Settlement Agreed Upon in Trinity Health Church Plan Lawsuit

In addition to cash payments, the settlement agreement also includes agreed upon provisions relating to plan administration.

Trinity Health has entered into a settlement agreement to resolve claims in a lawsuit challenging its pensions plans’ ‘church plan’ status under the Employee Retirement Income Security Act (ERISA). 

Under the terms of the agreement, Trinity will make an annual $25 million contribution to the plans for three years, totaling $75 million. The contributions will be allocated to the plans in the sole discretion of Trinity. 

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In addition, the health care system will pay $550 each to the 219 individuals who elected and received a lump-sum distribution during the lump-sum window period in 2014. Within 30 days after final approval of the settlement, Trinity will pay $1.3 million to 7,371 former plan participants who left covered service under the plan after completing at least three years of service but less than five years and, as a result, forfeited a portion of the benefit accrued under a cash balance or pension equity formula. 

The settlement agreement also includes agreed upon provisions relating to plan administration. For example, Trinity has agreed to guarantee the plans have sufficient funds to pay accrued benefits, to issue annual benefit statements to participants, and to not amend the plan to decrease the accrued benefit for at least 15 years following approval of the settlement. However, the settlement does allow for Trinity to terminate the plans as long as there are sufficient assets to pay the accrued benefits up to plan termination. 

Last May, the U.S. District Court for the District of Maryland issued an order granting partial dismissal of claims against Trinity Health Corporation challenging the ‘church plan’ status of its retirement plans for employees. The court held that ERISA permits an organization that is “controlled by or associated with a church or convention of churches” to establish a “church plan.” The ruling evenly split district court findings in six circuits.

The settlement agreement noted that it does not represent that the plaintiffs in the case agree with the earlier court finding, and that Trinity Health specifically denies any wrongdoing.

TDF Market Diversification and Complexity Flourishes

Plan participants and sponsors face an impressive amount of complexity and diversity when assessing target-date funds.

The latest research from Cerulli Associates highlights the increasing complexity and opportunity presented by target-date funds (TDF) within the defined contribution (DC) plan investment menu.

According to the August 2016 issue of The Cerulli Edge – U.S. Edition, the U.S. TDF market has evolved significantly in recent years and now presents an impressively wide range of approaches and strategies, including many that are particularly well-suited for the DC context. Just looking at 401(k) plans alone, TDF assets have topped $900 billion and show little sign of slowing, Cerulli finds.

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Jessica Sclafani, associate director at Cerulli, suggests the importance of an asset manager’s strategy for participating in the TDF market has therefore “only grown and shows no sign of decreasing.” Employer-sponsored retirement plans, too, have a wider set of products than ever to choose from when it comes to the qualified default investment alternative (QDIA) role, far and away the most common means of offering TDFs.

Along with the added complexity and maturity of the TDF market comes an increasingly difficult set of choices for DC plan sponsors and participants, the Cerulli research argues. “Two DC plans in the same industry and with similar employee demographics may arrive at very different target-date choices based on contrasting priorities for the plan,” Sclafani explains. “As a result, some of the more successful target-date providers are concluding that it is necessary to offer more than one off-the-shelf target-date product to meet DC plan sponsors’ varied needs.”

Examples of this could be as simple as a provider offering a low-risk, medium-risk and higher-risk version of an otherwise quite similar TDF—or a provider creating two versions of a similar TDF, one of which includes a small alternatives exposures. Given the vigorous development/competition in the marketplace and the increasing incidence of customization, the possibilities are pretty much endless, Cerulli speculates.  

NEXT: Embracing TDF diversification 

Cerulli points to the lasting importance of a 2013 “tips sheet” put out by the Department of Labor (DOL) when it comes to making compliant decisions regarding using one or more TDFs within tax-qualified plans. The research in particular predicts the labels of “open” and “closed” architecture will be critical to decisionmaking in the years ahead.

“In 2013, the DOL suggested plan fiduciaries revisit their target-date fund selection and consider non-proprietary target-date funds,” Cerulli researchers conclude. “While the DOL does not use the term ‘open architecture,’ its description of the potential benefits of a non-proprietary target-date fund align with the industry's understanding of an open-architecture approach. Based on a Cerulli Associates 2016 proprietary survey of target-date providers, the open- versus closed-architecture paradigm represents a potential area of opportunity as target-date providers consider expanding their product suite.”

That said, it is important for plan sponsors to look beyond these labels, such as "open" versus "closed," Sclafani concludes: "Open-architecture target-date funds do not always diversify plan participants' exposure to a single manager to the degree that the open-architecture label suggests. Open-architecture target-date products seem to resonate with the consultant community, who are quick to point out the potential risks of concentrated exposure to a single asset manager.”

Information on obtaining Cerulli research is here

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