Author Archive
The Courts Address Rights Relating to Employer Stock
PDF version In April 2007, both the U.S. District Court for the District of Hawaii and the U.S. District Court for the District of New Jersey addressed issues relating to employer stock held in retirement plans other than employee stock ownership plans (ESOPs). Although neither case addressed ESOP issues specifically, the decisions in both cases affect all plans holding employer stock.
401(k) Plan Fees and Expenses Lawsuits Continue to Proliferate
Over the past few months, numerous class action lawsuits have been filed against 401(k) plan sponsors and their officers, directors, and employees challenging the fees paid to plan service providers. Although many had hoped this most recent wave of 401(k) litigation would subside, it appears that several plaintiffs’ firms intend to launch another round of suits. The law firm that has instigated these suits in the past, Schlichter, Bogard & Denton, has already targeted 10 Fortune 200 companies and appears poised to go after at least 17 additional major corporations. Seattle-based Keller Rohrback, the firm responsible for the prosecution of most of the highprofile “stock drop” suits on behalf of 401(k) plan participants, recently announced that it is “investigating” at least two large plans on fees and expenses issues. Also throwing its hat into the fees and expenses ring is the plaintiffs’ class action firm SimmonsCooper, which reportedly has filed suit against Principal Life Insurance Company. The fact that these additional firms are investigating plans and filing suits suggests that fees and expenses litigation will not be the short-lived phenomenon that some had hoped or predicted.
Fiduciary Duty Provisions Affecting Financial Services Providers:
The Pension Protection Act of 2006 (H.R. 4) (PPA), which the President signed into law today, provides a number of changes and exemptions to the fiduciary duty provisions under the Employee Retirement Income Security Act of 1974 (ERISA) and the prohibited transaction rules under both ERISA and the Internal Revenue Code of 1986, as amended (the Code) that directly affect how financial services providers will interact with plans subject to ERISA fiduciary provisions and tax-qualified retirement and savings accounts, including new rules on participant-level investment advice, general and specific relief on prohibited transaction issues, changes in the ERISA bond requirements and liberalization of the plan asset rules which impact hedge funds and other alternative pension investments. This LawFlash, the second in our series on the PPA, addresses those important revisions to the law in this area.
The First Case of Its Kind: Morgan Lewis Team Wins
In the first post-Enron “stock drop” case to go to judgment following a trial, DiFelice v. US Airways, Inc., Case No. 1:04cv889 (E.D. Va. June 26, 2006), a Morgan Lewis team headed by Labor and Employment Law partners Charles C. Jackson and Christopher A. Weals prevailed at trial in an ERISA class action brought against US Airways, Inc. (http://www.usairways.com). The court held that US Airways did not breach its fiduciary duties under ERISA by continuing to permit voluntary investment in the stock of its parent corporation, US Airways Group, Inc., in the company’s 401(k) plan during the months leading up to US Airways’ bankruptcy in 2002.
Article - What to Do If Your Fund Becomes Subject to ERISA
Published in The Investment Lawyer (Vol. 13, No. 6, pp. 3-17) by I. Lee Falk and Daniel Kleinman.
Treasury Finalizes Proposed Regulations, Issues New Proposed Regulations, for Roth
In March 2005 the Treasury Department issued proposed regulations that provided guidance on the establishment and implementation of designated Roth contribution accounts in 401(k) plans. Recently these proposed regulations were finalized, with certain clarifying changes. While the final regulations set forth basic and definitional rules for a designated Roth program under a 401(k) plan, they do not address the taxability of distributions from designated Roth accounts or the reporting or recordkeeping requirements applicable to these accounts. These areas are addressed under a new set of proposed Treasury regulations recently issued, which also provide for the establishment of Roth contribution accounts in 403(b) plans.
Seventh Circuit Court of Appeals Rejects Department of Labor’s Position on Standard of Review for Trustee’s Decisions
In a very important decision for ESOP trustees and other ERISA fiduciaries in a case involving an allegation of an erroneous valuation of employer securities held by an ESOP, the Seventh Circuit Court of Appeals has held that the standard of judicial review of the decisions of an ERISA trustee is deferential unless there is a conflict of interest. Armstrong v. LaSalle Bank National Association, Case No. 05-3417 (7th Cir. 2006). In so holding, the court rejected the Department of Labor’s contention that trustees’ decisions should be reviewed by courts de novo, rather than for an abuse of discretion. The plaintiffs had argued that the actions of an independent ESOP trustee, like the actions of an inside trustee, should be subjected to a de novo review with “strict scrutiny” by the courts.
DOL Extends Filing Deadline for Initial LM-10
Last week, the Department of Labor (DOL) announced an extension of the filing deadline for initial LM-10 reports and issued additional guidance concerning employer LM-10 reporting obligations under the Labor-Management Reporting and Disclosure Act (LMRDA or Act), 29 U.S.C. §§ 401 et seq. Employers with fiscal years ending December 31 now have until May 15, 2006 to submit their initial LM-10 reports to the DOL. Reports filed by this date will be considered “timely” for purposes of the DOL’s previously announced grace period.
Department of Labor Provides a No Enforcement Period for LM-10 Filings
The Department of Labor (“DOL”) issued the attached advisory effectively extending the Form LM-10 filing deadline by 45 days (from March 31, 2006 to May 15, 2006) for employers with fiscal years ending on December 31, 2005 who are filing reports covering calendar year 2005. In the advisory, the DOL provides that although it has no authority to grant extensions of statutory filing deadlines, it can, pursuant to its enforcement discretion, agree to not take enforcement action with respect to late filings.