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The Biggest ERISA Decisions of 2019

In a relatively slow year for benefits rulings, multimillion-dollar settlements were the star of the show. And amid the slew of settlements this year, two court rulings stood out. McDermott’s Richard J. Pearl contributes to a Law360 article that breaks down the Ninth Circuit ruling allowing benefit plan managers to force fiduciary-breach suits into solo arbitration and the Tenth Circuit holding that insurers who determine workers’ profits from 401(k) investments aren’t fiduciaries. Access the full article. Originally published by Law360, December 2019

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Are Your Employee Communications Up to Snuff? — ERISA Disclosure Practices

Mary Samsa and Allison Wilkerson discussed that the majority of ERISA disclosures are in fact employee communications – many of which are viewed as “routine” by employers.  As such, plan sponsors are continually balancing the best way in which to relay complex benefit plan information in a manner to best be understood by employees but equally satisfy the applicable regimented disclosure requirements. Some key takeaways from their presentation included not only the compliance and content requirements, but methods for delivering communications to employees, traps for the unwary (i.e., inconsistent information communicated, the advantage of having these communications reviewed by legal counsel, and oversight of third parties who assist in preparing communications) and some common sense approaches for routine reviews of communications and continuing education to participants so that periodic communications are not always monumental tasks. View the full...

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View From McDermott: Fifth Circuit Focuses on Process in ESOP Valuations

Though the Supreme Court’s 2014 unanimous ruling in Fifth Third Bank v. Dudenhoeffer announced the Employee Retirement Income Security Act (ERISA) standards for stock valuation in the context of a large public employee stock ownership plan (ESOP), the vast majority of ESOPs are still grappling with valuation issues. ESOPs that hold stock of closely-held corporations—approximately 90% of all ESOPs— remain almost unaffected by Dudenhoeffer’s valuation discussions, and face continued scrutiny by the Department of Labor (DOL). Appraisal of closely-held stock is an inexact science that involves an inherent level of uncertainty in assessing a variety of potential fact patterns. This article summarizes valuation issues in acquisitions of closely-held corporation stock by ESOPs in the context of Perez v. Bruister, a recently decided Fifth Circuit case. The case stressed the importance of ‘‘process’’ in valuation determinations being utilized for acquisitions of a...

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The Directed Trustee in the Post-Dudenhoeffer World

Court cases challenging the actions of Employee Retirement Income Security Act fiduciaries have continued unabated since the scandal of Enron in 2002.  Since then, a large number of cases are in the “stock drop” area, which encompasses cases relating to employer securities investments when the stock price drops severely.  The litigation has focused on whether a presumption of prudence exists that protects fiduciaries holding employer securities investments on behalf of a retirement plan.  In June 2014, the U.S. Supreme Court ruled in the case of Fifth Third Bancorp v. Dudenhoeffer that ERISA doesn’t provide a presumption of prudence to protect fiduciaries of plans investing in employer securities.  Now that the Dudenhoeffer decision resolves the presumption issue, it is reasonable to expect that ERISA cases may return to focus on the fiduciary duties of a directed license.  Read the full article.

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DOL Extends and Aligns Retirement Plan Fee Disclosure Rules

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...

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The Dodd-Frank Act’s Impact on Pension Plan Investment Options

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...

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