Compliance October 9, 2019

While Popular, Default Electronic Delivery of Plan Documents Irks Some

Retirement plan service providers generally support making electronic delivery of documents the default, but print communication industry organizations and some consumer groups say the paper default should remain.

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Back in mid-August, the U.S. Department of Labor (DOL) asked the Office of Management and Budget (OMB) to review a proposed rule relating to the provision of default electronic disclosures to retirement plan participants.

The title of the rule is “Improving Effectiveness of and Reducing the Cost of Furnishing Required Notices and Disclosures.” According to the DOL leadership, the rule intends to reduce the costs and burdens imposed on employers and other plan fiduciaries responsible for the production and distribution of retirement plan disclosures required under Title I of the Employee Retirement Income Security Act (ERISA), as well as making these disclosures more understandable and useful for participants and beneficiaries. It would do this in part by making electronic delivery of plan documents the default method assumed by the law.

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Since the rule’s submission to OMB, advocacy organizations associated with defined contribution (DC) plans, including the Investment Company Institute (ICI) and the SPARK Institute, have submitted supportive letters to the DOL’s Employee Benefits Security Administration (EBSA), which would be tasked with implementing any new rule in this area. Other supportive organizations include the American Bankers Association, the American Council of Life Insurers, the American Retirement Association, the ERISA Industry Committee, the Securities Industry and Financial Markets Association and the U.S. Chamber of Commerce.

On the other hand, entities such as the Coalition for Paper Options, which describes itself as “an alliance of consumer organizations, labor unions, rural advocates, and print communications industry organizations,” have called on the Trump Administration to reject the proposed rule. In explaining its opposition, the Coalition for Paper Options argues that the Department of Labor’s draft rule does not meet long-held standards for the proposal and adoption of new regulation.   

The Coalition for Paper Options argues that the Department of Labor’s proposed regulation fails to meet the key principle of Executive Order 12866, stating that any new regulation must address “market failure justifying new regulation,” a principle which the Coalition says “has governed U.S. regulatory planning and review for over 25 years.”

“Under the status quo, consumers who prefer their retirement plan disclosures in paper have their preference honored, and consumers who prefer electronic disclosure can opt-in to electronic delivery,” the group says in a letter to EBSA. “Citizens who prefer electronic information are taking this option, while others continue their preference for paper-based disclosures. In any event, the current system is working. … Millions of Americans without interest in or ready access to robust internet services may never see these notices again.”

Chris Spence, TIAA’s senior director of government relations, tells PLANADVISER he looks forward to seeing the real text of the proposed rule once the OMB completes its review.

“We expect that within the next month we will get to see the rule and exactly what the DOL has decided to do,” Spence says. “It’s too early to speculate on exactly what direction they have taken—we are anxiously awaiting the proposal so that we can start to digest it.”

Spence says TIAA and its peer organizations all support making e-delivery the default communication method for required disclosures under ERISA. He adds that there is also a proposal being circulated on Capitol Hill that will tackle the same issue legislatively and allow for electronic delivery to be the default method for delivering retirement plan documents.

“Why is this important? We think there will be cost savings and that these cost savings will be passed on to individual consumers,” Spence says. “There is also an engagement factor to consider. We have seen that people who engage with online resources tend to be more engaged with their retirement planning as a whole. There are so many tools made available online that just can’t be included in a paper statement. When you deliver a statement electronically, you can link people directly to a secure website that allows them to manage their account. They can see their most recent quarterly report. They can review their investments and their savings strategy. So, for all of these reasons, TIAA is very supportive of working with policymakers to get this change in place.”

Compliance October 8, 2019

Portions of SunTrust ERISA Lawsuit Will Proceed

After ruling on motions about the reliability of certain expert testimony, an expansive decision issued in an ERISA lawsuit filed against SunTrust Bank dismisses some claims but allows others to proceed.

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The U.S. District Court for the Northern District of Georgia’s Atlanta Division has issued a lengthy new order in a long-running Employee Retirement Income Security Act (ERISA) lawsuit filed against SunTrust Bank.

The lawsuit alleges that SunTrust Bank’s 401(k) plan engaged in corporate self-dealing at the expense of plan participants. The lead plaintiff suggests that plan officials violated their fiduciary duties of loyalty and prudence by selecting a series of proprietary funds (referred to as the STI Classic Funds) that were more expensive and performed worse than other funds they could have included in the plan—and by repeatedly failing to remove or replace the funds.

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The ruling addresses multiple motions filed by the parties, including defendants’ motion to exclude the opinion of plaintiffs’ expert Dr. Steve Pomerantz, as well as plaintiffs’ motion to exclude the reports of the defense experts Dr. John Minahan and Dr. Bruce Stangle. The ruling grants the defendants’ motion seeking to discredit Pomerantz’ testimony, and it denies the plaintiffs’ motion to reject the expert reporting of Minahan and Stangle.

Lastly, defendants’ motion for summary judgment is granted in part and denied in part. It is granted to the extent plaintiffs’ claims are premised on defendants’ conduct regarding the Short Term Bond Fund, Investment Grade Bond Fund, Small Cap Growth Fund, Capital Appreciation Fund, and Prime Quality Money Market Fund. It is denied to the extent plaintiffs’ claims are premised on defendants’ conduct regarding the Mid-Cap Equity Fund, Growth and Income Fund, and International Equity Index Fund.

The Court directs the parties to file a proposed consolidated pretrial order no later than 30 days from the date of entry of its new order. The parties are further directed to file proposed findings of fact and conclusions of law no later than seven business days before the trial, which will be set at a later date.

Rejection of Certain Expert Testimony

The nearly 100-page decision includes substantial discussion of the facts of the case and the legal precedents which the court has applied in allowing some claims to proceed while dismissing others. One informative section explains the court’s reasoning for rejecting certain testimony of the plaintiffs’ expert witness.

“The Federal Rules of Evidence require expert testimony be offered by a witness who is qualified by knowledge, skill, experience, training, or education, and that the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; the testimony is based on sufficient facts or data; the testimony is the product of reliable principles and methods; and the expert has reliably applied the principles and methods to the facts of the case,” the decision explains.

Defendants’ first argument, that Dr. Pomerantz’s “Opinion 5” is unreliable, targets the following statement: “I do not believe a prudent and loyal fiduciary would have selected or retained the Affiliated Funds in the Plan.”

Defendants argue that this opinion necessarily involves an evaluation of defendants’ monitoring process, about which Dr. Pomerantz admits he is unfamiliar. Specifically, defendants argue Dr. Pomerantz’s opinion is factually baseless because he did not review the plan committee’s meeting minutes (with the exception of minutes from one meeting) or any other evidence of the plan committee’s monitoring process for the affiliated funds.

Plaintiffs, in response, agree with defendants that “in determining whether a breach of fiduciary duty occurred, the focus should be on whether, at the time of the decision, defendants employed a prudent process in making their decisions.” Moreover, Plaintiffs agree that “any conclusions Dr. Pomerantz would make regarding the prudence of the specific process employed by the defendant fiduciaries would be speculative.” Plaintiffs contend, however, that Dr. Pomerantz’s opinion is not about the prudence of defendants’ processes, but instead the prudence of “the decisions that resulted from those processes.”

“In short, the Court agrees with defendants that, according to Dr. Pomerantz’s own deposition testimony, his Opinion 5 is based on his conceptions of the plan committee’s monitoring processes, or lack thereof,” the decision states. “Because Dr. Pomerantz admits his opinion is based on the plan Committee’s monitoring processes—yet also admits he is uninformed regarding those processes—the Court agrees with defendants that his Opinion 5 is unreliable and should be excluded.”

From here, the decision goes into a lengthy explanation for why the defense’s witness testimony is germane, citing among other statues and precedents Federal Rule of Civil Procedure 26. 

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