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 sixth installment of ERISA at 45, Mona Ghude speaks with Sarah Bassler Millar about the major changes to executive compensation over the years – including the addition of 409A to the tax code, how employers have become more aware of the tax aspects of deferred compensation arrangements, why employers are moving to a defined contribution type of deferred compensation arrangement, and the restrictions employers face with instituting top hat plans.
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.
In our fourth installment of ERISA at 45, Sarah Bassler Millar interviews Jeremy Pelphrey regarding the DOL’s focus on the fiduciary process in ESOP transactions and administration, current trends in ESOP transactions, and the positive implications of ESOPs for employee-owners.
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.”
Severance arrangements generally provide for cash payments to an employee whose employment is involuntarily terminated and may include certain benefits, such as subsidized medical coverage and outplacement assistance.
Severance arrangements take a variety of forms. Formal severance plans often are used as a retention tool for employees across the board with no individual negotiations. In our experience, companies with formal severance plans typically treat them as ERISA plans.
In several recent ERISA plan lawsuits, plaintiffs have alleged that the plan fiduciary breached its fiduciary duties under ERISA with respect to participant data (e.g., participants’ ages, choice of investments, asset size, etc.), arguing that such participant data is a “plan asset” that the plan fiduciary failed to safeguard. Although ERISA does not specifically address whether participant data is a plan asset, the settlements reached in those lawsuits reveal an emerging trend that plan sponsors need to consider.
In Pizzella v. Vinoskey, the U.S. District Court for the Western District of Virginia held that an independent fiduciary hired to represent the interests of participants in an employee stock ownership plan (the ESOP) engaged in a prohibited transaction and breached its fiduciary duties of prudence and loyalty in a $21 million transaction involving the ESOP’s purchase of stock from one of the company’s founders. The ESOP was awarded a $6.5 million judgment based on the amount that the Court determined the ESOP had overpaid for the stock. The Court held that the founder and independent fiduciary were jointly and severally liable for this judgment.
In our third installment of ERISA at 45, Summer Conley speaks with Sarah Bassler Millar about the evolving landscape of health and welfare plan compliance, the impact these changes have on employers, and what will require their careful attention in the coming years.
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