Compliance July 25, 2018

Appeals Court Upholds Arbitration Ruling Against USC

The panel concludes that the dispute against the University of Southern California fell outside the scope of the arbitration agreements that the participants signed.

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In the case of Munro vs. University of Southern California, the United States Court of Appeals for the Ninth Circuit upheld the district court’s denial of defendants’ motion to compel arbitration of collective claims for breach of fiduciary duty in the administration of two Employee Retirement Income Security Act (ERSA) plans. USC had wanted to settle the case through arbitration, but the court ruled that the lawsuit can proceed.

The plaintiffs, current and former employees of the University of Southern California (USC), and participants in the two ERISA plans, were required to sign arbitration agreements as part of their employment contracts. These agreements stated that these employees could only arbitrate claims brought on their own behalf. The panel concluded that the dispute fell outside the scope of the arbitration agreements because the claims were brought on behalf of the ERISA plans, not the individuals.

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Allen Munro and eight other current and former USC employees participate in both the USC Retirement Savings Program and the USC Tax-Deferred Annuity Plan. They allege multiple breaches of fiduciary duty in the administration of these two plans.

In their lawsuit, the employees seek financial and equitable remedies to benefit the plans and all affected participants and beneficiaries, including a determination as to the calculating of losses, removal of breaching fiduciaries, a full accounting of plan losses, reformation of the plans, and an order regarding appropriate future investments.

USC argued that because of the arbitration agreements that the employees signed—each signing five different iterations of this agreement—the employees did not have the right to litigate their claims on behalf of the plan. The court ruled that because the participants in the ERISA plans consented to only arbitrate claims brought on their own behalf—but the claims were brought on behalf of the plans—the dispute falls outside the scope of the arbitration agreements, and, therefore, the case can proceed.

The full text of the opinion can be viewed here.

Products July 25, 2018

To Fight Plan Leakage, Prudential Promotes After-Tax Savings

According to the firm, its new savings solution uses after-tax employee contributions to an existing retirement plan to build savings that can be accessed to cover emergencies.

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As Congress considers recently proposed legislation aiming to make it easier for employers to enroll employees in payroll deduction emergency savings accounts, Prudential Retirement has introduced an after-tax supplemental savings feature meant to help employees build emergency savings. 

Prudential worked with the Washington, D.C., nonprofit organization Prosperity Now to design a potential solution using payroll deductions to fund after-tax contributions. Prudential Retirement is now offering this feature to plan sponsors as part of their holistic workplace financial wellness package. According to the firm, the solution uses after-tax employee contributions to an existing retirement plan to build savings that can be accessed to cover emergencies. 

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“A small additional contribution each pay period may help build a financial cushion and reduce the effects of 401(k) plan withdrawals and loans that may cut into employees’ retirement savings and increase workforce costs for employers,” says Phil Waldeck, president of Prudential Retirement. “For employees that never need to use it, the money eventually adds to their long-term retirement savings.”

Prudential’s move comes at the same time that four U.S. senators proposed bills calling for increased access to various types of workplace savings accounts. Specifically, these series of bills would allow for pooled employer plans (PEPs); encourage employers to adopt automatic enrollment; automatically register workers in emergency savings accounts (otherwise referred to as “sidecar accounts”); and allow participants to automatically save tax refunds.

According to a Prudential white paper, “Increasing Financial Security with Workplace Emergency Savings,” 63% of participants state that they do not have the means to pay for a $500 emergency. All too often, participants are tapping into their tax advantaged retirement savings accounts to meet short-term needs, which in turn, sacrifices long-term financial goals. According to the survey, the millions of people with outstanding retirement plan loans are spending some $9 billion annually on loan fees alone. Overall, Prudential reports, 1.5% of 401(k)/individual retirement account assets are leaked out each year, reducing retirement wealth dramatically.

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