Court and Legal

BlackRock 401k Investment Suits Send Message "Nobody's Safe"

A flurry of new 401k lawsuits challenging companies that offer their workers conservative, low-cost target-date funds has enraged retirement industry insiders who say the complaints mean no retirement plan is safe from litigation. The class actions are leveled at major companies defaulting employee investments into a suite of BlackRock index funds that automatically de-risk investments according to a specific date, usually when investors are expected to retire.

Source: Bloomberglaw.com

Seventh Circuit Affirms Dismissal of ERISA Stock-Drop Case

Since the Supreme Court's ruling in Fifth Third Bancorp v. Dudenhoeffer, courts around the country have overwhelmingly rejected ERISA fiduciary-breach claims by 401k plan participants seeking relief related to investments in company stock funds. The Seventh Circuit recently continued that trend by affirming the dismissal of claims brought by participants in the Boeing 401k plan but did so on grounds that the fiduciary responsibilities associated with the company stock fund had been delegated to an independent fiduciary, and the insider fiduciaries had no duty to disclose corporate inside information to the plan participants or the independent fiduciary.

Source: Erisapracticecenter.com

Lawsuit Against Northern Trust Over TDFs Will Proceed

A federal judge has refused to dismiss a lawsuit against fiduciaries of the Northern Trust Company Thrift-Incentive Plan that alleges that because the defendants failed to remove underperforming funds from the plan or negotiate lower, reasonable fees, participants' account balances have suffered.

Source: Planadviser.com

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Fiduciary and Plan Governance

Plan Fiduciaries: The DOL Proposes Enhanced QPAM Requirements

On July 26, 2022, the DOL released a proposed amendment to Prohibited Transaction Class Exemption 84-14, known as the Qualified Professional Asset Manager exemption. The QPAM exemption is frequently relied on by investment fiduciaries, including fund managers and investment advisers, to avoid engaging in transactions concerning employee benefit plans that might otherwise be prohibited by ERISA. If adopted, the proposed amendment would, among other things, increase the minimum capitalization and assets under management requirements for a manager to qualify as a QPAM, require that QPAMs register with the DOL, and require that agreements between QPAMs and their clients be amended to include specific indemnity and other provisions.

Source: Lowenstein.com

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Items of Special Interest to Service Providers

Investments in Technology and Automation Pay Off for Retirement Plan Providers

Plan providers are making sizable investments in technology to enhance their suite of online resources to improve digital participant experiences and better connect with a younger generation entering the workforce, according to the latest Cerulli Edge -- U.S. Retirement Edition. From education-oriented designs to targeted communications, plan providers are leveraging the latest advances in digital technologies to complement or enhance human-provided services.

Source: Cerulli.com

Legislative and Washington DC

Senate Bill Would Curb ESG Investing in Retirement Plans

The Maximize Americans' Retirement Security Act (S. 4613), legislation introduced July 26 by Sen. Mike Braun, would clarify that the fiduciary duty of plan administrators is to select and maintain investments based solely on "pecuniary" financial factors. Joining Braun as cosponsors are Sens. Richard Burr, Tommy Tuberville, Cynthia Lummis, Roger Marshall, Roger Wicker, Steve Daines, and James Inhofe.

Source: Napa-net.org

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Cyber and Plan Security

Why You Need Cybersecurity Insurance and How to Get It

The topic of cybersecurity insurance has crept to the top of the charts for the DOL's ERISA Advisory Council. Each year, the EAC picks topics it deems crucial to the administration of ERISA. For their May 6, 2022, meeting, they chose cybersecurity insurance and employee benefit plans as one of their topics. When the DOL and, specifically, the EAC take a closer look at a topic like cybersecurity insurance for those who handle employee benefit plan data, you can rest assured it will soon become a mandatory focus.

Source: Penchecks.com

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State-Based Private-Sector Retirement Programs

State-Mandated Retirement Plans Gain Traction

This article explains that there is no federal mandate for businesses to offer retirement plans, but some states are filling the void. It detail which states have established mandates, and which ones have put them into action. And it points out why these moves may prompt some businesses to offer retirement plans beyond the states' mandate.

Source: Massmutual.com

How Are State Auto-IRAs Impacting the Small-Plan Market?

Employers in California, Illinois, and Oregon, three of the first states to launch programs to help private sector workers save for retirement, were still creating new plans in 2020 and were shedding existing plans at rates slower than or largely comparable to the national average, according to a newly updated analysis of Form 5500 data.

Source: Asppa.org

Compliance and Regulatory

Employee Deferrals and Employer Contributions on Bonus Payments May Pose Challenges

An issue that can arise when considering the potential qualified status of a tax-qualified retirement plan is whether the definition of compensation under a plan is being properly implemented based on a participant's elective deferral election and corresponding employer contributions based on an employee's elective deferral election and the plan document. This article provides background on this issue and discusses the consequences of providing separate deferral elections on bonuses, the potential risks of permitting such separate elections, and related considerations that are important to maintain the tax-qualified status of a plan.

Source: Groom.com

The Impact of Missing the July 31, 2022, Deadline for Restating Pre-Approved 401k Plans

For the many employers that use a pre-approved 401k plan (or another type of defined contribution plan), the deadline to execute a restatement of the plan was July 31, 2022. An employer that missed the deadline will need to review whether a correction will be required to maintain the plan's favorable tax status and implement any required correction. Depending on the circumstances, some failures may require obtaining formal approval from the IRS through its Voluntary Correction Program, while others may be eligible for self correction.

Source: Benefitslawadvisor.com

IRS Extends Retirement Plan Amendment Deadlines

Plan sponsors can certainly wait to adopt these amendments, and this would also allow further changes addressing subsequent guidance on the SECURE Act as well as future legislation to be addressed. However, for plan administration purposes, it could be helpful to amend plans before the end of the year and also provide participants with a summary of material modifications describing the changes, but this may require an additional amendment by the extended deadline.

Source: Bradley.com

The New Vesting Schedule Debate

Surveys and anecdotal evidence suggest plan sponsors are shortening their plan's vesting periods, but there remains disagreement in the industry about whether vesting schedules may disappear.

Source: Planadviser.com

Will New 401k Compliance Testing Issues Arise Because of COVID-19 Workforce Changes?

To help ensure that a 401k plan does not favor business owners or other highly compensated employees, plan sponsors are required to perform specific nondiscrimination tests. The COVID-19 pandemic is providing challenges in meeting these nondiscrimination tests with qualified 401k plans that have previously not experienced discrimination testing issues.

Source: Fulcrumpartnersllc.com

Participant Loans: Technical and Fiduciary Considerations

Of utmost importance is the obligation of plan sponsors to comply with the legal requirements governing participant loans. The failure to comply may lead to a taxable event for the borrowing participant and a prohibited transaction for the plan fiduciaries. Here is a review of the technical and fiduciary considerations involved when participant loans are available through your company 401k plan.

Source: Newfront.com

Participant Loans: Common Loan Errors and How to Fix Them

Prohibited transaction violations associated with participant loans, which are corrected under the DOL's separate Voluntary Fiduciary Correction Program, are less common than the day-to-day operational failures that can result in taxation to the participant. Therefore, this article focuses on the solutions for correcting participant loan errors through the Employee Plans Compliance Resolution System and its Self-Correction Program.

Source: Newfront.com

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Marketplace News

Oneamerica, Pronvest Debut Advisor Portal Feature to Boost Accounts

Retirement Group Rolls Out New Campaign for 401k Day

RIA Combo With a Twist: One Seven, MGO Merge

401k Best Practices Publishes a Free Training Series for 401k Advisors

This eNewsletter is a digest of information published by a variety of web-based sources on 401k and related issues and is published as a service to our users. 401khelpcenter.com, LLC is not the author of the material unless specifically noted.