Are there time limits on a participant’s ability to challenge imprudent 401(k) investment fund offerings? Can participants challenge an investment fund selected ten or even twenty years ago? If so, will fiduciaries be subject to potential liability for losses going back decades?
The U.S. Supreme Court has just released its long-awaited decision in Tibble v. Edison, holding that participants are not prevented from challenging a plan fiduciary’s imprudent 401(k) investment choices if the investment was selected more than six years ago. This means that there is not a one-time six year window for challenging imprudent investment offerings. Continue Reading
The U.S. Department of Labor has released its long-awaited re-write of proposed changes to the rules determining who is a fiduciary under ERISA, and the different sides have rushed to respond by calling the proposal either a great step forward in consumer protection or likely to result in less or no advice to small plan fiduciaries and IRA owners.
While it is undeniable that the proposal would meaningfully expand the class of advisers who are fiduciaries, neither of these opposing responses is likely to be true. Does anyone really believe that advisers will give up such a lucrative market?
The devil is in the details, and objective observers should conclude that it is too early to tell exactly how this complicated proposal will affect the advice market. But it is, in fact, a proposal, not a final rule, and public comments may bring about some needed clarifications and changes. (A coalition has asked the DOL to extend the comment period to 120 days from the 75-day period in the proposal, but indications are that the DOL response will be negative.) Continue Reading
In Part I of this series, we considered issues related to setting up a solvency reserve account (SRA) for an Alberta (and eventually British Columbia) defined benefit plan, SRA withdrawals and multi-jurisdictional plans. In this post we will discuss sponsor versus administrator roles and who is authorized to establish and make withdrawals from an SRA. Continue Reading
The past few months have brought significant announcements regarding changes to the investment rules affecting pension plans, including, most recently, the federal Government’s announcement of amendments to the federal investment rules and a consultation regarding the 30% rule. Perhaps somewhat overshadowed by these announcements has been the final version of the Guidance Note on Prudent Investment Practices for Derivatives released by the Financial Services Commission of Ontario (FSCO) in March.
The Guidance Note was released in draft form in October of last year and has been modified following a period of public comment. While the Guidance Note does not represent a legislative change, it is nonetheless significant in that it provides guidance as to the prudential expectations that the Ontario regulator has regarding derivatives investments.
As noted in an earlier blog post on the draft Guidance Note, the Note is framed as a set of starting point expectations for plan administrators investing in derivatives. It contemplates a system for internal oversight of derivatives investment practices that is extremely broad in scope. Continue Reading
Last month Alberta Interpretive Guideline #07 dealing with Solvency Reserve Accounts (SRAs) was finalized. A draft of the Guideline had been released last November for industry/stakeholder comment.
In our December blog post on this topic, we recommended that defined benefit (DB) plan sponsors in Alberta and British Columbia should carefully consider taking advantage of recent (and in the case of BC forthcoming) legislation permitting them to establish SRAs as an effective way of funding their plans and avoiding “trapped capital” concerns that have historically discouraged full funding and undermined DB plan security. In this regard, sponsors have often been reluctant to fund their plans above the minimum statutory requirements for fear of creating future surpluses that may be subject to withdrawal or contribution holiday restrictions with adverse cash flow and accounting results.
In this two-part series following up on our earlier blog post, we examine several aspects of the SRA rules in greater detail and reiterate our recommendation that plan sponsors seriously consider establishing SRAs as the preferred vehicle in which to make their future plan contributions. Continue Reading
On Tuesday, the federal government tabled its 2015 pre-election budget, which included a few announcements that will be of interest to employers. Of particular note are the following announcements:
- public consultations regarding the federal investment rules;
- continued assessment of target benefit plans (TBP), including possible amendments of the Income Tax Act (ITA);
- an initiative to promote harmonization of the requirements for pooled registered pension plans (PRPP) across Canada; and
- changes to rules regarding tax free saving accounts (TFSA) and registered retirement income funds (RRIF).
Mistakes happen. Even in the best-run plans, occasional errors in estimating and calculating benefits are inevitable and sometimes they are caught only years after payments commenced. Fiduciaries are required to follow plan terms, so improper payments are typically cut off. Plans may also seek to recoup past overpayments once the mistake is discovered.
In the Mistaken Fiduciary, I described a situation in which Gabriel, a retiree who had never qualified for benefits at all, sued a plan to prevent it from cutting off his benefits. His suit claimed fiduciary breach and sought to estop the plan from applying its terms to him. The retiree also sought other forms of relief for fiduciary breach.
Gabriel lost his estoppel claim at the district court level, and this result was subsequently affirmed by the U.S. Court of Appeals for the Ninth Circuit. The Ninth Circuit decision clearly states that estoppel is not available where relief, as in Gabriel’s case, would contradict the written plan provisions. However, we have just had another decision in Michigan in which a retiree named Paul successfully sued to estop a plan from correcting pension overpayments. Why did Paul succeed and should plan fiduciaries be worried about this decision? Continue Reading
There are many benefits issues that must be dealt with when businesses are sold, including the potential involvement of the Pension Benefit Guaranty Corporation (“PBGC”) See, e.g, my prior blog post. Not all of these issues are resolved at the time of sale.
It is becoming increasingly common for plan sponsors who have sold businesses to hear from former participants who were spun off to a buyer’s plan, but who claim to still have benefits owing under the seller’s plan. Sometimes this is because the buyer has gone into bankruptcy or attempted to pass its plan on to the PBGC, but one very frustrating aspect of these former employee requests is that they arrive almost always many years after the sale. Sellers typically respond that no benefits are owed because the buyer assumed full responsibility for their pensions. But is this sufficient? Maybe not, as a federal district court in Utah has ruled that former participants are entitled to benefits under both their original plan and their new plan for the same period of service because they were not notified of the transfer of their benefits. Here is the decision. Continue Reading
The surprising thing about a boomerang is that just when you think you have tossed it away, it suddenly comes back to you. The same result can happen under Section 4069 of ERISA, a rarely applied provision that holds a seller liable for underfunding and other Title IV liability when a buyer terminates an assumed plan within 5 years following the sale. The key is that a principal purpose of the transaction must be to evade liability. Such a transaction can be ignored and the seller pursued as if the transaction had not occurred.
The Pension Benefit Guaranty Corporation (PBGC) has just cleared a big hurdle in its attempt to hold The Renco Group liable under Section 4069 and possibly make new law on when Section 4069 can apply. Continue Reading
Amendments to the Pension Benefits Standards Regulations, 1985 (Canada) (PBSR) regarding pension plan investments, defined contribution (DC) plans and disclosure of information to plan members, among other things, were published in the Canada Gazette this week, and are scheduled to come into force on April 1, 2015 and July 1, 2016, as detailed below.
An earlier draft of the revised Schedule III to the PBSR (the “investment rules”), initially published last fall for comment, raised concern in the pension community that the new investment rules did not fully support modern pension investment practices. As a result of industry feedback, the investment rules have been further revised to address many of the concerns raised.
The key changes to the investment rules as well as the amendments to the PBSR related to DC plans and disclosure of information to plan members are summarized below. Continue Reading