Department of Labor Proposal Would Encourage Consideration of ESG Factors for Plan Investments

On October 13, 2021, the Department of Labor (DOL) released a new proposed regulation under ERISA that would replace the previous administration’s “pecuniary factors” rule – which is widely viewed as discouraging the use of environmental, social, and governance (ESG) factors when selecting plan investments – with one that would encourage their consideration and provide a clearer pathway for plan fiduciaries to do so.

Background

Over the years, the DOL’s stated position on the consideration of ESG and other “social” factors when selecting plan investments has toggled back and forth, largely along party lines.

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Thinking ESOPs: Court Rejects DOL Claims of ESOP Overpayment

The board of directors of Bowers + Kubota Consulting, Inc. recently won an employee stock ownership plan (ESOP) fiduciary/breach case brought against them by the Department of Labor. See Walsh v. Bowers, et al., No. 1:18-cv-00155-SOM-WRP (D. Haw. Sept. 17, 2021). After a full trial on the merits, the district-court judge entered judgment in favor of the defendants, largely based on the court’s rejection of the DOL’s critiques of the valuation upon which the trustee relied. What is perhaps most interesting about the court’s decision is the contrast between the discussion in this case of fundamental ERISA and valuation concepts, on the one hand, and the discussion of fundamental ERISA and valuation concepts in two other cases in which courts entered judgment against the defendants.

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ERISA Litigation Roundup: Seventh Circuit Weighs in on Arbitration and Class Waiver Provisions in Defined-Contribution Plans

On September 10, 2021, the Seventh Circuit decided Smith v. Board of Directors of Triad Manufacturing Inc., No. 20-2708, holding that benefit plans may require claimants to arbitrate claims under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq. (ERISA), but may not preclude claimants from obtaining relief that ERISA provides.

Triad Manufacturing, acting through its board of directors, established an employee stock ownership plan (Plan) in December 2015, when several of Triad’s largest shareholders (Selling Shareholders) sold all of their stock to the Plan. The Plan was a defined-contribution employee retirement plan governed by ERISA. Triad, acting through the Board, was the Plan’s sponsor, GreatBanc served as the Plan’s trustee and James Smith was a former Triad employee and a participant in the Plan. When the value of Triad’s stock dropped significantly in the weeks following the ESOP transaction, the value of Smith’s interest in the Plan decreased commensurately, eventually prompting Smith to sue.

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Employers – Check Your Severance Arrangements Now!

If employees are required to provide proof of COVID-19 vaccination or a timely negative COVID-19 test, and/or wear a mask as a condition of employment (COVID-19 Policies), and an employee is terminated for violating a COVID-19 Policy, will that employee be entitled to severance benefits?

The answer depends on what the employer intends and the terms of the applicable severance arrangement which, for example, can be in the form of a severance plan, a severance agreement, or an employment agreement.

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Revised IRS Correction Procedures (EPCRS) Include Helpful Changes

On July 16, 2021, the Internal Revenue Service (“IRS”) published an updated version of its correction procedures for qualified retirement plans, Revenue Procedure 2021-30, the Employee Plans Compliance Resolution System (“EPCRS”).

The revisions to EPCRS include a number of changes that are intended to help simplify and provide additional flexibility for correcting certain retirement plan failures. Below is a summary of the major changes:

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ERISA Litigation Roundup: Northern District of Illinois Dismisses ERISA Stock-Drop Suit

On August 23, 2021, the U.S. District Court for the Northern District of Illinois dismissed an ERISA stock-drop lawsuit brought against fiduciaries of Kraft Heinz Food Company’s employee stock ownership plan (ESOP), holding that the plaintiffs failed to meet the “more harm than good” pleading standard set forth in Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409, 428 (2014). Osborne v. Emp. Benefits Admin. Bd. of Kraft Heinz, No. 20-cv-2256, 2021 WL 3725613 (N.D. Ill. Aug. 23, 2021).

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Forced Rollovers of Small Retirement Account Balances: What to Do with Missing Participants

When a participant experiences a distribution event (e.g., terminating service with the employer), and when the participant does not affirmatively elect to take the distribution, a plan document may require that an account balance of $5,000 or less be distributed immediately, and without the participant’s consent, by rolling the account over to an IRA. This is sometimes called a “forced rollover.” When making a forced rollover, a plan must comply with the applicable plan provisions and related Internal Revenue Service (“IRS”) and Department of Labor (“DOL”) guidance.

A forced rollover can only be made if a participant’s vested account balance is $5,000 or less. If a participant’s vested account balance is greater than $5,000, the account cannot be distributed without participant consent (unless the participant has attained the later of normal retirement age or age 62). The only exception to that limit is for terminating defined contribution plans. Additionally, although the Code does not require a forced rollover for distributions of $1,000 or less (where a “forced” distribution can be used in lieu of a rollover), the plan document can require that mandatory distributions of $1,000 or less be rolled over to an IRA.

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New DOL FAQs Provide Guidance Regarding Lifetime Income Illustrations for Defined Contribution Plans

On July 26, 2021, the Department of Labor (Department) issued frequently asked questions (FAQs) regarding the interim final rule (IFR) on lifetime income illustrations (LIIs) that must be included in participants’ pension benefit statements for defined contribution plans on an annual basis. The IFR on LIIs, which we previously discussed in a client alert, will become effective on September 18, 2021. The FAQs respond to comments received in response to the IFR regarding the applicability date of the rules and method for furnishing benefit statements.

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ERISA Litigation Roundup: Fifth Circuit Affirms Decision in Favor of American Airlines in Suit Over Plan Investment Alternative Selection

Following the Fifth Circuit’s decision in Ortiz v. American Airlines, plan fiduciaries should be aware that the application of the Thole decision may be deemed inapposite to claims for a defined-contribution plan, where participants’ benefits are tied directly to fiduciary investment decisions.

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