Compliance May 20, 2020

Heroes Act Now In the Hands of a Skeptical Senate

The Heroes Act, passed by a narrow majority in the House, includes union pension partition relief and a waiver for the reinvestment of 2019 and 2020 RMDs.

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Following its recent passage of the Health and Economic Recovery Omnibus Emergency Solutions Act, or the “Heroes Act,” the Democratic majority in the U.S. House of Representatives must now rely on the Republican controlled Senate to take up the ambitious fourth relief package.

The wide-ranging legislation addresses a host of issues, from providing supplemental funding to the SNAP food security program to creating a special fund to support struggling fisheries. Notably, the entire Division D section of the legislation is dedicated to retirement security policies.

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First and foremost in Division D is the creation of “special partition relief” for struggling multiemployer union pensions. This proposal is detailed in a section of the Heroes Act referred to as the Emergency Pension Plan Relief Act or “EPPRA.”

But the bill includes many other provisions, including fiscal year 2020 emergency supplemental appropriations to federal agencies; sizable payments and other assistance to state, local, tribal, and territorial governments; and additional direct payments of up to $1,200 per individual.

Beyond these provisions, the Heroes Act seeks to expand paid sick days, family and medical leave, unemployment compensation, nutrition and food assistance programs, housing assistance, and payments to farmers. Other elements of the law that have proven to be popular among the Democratic base are the extension and expansion of the moratorium on certain evictions and foreclosures, and the fact that the bill requires employers to develop and implement infectious disease exposure control plans.

Republicans in the Senate, led by majority leader Mitch McConnell, say they support some of these provisions, but they have balked at the $3 trillion price tag tied to the Heroes Act, suggesting the amount of borrowing required to fund these programs and benefits would bring serious harm to future generations. Their concerns have meant the Heroes Act now sits in legislative limbo—and indeed leader McConnell has indicated he and many of his members feel it is more appropriate to wait and first judge the impact of previous stimulus packages, before any addition Congressional actions are taken. It is also important to note that the law would be subject to a potential presidential veto.

Among the early retirement industry commenters on the Heroes Act passage is the Insured Retirement Institute (IRI).

“We thank Congress for its leadership in continuing to pursue measures to help strengthen retirement security for millions of Americans as our nation recovers from the pandemic,” says Paul Richman, IRI chief government and political affairs officer. “IRI welcomes the opportunity to work with members of Congress to advance these retirement security proposals.”

Richman specifically cites measures will grant a waiver to individuals who took a required minimum distribution (RMD) from their retirement accounts in 2019 and 2020 and permit the amounts of those distributions to be rolled back into a retirement plan or IRA without any penalties, if done by November 30, 2020. 

In an email communication sent to all members of the U.S. House of Representatives, IRI said that the enactment of these measures will help retirement savers save more today by keeping their tax-deferred retirement savings longer, Richman explains.

“It will give those who were required to take the distributions an opportunity to try to recoup some of the losses incurred because of the volatility of the stock market during the COVID-19 crisis,” he notes. “It is especially important for those retirement savers who are living longer and are close to retirement who, if not given this relief, may need to work even longer to recoup the losses incurred due to no fault of their own.”

Compliance May 19, 2020

Share Class Issues Cited in ManTech ERISA Lawsuit

The new complaint closely resembles others that have been filed by the Capozzi Adler P.C. law firm.

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Plaintiffs have filed a new class action Employee Retirement Income Security Act (ERISA) complaint against the ManTech International Corp., alleging a number of fiduciary breaches in the operation of the firm’s defined contribution (DC) retirement plan.

The plaintiffs allege that during the putative class period—defined as May 15, 2014, through the date of judgment—the fiduciary defendants “failed to objectively and adequately review the plan’s investment portfolio with due care to ensure that each investment option was prudent, in terms of cost.” The challenge also suggests the company has maintained certain funds in the plan despite the availability of identical or similar investment options with lower costs and/or better performance histories. 

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“To make matters worse, defendants failed to utilize the lowest cost share class for many of the mutual funds within the plan, and failed to consider collective trusts, commingled accounts or separate accounts as alternatives to the mutual funds in the plan, despite their lower fees,” the complaint continues. “Defendants’ mismanagement of the plan, to the detriment of participants and beneficiaries, constitutes a breach of the fiduciary duties of prudence and loyalty, in violation of 29 U.S.C. Section 1104. Their actions were contrary to actions of a reasonable fiduciary and cost the plan and its participants millions of dollars.”

The new complaint, filed in the United States District Court for the Eastern District of Virginia’s Richmond Division, very closely resembles others that have been filed by the Capozzi Adler P.C. law firm. Like the previous suits, this one names as defendants, in addition to the ManTech company, its board of directors, the retirement plan committee and several dozen individual “John Doe” defendants.

According to the plaintiffs, the ManTech defendants have retained several actively managed funds as plan investment options despite the fact that these funds “charged grossly excessive fees compared with comparable or superior alternatives,” and despite ample evidence available to a reasonable fiduciary that these funds had become imprudent because of their high costs. 

“During the class period, the plan lost millions of dollars in offering investment options that had similar or identical characteristics to other lower-priced investment options,” the complaint states. “The funds in the plan have stayed relatively unchanged since 2014. Taking 2018 as an example year, a signification portion of funds in the plan, almost half, were much more expensive than comparable funds found in similarly sized plans (plans having between $500 million and $1 billion in assets). The expense ratios for funds in the plan in some cases were up to 129% above (in the case of the Oakmark Equity and Income Investor) the median expense ratios in the same category.”

Another argument elucidated in the complaint is that “it is not prudent to select higher cost versions of the same fund even if a fiduciary believes fees charged to plan participants by the retail class investment were the same as the fees charged by the institutional class investment, net of the revenue sharing paid by the funds to defray the plan’s recordkeeping costs.”

“Fiduciaries should not choose otherwise imprudent investments specifically to take advantage of revenue sharing,” the complaint states. “This basic tenet of good fiduciary practice resonates loudly in this case, especially where the recordkeeping and administrative costs were unreasonably high as discussed. A fiduciary’s task is to negotiate and/or obtain reasonable fees for investment options and recordkeeping/administration fees independent of each other if necessary.”

ManTech has not yet responded to a request for comment. The full text of the complaint is here.

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