New Stats on Employer Retirement Plans

On June 8, 2022, the Congressional Research Service published “Private-Sector Defined Contribution Pension Plans: An Introduction.” We reviewed the report and wanted to highlight a few key data points. Defined contribution plans include 401(k), 403(b), and profit-sharing plans. The report does not include government employer plans.

Takeaways

Congress continues to introduce bills related to retirement security (see our Blog Post on Secure Act 2.0 and the Employee and Retiree Access to Justice Act). These new bills continue to focus on increasing access to part-time workers, easing the implementation of retirement plans for smaller employers, and encouraging plans to implement automatic enrollment features. Based on the results in this Congressional Research Service report, we can expect continued emphasis on those features. If you’d like to discuss design changes to your defined contribution plan, please contact a Faegre Drinker benefits attorney for assistance.

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IRS Pilots Pre-Examination Compliance Program for Retirement Plans

In its recent June Employee Plans newsletter, the Internal Revenue Service (IRS) announced the launch of a 90-day pre-examination compliance pilot program. Under the program, the IRS will notify a plan sponsor that its retirement plan has been selected for pre-examination. The notification will provide the sponsor with 90 days to review retirement plan documents and operations to determine compliance with current tax law. If the sponsor does not respond within 90 days, the IRS will contact the sponsor to schedule an examination.

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ERISA Litigation Roundup: Sixth Circuit Holds ERISA § 502(a)(2) Claims May Not Be Arbitrated Absent Plan Consent

On April 27, 2022, the Sixth Circuit decided Hawkins v. Cintas Corporation, No. 21-3156, holding that claims for breach of fiduciary duty under § 502(a)(2) of the Employment Retirement Income Security Act of 1974 (ERISA), belong to the plan, and plaintiffs asserting such claims for alleged harm to their individual retirement accounts in defined contribution plans may not be compelled to arbitrate those claims absent the plan’s consent.

Hawkins is a putative class action that participants in an ERISA-governed defined-contribution retirement plan filed on behalf of the plan against Cintas Corporation, their former employer and the plan’s sponsor, under ERISA § 502(a)(2). The plaintiffs alleged that Cintas had breached fiduciary duties it owed to them under ERISA in connection with its administration of the plan, causing losses to the plan.

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IRS Proposes Updates to the RMD Rules

On February 24, 2022, the IRS issued proposed regulations incorporating the Setting Every Community Up for Retirement Enhancement Act (“SECURE Act”) into the required minimum distributions (“RMDs”) regulations. The IRS is accepting comments until May 25, 2022, and then holding a public hearing on June 15, 2022. The proposed regulations, if finalized as currently drafted, generally would be effective for required minimum distributions that occur on and after January 1, 2022.

SECURE Act RMD Reminder

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ERISA Litigation Roundup: Mortality Table Pension Plan Litigation – Reasonableness Not Required

When determining alternative pension benefits (such as joint and survivor annuities and early retirement benefits), a recent court decision held that underlying actuarial assumptions selected decades ago do not violate federal law simply because they are outdated and may result in a pension benefit that is less than using more current actuarial assumption.

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Preview of 2022 Required Changes for Retirement Plans

As 2022 begins, retirement plan sponsors and service providers should keep in mind deadlines for required plan changes in 2022.  In particular, retirement plan changes under the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) and Coronavirus Aid Relief and Economic Security Act (CARES Act) must be adopted by amendment by December 31, 2022, for calendar year plans.  In addition, retirement plans must comply with new SECURE Act disclosure requirements beginning later this year.

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ERISA Litigation Roundup: SCOTUS Vacates and Remands Seventh Circuit’s 403(b) Decision in Northwestern

Last week, the Supreme Court issued its anticipated ruling in the ERISA fiduciary-breach class action Hughes v. Northwestern. In its unanimous decision, the Court vacated the Seventh Circuit’s dismissal of the case and sent the case back to the lower court for further review. The narrow decision may boost plaintiffs in similar ERISA cases involving challenges to retirement plan fees and investment options, but it also offers hope to defendants.

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Department of Labor Issues New Guidance on Private Equity Investments in Individual Account Plans

On December 21, 2021, the Department of Labor (DOL) issued additional guidance on the use of private equity investments in certain retirement plans, warning that most plan fiduciaries will not have enough experience to adequately evaluate such investments.

The DOL’s guidance relates to a June 3, 2020 “information letter” (which is a non-binding statement) issued by the Employee Benefits Security Administration of the DOL . In that information letter, the DOL addressed private equity investments in “designated investment alternatives” (or DIAs) offered to participants in individual account plans, like 401(k) plans, considered whether ERISA prohibits offering certain private equity investments to participants in individual account plans.

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ERISA Litigation Roundup: Florida Federal District Court Compels Individual Arbitration of ERISA Class Action

On January 20, 2022, the United States District Court for the Southern District of Florida enforced a mandatory arbitration and class action-waiver provision (Arbitration Provision) in an ERISA-governed defined contribution plan, precluding a putative class of former and current plan participants from pursuing breach-of-fiduciary duty claims against plan fiduciaries in federal court. The plaintiffs in Holmes v. Baptist Health South Florida, Inc., 2022 WL 180638, argued that the plan’s Arbitration Provision was unenforceable as it both violated the “effective vindication” doctrine and was unenforceable because the participants did not knowingly agree to it. The court rejected both arguments.

Holmes adds to the flurry of recent decisions on the enforceability of mandatory arbitration and class action-waiver provisions in defined-contribution plans, which have yielded inconsistent results and are still working their way through courts of appeals. However, plan sponsors following this line of cases can glean several takeaways from the Holmes decision:

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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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