Compliance January 19, 2016

Overfunded Status Makes Case Against DB Sponsor Moot

DB plan participants alleged misconduct from 2007 to 2010 that caused the plan to become underfunded and at risk of insolvency.
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A lawsuit filed by participants in U.S. Bank’s defined benefit (DB) retirement plan has been dismissed as moot because the plan is now overfunded. 

Plaintiffs in the case challenged U.S. Bank’s management of its DB plan from September 30, 2007, to December 31, 2010. They challenged the bank’s adoption of a risky strategy of investing plan assets exclusively in equities and its continued pursuit of that strategy in the face of a deteriorating stock market, the bank’s investment of plan assets in the bank subsidiary FAF Advisors, and FAF Advisors’ actions with regard to a securities lending portfolio. The plaintiffs seek to recover plan losses, disgorgement of profits, injunctive relief, and/or other relief under the Employee Retirement Income Security Act (ERISA). 

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The U.S. District Court for the District of Minnesota previously dismissed the 100% equities strategy allegations and granted summary judgment for U.S. Bank on the securities lending program claims, but held that the affiliated funds allegations survived in part. The court found that these allegations adequately alleged an injury in fact: that as measured by ERISA’s minimum funding requirements, “the plan lacked a surplus large enough to absorb the losses at issue.” 

However, in the current court opinion, U.S. District Judge Joan N. Ericksen, noted that the plan is now overfunded by ERISA measures, and citing other court cases, she determined that the case is moot because the issues presented are no longer “live” and the plaintiffs lack a legally cognizable interest in any outcome. In addition, she found it is impossible to grant any effectual relief now that the plan is overfunded. 

NEXT: No expectation for misconduct to continue

Ericksen cited a 3rd U.S. Circuit Court of Appeals decision that said allowing participants in an overfunded plan to pursue their claims "would not advance ERISA's primary purpose of protecting individual pension rights, because the pension rights of such plaintiffs are fully protected, and would if anything be adversely affected by subjecting the plan and its fiduciaries to costly litigation."

However, Ericksen noted that where the defendant initiates an event or events that might moot a case, the defendant bears a burden under what is called the "voluntary cessation" exception to mootness of showing that it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur. Since the case was filed, U.S. Bank abandoned its 100% equities investment strategy and "meaningfully began to diversify into asset classes other than equities," the opinion said. In addition, the bank sold FAF Advisors in 2010 and "ceased to use parties in interest to manage a significant portion of the plan's assets."

Ericksen found that the plaintiffs offered nothing but speculation that the alleged misconduct will resume, and concluded their concerns about U.S. Bank’s potential future misconduct are "too conjectural or hypothetical to present an actual controversy" and cannot save the case from mootness now that the plan is overfunded.
Benefits January 19, 2016

Outsourced Expertise, Tech Reshape Benefits Landscape

One in three employers outsource all their benefits administration, up 20% since 2013.
Reported by

Guardian’s third annual Workplace Benefits Study uncovers a seeming disconnect in employers’ attitude about benefits: Few believe it is their responsibility to provide them, but company cultures and philosophies differ. And most employers do believe they play a role in helping employees and their families achieve financial security.

The research shows employers remain committed to offering affordable benefits that meet employees’ needs. More so than last year, employers are demonstrating a renewed focus on improving employee satisfaction and helping employees make the right benefits choices for their financial situations. Given that diverse employee populations that are undergoing a generational shift, this is no easy task.

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Employers are using more vendors for support, the study found, with nearly two-thirds that outsource some benefits administration using multiple vendors, up from 48% in 2013.

Several factors are driving this upswing in benefits outsourcing: Employers of all sizes realize they will need to rely more heavily on external expertise to meet their goals, such as the need to improve efficiency as well as employees’ benefits enrollment experience. Regulatory burdens include keeping compliant with the requirements of the Affordable Care Act (ACA), the Family and Medical Leave Act (FMLA) and the Americans with Disabilities Act (ADA).

Nearly two-thirds of employers report outsourcing some aspects of their enrollment process—most often tasks such as preparing enrollment materials (49%) and presenting at enrollment meetings (48%). Fewer (31%) are inclined to outsource the development of their overall enrollment strategy. A decentralized approach lessens the effectiveness of enrollment activities, Guardian contends, recommending that employers are best-suited by outsourcing enrollment strategies to integrate services that support employee decision-making.

“As emerging technology and specialized expertise increasingly become available in the market, employers and HR decision makers should embrace these offerings for advantages that go beyond addressing administration complexities,” says Ray Marra, senior vice president, group products at Guardian. “Our study shows utilizing outside expertise can offer opportunities for companies to transform their benefits package and offer a broader range of employee benefits and related services.”

A copy of the Workplace Benefits Study report is available at Guardian’s website.

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