Compliance June 30, 2015

SCOTUS Won't Hear Reverse Stock Drop Case

The reverse stock drop case Tatum v. RJR Pension Committee has been turned down by the Supreme Court.
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Monday marked the end of the U.S. Supreme Court’s 2014-15 term, revealing the extensive list of cases the top court will hear next term—and those it won’t.

Among those that didn’t make the cut is RJR Pension Investment Committee v. Tatum et. al, an important Employee Retirement Income Security Act (ERISA) case. The case hinged on what to do when a fiduciary has breached the duty of prudence by failing to put in place a prudent process to evaluate an investment decision—in this case, dropping an investment from the plan without thoroughly investigating whether it was prudent to do so. Is it reasonable for the defendant to argue that the result would have been the same even with a prudent process in place and thus avoid liability?

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The 4th Circuit concluded that the defendants failed to have a prudent process because they failed to consider the best interests of the participants. In the face of a failure of procedural prudence, how can the fiduciary prove it still made the right substantive choice?

The defendants wanted a standard that would have allowed them to put on evidence that a prudent fiduciary could have made the same decision. The plaintiffs, and ultimately the 4th Circuit, supported a standard where the defendant must show that a prudent fiduciary would have made the same decision. Hence, the Could Have vs. Would Have issue.

In declining to hear the case, the Supreme Court apparently took into consideration a brief from the Solicitor General and the Department of Labor that argued the 4th Circuit got the decision right and that the high court shouldn’t hear it. 

Products June 30, 2015

Fidelity Offers Fiduciary Services

Advisers and sponsors have three investment support providers to choose from.
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Fidelity has launched Third-Party Fiduciary Services, a program to help retirement plan advisers and sponsors with the selection and monitoring of investments. Users have a choice of three support providers through the Fidelity program: Mesirow Financial, Morningstar Associates and Wilshire Associates.

“We are hearing loud and clear from plan advisers and sponsors that they want additional fiduciary support with investments,” Phil Chisholm, vice president of defined contribution management at Fidelity, tells PLANADVISER. “Commission-based advisers are restricted from acting as a fiduciary, and advisers who can act as a fiduciary might prefer to focus on other aspects of a plan, such as plan design and participant education, or they might not generate enough revenue to take on the fiduciary liability.”

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As to why Fidelity selected Mesirow, Morningstar and Wilshire to partner with, Chisholm says the firm started out with a much broader list and ultimately selected these three fiduciary partners for their “well-known names, depth and breath, and scale.” This is the first time Fidelity has offered fiduciary services to sponsors and advisers, he says.

Ted Madden, senior vice president, sales, at Fidelity, adds: “Our new program enables advisers and smaller clients—often family business, startups and companies with limited staff—to spend more time helping employees take advantage of workplace benefits and less time on administrative details. Fiduciary responsibility and liability protection require a high level of expertise. By offering a choice of third-party providers, our adviser and employer clients can align with the firm that best meets their specific fiduciary needs.”

Users can opt for either 3(21) fiduciary support, whereby the service provider helps the adviser and sponsor select investments, monitor them and recommend changes—or 3(38) fiduciary support whereby the financial adviser takes the reins and makes discretionary fund selection decisions for the plan.

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