Compliance July 17, 2023

DOL Secures $124 Million Settlement on Behalf of DST Systems Participants

DST Systems Inc. was accused of mismanaging its profit-sharing 401(k) plan and failing to diversify the plan’s assets, which resulted in large losses, according to the settlement.

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Fiduciaries of a retirement plan sponsored by DST Systems Inc., including New York City-based investment management firm Ruane, Cunniff & Goldfarb Inc., will pay more than $124.6 million to resolve violations of federal law due to their failure to manage the profit-sharing portion of their plan properly, according to the Department of Labor.

In October 2019, the DOL filed one of several lawsuits alleging the mismanagement of investments in the DST Systems Inc. 401(k) Profit Sharing Plan.

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The DOL suit alleged that DST Systems’ fiduciaries violated the Employee Retirement Income Security Act by “failing to diversify the plan’s assets to minimize the risk of large losses and failing to act prudently and loyally in managing these assets when the investment manager invested the plan’s assets on a highly concentrated basis in a select number of securities.”

DST Systems is an information processing software and service provider based in Kansas City, Missouri, and was acquired by SS&C Technologies Holdings Inc. of Windsor, Connecticut. The company hired Ruane, Cunniff & Goldfarb & Co. to serve as an investment adviser to the plan.

The complaint challenged DST Systems’ investment in Valeant Pharmaceuticals International Inc. stock, which grew to more than 45% of the plan’s assets. Soon after, Valeant’s stock fell dramatically in 2015, following a fraud scandal.

According to the DOL, participants experienced significant losses to their retirement savings because of the plan’s concentrated portfolio. The participants who originally sued DST Systems Inc.’s profit-sharing and 401(k) plans alleged that the losses were well in excess of $100 million.

An investigation by the department’s Employee Benefits Security Administration identified ERISA violations and found that Ruane, Cunniff & Goldfarb controlled 100% of the investments of the profit-sharing portion of the plan. EBSA also found that DST Systems and individual defendants failed to monitor the investment manager’s activities properly.

Since the complaint was filed in 2019, Ruane, Cunniff & Goldfarb has taken steps to limit the investment concentrations of other ERISA-covered plans it manages, according to the DOL.

The settlement agreement was filed on July 14. In 2019, when the DOL’s case was filed, the plan had 9,233 participants and $1.2 billion in assets, according to its Form 5500 for the 2019 plan year.

“This resolution protects the rights and benefits of the plan’s participants and shows that we will aggressively pursue appropriate legal action to ensure those rights and benefits,” said Solicitor of Labor Seema Nanda in a press release. “Fiduciaries to retirement plans must comply with the Employee Retirement Income Security Act’s safeguards—including diversification—to protect workers’ retirement benefits and fulfill their own fiduciary responsibilities.”

Assistant Secretary for Employee Benefits Security Lisa Gomez also stated in the release, that: “This settlement restores hard-earned retirement funds for more than 9,000 participants in DST Systems’ retirement plan. The U.S. Department of Labor is determined to investigate and seek remedies for potential violations of the Employee Retirement Income Security Act.”

SS&C Technologies Holdings Inc. did not immediately respond to a request for comment.

DST Systems Inc. is represented by lawyers from Paul, Weiss, Rifkind, Wharton & Garrison LLP. Attorneys for the government include Michael R. Hartman and Amy Tai of the U.S. Department of Labor.

Compliance July 17, 2023

IRS Gives Extra Time to Fix RMDs Made Erroneously Under SECURE 2.0

The IRS notice also allows IRA beneficiaries to not take RMDs this year from accounts inherited in 2020 or later.

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The Internal Revenue Service and the Department of the Treasury have issued a notice that provides leniency regarding mistaken required minimum distribution payouts from retirement plans under new SECURE 2.0 Act of 2022 rules and gives additional RMD relief for beneficiaries of individual retirement accounts.

The IRS’s Notice 2023-54, issued on Friday, extends a 60-day rollover deadline for retirement plan accounts, including IRAs, that were mistakenly paid out as RMDs, even though they did not need to be. SECURE 2.0, passed in December 2022, amended Section 401(a)(9) of the Internal Revenue Code to increase the RMD age by one year to 73.

In the notice, the IRS wrote that plan administrators and other payors commented that, following SECURE 2.0, “automated payment systems would need to be updated to reflect the change in the required beginning date” and that they “expressed concern that these revisions could take some time to implement.” As a result, there could have been RMDs taken out for those who were still young enough to keep them within the retirement savings investment.

The latest notice grants relief to any distribution made between January 1 and July 31 to a participant born in 1951, allowing that distribution to roll back into the savings plan.

“For example, if a participant who was born in 1951 received a single-sum distribution in January 2023, part of which was treated as ineligible for rollover because it was mischaracterized as an RMD, that participant will have until September 30, 2023, to roll over that mischaracterized part of the distribution,” the IRS wrote.

The regulators also announced relief for IRA beneficiaries from a 10-year rule created from the original Setting Every Community Up for Retirement Enhancement Act of 2019. That legislation mandated that, for defined contribution plan participants and IRA owners, their entire plan balance must be paid out within 10 years after their death.

That notice was causing confusion among IRA retirement plan beneficiaries, according to the IRS, so it extended relief to designated beneficiaries into 2023, allowing them to skip RMDs. The IRS had already waived enforcement in 2022 for those beneficiaries who had not taken RMDs in 2021 and 2022.

The notice states that the final regulations the Treasury Department and IRS intend to issue related to RMDs will apply to RMDs for calendar years beginning no earlier than 2024.

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