Compliance August 30, 2010

Court Dismisses BofA Stock Drop Case

 A federal judge has tossed out a stock drop case against Bank of America (BofA) that had alleged numerous fiduciary breaches in connection with BofA’s Merrill Lynch and Countrywide Financial acquisitions.
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U.S. District Judge P. Kevin Castel of the U.S. District Court for the Southern District of New York accepted a defense request to dismiss the consolidated case that had alleged bank officials continued to offer company stock as a retirement plan option when it was no longer prudent. Other than the Benefits Committee, the plaintiffs didn’t prove defendants were, in fact, fiduciaries, nor did they show that the Benefits Committee acted imprudently, Castel found.

Castel also rejected allegations the BofA officials didn’t adequately disclose to participants BofA’s true financial picture and likewise failed in their obligations under the Employee Retirement Income Security Act (ERISA) to monitor certain other fiduciaries and to act in a loyal manner toward participants’ interests.

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The court held that statements made about the company’s financial picture in Securities and Exchange Commission (SEC) documents were not fiduciary statements simply because participants received them.   Quoting a 1996 U.S. Supreme Court case, Castel asserted that a company acts in a fiduciary capacity under ERISA when it “intentionally connect[s]. . . statements about [its] financial health to statements it ma[kes] about the future of benefits, so that its intended communications about the security of benefits [are] rendered materially misleading.”

BofA was hit was numerous suits in the wake of the Merrill Lynch and Countrywide deals including a number alleging participants were hurt when the bank’s shares declined in value (See Stock Drop Suit Hits BoA over Countrywide, Merrill Deals).

Castel’s stock drop ruling is here. 

 

Compliance August 30, 2010

ASPPA Suggests Change to Providers Covered under Fee Disclosure Regs

In response to the U.S. Department of Labor Employee Benefits Security Administration’s interim final rule on fee disclosure, the American Society of Pension Professionals & Actuaries (ASPPA) and an affiliated organization recommended a change to the definition of covered service providers.
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In a letter, ASPPA and the Council of Independent 401(k) Recordkeepers (CIKR) said the institution of a $1,000 threshold that an otherwise covered service provider must reasonably expect to receive in compensation before being subject to the final regulation is too low. “At that level, it would bring under the final regulation arrangements that are relatively insignificant to plan fiduciaries. Disclosure of small contracts and arrangements will distract fiduciaries from focusing their attention on the more important service relationships,” the groups wrote.  

They recommended increasing the threshold to $2,500, as well as increasing the threshold for excluding non-monetary compensation from $250 to $500.   

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In addition, the groups said both limits should be applied based on the calendar year (or some other 12-month period, such as the plan year) rather than the term of the contract or arrangement. “A 12-month limit will avoid the potential for abuse which could occur if contract periods are set for a short period of time in an effort to evade the purpose of the thresholds. A 12-month calculation period would also better match up with normal plan accounting and the annual reporting cycle that plans and fiduciaries follow in conjunction with filing Form 5500,” the letter said.   

The groups also suggested the dollar amounts should increase automatically based on changes in the cost-of-living so that they remain meaningful with inflation.  

ASPPA and CIKR said the DoL should also: 

  • Clarify that separate independent third-party administrative service agreements will not be considered as offering designated investment alternatives. 
  • Exclude educational and training expenses from compensation payments in accordance with FINRA rule 2830(1)(5) for covered service providers (CSP). 
  • Clarify that CSPs are not in “receipt” of compensation if they are simply a conduit for collection of such amounts. 
  • Require a summary of relevant disclosure information be mandatory in the final regulation. 
  • Offer a one-year transition period where disclosure summaries are permitted but not mandatory. 
  • Clarify that electronic transmission/delivery rules apply with guidance on permitted procedures. 
  • Provide that the safe harbor for dissemination of investment information apply to CSPs when that information is excerpted from source materials. 
  • Limit the frequency and timing for mandatory disclosure to a single annual notice with the option to release other updates online as needed. 
  • Extend requests for additional information to a “reasonable time” from receipt of such a request. 
  • Require the CSP to explain disclosure information in “plain English,” with more details available upon request. 

 

The letter said the groups have assembled a ‘task force’ of industry experts from their memberships to consider implementation issues associated with the final regulation, particularly from a technological standpoint.  

The letter is here.

 

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