Compliance August 17, 2020

IRS Updates Model Rollover Notices to Reflect SECURE Act Changes

The notice also clarifies that plan administrators are not required to provide a Section 402(f) notice to a recipient of a coronavirus-related distribution created by the CARES Act.

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The IRS has issued Notice 2020-62, which modifies the two safe harbor explanations in Notice 2018-74 that may be used to satisfy the requirement under Section 402(f) of the Internal Revenue Code (IRC) that certain information be provided to recipients of eligible rollover distributions.

The updates are to reflect legislative changes in the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The SECURE Act implemented a new exception to the 10% early distribution penalty on retirement plan distributions for qualified birth or adoption distributions. It also increased the age for required minimum distributions (RMDs) to  72 for employees born after June 30, 1949, from age 70.5.

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The new notice includes an appendix with two model safe harbor explanations: one for distributions that are not from a designated Roth account and the other for distributions from a designated Roth account.

The notice also clarifies that “although a coronavirus-related distribution [CRD] generally may be recontributed to an applicable eligible retirement plan, a plan administrator is not required to provide a Section 402(f) notice to a recipient of a coronavirus-related distribution.” CRDs were created as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act.

Compliance August 17, 2020

LinkedIn Joins List of Plan Sponsors Targeted in Stream of Excessive Fee Suits

The allegations are similar to other ERISA excessive fee suits, including a challenge to the use of the Fidelity Freedom Funds TDF series.

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One current and two former participants of the LinkedIn Corp. 401(k) Profit Sharing Plan and Trust have sued LinkedIn, its board of directors and its 401(k) committee for breaches of Employee Retirement Income Security Act (ERISA) fiduciary duties.

According to the complaint, the plan has at all times during the class period maintained more than $164 million in assets—including having more than $817 million in assets in 2018—qualifying it as a large plan in the defined contribution (DC) plan marketplace and giving it “substantial bargaining power regarding the fees and expenses that were charged against participants’ investments.” The plaintiffs allege, however, that the defendants did not try to reduce the plan’s expenses or scrutinize each investment option that was offered in the plan to ensure it was prudent.

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The class period is defined in the complaint as August 14, 2014, through the date of judgment on the case. The lawsuit alleges that, in many instances, the defendants failed to use the lowest cost share class for many of the mutual funds in the plan, failed to consider certain collective investment trusts (CITs) available as lower-cost alternatives to the mutual funds in the plan and failed to consider replacing actively managed funds with lower-cost index funds with similar investment objectives.

As in other excessive fee lawsuits, the use of the Fidelity Freedom Funds target-date fund (TDF) series is called out in the LinkedIn case. However, it is not just for the use of the actively managed version of the TDF suite rather than the index version, as has been the case in other lawsuits, it is also for not offering the CIT version offered by Fidelity. Notably, the complaint says LinkedIn changed the TDFs offered in the plan from Fidelity Freedom K funds to FIAM Blend Target Date Q Funds at some point in late 2018 or early 2019, but the plaintiffs says this was “too little too late” and say the change “should have been done much sooner.”

All these actions cost the plan and its participants millions of dollars, the complaint alleges.

Finally, the lawsuit says, “the structure of this plan is rife with potential conflicts of interest because Fidelity and its affiliates were placed in positions that allowed them to reap profits from the plan at the expense of plan participants.” The complaint notes that Fidelity is the plan’s trustee and an affiliate of Fidelity performs the recordkeeping services for the plan.

“This conflict of interest is laid bare in this case where lower-cost Fidelity collective trusts and index funds—materially similar or identical to the plan’s other Fidelity funds (other than in price)—were available but not selected because the higher-cost funds returned more value to Fidelity. … The company, and the fiduciaries to whom it delegated authority, breached their duty of undivided loyalty to plan participants by failing to adequately supervise Fidelity and its affiliates and ensure that the fees charged by Fidelity and its affiliates were reasonable and in the best interests of the plan and its participants,” the complaint states.

LinkedIn has not yet responded to a request for comment.

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