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

Ed. Note: On September 22, 2020, the Fourth Circuit denied Gannett’s petition for rehearing en banc.  On October 8, 2020, the Fifth Circuit denied Schweitzer’s petition for rehearing en banc.  We expect the defendants (in Gannett) and the plaintiffs (in Schweitzer) will petition the Supreme Court for certiorari within the coming weeks, and will update this post as new developments arise in the case.

The Fourth Circuit’s recent split decision in Quatrone v. Gannett Co., Inc., No. 19-1212 (4th Cir. Aug. 11, 2020) is sure to raise the blood pressure of sponsors and administrators of retirement plans with single stock funds.  Together with a recent Fifth Circuit decision in Schweitzer v. Inv. Comm. of Phillips 66 Sav. Plan, No. 18-cv-20379, 2020 WL 2611542 (5th Cir. May 22, 2020), the Gannett case highlights the dilemma of retirement plan sponsors and fiduciaries, who, as a result of a corporate transaction, inherit a plan investment fund consisting of a single class of stock that does not constitute an employer security for purposes of ERISA (i.e., a “single stock fund”).  Plan fiduciaries in these circumstances have been targeted in class actions brought by an aggressive plaintiffs’ bar both for liquidating a single stock fund too soon and for not liquidating a single stock fund soon enough.  While courts are still evaluating how to handle these single stock fund cases, a plan fiduciary’s potential exposure for continuing to maintain such a fund seems to turn, at least in part, on the manner in which ERISA’s duties of prudence and diversification apply to the single stock fund as a plan investment option.


Continue Reading Appellate Court Split in Recent Single Stock Fund Litigation

The SECURE Act, enacted in December 2019, greatly enhances the ability of employers (particularly small and medium-sized employers) to maintain retirement programs for their employees. Specifically, it provides for the creation of a new retirement vehicle called a “Pooled Employer Plan.”  Unrelated employers may participate in a Pooled Employer Plan, which is sponsored by a

On June 22, 2020, the United States Department of Labor (the “DOL”) submitted a proposed regulation (the “Proposal”) regarding the use of Environmental, Social and Governance (“ESG”) factors in selecting investments for plans subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Proposal generally cautions plan fiduciaries against considering ESG factors when making investment decisions, unless such factors are relevant to the plan’s pecuniary goals.

Interest in ESG-themed investments has surged in popularity in recent years. One 2020 survey showed that nearly 74% of global investors intend to increase their allocation to ESG-oriented ETFs. However, ESG-themed investments have also captured the attention of regulators, including the DOL. The Securities and Exchange Commission recently listed ESG investments in its list of examination priorities with respect to the accuracy and adequacy of disclosures in the marketing of such investments. In addition, President Trump issued an Executive Order on April 10, 2019, which included a section on ESG investments. The Executive Order required the DOL Secretary to complete a review of trends with respect to ERISA plan investment in the energy sector.


Continue Reading DOL Proposed Rule Urges Caution Regarding the Use of ESG Factors for ERISA Plans

Many plan administrators and participants have struggled with how to satisfy certain qualified plan spousal consent rules while social distancing guidelines have been in effect. The Internal Revenue Service (IRS) provided much-needed relief on that topic in Notice 2020-42, published on June 3, 2020 (the Notice).

By way of background, IRS regulations require that

During the economic downturn associated with the COVID-19 pandemic, some 401(k) plan sponsors may be considering a mid-year reduction or suspension of matching contributions or nonelective contributions to their 401(k) plans as a cost-saving measure. Generally, whether the matching or nonelective contributions may be reduced or suspended will depend on the specific terms of the plan. In addition, in the case of  a plan that is intended to be a safe harbor plan under sections 401(k) or 401(m) of the Internal Revenue Code of 1986 as amended (the “Code”), the Code imposes particularly restrictive rules limiting mid-year changes. The following summarizes steps that a plan sponsor must take to reduce or suspend matching or nonelective contributions to its safe harbor plan during the plan year without jeopardizing the plan’s tax-qualified status.

Continue Reading Reducing or Suspending Matching or Nonelective Contributions Under a Safe Harbor Plan

In the second of a series, our benefits team takes an in depth look at the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) affecting retirement plans. Changes include new coronavirus-related distributions, modified plan loan rules, and a temporary waiver of required minimum distributions.  Read more on the Mayer Brown