Compliance October 2, 2023

Retirement Contribution Limits, COLA Stay on Track With Continuing Resolution

The DC contribution limit was projected to be $23,000 for 2024, and the IRS should stay on track in implementing the change.

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President Joe Biden signed a continuing resolution into law Saturday night that will keep the federal government operating through November 17.

Per the legislation, government departments may spend: “Such amounts as may be necessary, at a rate for operations as provided in the applicable appropriations Acts for fiscal year 2023 and under the authority and conditions provided in such Acts, for continuing projects or activities.”

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Though departments cannot start new projects that have not been approved by a proper appropriations bill, they may continue with normally scheduled projects or projects that were already underway, according to the legislation.

Those approved projects include the obligation of the Bureau of Labor Statistics to track inflation. The BLS is currently scheduled to publish its inflation numbers for the month of September on October 12, which will in turn allow the Social Security Administration to use the Consumer Price Index for Urban Wage Earners and Clerical Workers to calculate the cost-of-living adjustment for 2024 benefits. Additionally, the Internal Revenue Service uses the Consumer Price Index for All Urban Consumers to calculate the limits on contributions to defined contribution retirement plans.

Lisa Featherngill, the national director of wealth planning at Comerica Bank, says the IRS usually announces its contribution limits in late October and, with the continuing resolution, “we should be able to get that data.”

The continuing resolution ends on November 17, but both the Social Security Administration and IRS will have the inflation data they need by then, so even if the government shuts down in November, the inflation adjustments for 2024 should stay on trac,k because “we should have all the info for 2024 before then,” Featherngill says.

A report by Mercer predicted that the limit for DC plan contributions will be $23,000, based on inflation numbers, but the “IRS usually announces official limits for the coming year in late October or early November,” according to the August report.

Without the resolution to continue government operations, the BLS would have furloughed all employees, according to its shutdown contingency plan. That would have halted the creation of key economic data needed to set the 2024 limits.

Compliance October 2, 2023

Dueling Motions Filed in American Airlines ESG Lawsuit

Both parties brought motions as a former pilot asserts that fiduciaries for American Airlines’ defined contribution plans breached their duty by including investment managers and funds focused on environmental, social and governance factors.

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The airline pilot suing two American Airlines Inc. defined contribution retirement plans for defaulting him and other participants into underperforming funds that utilize environmental, social and governance factors in investment selection responded to the defendants’ motion to dismiss in a September 29 filing.

Lawyers representing Bryan P. Spence, formerly an American Airlines pilot, responded to a motion to dismiss the amended complaint that derided the retirement plans’ reasoning, using colorful language to criticize the plans’ arguments and advocate for the plaintiff’s lawsuit to proceed.

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“Plaintiff is thus not claiming, as defendants hyperbolically argue, that ERISA prohibits fiduciaries from even ‘considering investment products offered by any manager who has ever cast a proxy vote for an ESG-based policy regardless of how those products performed,’” Spence’s attorneys wrote. “That Defendants chose to erect this strawman to knock down rather than engage with the claims as pleaded demonstrates that they probably know their motion to dismiss should fail.”

American Airlines filed on September 8 the motion to dismiss the amended complaint in Spence v. American Airlines Inc. et al.

Attorneys representing the American Airlines Inc. 401(k) Plan for Pilots and the American Airlines 401(k) Plan argued that Spence lacks standing in the case because he has not invested any portion of the assets in his Pilots Plan account in the challenged funds included in the amended complaint.

Spence’s attorneys argued that he and the purported class have standing to bring the lawsuit. His lawyers wrote that the defendants’ filing mischaracterized the plaintiffs’ allegations and the nature of Spence’s claims.

“Plaintiff’s claims do not turn on the particular way plan assets are used to pursue ESG objectives, whether through investment managers that pursue ESG agendas through proxy voting and shareholder activism, or through funds that use ESG criteria in their investment strategies,” the attorneys stated.

The plaintiff’s filing argued against the defendants’ motion to dismiss, positing that the lawsuit presented and pleaded plausible claims for breach of fiduciary duty.  

“Defendants’ liability arises through their actions in allowing plan assets to be used for non-economic ESG activism, which happened through both the designated investment options that plaintiff invested in, and through the brokerage window, resulting in financial harm to plaintiff’s investments and diminishing plan assets,” the filing stated. “But even if the court were to parse the methods of investment into two separate claims, plaintiff has constitutional standing to assert claims related to the brokerage window funds under Fifth Circuit precedent.”

Spence’s attorneys repeated arguments presented in the original complaint that the defendants breached their fiduciary duties of loyalty and prudence; failed to prevent the managers from using objectives harmful to plan participants’ investments; and breached their duty to monitor individuals responsible for plan investments.

Spence’s amended complaint alleged the defendants improperly included in the plans’ investment lineup ESG-themed funds and that several of the plans’ funds that pursue only pecuniary objectives are run by managers who Spence claims have used their proxy voting power in favor of ESG-themed shareholder proposals.

Spence remains a lieutenant colonel in the U.S. Air Force Reserve. Spence is a current participant in and beneficiary of American Airlines’ retirement plan for pilots, the filing shows.

The original complaint was filed earlier this year in U.S. District Court for the Northern District of Texas, Fort Worth Division, and the active amended complaint was filed on August 25.  

Representatives for neither the plaintiffs nor the defendants returned requests for comment.

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