A federal district court has moved
forward a case alleging a pension plan participant was not fully
informed of his rights to a joint and survivor annuity upon retirement,
in violation of the Employee Retirement Income Security Act (ERISA).
David
R. Reed filed the lawsuit, claiming that as a domestic partner of the
pension plan participant, the pension benefits should have been paid as a
joint and survivor annuity. Reed and the participant were registered as
domestic partners in California in 2004 and were married in 2014.
Donald
Lee Gardner retired from KRON-TV in 2009, and he and Reed met with
human resources to discuss benefit options. According to the opinion
written by U.S. District Judge Jeffrey S. White of the U.S. District
Court for the Northern District of California, the plan allowed that a
participant who is married at retirement or benefit commencement must be
paid his monthly pension benefit in the form of a 50%
joint-and-survivor annuity unless he elects otherwise after written
notice of his right to the joint-and-survivor annuity and with the
witness or notarized written consent of his spouse. Reed claims that
during the talk with HR, the availability of a joint and survivor
annuity was never mentioned, and Gardner selected a single-life annuity.
Reed argues that California law at the time granted domestic
partners the same rights as spouses and since he did not consent to
Gardner’s election, it was invalid. Gardner died in June 2014 and all
benefit payments stopped.
Reed asks for declarations that the
defendants are estopped from denying him a survivor benefit under the
plan and that they are estopped from reducing his survivor benefit by
“any overpayment occasioned by the payment of a single-life annuity
during Mr. Gardner’s life.” In addition, he asks the court to reform
the plan “to provide that the provisions applicable to married
participants apply to participants in registered domestic partnerships,”
and to assess a surcharge “in the amount necessary to place him in the
position he would have occupied but for the defendants’ breach of
fiduciary duty, including in the amount of the survivor benefit and any
claimed overpayment.
KRON-TV moves to dismiss the third claim for
relief on the ground that the relief Reed seeks is duplicative of his
first claim for benefits. White noted that in CIGNA Corp. v. Amara, the Supreme Court held
that Section 1132(a)(3) of ERISA permits equitable relief, in a variety
of forms, even where a plaintiff seeks relief under Section
1132(a)(1)(B). The 9th U.S. Circuit Court of Appeals has confirmed that a
plaintiff may pursue claims under both Sections 1132(a)(1) and
1132(a)(3), “so long as there is no double recovery.”
White
concluded that at this early stage in the litigation, the court cannot
determine if the third claim simply “repackages” Reed’s first claim for
relief. He denied the motion to dismiss.
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Despite reports that the Department of Labor (DOL) was ordered by President
Donald Trump to delay the implementation of the fiduciary rule by six months, the final memo to the agency did not contain such an order.
In
the memorandum, Trump says the DOL fiduciary rule may significantly
alter the manner in which Americans can receive financial advice, and
may not be consistent with the policies of his administration.
The
memo directs the DOL to examine the fiduciary rule to determine whether
it may adversely affect the ability of Americans to gain access to
retirement information and financial advice. As part of this
examination, he ordered the agency to prepare an updated economic and
legal analysis concerning the likely impact of the fiduciary rule,
“which shall consider, among other things, the following:
Whether
the anticipated applicability of the Fiduciary Duty Rule has harmed or
is likely to harm investors due to a reduction of Americans’ access to
certain retirement savings offerings, retirement product structures,
retirement savings information, or related financial advice;
Whether
the anticipated applicability of the Fiduciary Duty Rule has resulted
in dislocations or disruptions within the retirement services industry
that may adversely affect investors or retirees; and
Whether the
Fiduciary Duty Rule is likely to cause an increase in litigation, and
an increase in the prices that investors and retirees must pay to gain
access to retirement services.”
Trump goes on to say that
if the DOL makes an affirmative determination as to any of the
considerations or if it concludes for any other reason after appropriate
review that the rule is inconsistent with the priority of Trump’s
administration, then the DOL should publish for notice and comment a
proposed rule rescinding or revising the rule, as appropriate and as
consistent with law.
Of course, this review could lead to a delay in, or even halt of, implementation of the rule.
NEXT: Halt of rule won’t change momentum
Specifics of the DOL process remain murky in that Trump’s Labor
Department is still being led by an interim secretary. His full-term secretary nominee, CKE
Restaurants CEO Andrew Puzder, is of course a vocal critic of many current
government policies including the Affordable Care Act, the DOL’s pending
overtime regulations, and raising the minimum wage. He has not commented
publicly about how exactly he would like to see the DOL rulemaking unraveled,
but in past media coverage he has spoken about the importance of leaving
management of labor issues and other aspects of business regulation to the
states.
Industry responses have been fast and furious—with a clear
consensus building around the idea that halting the DOL rulemaking won’t stop
outright the momentum
that has been building around increasing the fairness and transparency of advisory
models.
Lockton Retirement Service’s head of legal and regulatory
affairs, Samuel Henson, said he expects the rule to undergo major changes or to
be completely scrapped, but even its outright repeal won’t undo the industry
landscape it leaves behind.
“The impact of that rule will not go away,” Henson feels.
“The amount of time and effort that has already gone into compliance with that
rule by financial services companies is going to have a lasting impact. I think
a lot of people had decided to become ERISA fiduciaries, or at least to act more
as such." And that is a positive thing.
Even with his optimism that firms will continue to improve their
business practices from the point of view of transparency and eliminating
conflicts of interest, he admits the
picture has changed with President Trump and the Republicans in charge of
Congress: “Will the legacy of the rule survive exactly as it stands right now?
I doubt it.”
Tom Reese, adviser with Conrad Siegel Investment Advisors in
Harrisburg, Pennsylvania, agrees that many firms may “still put in a good faith
effort to meet similar standards.” Just what this looks like will vary from
firm to firm, “but there remains something to be said about the willingness to
commit to the fiduciary relationship.”
“Many firms have invested a lot of time and money to be in
compliance with the DOL’s fiduciary rule,” he tells PLANADVISER, “so it is
unlikely that these companies will just go back to business as usual. Some
firms may decide not to fully abide by the fiduciary rule as it was proposed,
but they will likely try to eliminate conflicts and put in a good faith effort
to meet similar standards.”
NEXT: Wait-and-see
attitude pays off
Firms that have been in a wait-and-see mode regarding making
big investments to improve compliance process and change advisory fee models probably
feel pretty well-vindicated right now, Reese notes, but they may still find a
need to make such changes further down the line as their competitors
start to market their willingness to be a full-fledged fiduciary. For
firms that will continue to provide commission-based services that may have
potential conflicts, it will be harder to compete, Reese speculates.
It should be stated that Reese and the others who have come
down in favor of strengthening the DOL advice standards have their own car in the
race: As an independent registered investment adviser he serves as a fiduciary
and does not receive commissions. He says this is the “clearly the less
conflicted model,” and so if/when the DOL rule is fully eliminated, “we would certainly
continue to provide this same level of service.” Others will do the same.
He further speculates that with the fiduciary rule
postponed, the burden of closely watching and assessing the performance of
service providers will fall even more on the shoulders of plan sponsors and
participants. “There is even more pressure on employers to make sure that they
are taking a proactive approach to meeting their own fiduciary responsibility,”
he explains. “Hopefully, this past year gave employers a better understanding
of what they need to look out for to act as fiduciaries for their plan
participants. Employers will need to continue to take steps to make sure that
they are regularly reviewing their retirement plan. This would include
developing an investment policy statement and regularly reviewing share class,
fee benchmarking, and performance of the plan investments.”
Reflecting the contentious political environment that led to
this turn of events, others in the industry have taken essentially the opposite
view of Reese—and yet others have argued for a middle ground, suggesting that
the DOL rulemaking was perhaps flawed, but a uniform fiduciary standard that is
more thoughtfully constructed could work. For example, the Financial Services Institute
(FSI) shared a beaming endorsement of the President Trump’s move to halt the current
rulemaking, penned by FSI President and CEO Dale Brown.
“On behalf of the retirement savers who depend on their financial advisers,
we applaud the president’s action, which will delay a rule with devastating
consequences for so many people,” Brown says. “Our members pride themselves on
working in the best interest of their clients. FSI has supported a uniform
fiduciary standard since 2009—before Dodd-Frank became law. We stand ready to
work with the president and his administration to put in place a uniform
fiduciary standard that protects investors, while not denying quality,
affordable financial advice to those who need it most.”
NEXT: Clear and
conflicting viewpoints
Brown suggests the Department of Labor fiduciary rule “would have not
only made it harder, but impossible, for many hard-working Americans to access
critical retirement advice.”
Other industry groups to quickly weigh in included the Financial
Planning Coalition (FPC), made up of the Certified Financial Planner Board of
Standards, the Financial Planning Association and the National Association of
Personal Financial Advisors. Suffice it to say, FPC is strongly critical of
President Trump’s decision to cease the implementation of a rule that has been
a decade in the making.
“The Financial Planning Coalition strongly opposes the
action taken today by President Trump to halt the Department of Labor’s final fiduciary
rule that will protect millions of Americans saving for retirement,” the group writes
to PLANADVISER. “With just two months to go before its implementation date, the
President has effectively given the green light to maintain the status quo of
conflicted financial advice.”
It is the position of the FPC that, by issuing this
memorandum, the president is “directing the Department of Labor to produce an
outcome that will likely lead to either a complete gutting of this thoroughly
vetted consumer protection or lead to its outright demise. Either one is a bad
outcome for American retirement savers … We applaud those firms and individuals
who have already acknowledged the rule’s benefit to consumers and taken action
to comply with the DOL fiduciary rule.”
The Investment Company Institute (ICI), the advocacy group
that represents the interests of mutual fund companies, shared a statement from
Paul Schott Stevens, more or less to the effect that DOL had the right idea in
mind in crafting the fiduciary rule—but failed in its approach.
“These executive orders begin an important, overdue process
to revisit and reform aspects of the regulatory regime that are overly complex,
burdensome, and costly,” Stevens argues. “The Administration should use this
time to address flaws in the rule and pursue a harmonized standard across the
retail and retirement marketplace, coordinating with the Securities and
Exchange Commission to ensure investors’ best interests are paramount.”