In the final installment of our ERISA at 45 series, Heather Abrigo spoke with Sarah Bassler Millar about the evolution of retirement plans since the inception of ERISA. Topics included the increasing sophistication of plan sponsors and a shift in fiduciary compliance, how employers are looking at employees and plan design to identify roadblocks to retirement, and the increased level of transparency in fees and expenses. They also discussed issues currently facing plan sponsors, such as how to address missing plan participants and the increased sophistication of alternative investment options, and took a look at what may be the most impactful trends in the years to come, including highly-focused DOL investigations, a resurgence of IRS activity surrounding compliance and qualification issues, and the introduction of state sponsored plans.
On October 23, 2019, the Department of Labor (DOL) published a proposed rule that would ease retirement plan administration by allowing broader use of electronic disclosure. This proposed rule was foreshadowed by an Executive Order issued in August 2018 directing the DOL to review actions that could be taken to improve the effectiveness of retirement plan disclosures under ERISA and to reduce the costs to employers.
Currently, plan sponsors can rely on a 2002 safe harbor for electronic delivery of documents and other information required under ERISA. However, the 2002 safe harbor is limited; notice can be provided electronically only to participants and beneficiaries who either (1) have work-related computer access or (2) provide affirmative consent to receive documents electronically (in addition to meeting certain other requirements). Anyone not falling within one of those categories must receive a hard copy.
The IRS has announced the dollar limits for contributions and benefits in retirement plans and certain deferred compensation plans for 2020. We have compiled a chart summarizing the key limits below, including how they compare with those in the previous year. Plan sponsors should confirm with their recordkeepers that all systems have been updated to reflect the 2020 limits.
In our fifth installment of ERISA at 45, Kim Jones speaks with Sarah Bassler Millar about the considerable increase in 401(k) litigation and the increased pressure on plan performance; excessive fee lawsuits and the three ERISA cases to watch before the U.S. Supreme Court this term; and the focus employers should place on prudent decision-making to reduce plan sponsor liability, especially in light of high-dollar amounts in settlements.
The Second Circuit Court of Appeals gave participants in New York University’s (NYU) retirement plans a second chance at pursuing their claims of plan mismanagement under ERISA. On October 1, 2019, the Second Circuit overturned the Southern District of New York’s dismissal of the participants’ lawsuit against the independent investment advisor who advised NYU on its retirement plans, even though the complaint alleged substantially the same claims against NYU in a separate lawsuit on which NYU prevailed.
In Sacerdote v. New York University (Sacerdote I), filed in 2016, retirement plan participants brought a class action alleging that NYU breached its fiduciary duties and committed prohibited transactions under ERISA by causing its retirement plans to pay unreasonable administrative and recordkeeping fees and maintain imprudent investment options. Plaintiffs subsequently filed a related action in November 2017, Sacerdote v. Cammack Larhette Advisors, LLC (Sacerdote II), against independent investment advisor Cammack Larhette Advisors, LLC (Cammack). The NYU defendants in Sacerdote II quickly moved to dismiss the suit as duplicative of Sacerdote I, and the Southern District of New York ultimately dismissed the action in its entirety, finding that defendants were in “privity with NYU in Sacerdote I because they had a sufficiently close relationship with NYU and their interests with aligned with those of NYU.”
On September 1, 2019, the IRS reopened its determination letter program for two types of individually designed retirement plans: statutory hybrid plans and merged plans. For a detailed review of this limited expansion of the determination letter program, see our client alert, “IRS Announces Limited Expansion of the Determination Letter Program for Individually Designed Plans.”
The Ninth Circuit’s recent decision forcing a 401(k) plan mismanagement lawsuit into arbitration is a significant ruling for plan sponsors. But it also leaves lingering questions about the enforceability of arbitration clauses written into plan documents. See Dorman v. Charles Schwab Corp., No. 18-15281, 2019 WL 3939644 (9th. Cir. Aug. 20, 2019).
Dorman is a putative class action involving allegations that the Schwab defendants breached their fiduciary duties by including Schwab-affiliated investment alternatives in its 401(k) plan, despite the funds’ alleged poor investment returns. Dorman, a former plan participant, sought monetary and other equitable relief on behalf of the plan under ERISA §§ 502(a)(2) and (a)(3). Schwab’s plan document included a mandatory arbitration provision for claims related to the plan and a waiver of class action lawsuits. Schwab filed a motion to compel arbitration, which was denied by the Northern District of California.
The DOL’s newly released final regulation on “Association Retirement Plans” (ARPs) will make it easier for groups and associations of employers to jointly sponsor a combined 401(k) or other defined contribution plan. (These plans are also referred to as multiple employer plans or “MEPs.”) In recent years, there has been a push to permit service providers to create “Open MEPs,” which are plans of unrelated employers having no business connection, or what the DOL refers to as “commonality” (i.e., a relationship unrelated to employee benefits). The hope is that these plans will provide small businesses with a cost-efficient and minimally burdensome avenue for offering retirement savings opportunities to workers.