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.
Reported by

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.

 

Compliance August 30, 2010

Judge Moves Forward Shareholder Claims against Bank of America

A judge has moved forward claims against Bank of America (BofA) Corp., certain officers, and directors that they concealed intended bonuses and losses at Merrill Lynch & Co after the bank agreed to acquire the investment firm.
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U.S. District Judge Kevin Castel of the U.S. District Court for the Southern District of New York said qualifying language in the Joint Proxy and the Merger Agreement sent to shareholders did not disclose BofA’s consent to the Merrill bonuses. He rejected defendants’ contention that the Joint Proxy and the Merger Agreement could not plausibly be alleged to have been false and misleading, based in part on qualifying language that permitted Merrill to administer special employee compensation.  

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While the defendants argued, among other things, that Securities and Exchange Commission (SEC) regulations do not require disclosure of bonuses in proxy statements, Castel ruled that the absence of an express disclosure obligation does not immunize statements that were, in fact, alleged to have been materially false and misleading.  

Castel also found that the securities complaint adequately alleges the materiality of defendants’ omissions concerning fourth quarter 2008 losses. “[A]t the time the Joint Proxy [was] issued, the defendants were aware that Merrill had suffered historically large losses in October. By the time the Joint Proxy [was] issued, the stormy forecast for the fourth quarter was not merely a projection: the storm had arrived. These losses were a known fact to company insiders, yet were not disclosed to BofA’s shareholders,” Castel wrote.  

A group of public pension funds in America (see Public Pension Group Vies for Lead Plaintiff in BoA Suit) and Europe (see Europe’s Largest Pension Fund Sues BofA over Merrill Lynch Deal) charged that material misstatements and nondisclosures inflated Bank of America’s stock price and facilitated shareholder approval of its agreement to acquire Merrill Lynch in January 2009. They claim the shareholders’ approval was based on a proxy statement hiding important facts.  

The opinion is at http://legacy.plansponsor.com/uploadfiles/bankofamericasecuritiessuit.pdf.

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