Legislative and Judicial Actions
Art by Katherine Streeter
Missing Participant Guidance
The Department of Labor (DOL)’s Employee Benefits Security Administration (EBSA) has issued guidance to help retirement plan fiduciaries meet their obligations, under Title I of the Employee Retirement Income Security Act (ERISA), to locate and distribute retirement benefits to missing or nonresponsive participants. The guidance comes in three forms: a page titled “Missing Participants – Best Practices for Pension Plans,” Compliance Assistance Release 2021-01 and Field Assistance Bulletin (FAB) 2021-01.
“Best Practices for Pension Plans” describes a range of best practices that fiduciaries of retirement plans, including defined contribution (DC) plans, might apply to help reduce the number of missing participants and help ensure that all enrolled in the plan receive their promised benefits after retiring. EBSA suggests putting processes in place to regularly update participant census data and beneficiary information. In addition, the guidance lists best practices for finding missing participants.
“The guidance … reflects our ongoing commitment to help plan fiduciaries ensure that their plan participants and beneficiaries receive the retirement benefits they worked so hard to earn.”
Compliance Assistance Release 2021-01 outlines the general investigative approach that will guide EBSA’s regional offices under the Terminated Vested Participants Project for defined benefit (DB) plans and facilitate voluntary compliance efforts by plan fiduciaries. The guidance reveals the information that EBSA staff request from plan sponsors and the errors they look for.
FAB 2021-01 authorizes, as a matter of enforcement policy, plan fiduciaries of terminating DC plans to use the Pension Benefit Guaranty Corporation (PBGC) missing participants program for missing or nonresponsive participants’ account balances. The guidance describes which participant accounts may be transferred to the PBGC and the rules for participant notices.
According to Principal Deputy Assistant Secretary of Labor for EBSA Jeanne Klinefelter Wilson, “The guidance … reflects our ongoing commitment to help plan fiduciaries ensure that their plan participants and beneficiaries receive the retirement benefits they worked so hard to earn.”
Company Sues Its Trustee for Unauthorized Distribution
American Trust is the trustee for the Mandli Communications Inc. 401(k) Plan and Trust. One of its services to the plan is to review and approve all distributions from it.
Last February 14, American Trust made an unauthorized distribution in the total amount of $124,105 from the account of Raymond J. Mandli, the company’s president and founder, in response to a withdrawal request from an unknown third party.
According to the complaint, American Trust has refused to take responsibility for the unauthorized distribution from Mandli’s account, failed to promptly inform him and Mandli Communications about the unauthorized distribution, has concealed facts and has declined to provide Mandli or his company with copies of any of the requested documentation related to the details of the distribution.
The lawsuit also says the trustee did not mail or email any acknowledgment of receipt of the withdrawal election form submitted by the unknown party and did not call or otherwise contact Mandli or his firm to verify that the distribution request was legitimate.
On March 11, nearly a month later, the American Trust employee responsible for the firm’s relationship with Mandli Communications informed Mandli about the unauthorized distribution. On May 12, he told Mandli that to process a claim for reimbursement, an insurance company for American Trust requested that a police report be filed. He offered to help Mandli file the report, and Mandli accepted the help.
On September 9, American Trust’s chief revenue officer sent a letter to Mandli stating, “We are pleased to let you know that we have been able to recoup from the Internal Revenue Service the $24,800 paid in taxes in connection with the distribution. Additionally, we will reimburse our $105 distribution fee. All other efforts to recover any of the stolen funds will need to be performed by you.”
The lawsuit asks that American Trust be held liable to make good to the plan the losses to it from the trustee’s breach of fiduciary duties in an amount not less than $99,200 plus lost earnings from last February 14 “and other equitable or remedial relief as the court may deem appropriate.”
CARES Act Provisions Are Extended
The latest COVID-19 relief bill, attached to the Consolidated Appropriations Act, 2021, enables certain retirement plan sponsors that laid off or furloughed employees due to economic issues caused by the pandemic to avoid a partial plan termination. The bill was signed this past December 28 by then President Donald Trump.
The bill states: “A plan shall not be treated as having a partial termination (within the meaning of 411(d)(3) of the Internal Revenue Code of 1986) during any plan year [that] includes the period beginning on March 13, 2020, and ending on March 31, 2021, if the number of active participants covered by the plan on March 31, 2021, is at least 80% of the number of active participants covered by the plan on March 13, 2020.”
The new bill does not extend the time available for plan participants to take coronavirus-related distributions (CRDs); however, it does add money purchase pension plans as a plan type from which participants may take a CRD. The provision is retroactive to the passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act. The CARES Act provision of CRDs expired on December 30.
The Consolidated Appropriations Act, 2021, also allows for distributions from retirement plans for participants affected by disasters other than the COVID-19 pandemic, as declared by the former president. Participants in 401(k), 403(b), money purchase pension and government 457(b) plans may take up to $100,000 in aggregate from whatever retirement plan accounts they own, without tax penalties. Income tax on these distributions may be spread over three years, and participants may repay the distributions, over three years, into a plan designed to accept rollovers.
Participants have until 180 days after enactment of the bill to take qualified disaster distributions.
Further, the new bill extends the expanded limits for qualified retirement plan loans allowed under the CARES Act for that same 180-day period. It similarly extends the one-year delay in loan repayment for participants having repayment due dates between the first day of the disaster incident period and ending 180 days after the last day of the period.
The newly passed stimulus bill also includes provisions related to employer benefits other than retirement plans. The CARES Act allowed employers to make payments of up to $5,250, tax free, toward employees’ student loans through the end of this year. The new bill extends that until the end of 2025.
UPenn 403(b) Plan Settles
A new court filing in the U.S. District Court for the Eastern District of Pennsylvania describes the terms of a settlement reached between the University of Pennsylvania (UPenn) and plaintiffs in a long-running and complex Employee Retirement Income Security Act (ERISA) fiduciary breach lawsuit.
The case boasts a detailed procedural history that first saw the District Court dismiss the complaint. That decision, filed in 2017, was based in part on the fact that the UPenn 403(b) plan in question offered a wide array of investment options, which the court interpreted to mean that the claims that participants were forced into high-priced and poorly performing investments could not stand up.
Defendants admit no wrongdoing or liability with respect to any of the allegations or claims in this action. As is par for the course, the settlement document stipulates that up to a third of the settlement amount can be paid as plaintiffs’ attorneys fees.
Voya Settles With the SEC
The Securities and Exchange Commission (SEC) announced that Voya Financial Advisors has agreed to settle charges related to the alleged disclosure failures and misleading statements it reportedly gave to clients regarding investment advice about mutual funds, illiquid alternative investments and cash sweep vehicles. The settlement includes a distribution of money to harmed clients and the retention of an independent compliance consultant.
Rob Portman, Senate Retirement Advocate, to Retire
U.S. Senator Rob Portman, R-Ohio, will not seek re-election after his term finishes in 2022, generating no small measure of surprise and a degree of consternation for the retirement planning industry.
This is because Portman is viewed by many retirement planning professionals as one of their long-time top advocates in Congress. Portman has not only held a leading position on the powerful Senate Finance Committee for many years—including having been chairman of the Subcommittee on Social Security, Pensions and Family Policy—he has been one of the main advocates of several popular pieces of retirement reform legislation supported by advisers and their industry trade groups.
Naturally, retirement industry practitioners will be eagerly watching what the Senate does during the newly installed Congress, which will now be Portman’s last.
“Over the next two years, I look forward to being able to focus all of my energy on legislation and the challenges our country faces, rather than on fundraising and campaigning,” Portman said in a statement. “During my service in the Senate, I am proud of what we’ve been able to accomplish for Ohio and the country. I have consistently been named one of the most bipartisan senators. I am proud of that, and I will continue to reach out to my colleagues on both sides of the aisle to find common ground.”
Relief From Physical Presence Requirement Continues
The physical presence requirement for spousal consents and participant elections under qualified retirement plans will remain lifted through June 30.
The IRS, in Notice 2021-03, has extended the temporary relief it had provided from the physical presence requirement for spousal consents under qualified retirement plans from this January 1, for six months, through June 30, due to the ongoing crisis created by the COVID-19 pandemic. In addition, the requirement that participant elections be witnessed by a plan representative or notary public will also be lifted through that time.
As a way of background, the IRS notes that last March 13, President Donald Trump determined that the COVID-19 pandemic was of sufficient severity and magnitude to warrant an emergency determination under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. Rather than physical presence, retirement plan sponsors may use electronic media to send notices to recipients or permit participants to make elections with respect to their retirement plan, the notice says.
However, the individual must be able to access the electronic medium, which must be reasonably designed to preclude anyone other than the appropriate person from making the election. The electronic system must also “provide the individual making the participant election with a reasonable opportunity to review, confirm, modify or rescind the terms of the election before it becomes effective, and the individual making the participant election, within a reasonable time, must receive confirmation of the election through either a written paper document or an electronic medium that satisfied the applicable notice requirements,” the notice says.
Likewise, a participant’s consent to a distribution may be provided through the use of electronic media, the notice says.
It also clarifies that “remote electronic notarizations differ from electronic notarizations in that [the former] generally are conducted [from one location to another] over the internet using digital tools and live audio-video technologies, whereas [the latter] may be signed electronically but still require that certain signatures be witnessed in the physical presence of a notary public or plan representative.”
The IRS first passed the relief for participant elections last June, in response to the COVID-19 pandemic and related social distancing guidelines. The agency said, at that time, that the temporary relief, which covered all of last year, was intended to facilitate the payment of coronavirus-related distributions (CRDs) and plan loans, as permitted by the Coronavirus Aid, Relief and Economic Security (CARES) Act. It also applied to any participant election requiring the signature of an individual to be witnessed in the physical presence of a plan representative or notary.
The Treasury Department and the IRS welcome comments with respect to the extension of these measures through June 30.
Vail Resorts Wins Dismissal
A new ruling out of the U.S. District Court for the District of Colorado grants the dismissal motion filed by the defense in an Employee Retirement Income Security Act (ERISA) lawsuit known as Kurtz v. Vail Corp. The underlying lawsuit accuses Vail Corp. of permitting excessive fees in the Vail Resorts 401(k) Retirement Plan. According to the complaint, for at least 18 of the 27 mutual fund share classes available within the plan, the same issuer offered a different share class from the one selected by the plan that charged lower fees and consistently achieved higher returns. The plaintiff says the plan “inexplicably failed to select these lower-fee-charging and better-return-producing share classes.”
The complaint also alleges that the administrative fees charged to Vail plan participants are greater than over 90% of comparator fees when calculated on a cost-per-participant basis, or as a percent of total assets, without the provider delivering commensurate value. Finally, the complaint suggests the defense imprudently failed to provide a sufficient number of passively managed investment options.
In ruling against these allegations and granting Vail’s dismissal motion, the District Court echoed some of the same points made in a recent dismissal ruling filed in favor of commerce technology company Salesforce. Central to the dismissal is the consideration of several issues of standing. As the text of the Vail ruling recounts, the defendants argued that the lead plaintiff invested in only five of the many plan options that she challenged. As a result, the defendants contended, the lead plaintiff had no standing to challenge the remaining options, because she had not alleged a “concrete and particularized” injury in fact. In response, the ruling recounts, the plaintiff asserted that she did not bring independent claims for each of the challenged funds, but instead brought a single claim for mismanagement of the entire plan.
The suit was dismissed with prejudice, which means it may not be brought back to court.