At long last, the Department of Labor has provided guidance on interpreting requirements imposed on group health plan fiduciaries as a part of the Consolidated Appropriations Act, or CAA. On December 27, 2020, Congress amended Section 408(b)(2) of ERISA through its enactment of the CAA. Section 408(b)(2) provides a prohibited transaction exemption for transactions between plans that are subject to Title I of ERISA and “parties in interest” with respect to such plan for the provision of services that are necessary for the establishment or operation of the plan, provided that the compensation paid by the plan to the provider is “reasonable.” One requirement for compensation to be considered reasonable for purposes of Section 408(b)(2) is that the plan fiduciary receive disclosure regarding the compensation received by the service provider. Prior to the CAA, these disclosure requirements only applied to certain retirement plan service providers. However, the CAA expanded these requirements to providers of brokerage or consulting services to group health plans who expect to receive $1,000 or more in direct or indirect compensation  (“Covered Providers”). In addition to disclosing the direct compensation received from a group health plan for its services, Covered Providers must also disclose indirect compensation received from third parties. The disclosure is intended to ensure that plan fiduciaries are informed as to the potential for conflicts of interests as a result of, and the reasonableness of compensation in connection with, third-party payments received by a Covered Provider. The new rules imposed by the CAA took effect on December 27, 2021.

Shortly after these provisions of the CAA took effect (and more than a year after the passage of the CAA), the Department of Labor (“DOL”) released Field Assistance Bulletin 2021-03 (the “Bulletin”) on December 30, 2021, which states that the DOL will focus its enforcement efforts on cases where Covered Providers are not acting in accordance with a good faith, reasonable interpretation of the applicable requirements of Section 408(b)(2). The Bulletin also includes guidance in the form of several questions and answers. The Bulletin confirms that while compensation arrangements relating to the provision of services to pension plans and group health plans differ in many respects, Covered Providers may look to prior DOL guidance issued with respect to pension plans (where applicable) to determine their own obligations with respect to Section 408(b)(2). As a result, the DOL states that it does not believe that comprehensive regulations are needed, but will instead monitor the situation to determine whether (and what) additional guidance may be needed.

Continue Reading DOL Provides Long-Awaited Guidance on Service Provider Health Plan Disclosures and Related Enforcement Policy

On October 14, 2021, the U.S. Department of Labor (the “DOL”) published a proposed regulation entitled “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” (the “Proposed Rule”).  The Proposed Rule is the latest in a series of DOL guidance and regulations regarding a plan fiduciary’s consideration of environmental, social and governance (“ESG”) factors when making investment decisions for ERISA plans and the exercise of shareholder rights by such plans. The Proposed Rule follows prior regulations issued by the DOL under President Trump in 2020 regarding both ESG (the “2020 ESG Rule”) and proxy voting (the “2020 Proxy Rule,” together with the 2020 ESG Rule, the “2020 Rules”). The 2020 Rules themselves followed a series of sub-regulatory guidance by the DOL, which issued guidance on these topics under each of the Clinton[1], Bush[2], Obama[3] and Trump[4] administrations. While the bedrock principals under the guidance largely remained unchanged, the gloss and tenor of the guidance has shifted, depending upon the political views of the White House’s then-current occupant.

ESG investing is increasingly popular and the importance that the Biden administration places on the topic is evident. In fact, on President Biden’s first day in office, he signed an executive order which
Continue Reading DOL Shifts Toward Favorable View on ESG Investing and the Exercise of Shareholder Rights in New Regulation

On April 14th, 2021, the Department of Labor (“DOL“) issued cybersecurity guidance to plan sponsor and fiduciaries, recordkeepers and other service providers and participants and beneficiaries of plans regulated by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The guidance is presented in three separate parts: Tips for Hiring a Service Provider with Strong Cybersecurity Practices, Cybersecurity Program Best Practices and Online Security Tips for Participants and Beneficiaries.

Over the past ten years, cybersecurity has become an area of critical importance to plan sponsors, plan administrators and plan participants. With plans holding trillions in assets as well as sensitive participant information, retirement accounts have been attractive targets for cyber-enabled fraud. Plan participants are known to check their retirement account balances less frequently than personal banking, credit card or other financial accounts. As a result, there can be a delay before attacks on retirement accounts are discovered, making tracing and recovery efforts exceptionally difficult. Plans also permit electronic access to funds and rely upon outside service providers, which provide additional access points for breach. There is a growing body of litigation involving participants who have suffered retirement plan losses due to cyberattacks. Bartnett v. Abbott Laboratories, No. 20-cv-02127 (ND Ill., 2020) (motion to dismiss participant suit against plan sponsor and administrator granted, but denied with respect to third party record-keeper); Leventhal v. The MandMarblestone Group LLC, No. 18-cv-2727 (ED PA, 2019) (motion to dismiss suit by plan sponsor and participant against third party administrator denied); and Berman v. Estee Lauder, No. 4:19-cv-06489 (ND CA, 2019) (participant suit against plan sponsor, committee and third party record-keeper settled).

Continue Reading U.S. Department of Labor Weighs in on Cybersecurity for ERISA Plans

All too often, retirement plan administrators and benefits attorneys encounter situations with missing participants or uncashed checks that result in head scratching and exasperation.  It is difficult to believe that trying to deliver money to someone could produce such frustration, but it happens more than one would think.  In an attempt to alleviate some of these woes and help ensure that participants and their beneficiaries receive the retirement benefits due to them, the Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) came out with three related pieces of guidance on January 12, 2021: (1) a set of Best Practices for Pension Plans (the “Best Practices”), describing steps that plan fiduciaries can take to reduce missing participant issues; (2) Compliance Assistance Release No. 2021-01, outlining the investigative approach that guides the DOL’s regional offices under its Terminated Vested Participants Project; and (3) Field Assistance Bulletin 2021-01, authorizing fiduciaries of terminating defined contribution plans to transfer missing participants’ account balances to the Pension Benefit Guaranty Corporation’s (PBGC) Missing Participants Program as a matter of temporary enforcement policy.  This blog post highlights key points from the Best Practices and focuses on practical tips plan fiduciaries can take away from the DOL guidance.

Continue Reading Key Takeaways From The DOL’s “Best Practices” Missing Participant Guidance

On March 10, 2021 the U.S. Department of Labor (“DOL”) released a policy statement that it will not enforce or otherwise pursue enforcement actions against a fiduciary for failing to comply with the “Financial Factors in Selecting Plan Investments” regulation published on November 13, 2020 (the “ESG Rule”) and the “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights” regulation, published on December 16, 2020 (the “Proxy Voting Rule”). Both regulations were promulgated by the DOL shortly before the Biden administration took office. In the recent policy statement, the DOL stated that certain stakeholders, including asset managers, plan sponsors and consumer groups have expressed concern over whether these rules accurately reflect a fiduciary’s duties under ERISA and appropriately consider the utility of environmental, social and governance (“ESG”) factors in making investment decisions. As a result, the DOL intends to “revisit” each of these rules.
Continue Reading DOL Announces Non-Enforcement Policy of Recent ESG and Proxy Voting Rules

On January 21, 2021, the United States District Court for the Northern District of California granted a motion by the Intel Corporation Investment Policy Committee to dismiss all ERISA claims brought against it by two plan participants representing a class of participants. The plaintiffs alleged, among other things, that the Committee acted imprudently by including private equity, hedge funds and commodities in a custom target date investment option in Intel’s 401(k) plan. The case was Anderson v. Intel Corp. Inv. Policy Comm., Case No. 19-CV-04618-LHK.
Continue Reading Court Rejects Plaintiffs’ Claims that Private Equity is Imprudent for 401(k) Plan

Plan sponsors and fiduciaries may have spent 2020 scrambling to amend their plans and operating procedures to accommodate breaking COVID-19 guidance, but the Department of Labor’s (“DOL”) and federal courts’ wheels continued to turn, churning out decisions and guidance on a variety of ERISA issues—and plan sponsors and fiduciaries should take note. Included in recent DOL guidance are rules for reviewing and selecting retirement plan investments, voting proxies, and distributing retirement plan notices. Meanwhile, various federal appellate court decisions should lead fiduciaries to review summary plan descriptions (“SPDs”) and the inclusion of single-stock fund investment options in defined contribution plan lineups. The following checklist sets out 2020 developments for plan sponsors and fiduciaries to consider in the new year.
Continue Reading 2021 Plan Sponsor/Fiduciary Compliance Checklist

The longstanding view of the Department of Labor (the “DOL”) has been that proxy voting and other shareholder rights held by an ERISA plan are subject to ERISA’s fiduciary duties of prudence and loyalty. Previously, this view was expressed by the DOL in sub-regulatory guidance, such as interpretive and field assistance bulletins. In September of 2020, the DOL published a proposed rule (the “Proposal”) regarding an ERISA fiduciary’s duties with respect to shareholder rights. On December 16, 2020, the Department of Labor published the final regulation (the “Regulation”). Much like the Proposal, the Regulation requires that when a fiduciary decides whether and when to exercise plan shareholder rights, it must act prudently and solely in the interests of participants and beneficiaries and for the exclusive purpose of providing them benefits and defraying the reasonable expenses of administering the plan. However, in the Regulation, the DOL took an approach that is less prescriptive and more principles-based than the Proposal.
Continue Reading Final ERISA Regulations Describe Fiduciary Duties Related to Plan Proxy Voting

On October 30, 2020, the U.S. Department of Labor (“DOL”) released its final regulation (“Final Rule”) relating to a fiduciary’s consideration of environmental, social and governance (“ESG”) factors when making investment decisions for plans subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). In response to the proposed rule (the “Proposal”), the DOL received several thousand comments, the vast majority of which opposed the new rule. Many plan sponsors and investment professionals voiced objection to the Proposal’s antipathy towards the consideration of ESG factors. In the Final Rule, the DOL generally softened its stance toward the consideration of economic ESG factors, but
Continue Reading The Department of Labor’s ESG-less Final ESG Rule

On September 4, 2020, the U.S. Department of Labor (the “DOL”) issued a proposed rule regarding a plan fiduciary’s duties with respect to shareholder rights appurtenant to shares of stock held by an ERISA plan (the “Proposal”). ERISA requires that a plan fiduciary carry out its duties prudently and solely in the interests of participants and beneficiaries and for the exclusive purpose of providing benefits to participants and beneficiaries and defraying the reasonable expenses of administering the plan.

The DOL originally articulated its position that ERISA’s fiduciary duties extend to the voting rights of stock in an opinion letter published in 1988 (commonly known as the “Avon Letter”). Since that time, the DOL has provided additional sub-regulatory guidance in the form of Interpretive Bulletins and Field Assistance Bulletins. Much like the DOL’s guidance on ESG investing, the DOL’s guidance in this area has shifted in focus with each presidential administration; however, a published regulation, subject to review and comment like the Proposal, would be more difficult to overturn by a future administration if finalized.

The DOL’s previous guidance issued in 2016 generally encouraged the voting of proxies by plan fiduciaries, other than in certain limited circumstances. In contrast, the Proposal warns that a fiduciary can only vote proxies that it prudently determines to have an “economic impact on the plan after the costs of research and voting are taken into account.”
Continue Reading To Vote, or Not to Vote, That is the Question