Compliance December 28, 2017

Reporting Emerges that Many DOL Fiduciary Rule Comments Could Be Fake

The Wall Street Journal published an analysis this week suggesting “at least five governmental agencies have received fake comments challenging the agencies' rules,” including the Department of Labor; the DOL is so far declining additional comment.

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Wall Street Journal reporter James Grimaldi is publicly suggesting that his paper has conducted an analysis clearly showing at least five governmental agencies have received fake comments speaking negatively of the agencies’ rulemaking.

Talking with a variety of mainstream news outlets, the Journal reporter says the Department of Labor (DOL) was among the targets—and he says there is evidence that the DOL fiduciary rulemaking has been a “direct target of trolls.” Overall, the Journal found that 40% of the thousands of individuals surveyed by its reporters said they did not write the comments attributed to them on the Labor Department’s public website.

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At this early juncture, the Department of Labor declined to offer a specific response to PLANADVISER, but an agency spokesperson said that could change as more information comes to light. It goes without saying, if the Journal’s reporting turns out to be true, this is clearly a dramatic development in the long-running saga that has been the DOL fiduciary rule expansion. So far, the reporting seems to suggest that the fraudulent comments were submitted mainly with stolen or outright fake identities of individuals, rather than, say, the financial service providers that are the focus of this publication. Still, individuals play a key role in the public commentary process tied to federal agency rulemaking; the right to offer public commentary of this nature is traditionally viewed as a vital part of the democratic process, alongside the right to vote and serve on a jury.  

The Journal suggests its survey data shows the fraudulent comments submitted in the case of the DOL fiduciary rule were mostly negative in character—arguing the rulemaking should be halted and reversed. Speaking Wednesday on the NPR program All Things Considered, Grimaldi characterized the fraudulent comments on the fiduciary rule as “mainly get out of my back yard grumpy old man type stuff.” As Grimaldi noted, simple logic suggests the huge volume of comments submitted to DOL on the fiduciary rule means there is a massive amount of dishonest commentary that has had to be reviewed and considered by regulators, very likely slowing and potentially confusing their work.  

Key questions yet to be answered obviously include the following: How will the DOL go about investigating the possibility that so many comments submitted by individuals, and potentially even on behalf of small businesses and large companies, were fraudulently filed? Will this news in any way impact the future of the fiduciary rule expansion? The DOL spokesperson declined to say whether the investigation of this matter will be an internal affair, or whether it could more likely fall to a federal law enforcement agency.  

Under law, the Department of Labor actively removes fraudulent comments that are brought to its attention. There are criminal penalties for the submission of fraudulent statements or representations to the federal government. Individuals who believe a comment has been fraudulently attributed to them are welcome to call 1-800-347-3756 or visit https://www.oig.dol.govhotlinecontact.htm.

Compliance December 27, 2017

Court Decision Provides Lessons for What Constitutes a QDRO

An appellate court found a divorce decree met all the requirements of a QDRO under ERISA.

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A federal appellate court has found that a divorce decree contains all the information required for a qualified domestic relations order (QDRO) under the Employee Retirement Income Security Act (ERISA) and therefore determined that a deceased employee’s life insurance proceeds go to his minor child rather than his named beneficiary.

Although the case involves and employer-provided life insurance plan, it has lessons for what constitutes a QDRO for all ERISA plans.

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Bruce and Bridget Jackson divorced in 2006. In their divorce agreement, they agreed to maintain any employer-related life insurance policies for the benefit of their only child, Sierra, until she turned 18 or graduated from high school. At the time, Bruce had an employer-sponsored life insurance policy that listed his uncle, Richard Jackson, as the sole beneficiary.

Bruce never changed the beneficiary of the policy to Sierra before he died in 2013. A district court ordered Sun Life Assurance Company of Canada to pay the life insurance proceeds to Sierra, because the divorce decree suffices as a qualified domestic relations order that “clearly specifies” Sierra as the beneficiary under ERISA Section 1056(d)(3)(C). The 6th U.S. Circuit Court of Appeals affirmed this decision.

In its ruling, the appellate court noted that in 1984, Congress amended ERISA to provide greater protection for spouses and dependents after a divorce. One such protection was an exemption from ERISA’s general preemption provision for “qualified domestic relations orders.” A QDRO includes any state “judgment, decree, or order” relating to the provision of “child support, alimony payments, or marital property rights” that recognizes an “alternate payee’s right to . . . benefits” and meets a number of other requirements.

A domestic order meets the requirements of QDRO only if such order clearly specifies:

  • the name and the last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order,
  • the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined,
  • the number of payments or period to which such order applies, and
  • each plan to which such order applies.

The appellate court found the divorce decree met all these requirements.

Arguments by Sun Life unpersuasive

Sun Life offered a number of competing arguments that the appellate court found unpersuasive. For example, it pointed out that it did not begin managing the life insurance plan until 2008, two years after the decree was executed. But, the court ruled it doesn’t matter who manages the plan and when they assume those duties.   

Sun Life also argued that Bruce’s optional life insurance is not “employer-provided life insurance” he, rather than his employer, paid the plan premiums. The 6th Circuit pointed out that the optional life insurance plan was a group policy offered only through the employer, and there would be no reason for the agreement to specify “employer-provided life insurance now in existence at a reasonable cost” if “employer-provided life insurance” covered only policies completely paid for by the employer.

Sun Life argued that the couple failed to comply with the decree’s requirements to change the name of the beneficiary and monitor the beneficiary designation and thus extinguished any rights their child may have had against Sun Life. According to the court, these shortcomings may have entitled the child to take action against the probate estate and perhaps those rights now have been forfeited, but she nows brings a claim under ERISA, not a common-law contract claim. The court ruled that her parents’ alleged non-compliance with the decree does not limit the child’s rights under ERISA. “As long as the order suffices as a qualified domestic relations orders, she deserves the proceeds of her father’s life insurance policy,” the court opinion says.

The court noted that the named beneficiary to the life insurance policy has filed a pro se brief in which he seeks damages for loss of income related to this lawsuit, but the district court rejected these claims as meritless, and the named beneficiary never filed a notice of appeal challenging that ruling. So, the 6th Circuit said it has no authority to address it.

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