Employee Benefits Blog : Employee Benefits & Executive Compensation Lawyers & Attorneys: McDermott Will & Emery Law Firm

by Diane M. Morgenthaler, Elizabeth A. Savard and Maggie McTigue

The U.S. Department of Labor (DOL) recently issued new and welcome guidance for fiduciaries of account-based retirement plans by withdrawing its controversial guidance on fee disclosures for brokerage windows, self-directed brokerage accounts and similar arrangements (SDBAs).  For now, the DOL has reverted to its prior regulatoqury guidance that fee disclosures with respect to particular investment options that participants select through an SDBA are not required, unless the SDBA option is specifically identified as available under the retirement plan.  This new guidance removes the burden of monitoring the number of participants invested in a particular option through the SDBA and of making fee disclosures with respect to certain SDBA options.

Background

As described in our June 12, 2012, newsletter, the DOL issued Field Assistance Bulletin (FAB) 2012-02 on May 7, 2012, to provide additional guidance on the participant fee disclosure requirements for defined contribution plans with participant-directed investments.  Historically plan fiduciaries have taken the position that they are not responsible for monitoring the particular investment options participants select though an SDBA.  However, in Q&A-30 of FAB 2012-02, the DOL indicated that plan fiduciaries may need to make participant fee disclosures with respect to an investment option that is only available through the SDBA if a significant number of participants elected to invest in that option.  This position surprised many plan administrators because it was inconsistent with prevailing interpretations of prior DOL guidance.  In addition, the DOL was criticized for issuing their position in an FAB rather than through a rulemaking process that would have given interested parties notice and an opportunity to comment.

New Guidance

In response to requests from benefits industry groups and other interested parties, the DOL issued FAB 2012-02R, which withdraws the prior Q&A-30 and replaces it with a new Q&A-39.  Under Q&A-39, an investment option is a designated investment alternative for purposes of the participant fee disclosure rules only if it has been specifically identified as available under the plan.  Thus, fee disclosures generally will not be required for investment options that participants select through an SDBA.

Q&A-39 is welcome guidance for fiduciaries of plans with SDBAs, as it removes the burden of monitoring the number of participants invested in a particular option through the SDBA and of making fee disclosures with respect to certain SDBA options.  Fiduciaries are still bound by the general ERISA fiduciary duties of prudence and loyalty to participants who use SDBAs, including taking into account the nature and quality of services provided in connection with the SDBA.  The DOL also noted that while plans are not required to have a particular number of designated investment alternatives, the failure to designate any investment alternatives (for example, to avoid fee disclosure obligations) would raise questions under the general fiduciary duties of prudence and loyalty.

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by Maureen O'Brien and Karen Simonsen. 

In October 2010, the U.S. Department of Labor (DOL) issued final regulations requiring plan administrators to disclose certain plan and investment-related information, including fee and expense information, to participants and beneficiaries in 401(k) plans and other participant-directed individual account plans.  In February 2012, the DOL issued final regulations under section 408(b)(2) of the Employee Retirement Income Security Act of 1974 (ERISA) requiring certain covered service providers to furnish specified information to plan administrators so that they may comply with their disclosure obligations in the participant-level disclosure regulations. On May 7, 2012, the DOL published additional guidance addressing frequently asked questions concerning the participant disclosure regulations and the service provider disclosure regulations.

The new guidance consists of 38 questions and answers addressing, among other topics, revenue sharing disclosures, brokerage window disclosures, designated investment alternatives, transition rules, and form and content of investment-related information.  Plan administrators should review the new guidance now to determine if any changes to participant disclosures are required prior to the initial/annual disclosure deadline of August 30, 2012. 

A detailed analysis of the new guidance from McDermott is forthcoming in the near future.  For now, click here to link to the new guidance.  To listen to McDermott’s webinar on participant fee disclosure and service provider disclosures, click here. 

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by Ira B.  Mirsky, Karen A. Simonsen, Todd A. Solomon and Adrienne Walker Porter

The Foreign Account Tax Compliance Act (FATCA) requires certain U.S. taxpayers holding foreign financial assets, including an interest under a foreign pension or deferred compensation plan and foreign equity awards, to report those interests beginning with this tax filing season.  Taxpayers who fail to meet their obligation to file Form 8938 are subject to significant penalties.

To read the full article, click here. 

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The U.S. Department of Labor (DOL) recently issued final regulations relating to service provider fee disclosures to plan fiduciaries under Section 408(b)(2) of the Employee Retirement Income Security Act of 1974, as amended (ERISA) which affect the participant fee disclosure regulations under Section 404(a) of ERISA finalized by the DOL in October 2010.   Under the new final regulations, service providers must provide initial fee disclosures to plan fiduciaries by July 1, 2012, and plans must provide initial fee disclosures to participants by August 30, 2012.  In addition, the DOL recently issued guidance regarding electronic delivery of disclosures to participants under Technical Release 2011-03R. 
 
McDermott Will & Emery recently offered a complimentary webcast that focused on what employers should expect to receive from service providers and the practical steps they should take to fulfill their fiduciary responsibilities to provide participant fee disclosures in light of the new final regulations and the guidance regarding electronic delivery.

If you missed the webcast, please click here to listen to the discussion and/or view the slides.

McDermott Speakers for the Webcast:
Karen Simonsen, Partner, Chair, Plan Fiduciary and Investment Management Group
Maureen O'Brien, Partner
Elizabeth Savard, Partner

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by Diane Morgenthaler, Susan Schaefer and Lisa Loesel

The U.S. Department of Labor recently issued guidelines for the electronic distribution of mandatory investment and fee disclosures for participants in self-directed account plans subject to ERISA.  This guidance may help plan administrators implement the new rules for the disclosure of quarterly and annual plan-related information, but still contains affirmative participant approval requirements for the electronic distribution of all initial disclosure notices and mandated investment-related information to participants.  Prior to August 2012, plan sponsors and administrators of calendar-year plans should familiarize themselves with the new guidelines to determine what mandatory disclosures will be made in electronic format (if any), and whether their plans have sufficient systems and administrative capabilities to provide the mandatory disclosures in an electronic format.

To read the full article, please click here. 

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by Jonathan J. Boyles, Karen A. Simonsen and Ashley McCarthy

The U.S. Department of Labor recently withdrew a proposed regulation that would have substantially expanded the definition of “fiduciary” under federal employee benefits law.  The regulation will be re-proposed in early 2012, although it is unclear whether any proposal will be finalized prior to the 2012 presidential election.

To read the full article, click here.

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Friday, November 18, 2011
10:00 – 11:00 am CST

As the year draws to a close, please join us for a focused and concise update on the most important employee benefit issues. 

Mark your calendars
McDermott Will & Emery will present a 60-minute complimentary webcast, hosted by the leaders of our employee benefits and compensation practice, that will highlight key year-end considerations for:

• Health and welfare benefits
• Qualified and non-qualified retirement plan
• Plan fiduciary and investment management
• Executive compensation
• Fringe benefits
• Domestic partner benefits

Who should attend
All vice presidents of human resources, in-house counsel, compensation and benefits directors, chief financial officers and others responsible for overseeing corporate or executive benefits and/or retirement plans.

To register, please click here. 

For more information, please contact McDermott Events.

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by Maureen O'Brien and Todd A. Solomon

The U.S. Department of Labor (DOL) issued a final regulation to extend and align the applicability dates for its retirement plan fee disclosure rules.

On July 16, 2011, an interim final regulation under the Employee Retirement Income Security Act of 1974 (ERISA) Section 408(b)(2) was published requiring covered service providers of retirement plans to disclose comprehensive information about their fees and potential conflicts of interest to ERISA-covered plan fiduciaries. This regulation was to become effective with respect to plan contracts or arrangements for services in existence on or after July 16, 2011. The new, final rule moves the effective date of the ERISA Section 408(b)(2) regulation to April 1, 2012.

In addition, the DOL published a final participant-level regulation on Oct. 20, 2010, requiring that employers disclose information about plan and investment costs to participants who direct their own investments in ERISA-covered 401(k) and other individual account retirement plans. This regulation, which applies to plan years beginning on or after Nov. 1, 2011, contained a 60-day transition rule that permitted initial compliance no later than 60 days after the beginning of the first plan year on or after Nov. 1.

The new final rule retains a modified version of the 60-day transition rule that works in conjunction with the new effective date of the 408(b)(2) regulation.  For example,
participant-level disclosure regulation becomes applicable on January 1, 2012 for calendar year plans. Pursuant the final transitional rule, such plans must furnish their first set of initial disclosures (all disclosures other than disclosures required at least quarterly) no later than May 31, 2012, which is 60 days after the April 1, 2012 effective date of the 408(b)(2) regulation.

Please contact your regular McDermott attorney with any questions regarding the retirement plan fee disclosure rules.

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by Karen A. Simonsen, Todd A. Solomon and Patrick D. Ryan

The Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury Department, and the Internal Revenue Service (IRS), recently issued three notices, FinCEN Notices 2011-1 and 2011-2 and IRS Notice 2011-54. Each notice granted an extension of the filing deadline for the Report of Foreign Bank and Financial Accounts (FBAR), IRS Form TD-F 90-22.1 to different groups of individuals with signature or other authority over certain foreign financial accounts for various filing years. Refer to our previous On the Subject for a discussion of whether an individual has signature or other authority over a foreign financial account.While the extensions provide welcome relief, some June 30, 2011 filing obligations still remain.

FinCEN Notice 2011-1

On May 31, 2011, FinCEN issued Notice 2011-1 (subsequently clarified on June 6, 2011), which grants a one-year extension of the filing deadline for the FBAR for the 2010 tax year, from June 30, 2011 to June 30, 2012, to some individuals with signature or other authority over certain foreign financial accounts.

The one-year extension relief provided in FinCEN Notice 2011-1 is limited to certain employees and officers of a publicly traded company or U.S. Securities and Exchange Commission (SEC) registrant who have signature or other authority over, but no financial interest in, a foreign financial account. The relief does not apply to an employee or officer of an entity that is not a publicly traded company or of a non-SEC registrant that has signature or other authority, but no financial interest in, a foreign financial account.

IRS Notice 2011-54

On June 16, 2011, the IRS issued IRS Notice 2011-54, granting additional relief to persons with signature or other authority over, but no financial interest in, a foreign financial account held during calendar year 2009 or earlier calendar years. Previously, the IRS extended the FBAR filing deadline to June 30, 2011 for persons with signature or other authority over, but no financial interest in, a foreign financial account for 2009 and earlier calendar years. The IRS issued IRS Notice 2011-54 in reaction to concerns that individuals with signature authority over, but no financial interest in, a foreign financial account were encountering difficulty compiling the data necessary to complete the FBAR for 2009 and earlier calendar years. 

IRS Notice 2011-54 extends the FBAR filing deadline from June 30, 2011 until November 1, 2011 for all persons with signature authority over, but no financial interest in, a foreign financial account in 2009 or earlier calendar years. The deadline for the 2010 calendar year remains June 30, 2011.

FinCEN Notice 2011-2

On June 17, 2011, FinCEN issued FinCEN Notice 2011-2, which grants a one-year extension of the FBAR filing deadline, from June 30, 2011 to June 30, 2012, to officers and employees of investment advisors registered with the SEC with signature or other authority over, but no financial interest in, the foreign financial accounts of an investment company that is not registered with the SEC. The relief applies to FBARs for calendar year 2010 as well as FBARs for calendar year 2009 and earlier years.

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by Chris C. Scheithauer and Joseph S. Adams

As previously described in this blog earlier this year, a divided Seventh Circuit panel reversed summary judgment in favor of Kraft Foods Global, Inc. in a class action involving allegedly excessive fees in the Kraft 401(k) plan.  Shortly thereafter, Kraft petitioned for rehearing of the case by the entire Seventh Circuit Court of Appeals en banc.  Further, a “friend of the court” brief submitted jointly by The ERISA Industry Committee (ERIC), the American Benefits Council (ABC), the Profit Sharing/401k Council of America (PSCA), and U.S. Chamber of Commerce urged the Seventh Circuit to rehear the case en banc.

However, on May 26, 2011, in a single page opinion, the Seventh Circuit denied Kraft’s motion, noting that no judge in active service for the Seventh Circuit requested a vote on the petition for rehearing en banc and that the original three judge panel voted 2-1 against rehearing the case – the same split as in the panel’s original order reversing summary judgment. 

As a result, the Seventh Circuit’s original order reversing summary judgment will likely be the “go-to” cite for plaintiffs’ attorneys seeking to escape summary judgment on excessive fee claims.  However, as noted by the dissent in that order, the Seventh Circuit’s decision “will only serve to steer [fiduciaries’] attention toward avoiding litigation instead of managing employee wealth.”

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by Maureen O'Brien, Karen A. Simonsen and Adrienne Walker Porter

Pension plans use swaps to manage interest rate risks and other risks and to reduce volatility with respect to funding obligations.  The Dodd-Frank Act established a comprehensive regulatory framework for swaps.  The legislation was enacted to reduce risk, increase transparency and promote market integrity within the financial system, including the comprehensive regulation and required registration of swap dealers and major swap participants.

The Dodd-Frank Act has introduced new challenges in managing risks and liabilities of pension plans by subjecting ERISA plans to new requirements under the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).  If pension plans are unable to use swaps, plan costs and funding volatility could rise sharply.  This would undermine participants’ retirement security and would force employers to reserve, in the aggregate, billions of additional dollars to address increased funding volatility.  In order to meet the rulemaking objectives specified under the Dodd-Frank Act, regulators and Congress have introduced significant changes that may impact how pension plans manage their funded status.

• In December of 2010, the CFTC released proposed regulations outlining business conduct standards for swap dealers and major swap participants.  The regulations highlighted the issue that swap dealers engaging in typical business activities with respect to “special entities” could be treated as ERISA fiduciaries.  (The Dodd-Frank Act provides that a special entity includes an employee benefit plan.)  ERISA provides that, generally, any transaction between a fiduciary and the ERISA plan with respect to which it owes fiduciary duties is prohibited.  Therefore, in effect, the proposed regulations may preclude swap dealers from entering into swap transactions with employee benefit plans subject to ERISA. Additionally, the Department of Labor’s proposed rule relating to the definition of the term “fiduciary” under ERISA may include advisors that perform plan asset valuations, which is an activity conducted by swap dealers under the CFTC proposed regulations.
• On April 12, 2011, the CFTC issued proposed regulations establishing minimum initial and variation margin requirements for non-cleared swaps entered into by CFTC-regulated swap dealers and major swap participants. Under the proposed rules, pension plans would be included in the category of high-risk financial entities, subject to the most stringent requirements.  Such high-risk financial entities are required to post collateral and are limited to the type of assets that may be used to post margin.  This change could significantly increase the cost of managing pension plans.
• On May 4, 2011, the U.S. House of Representatives Agriculture Committee approved H.R. 1573, legislation providing the CFTC and SEC with 18 additional months to finalize many of the rules relating to swaps.  The rules defining swaps-related products and participants and the rules relating to reporting recordkeeping, however, are to be finalized by July 15, 2011.  The CFTC also recently released a notice reopening the comment period for many of the proposed regulations related to the Dodd-Frank Act. 

Plan sponsors should continue to monitor the regulatory and legislative activity surrounding pension plans’ ability to use swaps under the Dodd-Frank Act.

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by Diane M. Morgenthaler, Lisa K. Loesel and Paul J. Compernolle

The U.S. Department of Labor (DOL) issued proposed regulations that require additional disclosures for a participant’s investment in qualified default investment alternatives (QDIAs) and target retirement date funds (TDFs).  The DOL had two primary reasons for issuing these proposed regulations.  First, the DOL provided more guidance and specifics on the content for participant disclosures under existing QDIA regulations.  Second, following the 2008 market decline and recent public hearings on TDFs, the DOL believed that participants would benefit from additional disclosures regarding investments in TDFs. 

The proposed regulations will be effective 90 days following publication of the final regulations in the Federal Register.  Although the comment period for the proposed regulations has expired, the DOL has not indicated when final regulations will be published.  If adopted in their current form, the proposed regulations would amend two existing sets of final regulations:  (1) the final QDIA regulations issued on October 24, 2007, and (2) the final enhanced participant disclosure regulations issued on October 14, 2010.  The DOL’s proposed regulations modify existing QDIA regulations by greatly expanding the required content of QDIA notices.  The DOL's proposed regulations also modify the participant disclosure requirements by adding special disclosure rules for TDFs.  Assuming the final regulations are substantially similar to the proposed regulations, compliance with these additional disclosure rules will require significant effort from plan sponsors, plan fiduciaries and plan administrators.  For more information on these proposed regulations, click here.
 

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