Products March 22, 2012

Some Merrill DC Advisers to Take 3(21) Status

Beginning in April, a select group of Merrill Lynch financial advisers will offer defined contribution (DC) investment consulting services to manage fiduciary risk.
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This is in response to a growing demand among corporate retirement plan sponsors for these services, which will be introduced through a phased rollout during the remainder of this year and next. Services will be available to institutional clients with a minimum of $25 million in DC plan assets.

Steve Ulian, head of Institutional Retirement Relationship Management for Bank of America Merrill Lynch, told PLANADVISER that the middle market of $25 million up to $250 million, in particular, has requested this service. Ulian said plan sponsors realize they are not in the best position to “go it alone,” and they want help with fiduciary responsibilities.

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Nearly 250 Merrill Lynch advisers hold one of the company’s specialized Defined Contribution or Global Institutional Consulting designations, allowing them to serve plan sponsors’ more complex benefit plan needs. Beginning in April, these benefit plan professionals will have the opportunity to be designated to provide Defined Contribution Investment Consulting services.

Kevin Crain, head of Institutional Retirement & Benefit Services for Bank of America Merrill Lynch, estimates that about 30 to 50 advisers will make up the initial group of 3(21) fiduciary advisers, who will help clients with investment menu selection and design.

The company is also offering supplemental employee education services.

“We thought as part of this consulting offer, this type of service is important to complete the picture for advisers as a value they can add,” Crain said.

The advisers will not serve as 3(21) fiduciaries regarding advice on participants’ investment allocations, but they will provide supplemental education to plan sponsors and participants. The company’s Advice Access program, separate from the aforementioned service, provides advice to 401(k) plan participants about the Bank of America Merrill Lynch proprietary recordkeeping platform.

“Our specialized financial advisers work closely with corporate clients to help ensure that their defined contribution plans are more successful and give employees long-term financial security,” Crain said. “This includes giving employers greater assistance and assurance that plans are meeting their objectives and industry standards, and putting employees in a better position to achieve financial wellness at every life stage.”

Compliance March 22, 2012

Estate Can Sue Ex-Wife for Benefits Waived

A federal court decided that a waiver of benefits can be enforced through a direct suit against a named beneficiary after benefits have been paid.
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The 3rd U.S. Circuit Court of Appeals agreed with a district court ruling that plan fiduciaries must abide by a deceased participant’s beneficiary designation form and pay benefits to that beneficiary. That issue was not disputed on appeal.  

What was disputed is the district court’s finding that allowing for a state court lawsuit by the estate of the deceased participant to recover benefits paid to his ex-spouse per a common law agreement would go against the Employee Retirement Income Security Act (ERISA). The district court contended that allowing for such a challenge would violate ERISA’s intent to ensure payments to beneficiaries are expedited.  

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The 3rd Circuit found that if, after distribution, the ex-spouse’s right to the funds is challenged because of her common law waiver, that challenge will be litigated as an ordinary contract dispute. Accordingly, the appellate court ruled that permitting suits against beneficiaries after benefits have been paid does not implicate any concern of expeditious payment or undermine any core objective of ERISA.  

The court remanded the case to the district court with instructions to assess the necessity of a further remand to state court to address the merits of any remaining state law issue.

In 2000, William Kensinger Jr. enrolled in a 401(k) plan sponsored by his employer, URL Pharma Inc. He named his wife Adele as beneficiary. However, during divorce proceedings in 2008, the two entered into an agreement in which they agreed to waive, release and relinquish any rights they may have to each other’s individual retirement accounts or other retirement benefits or savings plans.  

Nine months following the divorce, William died and a dispute arose regarding distribution of his plan assets.  

The 3rd Circuit said the leading case for the situation is Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, in which the facts are virtually identical. In that case a district court granted summary judgment to the estate, but the 5th U.S. Circuit Court of Appeals reversed, finding that paying the estate would violate ERISA’s anti-alienation provision.  

The U.S. Supreme Court affirmed the 5th Circuit’s decision, although on different grounds, but made clear that its holding did not address the question of whether the estate could have sued the ex-wife to recover the benefits after she received them from the plan administrator.    

The 3rd Circuit’s decision is available at http://www.ca3.uscourts.gov/opinarch/104525p.pdf.

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