Compliance October 18, 2017

PBGC Tries Mediation for Certain DB Plan Cases

“By providing an alternative dispute resolution option for employers who sponsor ongoing and terminated plans, we expect to save time and money for both the government and our stakeholders,” says PBGC Director Tom Reeder.

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The Pension Benefit Guaranty Corporation (PBGC) announced a new pilot program to offer mediation in certain Termination Liability Collection and Early Warning Program cases for defined benefit (DB) plans.

PBGC’s Pilot Mediation Project will allow parties to try to resolve cases with the assistance of a skilled, neutral and independent dispute resolution professional in a timely and cost-effective manner.

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The mediation project is part of the agency’s ongoing efforts to make it easier for plan sponsors to maintain their pension plans. “We want our customers to know we’re listening to them and we want to improve their experience in working with us,” says PBGC Director Tom Reeder. “By providing an alternative dispute resolution option for employers who sponsor ongoing and terminated plans, we expect to save time and money for both the government and our stakeholders.”

PBGC chose Termination Liability Collections cases and Early Warning Program matters for the pilot project as potentially reaping the greatest benefit from mediation.

After one year, the agency will evaluate the program’s success on multiple metrics, including:

  • Percent of eligible cases opting for mediation,
  • Resolution rate and time to resolution, and
  • Cost savings.

The American Benefits Council applauds the pilot program for addressing issues raised by companies that sponsor pension plans.

“We at the American Benefits Council are very pleased about the new Pilot Mediation Project,” says Lynn Dudley, senior vice president, global retirement and compensation policy, for the American Benefits Council. “This is an excellent signal that PBGC is listening to plan sponsors and being creative to improve its programs and its relationships with sponsors. We look forward to the opportunity to continue to work with PBGC to enhance this Pilot Project and strengthen the employer-provided pension system.”

For information about eligibility, visit the PBGC Plan Sponsor Pilot Mediation Project webpage.

Compliance October 18, 2017

Phillips 66 Retirement Plan Faces Suit Over Inclusion of Former Parent Stock

Not only does the lawsuit claim ConocoPhillips stock does not meet ERISA’s definition of “employer securities,” but it says participants suffered millions of dollars in losses as the stock price dropped dramatically.

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Participants in the Phillips 66 Savings Plan have filed a proposed class action lawsuit against the plan investment committee for continuing to offer company stock of the company’s former parent, ConocoPhillips, in the plan’s investment menu.

According to the complaint, the defendants maintained the ConocoPhillips Stock Fund and ConocoPhillips Leverage Stock Fund as plan investment options from May 1, 2012, to the present, causing approximately 25% of plan assets to be invested in that single security. Since Phillips 66 was spun off from the parent company, the lawsuit maintains that the ConocoPhillips stock funds are not “employer securities” as defined by the Employee Retirement Income Security Act (ERISA).

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In addition, the complaint says the plan’s investment in ConocoPhillips stock violated ERISA’s diversification and prudence requirements and was “reckless under any common-sense investment strategy for several reasons.” Participants allege that an investment fund holding hundreds of millions of dollars in a single security is, by definition, undiversified, exposing investors to extreme volatility and risk. Second, they say ConocoPhillips stock has an extremely high correlation to Phillips 66 stock, the plan’s largest investment and the stock of the employer sponsoring the plan. “For this particular plan, this high correlation made ConocoPhillips even more risky, imprudent, and further removed from an efficient portfolio than would the presence of ConocoPhillips stock in the average plan. Together, these two highly correlated stocks represented over half of the plan’s assets—an imprudent and unnecessary undiversified risk for the workers and retirees who depend on the plan for their retirement savings,” the complaint says.

Participants also say the investment in the parent company stock funds was imprudent because ConocoPhillips is in the petroleum industry, a volatile, high-risk sector of the economy subject to boom-and-bust cycles.

According to the lawsuit, the plan’s overly concentrated position caused participants to lose millions of dollars as the price of ConocoPhillips stock fell dramatically. Participants claim the defendants also ignored the numerous warning signs that showed ConocoPhillips stock was an imprudent investment for retirement assets and then failed to take action as the price of ConocoPhillips stock dropped from $86.50 to its current price of approximately $50. “Defendants should have been particularly aware of these risks concerning ConocoPhillips stock because the plan invested over $1 billion, or approximately 25% of its assets, in the ConocoPhillips funds during the class period,” the lawsuit claims.

The lawsuit seeks restoration of plan losses resulting from the plan committee’s fiduciary breaches as well as equitable relief.

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