On October 31, 2023, the US Department of Labor (“DOL”) unveiled a new proposed regulation titled “Retirement Security Rule: Definition of an Investment Advice Fiduciary” (the “2023 Proposed Rule”) and proposed amendments to several prohibited transaction exemptions (“2023 Proposed PTE Amendments”). With these proposals, the DOL aims to expand the criteria for determining who would be an “Investment Advice Fiduciary” for purposes of Section 3(21) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and force many such “Investment Advice Fiduciaries” to comply with Prohibited Transaction Exemption (“PTE”) 2020-02 for fee and affiliated investment conflicts.

The 2023 Proposed Rule, if finalized, would modify the “Five-Part Test” for determining fiduciary status that has been in effect since 1975. In the preamble to the 2023 Proposed Rule, the DOL stated that the Five-Part Test was no longer suited to address the modern landscape of professional investment advice. In particular, the DOL was concerned that the “regular basis” and “mutual understanding” prongs of the Five-Part Test exclude many circumstances in which a fiduciary of an ERISA plan, plan participant or beneficiary, or IRA owner (each, a “Retirement Investor”) may reasonably assume that they were receiving investment advice based on the Retirement Investor’s best interest.

The 2023 Proposed Rule marks the third attempt since 2010 by the DOL to replace the Five-Part Test. The most recent attempt was an updated regulatory definition of Investment Advice Fiduciary issued on April 8, 2016 (the “2016 Fiduciary Rule”), which was vacated in its entirety by the US Court of Appeals for the Fifth Circuit in 2018. The court’s opinion stated that the 2016 Fiduciary Rule had strayed too far from the common-law definition of the term fiduciary, which turns on the existence of a relationship of “trust and confidence” with the client and does not extend to those who merely sell products to their clients.Continue Reading DOL Releases New Proposed Regulation Regarding Investment Advice Fiduciaries

With more and more retirement plan services moving online, a recent case arising in  the U.S. District Court for the Southern District of New York, Giannini v. Transamerica Retirement Solutions, LLC (“Giannini”),[1] highlights the importance of cybersecurity and anti-fraud considerations for plan fiduciaries and service providers alike. 

In Giannini, the plaintiff was a retirement plan participant who filed suit in a proposed class action against Transamerica Retirement Solutions, a third party administrator/recordkeeper, after the company notified him of a data breach exposing the plaintiff’s personally identifiable information (“PII”). The plaintiff alleged that the breach occurred because unauthorized parties were able to access PII due to a Transamerica system configuration change, which left sensitive information such as social security numbers and retirement fund contribution amounts exposed. The plaintiff also alleged this data breach affected over 11,000 retirement plan beneficiaries and caused spam emails, spam calls, fraudulent credit card and bank account inquiries, and fraudulent purchases made in his name. Continue Reading A Cautionary Tale for Plan Fiduciaries and Service Providers: Cybertheft, Fraud, and Potential Liability

On November 22, 2022, the U.S. Department of Labor (the “DOL”) published a regulation entitled “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” (the “Final Rule”). The Final Rule follows proposed rules regarding ESG investing and proxy voting by plan fiduciaries, issued on October 14, 2021 (the “Proposed Rule”) and amends prior regulations on the same topic issued by the DOL under President Trump in 2020 (the “2020 Rule”).

In the Final Rule, the DOL repeatedly emphasized that the regulation was primarily aimed at removing and remedying the chilling effect on ESG investing by plan fiduciaries created by the 2020 Rule. While the Final Rule takes a more permissive stance on the consideration of climate change and other ESG factors in investment decisions by plan fiduciaries than the 2020 Rule, the DOL cautioned that a plan fiduciary should not subordinate the interests of plan participants and beneficiaries to any collateral benefits (i.e., ESG objectives).

The Final Rule largely tracks the Proposed Rule, with a few notable exceptions summarized below.Continue Reading DOL Finalizes Rule Regarding ESG Investing and Proxy Voting by Plan Fiduciaries

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