Capitol News

Art by Dingding Hu

DC Litigation Landscape Heats Up
Already this year, there have been a number of lawsuits filed against plan sponsors. The law firm Schlichter, Bogard and Denton filed a class-action suit, Pledger et al. v. Reliance Trust Co., claiming that the Insperity company’s 401(k) plan caused its participants to pay millions of dollars in excessive recordkeeping fees to the firm’s proprietary subsidiary, Insperity Retirement Services. Plaintiffs further argue that the plan’s discretionary trustee, Reliance Trust, also breached fiduciary duties “concerning its imprudent investment decisions, including the decision to offer its own proprietary investments.”

Another lawsuit, filed by the TPS Parking Management LLC 401(k) Plan, charges Empower Retirement with entering into revenue-sharing agreements and similar arrangements with various mutual funds and other investment advisers, instruments or vehicles in violation of the Employee Retirement Income Security Act (ERISA). According to the complaint, the revenue-sharing payments range from 25 basis points (bps) of the total assets of the plans to substantially greater payments.

Excessive Fee Claims Against Principal Rejected
An appellate court has dismissed a plan sponsor’s lawsuit claiming its plan provider charged excessive fees to retirement plan participants.

Affirming a district court’s decision that McCaffree Financial Corp. failed to state a claim, the 8th U.S. Circuit Court of Appeals agreed that Principal Financial Group was not acting as a fiduciary under the Employee Retirement Income Security Act (ERISA) when it entered into a contract with McCaffree to offer separately managed accounts for that company’s employee retirement plan.

The contract between McCaffree and Principal provided that plan participants could choose to invest their plan savings among various separate accounts that put money in Principal mutual funds. Principal reserved the right to limit which separate accounts it made available to participants, and McCaffree also had the ability to decide in which accounts employees could invest. Principal presented 63 accounts that could be included in the contract, and this was narrowed down to 29 accessible to plan participants.

The appellate court said that to state a claim of breach of fiduciary duty, a plaintiff first had to plead facts demonstrating the defendant was a fiduciary. Principal was not a named fiduciary to the plan.

Only Churches May Establish Church Plans
The 3rd U.S. Circuit Court of Appeals has agreed with a district court ruling that, because no church established St. Peter’s Healthcare System’s defined benefit (DB) retirement plan, it is ineligible for church plan exemption.

The court noted that in the decades since the definition of church plan was enacted, various courts have assumed that entities that are not churches but have sufficiently strong ties to one may establish a church plan exempt from the Employee Retirement Income Security Act (ERISA). But, in a new wave of litigation, district courts have considered whether the actual wording of the church plan definition precludes this result.   

In three of the six current cases, the courts have found that only churches may establish a church plan exempt from ERISA. The other three courts have found that plans established and maintained by church agencies can qualify for ERISA exemption. The 7th Circuit has heard oral arguments in Stapleton v. Advocate Health Care Network and Subsidiaries, in which a district court found only churches may establish a church plan, but the 3rd Circuit is the first appellate court to issue an opinion, setting a precedent for the circuits.

IRS Outlines 2016 Exam Priorities
Internal Revenue Service (IRS) employee benefit plan examination initiatives heading into 2016 closely match the IRS’ priorities for 2015. They remain addressing commonly occurring Form 5500 Series return errors and several other broad categories of recurring errors found across 401(k), 403(b), very large and multiemployer plans.

These include but are not limited to: applying improper definitions of compensation for plan deferral and matching purposes; running the plan in a manner out of conformance with plan documents; investing heavily in hard-to-value assets; nondiscrimination testing errors; not recognizing the plan as a top-heavy plan; being late in remitting employee or employer contributions; and utilizing faulty participant data.