Legislative and Judicial Actions
➜ Coronavirus Stimulus Includes Retirement Relief
At the end of March, Congress passed and President Donald J. Trump signed an unprecedented economic stimulus package in response to the global coronavirus crisis. The relief legislation, known as the CARES [Coronavirus Aid, Relief and Economic Security] Act, includes a variety of retirement-plan-focused provisions. One important one permits limited early withdrawals and larger loans from retirement accounts—measures designed to ease financial pressure faced by workers who have lost jobs, who contract the virus or who must stay home to care for loved ones sick with the virus. Another provision detailed in the legislation waives required minimum distributions (RMDs) for 2020, enabling participants to let their balances regrow.
Participants will also have targeted, penalty-free access to their retirement account if they are directly affected by the virus.
➜ SEC Eases Certain Requirements
The Securities and Exchange Commission (SEC) has announced a broad regulatory relief package aimed at supporting fund managers and investment advisers whose operations may suffer due to the global economic effects of the coronavirus. Advisers will have greater flexibility for preparing and filing Form ADV, also for how they deliver amended brochures, brochure supplements or summaries of material service changes to their clients.
Additionally, the SEC passed rules permitting investment advisers and investment companies to conduct virtual board meetings; further, it is offering targeted relief on certain filing obligations if the virus impedes the meeting of standard requirements.
➜ CenturyLink Wins ERISA Fiduciary Lawsuit Dismissal
The U.S. District Court for the District of Colorado has ruled once again in the case of Birse v. CenturyLink Inc., this time dismissing the lawsuit outright for its failure to state an actionable claim. This ruling comes after a complex procedural history in the case, which saw multiple versions of the complaint filed and various recommendations and orders filed by the court.
Case documents show that CenturyLink appointed CenturyLink Investment Management Co. (CIM) as an investment fiduciary for its 401(k) plan. One of the investment options offered by CIM was the Active Large Cap U.S. Stock Fund, which was also included in the plan’s 12 target-date funds (TDFs). The plaintiffs argue that the fund underperformed its benchmark nearly every quarter over the fund’s life and that a prudent retirement plan fiduciary would have cut the fund as an investment option for participants.
In arguing their case, the plaintiffs suggested that the fund “underperformed immediately and consistently due to its flawed and imprudent design, and CIM failed to appropriately monitor and adjust the fund because it lacked any formal process or guidelines for doing so.” Additionally, the plaintiffs asserted that “CenturyLink, as the plan sponsor and a co-fiduciary, in turn failed in its duty to monitor CIM,” as required by the Employee Retirement Income Security Act (ERISA).
The CenturyLink defendants, by contrast, argued that “all of the evidence demonstrates that CIM employed a prudent process in designing and monitoring the fund.” Further, the defendants asserted that CIM “engaged in a robust monitoring process and implemented appropriate structural changes to the fund over the course of its life.”
After weighing both arguments, District Court Judge Christine Arguello concluded that the evidence in the record “shows that CIM’s design of the fund was prudent and that CIM diligently monitored the fund.”
➜ SunTrust ERISA Litigation Draws to a Close
The parties in the long-running Employee Retirement Income Security Act (ERISA) lawsuit known as Fuller v. SunTrust Banks have filed a proposed settlement agreement in federal court.
The settlement comes four months after the parties announced they would enter a mediation process to try to resolve the complex litigation, and roughly five months after the U.S. District Court for the Northern District of Georgia, Atlanta Division, issued a lengthy order in the case. The underlying lawsuit—which boasts a procedural history dating back to 2008—alleges that SunTrust Bank’s 401(k) plan engaged in corporate self-dealing at the expense of plan participants.
In an October ruling, the District Court granted the defendants’ motion seeking to discredit certain expert testimony generated by the plaintiffs. At the same time, the ruling denied the plaintiffs’ motion to reject the expert reporting of two pro-defense witnesses.
As part of the settlement, SunTrust will establish a $29 million settlement account that will be distributed to the class and will be used to pay the attorneys’ fees of nearly $10 million. The agreement also states that the defense continues to deny all of the allegations made in the lawsuit.
➜ Settlement in Invesco Self-Dealing Suit
Parties in a lawsuit accusing Invesco 401(k) plan fiduciaries of loading the plan with proprietary investments have agreed to settle for $3.47 million. Besides the monetary settlement, the defendants agreed to modify the investment options offered through the plan’s self-directed brokerage account (SDBA) so participants will be permitted to invest in nonproprietary exchange-traded funds (ETFs) along with the proprietary ETFs offered to participants.
The agreement says it is being entered into for settlement purposes only and “solely for the purpose of avoiding possible future expenses, burdens or distractions of litigation.” It further states that the defendants “specifically and expressly deny any and all liability in connection with any claims [that] have been made.”
In the underlying lawsuit, the Invesco plan was accused of offering too many investment options—nearly all of them affiliated in some way with Invesco—and of failing to use its leverage as one of the larger employer-sponsored retirement programs in the U.S. to negotiate for reduced costs for the benefit of plan participants.
➜ SEC Permits Annuity Disclosure Summaries
The Securities and Exchange Commission (SEC) announced it has adopted a new rule and related regulatory amendments to simplify and streamline, for investors, disclosures about variable annuities and variable life insurance contracts.
SEC Chairman Jay Clayton says the changes permit the use of “a concise, reader-friendly prospectus designed to improve investors’ understanding of the contracts’ features, fees and risks.”
He says the new framework’s use of “layered disclosure and technology” will provide investors with a road map so they can more easily access the information they need to make an informed investment decision. Under this framework, detailed information about a variable annuity or variable life insurance contract must still be made available online, and an investor may choose to have that information delivered on paper or in an electronic format at no charge.
➜ Parties Settle in Oracle ERISA Lawsuit
An agreement has been reached in the lawsuit alleging that fiduciaries of Oracle Corp.’s 401(k) plan mismanaged the plan, thereby breaching their duties under the Employee Retirement Income Security Act (ERISA).
Under the agreement, the defendants, or an entity acting on their behalf, will deposit $12 million in an interest-bearing settlement account. In addition to the monetary component of the settlement, the defendants agreed that, for a period of three years, they will instruct the plan’s recordkeeper, in writing, that in performing previously agreed upon recordkeeping services with respect to the plan, it must not solicit current plan participants for the purpose of cross-selling proprietary non-plan products and services unless the participant has asked for or needs one of those products or services.
In addition, the settlement agreement states that any new recordkeeping contract that the defendant enters into either with the existing recordkeeper or a new recordkeeper during the three-year period must include a provision similarly restricting it from cross-selling proprietary non-plan products and services to the plan’s participants.
➜ Salesforce Faces Fee Litigation
Like so many other large U.S. employers, Salesforce is accused of failing to take advantage of the lowest-cost share class available for many of the mutual funds offered in its retirement plan investment lineup.
The defendants are further accused of failing to consider the use of collective investment trusts (CITs), comingled accounts or separate accounts as alternatives to mutual fund offerings, despite potentially lower fees.
Notably, case documents show Salesforce has actually changed some of the practices that are criticized in the complaint. But the plaintiffs argue that these changes were made too late and that the plan fiduciaries should be held financially liable for not making these “prudent” decisions earlier.
The complaint was filed in the U.S. District Court for the Northern District of California and seeks class action status on behalf of a sizable group of retirement plan participants and beneficiaries. Named as defendants are Salesforce itself, its board of directors and its investment advisory committee.