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DOL Proposes New Definition of Fiduciary Regulation Related to Investment Advice

On April 14, 2015, the DOL issued a comprehensive package of proposed regulations and related guidance designed to protect retirement plan sponsors, participants, and IRA owners from perceived conflicts of interest in the retirement investment advice industry. As part of the DOL?ÇÖs ?Ç£Conflicts of Interest?Ç¥ proposal, a new regulation defining who is a ?Ç£fiduciary?Ç¥ by reason of giving investment advice to retirement plan investors (including IRA owners) has been proposed to replace the current regulation defining a fiduciary in the retirement investment advice context, which was issued in 1975. The proposed regulation would significantly broaden the number of advisors subject to a fiduciary standard by expanding the scope of what is considered investment advice. There are some notable ?Ç£carve-outs?Ç¥ from the definition of investment advice, such as for investment education and sales pitches to fiduciaries of large plans. Links to the proposed regulations, a news release, FAQs, and a fact… Continue Reading

Breach of Fiduciary Duty by Employer for Issuing Inaccurate SPD

A participant sued both his employer and the insurance company with respect to a long-term disability (?Ç£LTD?Ç¥) policy that had been purchased by the employer. The participant alleged an ERISA breach of fiduciary duty for the failure to increase LTD benefits in accordance with the terms of the summary plan description (?Ç£SPD?Ç¥). The U.S. Court of Appeals for the Sixth Circuit ruled that the employer (1) functioned as an ERISA fiduciary when it prepared and distributed the SPD to participants, and (2) breached its fiduciary duty by furnishing the participant with a misleading SPD. In particular, the SPD provision describing the annual increase in benefits did not refer to the other sections of the SPD on which the employer and the insurer had relied to deny the benefits increase. Also, the insurer?ÇÖs self-serving interpretation of the SPD to deny increased benefits was determined to constitute a breach of the insurer?ÇÖs… Continue Reading

IRS Issues Guidance for Changes in Measurement Periods or Methods Applicable to an Employee

In Notice 2014-49, the IRS provided guidance for determining if an employee is a full-time employee for purposes of the Affordable Care Act in situations where the measurement period applicable to the employee changes. The change may occur because the employee transfers from a position in which one measurement period applies to a position in which a different measurement period applies within the same large employer. The Notice also provides guidance in the event of corporate transactions such as mergers and acquisitions in which the employers use different measurement periods. Treasury and the IRS anticipate issuing further guidance. Taxpayers may rely on the Notice until such guidance is issued, and in any case, through the end of calendar year 2016.?á?áA copy of IRS Notice 2014-49 can be found here.

Fourth Circuit Rejects ?Ç£Could Have?Ç¥ Standard for Determining Fiduciary Breach

The U.S. Court of Appeals for the Fourth Circuit held that the plan administrator failed to follow a prudent process when it decided to forcibly divest all stock of a predecessor employer while such stock was priced at an all-time low.?á As a result, the burden shifted to the administrator to prove that despite its imprudent decision-making process, its ultimate investment decision was ?Ç£objectively prudent.?Ç¥?á The lower court ruled the decision was objectively prudent because a hypothetical prudent fiduciary ?Ç£could have?Ç¥ made the same decision after performing a proper investigation.?á Rejecting this standard for determining loss causation, the Fourth Circuit held that the proper standard is whether a reasonable fiduciary ?Ç£would have?Ç¥ made the same decision.?á Tatum v. RJR Pension Investment Committee, No. 13-1360 (4th Cir. Aug. 4, 2014).

No Presumption of Prudence in Stock Drop Cases, but ESOP Fiduciaries Provided Some Comfort

The U.S. Supreme Court held that ESOP fiduciaries are not entitled to a special ?Ç£presumption of prudence?Ç¥ when investing plan assets in employer stock. ?áThe Court stated, however, that it is generally prudent to assume that a major stock market provides the best estimate of a stock?ÇÖs value, in the absence of special circumstances. ?áIn addition, the Court stated that, to state a claim for breach of the duty of prudence on the basis of inside information, a plaintiff must plausibly allege an alternative action that the defendant could have taken that (1) would have been consistent with securities laws, and (2) a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than help it. Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. ____ (2014). The decision can be found?áhere.

Group Health Plan Awarded $5 million from Third-Party Administrator that Charged Hidden Fees

In the case of Hi-Lex Controls, Inc. v. Blue Cross Blue Shield of Michigan, the U.S. Court of Appeals for the Sixth Circuit ruled that Blue Cross Blue Shield of Michigan (?Ç£BCBSM?Ç¥), in its role as third-party administrator for the Hi-Lex Health and Welfare Benefit Plan (the ?Ç£Plan?Ç¥), breached a fiduciary duty to the Plan by adding undisclosed surcharges to hospital claims that BCBSM processed for the Plan.?á The court determined that the employee and employer contributions that Hi-Lex remitted to BCBSM were ?Ç£plan assets?Ç¥ for purposes of the Employee Retirement Income Security Act (?Ç£ERISA?Ç¥), and as such, BCBSM functioned as an ERISA plan fiduciary because it exercised discretionary control over the Plan?ÇÖs assets.?á The court ruled that BCBSM violated its ERISA-imposed fiduciary duty by using the Plan?ÇÖs assets for its own benefit.?á The Sixth Circuit affirmed the district court?ÇÖs award of more than $5 million in damages, plus pre-judgment… Continue Reading

IRS Provides Relief from Certain Late-Filer Penalties Related to Form 5500

The IRS recently released Notice 2014-35 providing IRS penalty relief for failing to timely file the Form 5500 series.?á These penalties are in addition to those that the DOL could impose under ERISA. Under the Notice, the IRS will not impose penalties for failing to file a required Form 5500, Form 5500-SF, or Form 8955-SSA if (1) the requirements of the DOL?ÇÖs Delinquent Filer Voluntary Compliance Program (?Ç£DFVC?Ç¥) related to a delinquent Form 5500 series return are met and (2) a Form 8955-SSA is filed with the IRS, along with any information required to be filed for the year to which the DFVC filing relates, by the later of 30 calendar days after the DFVC filing is completed or December 1, 2014.?á The Notice can be found?áhere.

Plan Administrators are Afforded Broad Discretion with Appropriate Language in ERISA Plan Documents

In the case of Hall v. Metropolitan Life Insurance Co., the U.S. Court of Appeals for the Eighth Circuit ruled that MetLife had not abused its discretion in denying a widow?ÇÖs claim for benefits under her husband?ÇÖs life insurance policy, which was subject to the Employee Retirement Income Security Act (?Ç£ERISA?Ç¥), where the plan document explicitly vested MetLife with the discretionary authority to interpret the terms of the plan and to make determinations concerning the eligibility for and entitlement to benefits under the plan. The court also noted that the ?Ç£substantial compliance?Ç¥ doctrine under federal common law could not deprive MetLife of its discretion to require strict compliance with the plan?ÇÖs terms. Although this case does not represent a break from prior law, it does serve as a reminder that plan sponsors should ensure that their plan documents give full discretion to plan administrators to interpret the plan?ÇÖs terms and… Continue Reading

Fifth Circuit: Investment Advisor Paid by a Third Party is Not an ERISA Fiduciary

The U.S. Court of Appeals for the Fifth Circuit recently held that an investment advisor was not a fiduciary for purposes of the Employee Retirement Income Security Act of 1974, as amended (?Ç£ERISA?Ç¥), because he did not receive any fees from the retirement plan for his advice regarding the investment at issue in the case, but received a commission from the third-party broker/dealer used to make the investment recommended by the advisor. Under ERISA, an investment advisor is an ERISA fiduciary if, among other things, he or she renders investment advice to an ERISA plan for a fee or other direct or indirect compensation. The Fifth Circuit did not address whether the third-party commission was indirect compensation for the advisor providing investment advice to the retirement plan. Rather, the court relied on its own precedent, that a commission paid by a third party is not the same as a fee… Continue Reading

Appellate Court Holds that Plan Fiduciaries May Rely on Lawyers

After a law firm?ÇÖs underfunded pension plan terminated, a participant sued the directors who administered the plan, alleging that she was placed into the wrong pool of employees when her benefit was determined.?á The directors claimed that they relied on the advice of counsel in making their determination.?á The participant responded that they were not entitled to rely on that advice because it was based on a mistake of fact that they would have discovered had they undertaken an independent investigation.?á The U.S. Court of Appeals for the D.C. Circuit held that prudent fiduciaries making important decisions may rely on the advice of counsel and have no duty to independently investigate where the facts show there was no reason for the directors to question the advice of counsel.?á Clark v. Feder Semo & Bard, P.C., No. 12-7092 (D.C. Cir. Jan. 7, 2014).

October 2021