that some employers and service providers may not be able to forward participant payments and withholdings to employee pension benefit plans within prescribed time frames during the period beginning on March 1 and ending on the 60th day following the announced end of the national emergency. In such instances, it says it will not—solely on the basis of a failure attributable to the COVID-19 outbreak—take enforcement action with respect to a temporary delay in forwarding such payments or contributions to the plan.

The DOL is providing similar relief regarding blackout notices.

The full scope of relief can be found in EBSA Disaster Relief Notice 2020-01. The DOL says it will continue to monitor the effects of the COVID-19 outbreak and may provide additional relief as warranted. To the extent there are different outbreak period end dates for different parts of the country, the DOL will issue additional guidance regarding the application of the relief to those different areas.
Compliance April 29, 2020

ERISA Lawsuit Against Trader Joe’s Dismissed

A federal judge said the plaintiffs' guess of recordkeeping fees paid had no factual basis and failed to claim a breach of fiduciary duties.

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A lawsuit accusing the Trader Joe’s Co. of several fiduciary breaches, including the failure to seek competitive bids for recordkeeping, has been dismissed.

U.S. District Judge Percy Anderson said the plaintiffs did not have sufficient evidence to corroborate the allegations. “The court therefore finds that plaintiffs’ allegations regarding the allegedly excessive recordkeeping fees are insufficient to survive a motion to dismiss,” he wrote.

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Filed in the U.S. District Court for the Central District of California in January, the Employee Retirement Income Security Act (ERISA) lawsuit alleged two primary breaches—imprudence in the selection of investment options and a lack of care given to monitoring the services and fees paid by the plan. Plaintiffs of the complaint, which was filed on behalf of all participants in the Trader Joe’s defined contribution (DC) plan, also stated plan managers had paid unreasonable recordkeeping fees to the company’s investment manager, Capital Research; failed to seek competitive bids every three years for recordkeeping; and allowed Capital Research to collect and invest excessive fees before giving them back to the plan. Capital Research was not listed as a defendant in the case.

In the complaint, plaintiffs admitted to not knowing the amount Trader Joe’s paid to Capital Research in recordkeeping fees. Instead, the plaintiffs assumed the plan paid “roughly $140 per participant” in recordkeeping fees. In response, Anderson said the guess had no factual basis and failed to claim a breach of fiduciary duties in connection with the recordkeeping arrangement between Trader Joe’s and Capital Research.

The plaintiffs’ next complaint on seeking competitive bids was dismissed on the motion that it “simply recites legal conclusions and does not allege any facts suggesting that the plan fiduciaries could have obtained less expensive recordkeeping services elsewhere through competitive bidding,” Anderson wrote. Additionally, he found no facts “allegedly showing the plan fiduciaries failed to consider putting the fee structure out for competitive bidding or failed to negotiate a reasonable fee structure with Capital Research.”

In response to the complaint on the cost of mutual fund share classes, Anderson found that the plaintiffs “alleged no specific facts” to suggest Trader Joe’s infringed on its fiduciary duty by allegedly failing to offer institutional class shares as opposed to investor class shares.

On Capital Research’s collection of fund revenue, Anderson again said the plaintiffs do not “allege any facts” to support their claim that Capital Research’s repayment of money to participants demonstrated an “admission of excessive fees,” and a breach of duty of prudence.

As for the claim that Trader Joe’s failed to monitor its fiduciary members and process, Anderson stated that because plaintiffs “failed to plead sufficient facts as to their other allegations, they cannot maintain a claim that [Trader Joe’s] failed to monitor their fiduciaries.”

Anderson said he couldn’t conclude that an amendment complaint would be “futile,” so he granted plaintiffs leave to amend. He gave the plaintiffs 14 days from the date of his order to file a first amended complaint.

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