Compliance November 30, 2020

Retirement Plan Participant Tries Cybersecurity Lawsuit Against Abbott Again

The plaintiff filed a first amended complaint on October 23, trying to correct pleading errors after Abbott was dismissed from the lawsuit.

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Last month, Abbott Laboratories defendants were dismissed from a lawsuit alleging failures related to an employee’s retirement account theft.

The lawsuit was filed in April by a retiree participant in the Abbott Laboratories Stock Retirement Plan. It alleges that failures in website and call center protocols resulted in $245,000 in unauthorized distributions from the participant’s plan account.

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U.S. District Judge Thomas M. Durkin of the U.S. District Court for the Northern District of Illinois found that the complaint’s “conclusory statements” failed to sufficiently allege that Abbott was a fiduciary. He said the complaint also failed to allege any fiduciary acts taken by Abbott linked it to the alleged theft. Durkin pointed out that while the complaint alleged that the call center and website were used to perpetuate the theft, it also indicated that both are operated by Alight.

In a conversation with PLANADVISER, Susan Rees, of counsel at The Wagner Law Group, called the decision “provisional” and said she expected the participant could be able to correct pleading errors by “focusing on the actual fiduciaries and plan administrator.” In other words, the judge took Abbott off the hook for procedural reasons, Rees said.

The plaintiff is trying to correct those pleading errors now in a first amended complaint filed October 23. In the new complaint, the plaintiff says the defendants—Abbott; the named plan administrator; and the plan’s recordkeeper, Alight Solutions—failed to enforce a security question routine set up for security purposes on the website, abbottbenefits.com, and instead simply provided a one-time code over the phone that was used to loot her account.

In addition, the complaint mentions other instances of unauthorized distributions in Alight recordkept retirement plans, including from when the company operated as Aon Hewitt, and says Abbott and the plan administrator “were, or should have been, aware of Alight’s demonstrated inability to prevent unauthorized access to plan participants’ information and/or unauthorized transfers of plan funds.” The complaint states that “despite prior instances of data breaches and unauthorized transfers, as well as Alight’s practices that led to a Department of Labor [DOL] investigation, along with Alight’s general lax attitude toward data security,” the plan administrator and Abbott continued to allow Alight to provide services to the plan.

The lawsuit includes claims that Abbott and the plan administrator failed to monitor Alight.

Compliance November 25, 2020

OMB Has Received a Final Fiduciary Rule From DOL

The sense of déjà vu associated with the filing of a finalized fiduciary rule by the Department of Labor is palpable, but one ERISA expert says this version could actually stick—for good—despite the pending change in administration.

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A filing on the Office of Management and Budget (OMB) website shows the agency has received a final version of the fiduciary rulemaking package put forward in late June by the Department of Labor (DOL).

Assuming the final version resembles the proposal, the measure will include a best interest standard intended to align with a broader investment advice regulation issued by the U.S. Securities and Exchange Commission (SEC) that took effect June 30—Regulation Best Interest (Reg BI)—as well as a complementary model regulation for annuity sales adopted earlier this year by the National Association of Insurance Commissioners (NAIC).

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Other salient features of the proposed rulemaking package that are not expected to be changed in the final version include the establishment of a new prohibited transaction exemption (PTE) for investment advice fiduciaries who, among other requirements, meet a best interest standard and a reasonable compensation standard. Additionally, the proposed version clarifies the circumstances under which fiduciary status would be triggered by advice to roll retirement savings from a 401(k) or other employment-based plan to an individual retirement account (IRA). One final consideration, technically already in place, is that the DOL has recently reinstated its traditional “five-part test” for determining fiduciary status.

For retirement industry stakeholders, this development, coming so late in the Trump administration, will no doubt call to mind the attempt made late in the Obama administration to finalize its own version of an updated fiduciary rule. That version of the rule was eventually disallowed by the 5th U.S. Circuit Court of Appeals, after essentially being undefended by the Trump administration, which viewed the rulemaking as being overly restrictive.

One can only speculate at this point about the potential fate of this latest attempt to remake the fiduciary rule. The fact that the incoming Biden administration will presumably be a lot tougher on financial services conflict of interest issues raises some important questions about how the DOL could move forward in this area. Still, according to early response from George Michael Gerstein, co-chair of the fiduciary governance group at Stradley Ronon, the newly filed final fiduciary rule might stand a good chance of sticking around.

“I think the class exemption framework included in the proposed rule represents a fairly good compromise by the DOL,” Gerstein says. “The language and guidance pertaining to rollovers is an important acknowledgement of the concerns voiced by the consumer protection community. On the other hand, the DOL dialed back the best interest contract exemption requirements, which were onerous, to say the least. They retained the impartial conduct standards, as well, and I think this means the package represents a decent middle ground between the two sides of this issue. The DOL staff also kept their word in aligning this package with Regulation Best Interest.”

Of course the timing of this final rule will make it potentially vulnerable, Gerstein agrees, but he would not be surprised if “this final version sets sail and it turns out that we are finally done with this debate.”

“Again, I think we’ve actually reached a good compromise position here,” Gerstein says. “There, frankly, has been some fatigue setting in over the past few years on this issue, and there is a desire for certainty and finality. Do I think there is going to be a real big appetite to go back to the drawing board yet again and create a uniform fiduciary standard that closely resembles the late 2016 version? I just don’t know. Some people really want that, but I don’t think most people really have enough interest in going down that path again. It’s been 10 years now that we’ve been debating these different proposals. It’s possible we have finally reached the middle ground, but we will have to wait and see.”

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