Remembering the Basics of Fiduciary Duties
PLANSPONSOR | Reported
by Amanda
Umpierrez | February 07, 2020
What ERISA retirement plan sponsors should know
about their responsibilities as they make plan decisions or even
outsource decisions to others.
THE DEPARTMENT OF LABOR (DOL) describes any person
involved in operating a retirement plan as a fiduciary.
According to its publication, “Meeting Your
Fiduciary Responsibilities,” under the Employee Retirement Income
Security Act (ERISA), fiduciaries are responsible for maintaining
reasonable plan fees, following the terms under the plan,
selecting diversified investment options and, perhaps most
importantly, managing the plan with the participants’ best
interests in mind. If a fiduciary does not understand specific
terms of the retirement plan, such as fees, they can look to
financial advisers or service providers for help.
The DOL says, “The duty to act prudently is one of a
fiduciary’s central responsibilities under ERISA. It requires
expertise in a variety of assets, such as investments. Lacking
that expertise, a fiduciary will want to hire someone with that
professional knowledge to carry out the investment and other
functions.”
Possibly one of the most important responsibilities
is considering the best interests of employees when making plan
decisions. If a plan sponsor fails to do so, they risk
litigation. Click Here for
full article
Signing and Retaining Plan Documents Is Essential
PLANSPONSOR | By Rebecca Moore |
February 03, 2020
Following a memo warning retirement plan sponsors of
potential disqualification, attorneys offer suggestions for plan
document execution procedures.
The Office of Chief Counsel of the IRS has issued a
memorandum concluding that a retirement plan “is considered
adopted only if proof of adoption of the plan is provided.”
The IRS adds: “Upon failure to produce an executed
plan, the employer has the burden to prove that it executed a
plan document as required.”
The agency was asked whether a plan sponsor must
retain a validly executed plan document, in light of a tax court
decision in Val Lanes Recreation Center Corp. v. Commissioner. In
that case, the tax court originally found Val Lanes’ retirement
plan to be disqualified because an unsigned plan document was
presented on audit. However, after finding additional testimony
credible, the court reversed its decision. The individual who
served as president, treasurer and sole director of the company
testified that the failure of a roof at his facility resulted in
extensive water damage that destroyed documents. His accountant
testified that “to the best of his knowledge, the restated plan
amendments were signed shortly after receipt of the [favorable
determination letter] and that petitioner retained the
originals.”
Click Here
for full article
Don’t Put Your Head in the Sand Because of Cash
Balance Liability Complexity
PLANSPONSOR | By Rebecca Moore |
February 07, 2020
Cash balance plans may have the most complex
liabilities to manage, but creating a clear strategy to manage
risks will keep it from getting more complicated.
In its U.S. Pension Market Quarterly Outlook,
Insight Investment looks at what it calls generally the most
complex pension liabilities of all—cash balance plans—and how
they can be managed in practice.
Kevin McLaughlin, head of liability risk management
with Insight Investment in New York City, says this matters
because most of the firm’s clients are on the path to de-risking
their plans, and, as they get farther down the path, managing
assets to liabilities gets more important - unhedged liability
risks become a bigger component of residual risk. “If they’ve
done all the hard work to get their defined benefit plan funded
status to 100%, they want to make sure things are locked down to
have more certainty of outcomes,” he says. “They may have ignored
these risks in the past.”
McLaughlin adds that many plan sponsors, as they’ve
reconstructed their benefit plans and frozen their traditional
defined benefit (DB) plans in the last couple of decades have, in
a number of cases, introduced a cash balance component. “It is
quite common to come across a cash balance benefit in DB plans,”
he notes. Click Here
for full article
UPS Named in Latest ERISA Fiduciary Breach Suit
Planadviser | By John Manganaro | February 06, 2020
UPS is not the first national employer to be accused
of using outdated mortality tables and interest rate estimates in
order to shortchange certain pension beneficiaries.
A new Employee Retirement Income Security Act
(ERISA) lawsuit filed in the U.S. District Court for the Northern
District of Georgia suggests the United Parcel Service of America
(UPS) committed multiple fiduciary breaches while calculating the
value of certain pension benefits.
The plaintiffs, calling for class action status, say
their suit seeks to remedy failures to pay joint and survivor
annuity (JSA) benefits in amounts that are “actuarially
equivalent” to a single life annuity (SLA) benefit to pension
plan participants and their beneficiaries. Such actuarial
equivalence is required by ERISA.
Allegations in the lawsuit closely mirror those in
numerous cases that have been filed in the past few years, naming
such well-known defendants as MetLife, Pepsi and American
Airlines. As in this new lawsuit, the plaintiffs in such cases
suggest that, by not offering JSAs that are actuarially
equivalent to the single life annuities that participants earn,
the defendants are causing retirees to lose part of their vested
retirement benefits in violation of ERISA. Click Here
for full article
