‘Til You Can’t … What’s An Employer To Do When Court Gives 401(k) To Ex-Wife

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by Alex Smith

A recent decision by the Seventh Circuit highlights why employers may want to consider including a provision in their 401(k) plan that revokes a beneficiary designation to an ex-spouse if the plan does not already provide for it. The Seventh Circuit recently awarded the 401(k) account of a deceased Packaging Corporation of America employee to his ex-wife after the deceased employee unsuccessfully attempted to change his 401(k) beneficiary designation following his divorce.

The deceased employee previously designated his ex-wife as beneficiary and his sisters as contingent beneficiaries of his 401(k) account. He sent a fax to the company’s benefits center shortly after his divorce was finalized requesting to remove his ex-wife from his health, dental, and vision benefits and as beneficiary for his 401(k), pension, and life insurance. The fax also requested that any necessary paperwork be faxed to him. However, the employee never completed a new beneficiary designation form for the 401(k) plan. The ex-wife was removed from the health, dental, and vision benefits, but not as beneficiary from the 401(k). The employer filed an interpleader action in response to competing claims to the 401(k) account after the employee died a few months later. Read more

No Peace In Quiet … Employer Considerations As New Lawsuits Challenge Voluntary Benefits

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by Alex Smith

In a new wave of ERISA lawsuits, four employers were sued during the holiday season for allegedly breaching ERISA fiduciary duties regarding their voluntary benefits insurance offerings. The voluntary benefits at issue are accident insurance, critical illness insurance, cancer insurance, and hospital indemnity insurance.  The four putative class action lawsuits generally allege that the employers and their benefits brokers breached their ERISA fiduciary duties and caused the participants to pay excessive premiums because they (i) failed to engage in a prudent process when selecting the insurance offerings; (ii) failed to monitor the commissions received by the benefits brokers; and (iii) failed to monitor the loss ratios on the various insurance policies. Read more

Welcome To The Future… Fiduciary Considerations as Recent 401(k) Lawsuit Challenges Proprietary Target Date Funds

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by Alex Smith

A recently filed proposed class action lawsuit against IBM’s 401(k) plan fiduciaries highlights the importance for 401(k) plan fiduciaries to carefully select and monitor 401(k) plan investment options, especially the plan’s target date fund. The lawsuit alleges that plan fiduciaries breached their fiduciary duties of prudence and loyalty by retaining several underperforming funds, including a suite of proprietary target-date and target-risk funds, and three Vanguard mutual funds. The lawsuit alleges that the underperforming funds cost plan participants $1.9 billion in returns compared to alternative funds, and the underperformance was obscured by the plan fiduciaries using custom benchmarks to monitor the proprietary target-date funds’ performance.  Read more

My Next Thirty Years… Fiduciary Considerations Following DOL Approving Lifetime Income Option as QDIA

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by Alex Smith

Recently, the Department of Labor (DOL) issued an advisory opinion letter to AllianceBernstein permitting the AllianceBernstein Lifetime Income Strategy program for use as a qualified default investment alternative (QDIA) in 401(k) plans. While this ruling permitting an investment fund with a lifetime income component to qualify as a QDIA is not surprising based on the DOL’s QDIA regulation, it is still the first ruling specifically approving such a fund as a QDIA. Significantly, it only applies to the AllianceBernstein offering. Read more

I Might Be In Oklahoma But I’m Not OK … Fiduciary Considerations Following Executive Order Allowing Private Equity in 401(k)s

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by Alex Smith

Last week the White House issued an executive order directing the Department of Labor (DOL) and Securities and Exchange Commission (SEC) to facilitate 401(k) participants’ access to alternative investments, including private equity, cryptocurrency, real estate, commodities, and infrastructure financing. This direction includes the DOL reexamining guidance regarding fiduciary duties with respect to asset allocation funds, clarifying the DOL’s position regarding alternative assets and including them in asset allocation funds, and proposing related regulations and guidance. Read more

How Do You Like Me Now… Plan Fiduciary Considerations Following New DOL Crypto Guidance

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by Alex Smith

The Department of Labor recently issued Compliance Assistance Release No. 2025-01 rescinding Compliance Assistance Release No. 2022-01 that directed 401(k) plan fiduciaries to exercise “extreme care” before adding cryptocurrency as a plan investment option. While the DOL’s recent guidance rescinds its 2022 guidance, it neither blesses cryptocurrency as an appropriate retirement plan investment option nor modifies ERISA’s fiduciary duties. Read more

No Shoes, No Shirt, No Problems… But Nonenforcement Policy Doesn’t Make Mental Health Parity Compliance Optional

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by Alex Smith

The Departments of Labor, Treasury, and Health and Human Services (the “Departments”) recently announced a nonenforcement policy with respect to the 2024 Mental Health Parity and Addiction Equity Act (“MHPAEA”) regulations or otherwise pursue enforcement actions based on a failure to comply, at least temporarily. The Departments appear to have taken this approach to be consistent with a pending lawsuit challenging the 2024 regulations. The Departments indicated the nonenforcement policy will apply until 18 months after the litigation has concluded. The Departments also indicated they will be reexamining the MHPAEA enforcement program more broadly. Read more

Truck on Fire … Supreme Court Relaxes ERISA Pleading Standards

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by Alex Smith

The Supreme Court recently issued a decision regarding the pleading standards for ERISA prohibited transactions claims in a case involving Cornell’s 403(b) plan to resolve a federal circuit court split. Under the Supreme Court’s decision, plaintiffs will only need to allege that the plan engaged in a prohibited transaction. The plaintiffs will not need to also allege the absence of a prohibited transaction exemption.

The Supreme Court’s decision could have far-reaching consequences because most transactions a retirement plan enters into with a service provider—such as a recordkeeper, investment advisor, or investment manager—constitute prohibited transactions with a party-in-interest (for which a prohibited transaction exemption typically applies). Plaintiffs may now be able to file lawsuits containing prohibited transaction claims capable of surviving motions to dismiss even though the allegations are meritless or frivolous. For example, the transaction subject to a claim may clearly fit within a prohibited transaction exemption, such as making reasonable arrangements for services for a reasonable price. This could be the case even if the plaintiff’s related ERISA breach of fiduciary duty claims that are part of the lawsuit are unable to survive a motion to dismiss. Read more

Every Little Thing … Employer Considerations as New 401(k) Lawsuit Includes Extensive Claims

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by Alex Smith

A recently filed lawsuit related to Swiss Re’s 401(k) plan stands out because of the extensive assortment of allegations. These allegations against Swiss Re, its 401(k) plan fiduciaries, and the plan’s recordkeeper include:

  • the plan paid excessive recordkeeping fees;
  • the plan’s investment options, including its target date funds, underperformed;
  • some of the plan’s investment options offered lower cost share classes than the share class available in the plan;
  • the plan failed to utilize the assets in the forfeiture account;
  • the plan’s recordkeeper misused participant data to market its Roth IRAs to participants; and
  • the plan’s fiduciaries failed to monitor the recordkeeper’s misuse of participant data.

Read more

Smoke ‘Em One By One … Navigating the Wave of Tobacco Surcharge Lawsuits

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by Alex Smith

Over the past several months, numerous large employers and their health plan fiduciaries have faced lawsuits regarding their health plan’s tobacco surcharge. A tobacco surcharge wellness program typically charges a higher monthly premium to employees and covered dependents who smoke or otherwise use tobacco products to account for some of the higher medical costs associated with tobacco use. Tobacco users can typically avoid the surcharge by completing a smoking cessation program, regardless of whether they actually quit.

This wave of putative class action lawsuits began earlier this year even though employer health plan tobacco surcharges have been around for years and the HIPAA regulations permitting the surcharges were last updated in 2013. Since then, numerous lawsuits challenging employer health plan tobacco surcharge programs have been filed. Courts have yet to rule on the recently filed lawsuits, with the plaintiffs voluntarily dismissing one of the lawsuits prior to the court ruling on the employer’s motion to dismiss. Read more