Compliance May 4, 2017

Court Finds Starwood 401(k) Excessive Fee Claim Plausible

Of five claims that Starwood Hotels breached its fiduciary duties to its 401(k) plan, a district court judge has moved one forward.
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A federal district court has moved forward one claim in a lawsuit against Starwood Hotels regarding excessive recordkeeping and administrative fees for its 401(k) plan.

U.S. District Judge Dale S. Fischer of the U.S. District Court for the Central District of California said in his opinion, “When viewed in the light most favorable to Plaintiffs, the Court can infer from these facts that Starwood’s recordkeeping and administrative fees were excessive prior to 2015 and are still excessive. Although Plaintiffs do not specifically allege how Starwood breached its fiduciary duty through improper decision-making, they have pleaded sufficient facts from which the Court can reasonably infer that Starwood employed a flawed process for selecting recordkeeping and administrative services.”

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In addition to the plaintiffs’ breach of fiduciary duty claims based on its alleged failure to ensure reasonable recordkeeping and administrative fees, they claimed Starwood breached its fiduciary duties by failing to offer a stable value fund, follow participants’ investment instructions, provide adequate disclosure regarding revenue sharing, and exclude the BlackRock LifePath 2050 Index Fund, which charged excessive fees, from the plan’s investment menu. Starwood argued the statute of limitations bars all five claims.

For the claim regarding the BlackRock LifePath 2050 Index Fund, Fischer relied on In re Northrop Grumman Corp. Erisa Litig., which found a breach of fiduciary duty claim time-barred where documents sent to plaintiffs disclosed the fees charged, putting them on notice of the allegedly excessive fees. Fischer said the plaintiffs do not dispute they received documents disclosing the fees charged by the BlackRock LifePath 2050 Index Fund outside the Employee Retirement Income Security Act’s (ERISA)’s three-year statute of limitations period. He ruled the claim regarding this fund is time-barred.

Regarding the claim of excessive recordkeeping and administrative fees, Fischer noted that annual notices for the plan specify that some fees are deducted from the investment returns and do not appear as separate line items on the statements. In addition, the plaintiffs’ account statements also specify that some administrative expenses are paid from the expenses of the investment funds. So, Fischer found this claim is not time-barred.

On the other three claims Fischer noted that “despite the heading, ‘ALL CLAIMS ARE TIMELY . . .,’ Plaintiffs address only excessive fees. By failing to address Starwood’s statute of limitations arguments regarding the stable value fund, investment instructions, and revenue sharing theories of liability, Plaintiffs concede their merit. In the absence of an amended complaint, Plaintiffs may not proceed on the other aspects of their breach of fiduciary duty claim.” He gave plaintiffs until June 1 to file an amended complaint.

Compliance May 3, 2017

FSR Submits Recommendations to Modernize Financial Regulations

The FSR suggests the Trump administration should support policies that will promote retirement savings and enable financial services providers to better meet the long-term needs of Americans in their retirement years.
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In response to the Trump Administration’s Executive Order directing the Treasury Department to conduct an assessment of financial regulation, the Financial Services Roundtable (FSR) submitted a letter outlining major recommendations to help grow the economy and create jobs.

“Improving the financial regulatory system, while protecting consumers, will grow the economy and expand opportunity for more Americans,” says FSR CEO Tim Pawlenty.

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FSR’s Recommendations for Aligning Financial Regulation with Core Principles outline both executive actions and legislative actions that could be undertaken with three goals in mind:

  • Enhancing policy coordination among federal financial regulatory agencies;
  • Focusing supervisory and enforcement policies and practices on material risks to promote financial stability and economic growth; and
  • Modernizing financial laws and regulations.

Among its recommendations, the FSR suggests the Administration should support policies that will promote retirement savings and enable financial services providers to better meet the long-term needs of Americans in their retirement years.

The letter says the Administration should:

  • Oppose the implementation of the Department of Labor’s (DOL) current fiduciary rule and work to replace that rule with a “best interests standard” adopted by the Securities and Exchange Commission (SEC) and state insurance regulators;
  • Treasury should support overhauling the techniques for assessing the “cost” of tax expenditures to reflect a realistic view of the benefits of retirement incentives that extend well beyond the customary five- or ten-year budget window; and
  • Grant the private-sector authority to establish open multiple employer plans (MEPs) for small businesses.

The FSR also recommends the Administration should establish a more rational, integrated cybersecurity framework that would advance the mutual interests of government and industry in protecting and defending cyber space. “FSR urges all federal and state regulators to harmonize their cybersecurity compliance approaches to determine rigorous and appropriate levels of preventative measures an institution should establish and maintain, while still maintaining flexibility for each agency’s unique statutory authority and areas of focus and oversight,” FSR says.

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