The DOL’s new ESG rules may have a curious impact on some church related organizations which utilize faith based standards in their retirement plan investments. Their ability to continue do may now turn on the manner in which they handle their status as a “church plan.” It arises because the ESG rules will NOT apply

We spend a lot of our time focusing on ERISA’s “Prohibited Transaction” rules, which extensively cover the manner in which compensation is paid under retirement plans, and how it is disclosed. Lurking darkly in the background behind all of our  discussions of fee disclosure and how the prohibited transaction rules apply under 408(b)(2), however, is something most of us in the benefits world typically pay little attention to: the U.S. Criminal Code and 18 USC 1954.
Continue Reading Remember, Some Sorts of Compensation Is Flat Out Illegal, Not Just “Prohibited”

A common misunderstanding between 408(b)(2) and 404(a)(5) is the nature of the requirements: 408(b)(2) requires the service provider’s contract with the plan’s fiduciary contain certain, specific terms. It does NOT require that those fees be disclosed to participants, nor does it require annual disclosure. It is simply a business matter between the fiduciary and the service provider. The only time a follow-up “disclosure” is ever required is if there is a material change in the contract’s terms (including the service fee), and then that disclosure is only required to be made to the plan fiduciary.
Continue Reading The Use, and Impact, of 408(b)(2) and 404(a)-5 Are Often Confused

The Business Roundtable issued a press release  on August 19 signed a the CEOs of the largest companies in the U.S. outlining a “Statement on the Purpose of a Corporation .” In it, the CEOs outlines a ” modern standard for corporate responsibility” or, as Jamie Dimon, CEO of JP Morgan Chase and the Chair of the Business Roundtable stated,” Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term.”

I not only believe that the Business Roundtable has it right, but it is a position that properly frames the issues for the ERISA  investment fiduciary: prudent  assessment of an investment must take into account a broader view than the narrow financial analysis of the books and records of the company, or of current market pricing. Particularly for ERISA fiduciaries, the investment standard is long-term, to provide retirement income. Any valid, long-term  analysis has to be able to take into account the social, political, market  and scientific trends which will inevitably affect the investment’s value
Continue Reading The Business Roundtable’s Statement of “Balancing Needs” Demonstrates the Valid Counter to DOL’s ESG Approach

It is worth now considering of the impact of 2008 MOU between the SEC and the DOL on fiduciary enforcement, with the publication of the SEC’s new Reg IB on fiduciary duties and the suggestions from EBSA that a a new fiduciary rule will be closely related to that of the SEC. What will happen where you have two broadly empowered federal agencies working from what may be the same playbook (or at least very similar ones), where you already have a well established, coordinated cross-enforcement structure in place?

Continue Reading Will the DOL/SEC’s 2008 “Memorandum of Understanding” Achieve New Gravitas After Reg IB?

One of the key  EBSA National Enforcement Projects is the “Plan Investment Conflicts Project” or PIC project. It is the “next generation” of fiduciary compliance programs that the DOL has developed over the years, with this one building on those past programs which had looked at compensation conflicts, 408(b)(2)  compliance and 404(a)-5 disclosures. It appears to be using standard, plan level investigations to instigate reviews of selected practices of large financial service companies, as opposed to having to open large service provider investigations to get to the answers being sought.  
Continue Reading The DOL’s “Plan Investment Conflicts Project” Is Showing Up In Its Plan Audits: Who Should Be Responsible For Watching the “Black Box”?

The SEC proposed Rule 30e-3 3 this past June which will fundamentally rework the manner in which mutual fund prospectuses and other fund reports are delivered to shareholders. This proposed rule, if made final, would effectively make electronic delivery of these reports the default-much in the same way as currently being proposed for the electronic delivery for required ERISA notices.This impacts 403(b) and 401(a) operations, as well as efforts to make ERISA e-delivery a default.
Continue Reading SEC Proposed “Modernization” Of Fund Report Delivery Rules Impacts Both 403(b) and 401(a) Plans

Effective January 1 of this year was the right of participants to an extended period to rollover their defaulted loan amount, if the default arose following unemployment or the termination of a plan. The statue has a fundamental flaw: it confuses the rules related to the taxation of the loan with the distribution rules related to defaulted loans. The practical effect of this confusion is that it is virtually impossible to effectively use.
Continue Reading TCJA’s Defaulted Loan Extended Rollover Rules have a Serious Technical and Fiduciary Glitch

The Tax Cuts and Jobs Act’s participant loan changes (which delays the account offset on loan defaults related to unemployment or plan termination) triggers something we would all rather not look at:  the “uncomfortable” manner in which ERISA’s fiduciary rules apply to loans and their administration.These changes should cause plan sponsors and recordkeepers to consider new choices about their handling of loan defaults, something they haven’t had to do in nearly 18 years. This matters because changing a plan’s loan rules is not a minor technical act. Loans are investments subject to the same ERISA prudence rules as any other plan investment, and changes to loan procedures impacts the investment.
Continue Reading Tax Act’s Participant Loan Changes Compels Fresh Review of “Uncomfortable” Loan Fiduciary Obligations