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Proposed Rule Addressing Fiduciary Duties of Prudence and Exclusive Purpose with Respect to Proxy Voting and the Exercise of Shareholder Rights

The DOL recently published a proposed rule (the “Proposed Rule”) that would amend the current investment duties regulations to provide guidance regarding how plan fiduciaries should exercise their duties of prudence and exclusive purpose with respect to proxy voting and the exercise of shareholder rights. Prior to the Proposed Rule, the DOL had addressed such fiduciary duties in sub-regulatory guidance and individual letters, which did not provide plan fiduciaries with consistent and clear guidance on how they must exercise their duties for proxy voting and other exercises of shareholder rights. Specifically, the Proposed Rule: Codifies the DOL’s long-standing position that plan “fiduciaries must carry out their duties prudently and solely in the interests of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and beneficiaries and defraying the reasonable expenses of administering the plan” when deciding whether, and when, to exercise shareholder rights, including the voting… Continue Reading

Review Investment Policy Statements for ESG Investment Compliance

The DOL recently updated its “investment duties” regulation to provide further guidance in light of recent trends in environmental, social, and governance (“ESG”) investing, which we previously posted on our blog here. As the DOL increases its investigations and inquiries into ESG investments held by retirement plans, plan fiduciaries should review their plan investments and policies to: (i) determine if their retirement plans hold any ESG-type investments, and (ii) if they do hold such investments, (a) review their investment policy statements (“IPS”) and evaluate whether such policies comply with the current rules for ESG investments (and will comply going forward with the DOL’s guidance), and (b) confirm whether such investments remain appropriate for the plan. Plan fiduciaries may need to consult with their financial/plan advisors to determine if ESG-type investments are currently held by their plan. If a plan holds ESG investments and the IPS does not address such investments,… Continue Reading

Cross-Plan Offsetting Practice is Challenged in Class Action Lawsuit

This class action lawsuit, styled Scott, et al. v. UnitedHealth Group, Inc., et al., was filed in the U.S. District Court for the District of Minnesota on July 14, 2020. This lawsuit follows the decision of the U.S. Court of Appeals for the Eighth Circuit in Peterson v. UnitedHealth Group Inc. that was issued last year. In Scott, the plaintiffs, who were participants in the plans at issue in Peterson, filed, on behalf of a class of plaintiffs (the “Class”), a class action against UnitedHealth Group, Inc. and its wholly-owned subsidiaries (collectively, “UHC”), in their capacities as an insurer and/or third-party claims administrator of employer-sponsored group health plans. The lawsuit alleges the breach of UHC’s fiduciary duties under ERISA as related to UHC’s practice of “cross-plan offsetting.” The Class consists of participants and beneficiaries in all group health plans that are administered by UHC and contain “cross-plan offsetting” (collectively, the… Continue Reading

DOL Issues Proposed Rule to Amend the Investment Duties Regulation

The DOL recently issued a proposed rule to amend the “investment duties” regulation at found at 29 CFR 2550.404a-1 (the “Regulation”). The proposed rule would provide investment guidance to ERISA plan fiduciaries in light of recent trends in environmental, social, and governance (“ESG”) investing. ERISA requires plan fiduciaries to act “solely” in the interest of plan participants and beneficiaries and for the “exclusive purpose” of providing benefits and paying reasonable administrative expenses and prudently selecting investments for the plan. In the past, the DOL has periodically issued guidance addressing fiduciary duties under ERISA with respect to ESG-based investment decisions, including Interpretive Bulletin 94-1, which described a “tie-breaker standard,” whereby ESG considerations could be the deciding factor when competing investments served the plan’s economic interests equally. Later Interpretive Bulletins emphasized that it would be a violation of ERISA to accept reduced returns in favor of ESG goals, but that in certain cases,… Continue Reading

The New DOL Fiduciary Rule – A Return to the Old with a New Proposed Prohibited Transaction Exemption

On June 29, 2020, the DOL issued its much anticipated new “fiduciary rule” under ERISA. The new rule is meant to replace the DOL’s previous fiduciary rule (and related exemptions) which went into effect in 2016 but was vacated by the U.S. Court of Appeals for the Fifth Circuit in 2018. The new fiduciary rule is composed of two parts: (i) a final regulation which reaffirms and reinstates the five-part test for determining whether a person renders “investment advice” for purposes of ERISA (the “Reinstated Rule”), and (ii) a new prohibited transaction class exemption for investment advice fiduciaries based on the “impartial conduct standards” previously adopted by the DOL (the “Proposed Exemption”). Reinstated Rule The new rule amends the Code of Federal Regulations to reinstate the prior 1975 regulation which contained the five-part test for determining whether a financial institution or investment professional is a fiduciary for rendering “investment advice.”… Continue Reading

Have You Notified Participants of Extended Deadlines?

As noted in our prior post here, the U.S. Departments of Labor and Treasury recently issued a notice requiring all employee health and welfare benefit plans to disregard the period from March 1, 2020 until 60 days after the announced end of the COVID-19 National Emergency (or other announced date) when determining the deadline to request HIPAA special enrollment, elect COBRA coverage, make a COBRA premium payment, notify the plan of a COBRA qualifying event or determination of a disability, file a benefit claim or appeal, or request an external review of a benefit claim denial. Although the notice did not address whether plan participants needed to be notified of these extended deadlines, plan administrators should be aware that they likely have a fiduciary duty to accurately convey this information to participants. For example, a COBRA election notice that states a deadline to elect or make premium payments without mentioning… Continue Reading

The DOL Says Certain Private Equity Investments May Be Permissible Designated Investment Alternatives Under Individual Accounts Plans

On June 3, 2020, the DOL issued an information letter addressing the possibility of including a private equity type investment as a “designated investment alternative” under a participant directed individual account plan. The DOL concluded that, as a general matter, “a plan fiduciary would not . . . violate [ERISA’s fiduciary duties] solely because the fiduciary offers a professionally managed asset allocation fund with a private equity component as a designated investment alternative for an ERISA covered individual account plan in the manner described in [the] letter.” The DOL observed that private equity investments “involve more complex organizational structures and investment strategies, longer time horizons, and more complex, and typically, higher fees” and they generally have “different regulatory disclosure requirements, oversight, and controls” and “often have no easily observed market value.” In addition to these considerations, the DOL listed several factors that plan fiduciaries should evaluate when considering whether a… Continue Reading

The Supreme Court Holds Participants in Fully-Funded Defined Benefit Plans Cannot Sue for Fiduciary Breach

The U.S. Supreme Court held Monday that participants in a fully-funded defined benefit plan have no standing to bring a lawsuit against plan fiduciaries for a breach of ERISA’s fiduciary requirements. In Thole, plan participants alleged that the plan fiduciaries had mismanaged funds and invested in imprudent investments causing the plan to lose approximately $748 million more than it otherwise should have during the 2008 recession. Subsequent to that date, the plan sponsor contributed an additional $311 million to the plan resulting in the plan becoming fully funded. The Court held that because the participants would receive the same benefits whether they won or lost the lawsuit, there was no controversy and, therefore, the participants had no standing under Article III of the U.S. Constitution to bring a civil action under Sections 502(a)(2) or 502(a)(3) of ERISA. Thole v. U.S. Bank N.A., No. 17–1712 (U.S. June 1, 2020) can be… Continue Reading

Fifth Circuit Holds that Offering Single Stock Investments in a 401(k) Plan is Not Per-Se Imprudent

Following a spinoff, a 401(k) plan continued to offer the employer stock fund of the predecessor parent company as an investment alternative, but closed it to new investments. After the share price fell by approximately 50%, the participants brought a lawsuit against the plan fiduciaries claiming, among other things, that the fiduciary breached its duty to diversify under ERISA Section 404(a)(1)(C) by retaining the stock fund as an investment alternative. The District Court dismissed the case and the U.S. Court of Appeals for the Fifth Circuit upheld the dismissal. The Fifth Circuit held that although the stock of the former parent was not statutorily exempt from ERISA’s diversification because it was no longer a “qualifying employer security”, there was no obligation for the plan fiduciaries to force plan participants to divest from the funds. The court explained that ERISA contains no per se prohibition on individual account plans offering single-stock… Continue Reading

DOL Issues Relief for Plan Fiduciaries

The DOL’s Employee Benefits Security Administration (“EBSA”) recently issued EBSA Disaster Relief Notice 2020-01. Notice 2020-01 applies to employee benefit plans, employers, labor organizations, and other plan sponsors, plan fiduciaries, participants and beneficiaries, and service providers subject to ERISA. Notice 2020-01 remains in effect from March 1, 2020 until 60 days after the announcement of the end of the presidentially declared national emergency due to COVID-19 (the “National Emergency”). Untimely Notice Relief Fiduciaries of ERISA plans generally have an obligation to provide notices and disclosures in accordance with the timing requirements of ERISA. However, under Notice 2020-01, the employee benefit plan and the responsible plan fiduciary will not be considered to violate ERISA for failing to timely furnish a notice, disclosure, or document that must be furnished between March 1, 2020 and 60 days after the announced end of the National Emergency, if the plan and responsible fiduciary act in… Continue Reading

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