Compliance News

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House Passes SECURE Act, Senate Could Be Close Behind

Following the House of Representatives’ passage of the SECURE [Setting Every Community Up for Retirement Enhancement] Act, on May 24, Melissa Kahn, managing director of retirement policy for the defined contribution (DC) team at State Street Global Advisors (SSGA), said, “Like many other industry stakeholders, we’re thrilled with the step taken by the House. This will, hopefully, prove to be a major step toward ensuring that workers can achieve a secure retirement. The SECURE Act covers so many different areas across retirement plan access and coverage, savings efficiency, lifetime income and more. It really is a great package in total.

“Democrats and Republicans were able to come together, and that’s a great sign for American workers,” Kahn continued. “Where it goes from here is the crucial next question. We have heard rumors that the Senate could move on the SECURE Act very quickly. I would not be surprised if we see Senate action very, very soon, in fact. People in both political parties recognize that this is a pressing need for all of America.”

Kahn’s optimistic perspective about the prospect for Senate action was echoed in many of the written statements sent to PLANADVISER in response to the SECURE Act’s easy House passage. In his statement, Financial Services Institute (FSI) President and CEO Dale Brown urged the Senate “to take up this critical legislation and pass it as soon as possible.”

Empower President and CEO Edmund F. Murphy III said Congress “has done a great service to American retirement savers by voting for the SECURE Act of 2019.”

Phil Waldeck, president of Prudential Retirement, also commended the House for its vote, saying, “The bipartisan SECURE Act is the most significant legislation aimed at bolstering America’s retirement system in more than a decade.”

Congress Called on to Address Union Pension Crisis

During a meeting of the Senate Finance Committee, Committee Chairman Chuck Grassley, R-Iowa, said that passage of the Retirement Enhancement and Savings Act (RESA) remains a top priority for himself and Finance Committee Ranking Member Ron Wyden, D-Oregon, during the current Congress.

While RESA was the main focus throughout the hearing, other topics beyond that particular piece of legislation repeatedly came up and underscored other areas where senators said they hope to make progress soon. For example, during her questioning of the experts, Debbie Stabenow, D-Michigan, stepped back from RESA to urge the committee to find some urgency on the multiemployer union pension crisis.

Mike Enzi, R-Wyoming, agreed, noting that 150 such plans could become insolvent within a matter of years.

“We need a hair-on-fire moment about the union pension issue,” Stabenow said. “In my lifetime, I cannot believe we are seeing folks who have lost or will lose a pension benefit they have paid for, over decades. This is a whole generation of union workers who are in danger of not receiving the benefits they have been promised and they have paid for.”

Anyone who has listened in on public meetings held by the Joint Select Committee on the Solvency of Multiemployer Pension Plans will have heard testimony of stakeholders in the multiemployer pension space, noting, for example, that the funding gap has more than tripled in the past decade.

Excessive Fee Suit Filed Against Greystar Management

A participant in the Greystar 401(k) Plan has filed a proposed class action lawsuit against Greystar Management Services L.P., a property management firm, alleging it breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by allowing excessive administrative and investment fees to be charged.

According to the complaint, for each year from 2013 through 2017, the administrative fees charged to plan participants were greater than 90% of peer plan fees when calculated as cost per participant. And for each of those years but one, the administrative fees were greater than 90% of peer fees when calculated as a percent of total assets. The lawsuit says financial information for 2018 is not yet available.

The lawsuit also alleges that, as of December 31, 2017, the fees for the investment options then in the plan were up to three times more expensive than available alternatives in the same investment style; further, the mutual fund options that were in the plan in previous years but removed before that date also had excessive fees relative to comparable investments.

Archdiocese Evaded ERISA, Plaintiffs Say

Former employees of Saint James Hospital of Newark, New Jersey, filed a lawsuit in that state’s Essex County Superior Court against the Roman Catholic Archdiocese of Newark, over pension plan benefits.

The case is similar to others that have been filed on the federal level challenging a pension’s “church plan” status, but this complaint alleges that the actions taken by the archdiocese violate New Jersey contract and trust law.

According to the complaint, filed on behalf of approximately 135 individuals, the archdiocese promised guaranteed benefits for life, but the benefit payment for the plaintiffs and other affected retirees stopped in 2017. This was due to the archdiocese’s failure to fund the plan.

The pension plan was operated under the Employee Retirement Income Security Act (ERISA) after the act’s passage in 1974. In 1988, the archdiocese notified past and present employees that it intended to terminate the plan, but the Pension Benefit Guaranty Corporation (PBGC) denied the termination, as the plan lacked sufficient assets to pay all covered benefits.

That is when, the plaintiffs allege, “the archdiocese developed a strategy to escape PBGC scrutiny and the protections of ERISA.” In 1990, the archdiocese sent a letter to the IRS asking it to deem the pension plan a church plan under ERISA. The IRS granted the request.

Eaton Vance Settles Self-Dealing Suit

The parties in a lawsuit against Eaton Vance Corp. and its 401(k) plan investment committee have reached a settlement.

The settlement agreement calls for a payment of $3.45 million, with $1.5 million to cover plaintiff’s attorney fees. In March, the plaintiff asked for a stay of the case while a settlement was being negotiated.

The lawsuit alleged that, instead of leveraging its investment expertise to select prudent investment options on the open market, defendants filled the Eaton Vance Profit Sharing and Savings Plan with funds the firm itself managed. Of the plan’s 42 non-money-market investments strategies, 35 were managed by one of the Eaton Vance defendants. Moreover, the firm’s “proprietary funds were the exclusive actively managed investment strategies available on the plan.” The lawsuit claimed that 80% of the plan’s $434,848,484 in assets under management (AUM) were invested in Eaton Vance funds.

The settlement agreement did not call for Eaton Vance to change its plan’s investment menu but says it was “entered into solely for the purpose of avoiding possible future expenses, burdens, or distractions of litigation …”

Plaintiffs in UPenn Suit Get a Second Chance

The 3rd U.S. Circuit Court of Appeals has revived a lawsuit against fiduciaries of the University of Pennsylvania’s 403(b) plan, which had been fully dismissed by a district court in 2017.

The Appellate Court agreed with the dismissal of most claims, but when it came to those about excessive fees and improper investments, it found the plaintiff had plausibly alleged a breach of fiduciary duty under the Employee Retirement Income Security Act (ERISA). It said the plaintiff’s factual allegations are not merely “unadorned, the-defendant-unlawfully-harmed-me accusations, but are numerous and specific factual allegations that the university did not perform its fiduciary duties with the level of care, skill, prudence and diligence to which plan participants are statutorily entitled.

“[Plaintiff Jennifer] Sweda offered specific comparisons between returns on plan investment options and readily available alternatives, as well as practices of similarly situated fiduciaries to show what plan administrators ‘acting in a like capacity and familiar with such matters would do in the conduct of an enterprise of a like character and with like aims,’” the court opinion states. In addition, the 3rd Circuit found the allegations plausibly allege that the university failed to “defray reasonable expenses of administering the plan” and otherwise failed to “discharge its duties” according to the prudent man standard of care.

FINRA Fines AXA for Misrepresentations

The Financial Industry Regulatory Authority (FINRA) has fined AXA Advisors $600,000 and ordered it to pay restitution in the amount of $172,461 to 401(k) plans for misrepresenting the credit quality of certain bond funds offered within group annuity contracts for 401(k) plans.

In a letter of acceptance, waiver and consent signed by AXA, which did not admit or deny FINRA’s findings, the regulatory authority claimed that, from September 2010 through November 2015, investment options, particular enrollment forms and other documents created by AXA’s affiliated life insurance company misrepresented that certain bond funds were “investment grade” when they were not.

In addition, FINRA accused AXA of failing to establish, maintain and enforce a supervisory system to determine whether the documents distributed to plan sponsors and participants accurately described the credit quality of the bond funds.