Compliance May 1, 2020

University of Miami Faces Lawsuit Over 403(b) Plan Fees

The plaintiffs say they seek similar remedies as those in a settlement that was court-approved in a case against Duke University.

Reported by

Another lawsuit has been filed challenging fees for a university’s 403(b) plan—this one against the University of Miami.

Similar to other university lawsuits, the complaint says that because the plan is so large—nearly $1 billion in assets for the University of Miami—it has “tremendous bargaining power to demand low-cost administrative and investment management services and well-performing investment funds.”

Get more!  Sign up for PLANSPONSOR newsletters.

The plaintiffs in the case allege that the university failed to investigate, examine and understand the real cost to the plan’s participants for administrative services, causing the plan and participants to pay unreasonable and excessive fees for investment and administrative services. Specifically, it says the university caused participants to pay an asset-based fee for administrative services that increased as the value of participant accounts rose, even though no additional services were being provided.

In addition, the lawsuit alleges that the University of Miami “selected and retained investment options for the plan that historically and consistently underperformed their benchmarks and charged excessive investment management fees, as well as share classes that were more expensive than other share classes readily available to qualified retirement plans that provided plan investors with the identical investment at a lower cost.”

The plaintiffs have a particular disagreement with the university’s selection of the TIAA Traditional Annuity as the plan’s capital preservation fund. The complaint says it prohibits participants from redirecting their investment into other investment choices during employment except in 10 annual installments, “effectively denying participants the ability to invest in equity funds and other investments as market conditions or participants’ investment objectives change.” The lawsuit notes that the Traditional Annuity also prohibits participants from receiving a lump-sum distribution of the amount invested in it unless they pay a 2.5% surrender charge that it says bears no relationship to any reasonable risk or expense to which the fund is subject.

The plaintiffs suggest that one could reasonably infer from these circumstances alone that the university’s fiduciary decision-making process “was either flawed or badly executed.” But, they say, there is additional evidence, “such as incorrect reporting on mandatory Department of Labor [DOL] disclosures about the amount of administrative fees paid by [the] participants.”

The complaint says the purpose of the lawsuit is to enforce the University of Miami’s liability under the Employee Retirement Income Security Act (ERISA) to restore to the plan all losses resulting from each alleged breach of fiduciary duty. However, the plaintiffs point out early in the lawsuit that their action is similar—but narrower in scope—to a lawsuit filed against Duke University and call attention to the fact that a final class action settlement was recently approved in the Duke case. “Plaintiffs here seek similar remedies that were court-approved in the Duke case,” the complaint says.

A database of 403(b) plan litigation maintained by Cammack Retirement shows 20 universities have faced similar lawsuits. Six cases have been dismissed, and eight have been settled.
Compliance May 1, 2020

Can Employers Use PPP Funds to Contribute to HSAs?

Limited guidance on the regulations makes this answer complex for plan sponsors.

Reported by

The recent passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act has left some employers scrambling for more guidance. Among the issues they’re clamoring to understand are Small Business Administration (SBA) loans and the Paycheck Protection Program (PPP), experts say.

According to Alison Moore, vice president of health marketing at HealthSavings, a health savings account (HSA) provider, these loans can help employers add contributions to their employees’ HSAs. “At this time when employers are looking for ways to help their employees, one of the things they could do is help fund their employees’ HSAs,” she says.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

A number of new rules that came out under the COVID-19 relief package added health benefits for employees. Now, employed workers may use their HSAs to cover telehealth—an issue that was swept under the rug for years before the coronavirus pandemic—and over-the-counter medicine without a prescription. Additionally, if a worker is laid off or unemployed, they may use their HSA to cover COBRA [Consolidated Omnibus Budget Reconciliation Act] premiums tax-free. “This fits right at the intersection with financial health and wellness,” Moore says. “It’s a vehicle that employees can use to put money in tax-free, it can grow tax-free and it can be used tax-free for qualifying medical expenses.”

Yet the emergence of additional guidance can be taxing on employers, who continue to find little clarification on some regulations. Some employers, says Kevin Robertson, chief revenue officer at HSA Bank, an HSA administration provider, can run the risk of hurting their compliance, even if their actions are a mistake or an oversight.

While employers can begin or increase contributions for their employee population under SBA loans, it’s important to note that they cannot selectively contribute to a singular employee’s account, Robertson adds. For instance, an employer is prohibited from making an extra contribution to an individual worker who is falling under tough times. If they do, they can be subject to HSA comparability rules if the contribution is made outside of a Section 125 plan, or nondiscrimination rules if made inside a Section 125 plan, according to Robertson. “They just have to remain cognizant because they may ultimately be causing a compliance issue for themselves,” he says. “As a rule of thumb, what they do for one, they should do for all.”

Under the CARES Act, the rules on the PPP state that employers can use the money from these loans for payroll costs. If an employer applies for the program and is accepted, they must use at least 75% of the loan on payroll services. “But what technically applies as a payroll cost?” Robertson asks. The complexity behind the PPP is enough to sway small business employers from potentially offering or increasing HSA contributions—and the confusion led the Treasury Department to issue a set of frequently asked questions (FAQs) for additional guidance and the SBA to release a brief explaining how to apply, yet both make no mention of HSAs.

However, because these loans are intended for employees, plan sponsors may use them toward HSA features, Moore says. “Generally, the PPP loans are for employers to provide benefits and compensation to their employees, and HSAs do qualify as a benefit,” she explains.

But while employers may want to help with health care costs, Robertson, on the other hand, urges plan sponsors to think twice before applying PPP funds to increase HSA contributions, mainly because of limited understanding around the regulation. Since the ruling’s generalization can be subject to interpretation, it’s best to halt before using funds for HSA contributions and consult with an Employee Retirement Income Security Act (ERISA) attorney. “There’s no linear answer,” Robertson says.

«