January 01, 2019

Watch These ERISA Cases in 2019
January 1, 2019

Karen L. Handorf and Daniel R. Sutter

A number of vexing issues facing ERISA practitioners came to a head in 2018 and are primed to be resolved in the coming year. This article will examine the cases raising these issues, and the impact their resolution in the coming year will have on retirees and the retirement industry.

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Is Congress Protecting Its Constituents or Running Interference for Bad Actors?
November 14, 2018

Julie S. Selesnick

A group of twenty-seven legislators has authored a letter asking President Trump and the Department of Labor (“DOL”) to provide the ESOP industry with guidance on substantive issues, most importantly the issue of valuation, and to stop engaging in what it termed “regulation through litigation”. The letter asks the DOL to collaborate with the ESOP community and basically requests the President and the DOL to stop engaging in enforcement activities until such meaningful guidance is provided.

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Is My ESOP Account at Risk?
August 30, 2018

Jamie Bowers

An Employee Stock Ownership Plan (“ESOP”) is an ownership program where a company provides its employees with company stock, usually at no cost to the employees.  Shareholders often create an ESOP by selling their shares of stock to the newly created ESOP as a form of an “exit strategy.”  The ESOP may pay the shareholders for these shares of stock by taking out a loan (“leveraged ESOP”).  As the company creates revenue, it repays the ESOP’s loan, and the ESOP releases shares of company stock to its employees.  

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T. Rowe Price Must Face 401(k) Participants’ ERISA Suit
August 22, 2018

T. Rowe Price Group Inc. must face a proposed class action alleging it packed its 401(k) plan with proprietary funds to the detriment of the plan's participants after a Maryland federal judge ruled that all of the Employee Retirement Income Security Act claims in the suit were adequately pled.

U.S. District Judge James K. Bredar denied the asset management company's motion to dismiss Monday, holding that the participants sufficiently alleged T. Rowe Price and its affiliates breached their fiduciary duties and engaged in prohibited transactions under the federal benefits law. The participants had sued T. Rowe Price, its subsidiaries, retirement program trustees and other related committees in February 2017, claiming they flouted ERISA by allowing the asset management company to profit at the expense of the participants by offering only its own products in the retirement plan and collecting excessive fees on them.

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Employee Stock Ownership Plans: Vulnerable to Abuse? 
May 30, 2018

Julie S. Selesnick

Many traditional 401(K) plans are being replaced with employee stock ownership plans (“ESOPs”). While in many cases an ESOP is a valuable benefit to employees, they are also vulnerable to abuse. 

What is an ESOP?

An ESOP is a qualified defined-contribution employee benefit plan designed to invest primarily in the stock of the sponsoring employer. That means, instead of investing the retirement contributions into traditional investment vehicles like stocks, bonds or money market funds, the retirement contributions are invested back into company stock. ESOPs are “qualified” in the sense that the ESOP's sponsoring company, the selling shareholder and participants receive various tax benefits. For these reasons, ESOPs are often used to give the employees a vested interest in the company’s success and aligning their interests with the company's shareholders. Unfortunately, ESOPs can be used for improper purposes, which harms employees and violates the Employee Retirement Income Security Act (“ERISA”), a federal statute that protects employee retirement assets from abuse.

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ERISA Litigation Trends in 2017 
December 18, 2017

Julie Goldsmith Reiser and Jamie Bowers

During 2017, several trends emerged in litigation under the Employee Retirement Income Security Act. Excessive fee cases remained prevalent, with two types commanding a large percentage of ERISA litigation — cases challenging the inclusion of proprietary funds in a 401(k) plan and cases against universities’ 403(b) plans. The U.S. Supreme Court addressed the interpretation of the church plan exemption, overturning three appellate decisions holding that an ERISA-exempt church plan must be established by a church and causing participants to pursue alternate theories of liability. Outside of litigation, Congress repealed a U.S. Department of Labor rule that established a safe harbor from ERISA coverage for state-sponsored retirement plans. Despite the repeal, eight states are continuing to implement their plans, with Oregon being the front-runner to face ERISA preemption challenges. And finally, after the Supreme Court’s Spokeo decision, Article III standing regained prominence, prompting multiple decisions on when a participant in a defined benefit plan incurs sufficient risk to benefits to confer standing. These trends have developed throughout 2017 and raise issues that will continue through 2018.

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A Rule in Flux: The Department of Labor’s Fiduciary Rule
December 1, 2017

Karen L. Handorf and Daniel Sutter

As litigation about the legality of the Department of Labor’s controversial Fiduciary Rule reaches federal circuit courts, the current administration has turned into the Fiduciary Rule’s biggest adversary.

Over a year ago, insurance companies started a broad offensive against the Fiduciary Rule in federal courts across the country. Challengers to the rule have filed six cases in three federal district courts to date. Despite the success of the Department of Labor (“DOL”) in defending the Fiduciary Rule, recent changes of position by the Department of Justice and DOL have cast a shadow over the Fiduciary Rule’s future.

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