Compliance October 19, 2021

Cumulus Media Granted Summary Judgment in 401(k) Excessive Fee Suit

A court found a separation agreement signed by the plaintiff when his employment with the company terminated precludes the lawsuit.

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A judge has granted summary judgment to Cumulus Media in a lawsuit over retirement plan fees because he found that the plaintiff waived his right to sue.

On May 31, 2019, the plaintiff signed a separation agreement with Cumulus Media that released the company from all claims held by the plaintiff as of that date. The plaintiff admitted that before signing the agreement, he did not read the document in its entirety nor consult with an attorney about the effect of its terms.

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In February 2020, the plaintiff filed a lawsuit claiming that Cumulus Media breached its Employee Retirement Income Security Act (ERISA) duties of loyalty and prudence by offering a 401(k) plan investment menu composed of unduly expensive mutual funds and by failing to monitor or control the allegedly excessive compensation paid to the plan’s recordkeeper. The plaintiff contends that the plan and its participants suffered millions of dollars in losses because of these alleged breaches.

Judge Thomas W. Thrash Jr. of the U.S. District Court for the Northern District of Georgia noted in his opinion that the separation agreement signed by the plaintiff provides, in relevant part:

“Employee hereby irrevocably and unconditionally releases, waives, acquits and forever discharges Cumulus from any and all charges, complaints, claims, promises, agreements, damages … which employee now has, owns or holds, or claims to have, own or hold . … [T]his waiver, release and discharge includes any claim or right based upon or arising under … [ERISA] (including, but not limited to, claims for breach of fiduciary duty under ERISA) . … Employee further agrees not to bring, continue or maintain any legal proceedings of any nature whatsoever against Cumulus, before any court … by reason of or related to, any such allegations, claims, liability and/or causes of action.”

The plaintiff argued that the agreement does not preclude his claims for breach of fiduciary duty under ERISA because they belong to, and are brought on behalf of, the plan, and he is thus incapable of waiving them. He cited several cases to back up his argument, including In re Schering Plough Corp. ERISA Litig., in which the court held that “an individual release has no effect on an individual’s ability to bring a claim on behalf of an ERISA plan.”

But Thrash pointed out that the plaintiff agreed “not to bring, continue or maintain any legal proceedings of any nature whatsoever” against the defendant “by reason of or related to” the released ERISA claims. “In other words, even if the plaintiff did not actually waive the plan’s ERISA claims, he nonetheless gave up his ability to bring those claims on behalf of the plan,” Thrash explained in his opinion. With that, he concluded that the agreement forecloses the plaintiff’s action.

However, Thrash further explained that the covenant not to sue is triggered whenever the plaintiff brings a legal proceeding “by reason of or related to” the rights or claims that he released in the agreement. He said the plaintiff’s lawsuit falls under this provision because ERISA gives only “participants” (and other irrelevant individuals) the right to bring claims for breach of fiduciary duty on behalf of a retirement plan. The judge said the plaintiff forfeited this right when he waived “any claim or right based upon or arising under … [ERISA].”

Thrash added that two courts in the same district have reached the same conclusion when confronted with similar release clauses. He said the plaintiff’s cited cases do not support a different conclusion because they either did not decide the specific question at hand in the current case or did not consider a release as broad as the agreement in the current case. In In re Schering, the plaintiff waived her “right to all remedies in any … action that may be brought on my behalf,” Thrash noted.

Having admitted that he did not fully read the agreement before signing it, the plaintiff argued that Cumulus Media failed to demonstrate that he made a knowing and voluntary waiver of his ERISA claims, based on a six-factor test in the case Puentes v. UPS Inc. In addressing that argument, Thrash noted that while the plaintiff might not have taken any business or law classes in college, he presumably graduated with at least a bachelor’s degree in order to be employed as an engineer with Cumulus Media, and this is enough education to understand the terms of the agreement. He said this is especially true given the bold, capitalized summary printed above the signature block that said, “PLEASE READ AND CONSIDER THIS AGREEMENT CAREFULLY BEFORE EXECUTING. THIS SETTLEMENT AGREEMENT AND GENERAL RELEASE INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.”

Thrash found that the plaintiff can’t make his argument based on his failure to read it because he represented when he signed the release that he “carefully read this agreement and knows and understands its contents … and enters into the agreement knowingly and voluntarily.” In addition, the 45-day deadline to sign the agreement gave the plaintiff ample time to review and consider its terms, the judge said.

Compliance October 19, 2021

Advocacy Continues for Retirement-Related Provisions in Budget Draft, Other Bills

Industry professionals who work with lawmakers in Washington say they remain hopeful that retirement security issues will be addressed in the federal government’s budget for fiscal year 2022.

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It has now been nearly a month since the U.S. House Budget Committee completed its virtual markup of the Build Back Better Act, an ambitious omnibus reconciliation bill which includes some notable provisions that would affect the retirement plan industry.

The committee reported the legislation to the U.S. House of Representatives with a favorable recommendation, setting it up for full debate and consideration by the House. As experts have emphasized, the mechanics of congressional budget reconciliation legislation are complicated, but the key factor at play is that such reconciliation bills are not subject to filibuster. In other words, that means the legislation needs only a simple majority to pass in the U.S. Senate, and not the 60 votes required for most bills in that chamber. Though the scope of amendments is limited, the lack of procedural hurdles related to the filibuster gives the reconciliation process significant advantages for enacting partisan budget and tax measures.

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Fast forward to mid-October, and legislative negotiations about the bill continue—as do the retirement plan industry’s efforts to promote one part of budget package in particular, technically referred to as “Title XII, Committee on Ways and Means, Subtitle B, Part 1, Automatic Contribution Plans and Arrangements.”

Wayne Chopus, president and CEO of the Insured Retirement Institute (IRI), notes that this aspect of the Build Back Better Act passed out of both the House Ways and Means Committee and the Budget Committee. He says it holds the promise of addressing the insecurity and anxiety millions of workers, retirees and their families feel about retirement.

“Our federal government is often criticized for adding requirements to businesses without addressing implementation or cost burdens,” Chopus says. “But this time, they thought ahead and passed measures in the Setting Every Community Up for Retirement Enhancement [SECURE] Act of 2019 to help small businesses afford workplace retirement plans for their employees. The SECURE Act created pooled employer plans [PEPs] that allow small businesses to band together to offer employees a retirement plan and included tax credits to help business owners get started. The law also clarified liability concerns that had created challenges for employers seeking to include protected lifetime income options in plans as a means of addressing workers’ concerns about outliving retirement savings.”

As such, Chopus argues, the stage is set for another round of significant retirement-focused reforms, and it appears many lawmakers feel the same way. Among the most notable reforms the IRI is endorsing is a requirement that small business employers offer their employees a retirement plan. It is also backing a requirement for automatic enrollment retirement plans to include a protected lifetime income distribution option for plan participants with substantial balances.

To this end, the current draft version of the Build Back Better Act would require auto-enrollment retirement plans to offer participants with account balances of $200,000 or more an option to take a distribution of at least 50% of their vested account balance in the form of a protected lifetime income solution. The IRI leadership says this approach would meaningfully expand opportunities for workers to obtain much-needed protection against outliving their savings.

In advocating for these reforms, Chopus cites data published by the American Retirement Association (ARA) suggesting this legislation could increase retirement savings by $7 trillion and create more than 60 million new retirement accounts, the vast majority of which would be among workers earning less than $100,000.

“The magnitude of what this legislation could accomplish should spur our elected leaders to act now,” Chopus says. “Balancing government regulations with addressing societal issues requires careful consideration. Despite significant progress toward expanding retirement plan coverage for workers, more still needs to be done. Requiring those businesses that have not provided a retirement plan to now do so will increase small business employees’ opportunities to save for retirement and lessen fears about whether they can afford to retire.”

Smart, a retirement technology business working on expanding the PEP market in the United States, also continues to offer supportive comments about the draft reconciliation legislation.

“The data is very clear,” says Catherine Reilly, director of retirement solutions at Smart. “The administration of retirement plans is not as burdensome as some have believed, but instead is simple and routine for small employers. This legislation symbolizes a great leap toward the future of retirement security that Americans deserve.”

Outside of the ongoing budget process, U.S. Representative Jim Himes, D-Connecticut, and Senator Mark Warner, D-Virginia, have introduced the Portable Retirement and Investment Account (PRIA) Act of 2021, also designed to provide a retirement savings vehicle to Americans who don’t have access to one.

The legislation would establish a Portable Retirement and Investment Account (PRIA) Fund and a board responsible for establishing regulations for the fund. The bill says the board will manage the fund in the same manner as the Federal Thrift Savings Plan is managed.

The PRIA Act authorizes the director to invest each account into a target-date fund (TDF) based on when the account holder will reach age 65. This is called a “PRIA Basic Account.” Once assets reach a certain amount, the director would contract with an entity to act as trustee and manage the investments. Individuals could elect to roll over their PRIA Basic Account to a PRIA Choice Account, which would allow them to select their own investments.

Accounts for individuals would be established at the same time they receive a Social Security number. Accounts would start with a $500 contribution, and the government would deposit $50 into the account of anyone who completes financial literacy training.

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