Compliance March 31, 2015

SEC Gives OK for Non-ERISA Plan Fee Disclosures

Retirement industry advocates sent a letter to the SEC arguing fee disclosures regulations would also benefit participants of non-ERISA retirement plans.
Reported by

The Securities and Exchange Commission (SEC) issued a Staff No-Action letter allowing non-Employee Retirement Income Security Act (ERISA) retirement plan advisers and service providers to furnish participants with fee disclosures without running afoul of an SEC rule.

SEC Rule 482 provides parameters around information provided by an investment company that could be classified as advertisements. In a Staff No-Action Letter to the U.S. Department of Labor (DOL) in 2011, the SEC agreed to treat specified investment-related information provided to participants and beneficiaries in participant-directed individual account plans, as required by Section 404a-5(d) of ERISA as if it were a communication that satisfies the requirements of Rule 482 under the Securities Act of 1933.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

The American Retirement Association, formerly ASPPA, and Groom Law Group, wrote a letter asking the SEC to extend the same treatment to non-ERISA plans. The letter pointed out that participants in non-ERISA plans would also benefit from fee disclosures.

The SEC said its No-Action letter applies not only to non-ERISA 403(b) plans, but also to governmental 457(b) plans, governmental 401(a) plans, 415(m) plans, church 401(a) plans, non-governmental 457(b) plans, and 409A plans or 457(f) plans of governmental or tax-exempt entities.

The original No-Action letter and the letter to the SEC from the American Retirement Association and Groom Law Group can be accessed here.

Compliance March 30, 2015

New Interpretation of Plan Provisions Violates ERISA

A federal appellate court found a plan administrator cannot change the calculation of early retirement benefits for participants who terminated under an old version of the plan document.
Reported by

The 3rd U.S. Circuit Court of Appeals ruled a pension plan administrator may not apply amended plan terms to participants whose benefits vested under pre-amendment plan documents.

According to the appellate court’s opinion, John Cottillion worked at United Refining Company for 29 years, from 1960 until 1989, and his benefits had vested under “the 1980 Plan,” which is the version of United’s Pension Plan for Salaried Employees that applies to people whose benefits vested after 1980 but before 1987. United amended the plan in 2002, backdated to January 1, 1995, to state that the benefits of terminated, vested participants who begin receiving plan payments before age 65 would be “actuarially reduced to reflect the earlier starting date.” The court determined that if the administrator applied the plan amendment to Cottillion it would be a violation of the Employee Retirement Income Security Act’s (ERISA’s) anti-cutback rule, which prohibits employers from amending a retirement plan in a way that reduces benefits already accrued under the plan.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

The case was prompted when, in 1995, the plan’s actuaries claimed United had erroneously paid to terminated, vested participants vested under the 1980 and 1987 plans pensions that were not actuarially reduced, and that this jeopardized the plan’s favorable tax treatment. United sent letters to terminated, vested participants who had not yet begun to receive benefits telling them if they elected to receive retirement benefits before turning 65, the benefit would be reduced to reflect the early election date.

About a year later, United sent letters to terminated, vested participants who were already receiving pensions, saying their benefits should have been actuarially reduced, and that their monthly pensions would be lowered “until the excess payments have been recovered,” after which they would begin receiving the amount they should have been receiving.

Affected employees sued in the U.S. District Court for the Western District of Pennsylvania alleging that United’s actions deprived them of a benefit to which they were entitled under the plan, in violation of ERISA, and that United violated ERISA’s “anti-cutback” rule.

The appellate court agreed, rejecting United’s arguments that summary plan descriptions show the intent was to reduce early retirement benefits all along. The 3rd Circuit noted that the SPDs state that “[i]f the terms of the Plan document and the Trust agreement and of this summary are inconsistent, the terms of the Plan document and the Trust agreement will control.” In addition, United published employee handbooks that are wildly inconsistent about whether benefits are calculated with actuarial adjustment, and these handbooks’ differences with each other and with the SPDs convinced the court that the plain meaning of the plan should control.

The appellate court’s opinion in Cottillion, et.al. v. United Refining Company, et.al. is here.

«