Compliance December 11, 2019

Judge Denies Dismissal of Suit Against Archdiocese Over Pension Plan

Unlike ERISA lawsuits that are argued in federal courts, this case is playing out in state court.

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A judge for the state of New Jersey has denied a motion to dismiss a lawsuit against the Archdiocese of Newark alleging mismanagement of a defined benefit (DB) plan for employees at Saint James Hospital.

According to news reports, a promissory estoppel count, alleging that the archdiocese promised to provide lifetime pension payments and that the plaintiffs relied on those promises in deciding to work for the hospital system, was determined by the judge to be sufficiently pled.

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The pension plan was operated under the Employee Retirement Income Security Act (ERISA) following its passage in 1974. In 1988, the Archdiocese notified past and present employees that it planned to terminate the plan, but plan termination was not approved by the Pension Benefit Guaranty Corporation (PBGC) because the plan did not have enough assets to pay all covered benefits.

That’s when, the plaintiffs allege, “the Archdiocese developed a strategy to escape PBGC scrutiny and the protections of ERISA.” In 1990, the Archdiocese sent a letter to the IRS asking it to deem the pension plan a “church plan” under ERISA. The IRS granted the request.

Around 1997, the Archdiocese terminated the pension plan. According to the plaintiffs, though it had $20 million in surplus assets, it did not use that to plug a $2.7 million deficit in the pension plan funding. The Archdiocese transferred the assets of the plan to a non-guaranteed account at Transamerica.

The plaintiffs allege that Transamerica tried numerous times to warn the Archdiocese that it was running out of money to fund pension benefit payments, but the Archdiocese took no action. Transamerica sent a letter to the affected retirees which stated the plan’s assets were diminishing and it anticipated that they would be depleted in approximately five to seven months. Transamerica told the retirees that “once the plan assets have been entirely depleted, no further pension payments will be processed by Transamerica.”

The news reports say that during a hearing about the motion to dismiss filed by the archdiocese, the judge rejected the argument that the former participants’ complaint did not include enough facts to state a claim. He noted that those would “be developed in discovery.”

Unlike Employee Retirement Income Security Act (ERISA) lawsuits that are argued in federal courts, this case is playing out in state court, alleging that the actions taken by the Archdiocese violate New Jersey contract and trust law.

Data and Research December 11, 2019

Quarterly Statements Useful in Enhancing Participant Retirement Readiness

The quarterly statement is a proven tool for getting plan participants engaged in their retirement readiness; however, not all providers are including the best information to get participants engaged.

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It’s no secret that many, if not most, retirement plan participants do not read, or do not fully understand, the many communications sent to them. However, the one they are most likely to pay attention to is their quarterly account statement.

A 2016 syndicated study by Corporate Insight found that of the nearly 1,500 respondents, 82% said access to their most recent quarterly statement was “very” or “extremely important,” and 48% had viewed or downloaded statements at some point in the previous twelve months.

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The quarterly statement is a tool for getting plan participants engaged in their retirement readiness. However, not all providers are including the best information to get participants engaged.

For Corporate Insight’s latest Retirement Plan Monitor Report, the firm examined the most up-to-date quarterly statements available on the participant websites of its coverage firms and found every firm makes statement archives findable from links within the main menu—what it says is a best practice. All recordkeepers covered by the report provide gain/loss information and contributions/additions information on quarterly statements, but Corporate Insight says plan participants should be able to see other details about what drives the change in their account balance. Eighty-five percent of recordkeepers supplement this information with investment-level summaries, and 54% provide source-level summaries.

Corporate Insight suggests that statements should also show how dividends and capital gains (62% of recordkeepers provide this information), transfers/exchanges (46%) and fees/expenses (85%) have impacted the plan balance. The firm notes that in recent years, the number of lawsuits regarding fiduciary responsibility has rapidly increased, many of which relate to excessive fees. “Clearly, given the current cost-sensitive environment of the defined contribution industry, it is imperative that firms clearly highlight both recordkeeping and investment fees on the participant website and quarterly statement. Among the firms in this report, 85% list plan fee and expense details on the quarterly statement, either within the quarterly activity summaries or within dedicated sections. However, we believe dedicated sections are the best way to clarify this information, and 62% of the firms in this report offer such sections,” Corporate Insight said in its report.

Aside from understanding what sources affect their account balance, retirement plan participants could use reminders of what they are contributing and what their employers match. Only 31% of firms in the report list employees’ current contribution rate on quarterly statements. Most firms (85%) list the contribution amount by source for the statement period and for additional timeframes (77%). Corporate Insight says employer matching information could provide helpful context for participants who use quarterly statements to assess whether they should make changes to their portfolios, but it found only two recordkeepers integrate this information within statements.

According to Corporate Insight, when communicated clearly and accompanied by methodology and assumption information, retirement readiness data enhances quarterly participant statements. Many in the retirement industry believe retirement income projections on statements would help participants in their savings and investing decisions as well as with planning for retirement. The Department of Labor’s Employee Benefits Security Administration’s (EBSA) in 2013 shared advanced notice of proposed rulemaking on the subject—followed by a comment period that saw some industry practitioners share concerns that the financial assumptions and calculation tools underlying such disclosures must be customizable enough to give participants an accurate income projection. Others said they were concerned that plan fiduciaries could be found to be on the hook for inaccurate—and especially over-generous—projections of income. No regulations have been issued regarding the provision of lifetime income projections on statements, and efforts in Congress also have not panned out.

Corporate Insight found that only 38% of recordkeepers’ statements include retirement readiness information. Among these firms, the selection of metrics varies greatly, with some listing only the monthly income projection, and one including both the monthly and annual retirement income projections, a retirement income goal and a gap analysis along with a forecast-style infographic illustrating the participants’ progress toward their savings goals. Since it last reported on statements in 2018, three recordkeepers have actually removed retirement readiness analysis from statements.

These are all items retirement plan sponsors can ask recordkeepers if they will provide.

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