Compliance October 21, 2019

Law Firm Confirms SEC Examination of 403(b) Plan Investment Practices

A client alert says the SEC has sent letters to companies that administer 403(b) and 457 retirement plans asking for various details about plan investment decisions.

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News reports at the beginning of the month announced that the New York State Department of Financial Services is planning to investigate sales of annuities in the 403(b) retirement plan market.

Now a client alert from law firm Jenner & Block confirms that the Securities and Exchange Commission (SEC) is conducting its own investigation.

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According to Jenner & Block attorneys, the SEC “sent letters to companies that administer Section 403(b) and 457 retirement plans, opening an investigation to determine whether violations of federal securities laws have occurred in the plans’ administration. The SEC is seeking details on how the plan administrators, which often serve crucial roles in selecting investments for the retirement plans of employees including teachers and government workers, choose investment options and police themselves when conflicts of interest arise.”

The client alert states that the “SEC also is requesting (1) documents pertaining to any compensation that the administrators have received since January 1, 2017 for referring investors to specific investment options or companies; (2) explanations of any gifts that administrators have received from companies that sell investments; (3) ‘information and documents’ pertaining to how administrators provide investment counseling to investors; and (4) organizational charts that show companies that own or have ties or partnerships with 403(b) and 457 plan administrators.”

The attorneys say the investigation has not been made public, and it is unclear how many plan administrators have received letters.

Compliance October 21, 2019

PBGC to Assume Responsibility of Health System’s Retirement Plans

This protection by the PBGC is one reason for a string of lawsuits that challenge other nonprofit healthcare systems’ retirement plans’ status as “church plans” under ERISA.

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The Pension Benefit Guaranty Corporation (PBGC) is taking steps to assume responsibility for two pension plans sponsored by Verity Health System, which cover nearly 8,000 people. The six-hospital system is based in El Segundo, California.

Verity, with 16 of its affiliates, filed for Chapter 11 protection on August 31, 2018, and is no longer able to continue its plans. The bankruptcy court and the state of California recently approved the sale of four of Verity’s hospitals to KPC Group’s Strategic Global Management Inc. News reports say KPC is the only bidder that agreed to keep the hospitals open.

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The Verity Health System Retirement Plan A covers 6,989 people. PBGC estimates Plan A is 52% funded, with underfunding of approximately $306 million. A separate plan, the Verity Health System Retirement Plan B, covers 985 people. PBGC estimates it is 74% funded with underfunding of approximately $2.8 million.

This protection for employees and retirees by the PBGC is one reason for a string of lawsuits that challenge other nonprofit healthcare systems’ retirement plans’ status as “church plans” under the Employee Retirement Income Security Act (ERISA). ERISA imposes funding and reporting requirements for defined benefit (DB) plans, but church plans are exempt from these rules. Since they are exempt, church plans are also not insured by the PBGC.

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