Elimination of DC to DB Transfer Permitted

An employer did not violate ERISA by eliminating the right to transfer from a defined contribution to a defined benefit plan, a court found.

The U.S. District Court for the Western District of Washington noted that the Treasury Department has ultimate authority in determining overlapping provisions of the anti-cutback rule of the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code, and has disseminated a regulation that directly addresses the transfer right at the center of the case. That regulation says: “A plan may be amended to eliminate provisions permitting the transfer of benefits between and among defined contribution plans and defined benefit plans.”

According to the court opinion, the 1st U.S. Circuit Court of Appeals, in analyzing an identical suit, found the language in the Treasury regulation allowed the employer to eliminate the transfer option. (See “DC to DB Transfer Elimination Upheld.”)

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The district court concluded the Treasury regulation means exactly what it says: a plan may be amended to eliminate the right to transfer funds between plan accounts. Therefore, the plan amendment contested in the current lawsuit did not violate ERISA’s anti-cutback provisions, even if eliminating the transfer option reduced an accrued (but unclaimed) benefit.

Former Airborne Express Inc. employees claimed a 2004 plan amendment to the Airborne Retirement Income Plan (RIP) and Profit Sharing Plan (PSP)violated ERISA’s anti-cut back provision by reducing their monthly annuity pensions. Under both the RIP and the PSP, a participant could elect to receive his benefits as a single life annuity or as a lump sum. Before the 2004 amendment, the RIP contained a provision allowing its receipt of a transfer of the PSP’s account balance.

Airborne was acquired by DHL Holdings Inc. in 2003, now called DPWN Holdings Inc. (DHL). DHL merged the PSP into the company’s equivalent, the DHL Retirement Savings Plan, on December 31, 2004. It also eliminated the right of participants to transfer their DHL Retirement Savings Plan balance to the RIP, effective January 1, 2005. In 2006, DHL merged the RIP into the DHL equivalent, the DHL Retirement Pension Plan.

The court opinion in Andersen v. DHL Retirement Pension Plan is here.

Nepsis Adds Lincoln Trust 401(k) Platform

Asset manager Nepsis Capital Management has integrated Lincoln Trust retirement plans into its wealth management practice.

Nepsis, which serves high-net-worth individuals and financial advisers, has developed proprietary managed models for its clients. The addition of the Lincoln Trust platform means the firm can bring its investment management philosophy to the retirement market. Nepsis is slated to offer retirement plans, both as a core fund lineup consisting of high-performing funds, as well as its own customized portfolio strategies.

According to Deyan Stojanovich, vice president, institutional sales for Lincoln Trust, the 401(k) plans of numerous small businesses have mutual funds that underperform yet are over-subscribed, or group annuities whose fee structure and investment options can be detrimental to the end investor.

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“Too often, participants chase performance at the time of enrollment, irrespective of market conditions, and never make changes again,” Stojanovich said. “This partnership will allow Nepsis to provide customized tactical 401(k) asset-allocation strategies to participants who would rather leave their investment decisions in the hands of industry professionals.”

One challenge for investment advisory firms has been managing individual accounts in a firm-wide retirement plan and replicating the strategy among multiple participants. Using its model portfolios at a global level on Lincoln Trust’s platform, Nepsis will be able to efficiently execute its tactical strategies to take advantage of market conditions. 

“We have been looking into building a retirement offering for years, and the Lincoln Trust solution has made the transition seamless,” said Mark Pearson, president and chief investment officer of Nepsis. “Would-be retirees are always looking for better options in their plans beyond cookie-cutter offerings, and we are excited at the prospect of extending our investment expertise to this space.”

Lincoln Trust Company, in Denver, is a provider of open architecture 401(k) solutions for broker/dealers and registered investment advisers. 

Based in Minneapolis, Nepsis has approximately $160 million of assets under management.

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