Compliance June 10, 2021

CDI Corp. Agrees to $1.8M ERISA Lawsuit Settlement

The retirement plan in question in the suit is substantially smaller than many of those that have faced or settled similar lawsuits, and thus the size of the settlement is also reduced.

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The parties in an Employee Retirement Income Security Act (ERISA) lawsuit brought last July against CDI Corp. have filed a settlement agreement in the U.S. District Court for the Eastern District of Pennsylvania.

The underlying claims in the lawsuit echoed those detailed in numerous other ERISA challenges raised in recent years, but this litigation was distinguished by the relatively small size of the plan in question. Court documents show that, as of December 31, 2018, the plan had roughly $263 million in assets entrusted to the care of its fiduciaries. Those using retirement industry parlance would label this as either a “medium” or “large” plan, depending on their frame of reference, but either way it is much smaller than the $1 billion-plus retirement plans that historically have tended to be the focus of ERISA litigation.

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The plaintiffs claimed that, during the proposed class period of July 7, 2014, to the present, the fiduciary defendants failed to objectively and adequately review the plan’s investment portfolio with due care to ensure that each investment option was prudent, in terms of cost and performance. The complaint further alleged that the plan inappropriately maintained certain funds in the investment lineup presented to participants, despite the availability of identical or similar investment options with lower costs and/or better performance histories. Additionally, the plaintiffs claim the defendants failed to select the lowest-cost share class for many of the funds within the plan.

According to the settlement agreement, the gross settlement amount CDI will pay to the plan and its participants is $1.8 million. The company does not admit any wrongdoing in relation to the lawsuit’s claims, while the plaintiffs have agreed to enter a covenant not to bring any future related claims.

Other points of interest in the settlement agreement include the stipulation that the amount of attorneys’ fees for class counsel shall not exceed 30% of the gross settlement amount—a maximum amount of $540,000, in this case. As is typical in such cases, the settlement agreement calls for the appointment of an independent fiduciary and independent settlement administrator to oversee the distribution of CDI’s payment, according to a formula set out in the text of the settlement agreement.

The full text of the settlement agreement and its accompanying exhibits is available here.

Products June 10, 2021

Fiduciary Decisions Factors PTE Into IRA Rollover Compliance Software

The firm is experiencing a surge in B/Ds and RIAs requesting assistance with the new rule as the enforcement date approaches.

 

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With the Department of Labor (DOL) issuing a new prohibitive transaction exemption (PTE) on rollover advice, Fiduciary Decisions says it is getting a record number of calls from broker/dealers (B/Ds) and registered investment advisers (RIAs) asking about complying with the exemption.

The PTE permits investment advice fiduciaries to receive compensation as a result of providing fiduciary investment advice, including fiduciary investment advice to roll over a participant’s account in an employee benefit plan to an individual retirement account (IRA)—among other similar types of rollover recommendations. The exemption also permits investment advice fiduciaries to enter into “principal transactions” in which they could sell or purchase certain securities and other investments from their own inventories to or from plans and IRAs.

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While the PTE is already effective, the DOL has issued, with the IRS’ agreement, a nonenforcement policy that says the DOL will not pursue prohibited transaction claims against investment advice fiduciaries so long as the advice satisfies the impartial conduct standards. However, the nonenforcement policy expires on December 20.

“Current IRA workflows do not address the requirements of the PTE,” says Matt Golda, chief operating officer (COO) at Fiduciary Decisions. The financial information technology (IT) firm has been offering full-service compliance software to its clients since 2016.

In light of the December 21 deadline for enforcement of PTE 2020-02, “firms are taking steps to supplement their current process or reviewing standalone solutions that address it,” Golda adds.

Fiduciary Decisions says it is supporting B/Ds and RIAs seeking to comply with PTE 2020-02 with a full-service compliance solution that captures required data, creates side-by-side comparisons and supports compliance workflow.

It is also offering FDI Connect to enhance existing workflows, and providing plan benchmarking data for circumstances when actual plan data isn’t available. It says plan benchmarking data is the next best option for use in meeting the PTE, per the DOL.

Tom Kmak, CEO of Fiduciary Decisions, adds: “We anticipated and planned for this. Investors want and need recommendations. Most rollover recommendations are now considered fiduciary advice. As ERISA [Employee Retirement Income Security Act] fiduciaries, firms must support advisers in avoiding prohibited transactions.”

This is especially important, he says, due to recent reports of planned rigorous enforcement on IRA rollover recommendations. Fiduciary Decisions has seen this issue become priority No. 1 for the industry, Kmak says.

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