Fiduciary Considerations Following Proposed Regulations Allowing Private Equity in 401(k)s

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by Alex Smith

The Department of Labor (DOL) recently issued proposed regulations intended to facilitate 401(k) participants’ access to alternative investments and provide a fiduciary safe harbor applicable to any type of investment option. The proposed regulations were issued in response to the President’s executive order last summer that directed the 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.

The proposed regulations purport to provide plan fiduciaries with a safe harbor that presumes prudent action with respect to the selection of an investment alternative if they evaluate six non-exhaustive factors with respect to a potential designated investment alternative: (i) performance, (ii) fees, (iii) liquidity, (iv) valuation, (v) performance benchmarks, and (vi) complexity. However, the proposed regulations’ safe harbor may be illusory because it does not overrule relevant Supreme Court precedent. The Supreme Court has previously ruled that ERISA does not provide for a presumption of prudence in Fifth Third Bancorp v. Dudenhoeffer. Read more

I Hope You’re Happy Now … Coca Cola Top Hat Plan Lawsuit Highlights Importance of Careful Plan Drafting

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by Alex Smith

A recent decision by a Federal district judge in a lawsuit challenging a surviving spouse’s claim to survivor benefits under Coca Cola’s executive retirement plan, a nonqualified top hat plan, highlights the importance for careful attention to plan drafting and informal interpretations of the plan in communications with participants and potential beneficiaries. The deceased executive’s surviving spouse filed a lawsuit against Coca Cola seeking surviving spouse benefits under the top hat plan. Read more

Waste of Lime … Potential Dismissal of Pension Plan Lawsuit Emphasizes Importance of Participant Disclosures

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by Alex Smith

A recent decision by a Federal magistrate judge in a lawsuit challenging plan disclosures related to the conversion of a hospital’s pension plan from a traditional pension plan to cash balance plan highlights the importance for plan fiduciaries to provide participants with timely and accurate disclosures of plan changes. Participants filed a proposed class action lawsuit against Northwell Health in 2024 claiming that the disclosures they were provided about the conversion of the pension plan to a cash balance plan in 1999 failed to inform them that the change could substantially reduce participants’ benefits. The plaintiffs also alleged that the quarterly statements they were provided after the conversion did not accurately reflect their benefit without alleging a specific deficiency. Read more

‘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

Beer Never Broke My Heart … Recent 401(k) Lawsuit Challenges Stable Value Fund

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by Alex Smith

A recently filed proposed class action lawsuit against Molson Coors’ 401(k) plan fiduciaries highlights the importance for 401(k) plan fiduciaries to carefully select and continually monitor all 401(k) plan investment options, including capital preservation options. The lawsuit alleges that plan fiduciaries breached their fiduciary duties of prudence and loyalty by selecting the Fidelity stable value fund offering and retaining it in the plan, even though it was significantly riskier and provided inferior returns than comparable funds. The lawsuit emphasizes that over $200 million was invested in the plan’s Fidelity stable value fund during each year at issue. Interestingly, this lawsuit focuses solely on the plan’s stable value fund investment option. At this early stage, the court has yet to rule on the lawsuit and it is unknown whether the lawsuit has merit.

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Some Beach … Fiduciary Considerations As Recordkeeper Sued For Misusing 401(k) Participant Data

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by Alex Smith

A proposed class action lawsuit filed against Empower last month highlights the importance for 401(k) plan fiduciaries to carefully negotiate their services agreements with recordkeepers and other services providers. The lawsuit alleges that Empower took advantage of its position as the 401(k) plans’ recordkeeper by sharing participants’ confidential financial data with an affiliate. The Empower affiliate then allegedly used questionable sales tactics to target participants with large account balances to pressure them into rolling over their funds to an investment platform with high fees and underwhelming returns. At this early stage, the court has yet to rule on the lawsuit and it is unknown whether the lawsuit has merit. Read more

One Too Many … Employer Considerations Following New Lawsuit Challenging Employer Providing Health Plan Options

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by Alex Smith

A recently filed lawsuit against Northwestern University and its health plan fiduciaries raises novel claims that could be problematic for employers that offer multiple medical benefit options, if the suit gains traction. The lawsuit alleges that the plan’s fiduciaries violated ERISA and breached their fiduciary duties by offering employees a medical plan option that provided insufficient value compared to an alternative option offered to employees. The plaintiffs allege that the “premium” plan option—which charges higher premiums in exchange for lower deductibles and cost sharing—is financially dominated by the “value” plan option because the lower cost sharing does not sufficiently outweigh the higher premium. This lawsuit is still in the early stages, and the court has yet to rule on whether the plaintiffs have plausibly stated a claim, let alone consider the merits of the allegations. Read more