Compliance January 28, 2010

SEC Draws Attention to Climate Change Reporting

The Securities and Exchange Commission (SEC) hasn’t taken a position on climate change—but it has offered some new guidance on how firms should take that potential into account in financial reporting.
Reported by

The SEC yesterday voted—but by a mere 3-to-2 margin, and along party lines—to provide public companies with interpretive guidance on existing SEC disclosure requirements as they apply to business or legal developments relating to the issue of climate change. 

The SEC notes that federal securities laws and SEC regulations require certain disclosures by public companies for the benefit of investors, and that occasionally— “to assist those who provide such disclosures,” the SEC provides guidance on how to interpret the disclosure rules on topics of interest to the business and investment communities.  However, it also noted that “the Commission’s interpretive releases do not create new legal requirements nor modify existing ones, but are intended to provide clarity and enhance consistency for public companies and their investors.”      

The interpretive release provides guidance on certain existing disclosure rules that may require a company to disclose the impact that business or legal developments related to climate change may have on its business—rules that cover a company’s risk factors, business description, legal proceedings, and management discussion and analysis.      

“We are not opining on whether the world’s climate is changing, at what pace it might be changing, or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics,” said SEC Chairman Mary Schapiro. “Today’s guidance will help to ensure that our disclosure rules are consistently applied.”

Specifically, the SEC’s interpretative guidance highlights the following areas as examples of where climate change may trigger disclosure requirements:     

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

  • Impact of legislation and regulation: When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.     
  • Impact of international accords: A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.    
  • Indirect consequences of regulation or business trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.     
  • Physical impacts of climate change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.     

The SEC’s interpretive release will be posted on the SEC Web site as soon as possible, according to the announcement.

Compliance January 28, 2010

Kraft Excessive Fee Case Thrown Out

A federal judge in Illinois has turned away allegations by 401(k) participants at Kraft Foods Global that recordkeeping fees paid to Hewitt Associates were too high and the company stock fund was improperly unitized.
Reported by

With those rulings, U.S. Magistrate Judge Sidney I. Schenkier of the U.S. District Court for the Northern District of Illinois threw out the excessive fee suit regarding the Kraft Foods Global Inc. Thrift Plan (see “Court Moves Forward Kraft Foods Excessive Fee Suit“).

In granting the defense request to dismiss the suit, Schenkier found that:

  • Hewitt’s recordkeeping fees were in line with industry standards and were properly disclosed to participants via, among other things, messages of encouragement that participants should consider the fees when making investment decisions. The employees alleged that during its tenure as recordkeeper, Hewitt received $28 million in “excessive” recordkeeping fees.
  • Kraft plan fiduciaries regularly reviewed their relationship with Hewitt.
  • Kraft’s decision to unitize the company stock funds was common in other 401(k) plans and not improper, rejecting plaintiffs’ assertion that the setup was “inherently imprudent.” Schenkier wrote: “Here, the undisputed facts show that defendants used a reasoned decisionmaking process to determine the structure of the plan’s company stock funds and to maintain an adequate amount of cash to meet the demands of trading in the funds, and defendants disclosed adequate details of these facts to the participants.”
  • There was no wrongdoing in allowing State Street to get part of its compensation from keeping the “float” on participants’ benefits.


Schenkier pointed out that fiduciaries are frequently faced with competing interests and goals and are only required under the Employee Retirement Income Security Act (ERISA) to apply a prudent process in their plan management. “Often, no one decision will simultaneously advance all goals,” Schenkier wrote. “That is why the requirement that a fiduciary act prudently mandates that he or she use a ‘reasoned decisionmaking’ process … and not that the choice resulting from that process be one that all will agree was the optimal one.”

According to the court, between 2000 and 2006, Kraft’s plan had between 37,000 and 55,000 participants and held between $2.7 billion and $5.4 billion in assets.

The latest court ruling is available here.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

«