Tenth Circuit Follows Majority of the Circuit Courts and Holds Plaintiff Bears the Burden of Proving Causation in ERISA Breach of Fiduciary Duty Cases

On June 5, 2017, in Pioneer Centres Holding Co. Employee Stock Ownership Plan & Trust v. Alerus Fin., N.A., Case No. 15-1227, the U.S. Court of Appeals for the Tenth Circuit held that the plaintiff bears the burden on each element of its breach of fiduciary duty claim under ERISA.

Plaintiff brought suit for breach of fiduciary duty against the independent transactional trustee in connection with a failed employee-stock purchase transaction which would have allowed the ESOP to become the 100% owner of the car dealerships. The ESOP purchase transaction failed because one of the car manufacturers, whose contract required that it approve any change in ownership of the dealership, had stated that it would not approve the transaction if it gave the ESOP 100% ownership. Plaintiff asserted that Defendant failed to sign the transaction documents and send them to the car manufacturer. As a result, the car dealership sold its assets to a third party for a significantly higher price.

The Tenth Circuit recognized that the Fourth, Fifth, and Eighth Circuit Courts of Appeals have adopted a “burden-shifting” framework which requires that once an ERISA plaintiff has proven a breach and prima facie case of loss, the burden shifts to the trustee to prove that the breach of duty did not cause the loss. However, the Court rejected this analysis and found that the statute’s plain language did not support “burden-shifting.” In addition to holding that Plaintiff had failed to demonstrate that Defendant’s alleged breach caused the Plaintiff to suffer damages, the Court concluded that the statute’s plain language limited liability to losses “resulting from” a breach of fiduciary duty. The Court determined that because causation is an element of the claim, the burden remains with the plaintiff at all times. This holding follows decisions from the Second, Sixth, Ninth, and Eleventh Circuit Courts of Appeals.

The Fiduciary Rule Applicability Date is Finally Here! What now?

The applicability date for the long-awaited, much-debated Fiduciary Rule (see prior Jackson Lewis coverage here) is now upon us. So what does it mean?

The Secretary of the Department of Labor Alexander Acosta recently said in a Wall Street Journal piece that the Fiduciary Rule “may not align” with the President’s goals and that the Department will “seek additional public input on the entire Fiduciary Rule.” At the same time, Secretary Acosta wrote that the Department has “no legal basis to change the June 9 [applicability] date.” It is important to keep in mind, however, that June 9 is the start of a “transition period” which ends January 1, 2018.

The Department of Labor also recently provided a Temporary Enforcement Policy on the Fiduciary Duty Rule, and a set of FAQs entitled “Conflict of Interest FAQs (Transition Period)”.

The Temporary Enforcement Policy—really a non-enforcement policy—reflects the Department’s “general approach to implementation” consisting of “assisting…plans, plan fiduciaries, [and] financial institutions” rather than “citing violations and imposing penalties on” them. Therefore, the Department has said it will “not pursue claims against fiduciaries who are working diligently and in good faith to comply with the fiduciary rule and exemptions, or treat those fiduciaries as being in violation of the fiduciary duty rule and exemptions” during the transition period. This approach should offer some reassurance to those not quite ready to implement the Rule’s full requirements but are making sincere efforts towards those ends.

The FAQs remind us that as of June 9 investment advice providers to retirement savers become fiduciaries and “the impartial conduct standards” become requirements of the different available exemptions (for example the Best Interest Contract Exemption (prior JL coverage here), or PTE 84-24).

The impartial conduct standards require advisers and financial institutions to:

• Give advice that is in the “best interest” of the retirement investor. This best interest standard has two chief components: prudence and loyalty:
o Under the prudence standard, the advice must meet a professional standard of care as specified in the text of the exemption;
o Under the loyalty standard, the advice must be based on the interests of the customer, rather than the competing financial interest of the adviser or firm;
• Charge no more than reasonable compensation; and
• Make no misleading statements about investment transactions, compensation, and conflicts of interest.”

So, as the applicability date comes and goes, it’s worth noting that while Department of Labor enforcement may be scarce during the transition period, the rules still apply and the impartial conduct standards must be met. Some believe that the Department will extend the transition period beyond January or that perhaps Congress will step in to overrule the regulation. But absent further action, the transition period will end this coming January, and full compliance with all of the rule exemption conditions will be required for firms and advisers.


Today, the Supreme Court handed a long-awaited victory to religiously affiliated organizations operating pension plans under ERISA’s “church plan” exemption. In a surprising 8-0 ruling, the Court agreed with the Defendants that the exemption applies to pension plans maintained by church affiliated organizations such as healthcare facilities, even if the plans were not established by a church. Justice Kagan authored the opinion, with a concurrence by Justice Sotomayor.  Justice Gorsuch, who was appointed after oral argument, did not participate in the decision.  The opinion reverses decisions in favor of Plaintiffs from three Appellate Circuits – the Third, Seventh, and Ninth.

For those of you not familiar with the issue, ERISA originally defined a “church plan” as “a plan established and maintained . . . for its employees . . . by a church.”   Then, in 1980, Congress amended the exemption by adding the provision at the heart of the three consolidated cases.  The new section provides: “[a] plan established and maintained . . . by a church . . . includes a plan maintained by [a principal-purpose] organization.”  The parties agreed that under those provisions, a “church plan” need not be maintained by a church, but they differed as to whether a plan must still have been established by a church to qualify for the church-plan exemption.

The Defendants, Advocate Health Care Network, St. Peter’s Healthcare System, and Dignity Health, asserted that their pension plans are “church plans” exempt from ERISA’s strict reporting, disclosure, and funding obligations.  Although each of the plans at issue was established by the hospitals and not a church, each one of the hospitals had received confirmation from the IRS over the years that their plans were, in fact, exempt from ERISA, under the church plan exemption because of the entities’ religious affiliation.

The Plaintiffs, participants in the pension plans, argued that the church plan exemption was not intended to exempt pension plans of large healthcare systems where the plans were not established by a church.

Justice Kagan’s analysis began by acknowledging that the term “church plan” initially meant only “a plan established and maintained . . . by a church.” But the 1980 amendment, she found, expanded the original definition to “include” another type of plan—“a plan maintained by [a principal-purpose] organization.’”  She concluded that the use of the word “include” was not literal, “but tells readers that a different type of plan should receive the same treatment (i.e., an exemption) as the type described in the old definition.”

Thus, according to Justice Kagan, because Congress included within the category of plans “established and maintained by a church” plans “maintained by” principal-purpose organizations, those plans—and all those plans—are exempt from ERISA’s requirements. Although the DOL, PBGC, and IRS had all filed a brief supporting the Defendants’ position, Justice Kagan mentioned only briefly the agencies long-standing interpretation of the exemption, and did not engage in any “Chevron-Deference” analysis.  Some observers may find this surprising, because comments during oral argument suggested that some of the Justices harbored concerns regarding the hundreds of similar plans that had relied on administrative interpretations for thirty years.

In analyzing the legislative history, Justice Kagan aptly observed, that “[t]he legislative materials in these cases consist almost wholly of excerpts from committee hearings and scattered floor statements by individual lawmakers—the sort of stuff we have called `among the least illuminating forms of legislative history.’” Nonetheless, after reviewing the history, and as she forecasted by her questioning at oral argument (see our March 29, 2017 Blog, Supreme Court Hears “Church Plan” Erisa Class Action Cases), Justice Kagan rejected Plaintiffs’ argument that the legislative history demonstrated an intent to keep the “establishment” requirement.  To do so “would have prevented some plans run by pension boards—the very entities the employees say Congress most wanted to benefit—from qualifying as `church plans’…. No argument the employees have offered here supports that goal-defying (much less that text-defying) statutory construction.”

In sum, Justice Kagan held that “[u]nder the best reading of the statute, a plan maintained by a principal-purpose organization therefore qualifies as a `church plan,’ regardless of who established it.”

Justice Sotomayor filed a concurrence joining the Court’s opinion because she was “persuaded that it correctly interprets the relevant statutory text.” Although she agreed with the Court’s reading of the exemption, she was “troubled by the outcome of these cases.”  Her concern was based on the notion that “Church-affiliated organizations operate for-profit subsidiaries, employee thousands of people, earn billions of dollars in revenue, and compete with companies that have to comply with ERISA.”  This concern appears to be based on the view that some church-affiliated organizations effectively operate as secular, for-profit businesses.


  • Although this decision is positive news for church plans, it may not be the end of the church plan litigation.  Numerous, large settlements have occurred before and since the Supreme Court took up the consolidated cases, and we expect some will still settle, albeit likely for lower numbers.
  • In addition, Plaintiffs could still push forward with the cases on the grounds that the entities maintaining the church plans are not “principal-purpose organizations” controlled by “a church.”

If you maintain a church plan, reach out to us with any concerns about the impact of, and your ability to rely on, this decision.


Are You Computing Your Maximum Participant Loan Amount Correctly (or in the Best Interest of Your Plan Participants)?

In late April 2017, the IRS issued a Memorandum for Employee Plans (EP) Examinations Employees providing two alternatives for computing the maximum participant loan amount when the participant has prior loans. Prior to this Memorandum, the law was not clear concerning how to compute the maximum loan amount where a participant had taken a previous loan during the year.

The maximum participant loan amount is the lesser of:

• 50% of the participant’s vested account balance; or
• $50,000 less the highest outstanding balance within one year of the loan request.

The reason for adjusting the maximum by the repayment amount is to prevent an employee from effectively maintaining a permanent outstanding $50,000 loan balance. The question is how to compute the amount of the highest outstanding balance within one year of the request for a new loan.

The issue is best described by an example. Assume the following facts:

• The participant has a vested balance of $150,000.
• The participant borrows $30,000 in February and fully repays that amount in April.
• The participant borrows $20,000 in May and fully repays that amount in July.
• The participant applies for a third loan in December.

What is the highest outstanding loan balance within one year — $50,000 ($20,000 plus $30,000) or $30,000 (the largest loan during the one year period)? What is the highest loan amount this participant can take: $0 ($50,000 less $50,000) or $20,000 ($50,000 less $30,000)?

Until the recent IRS Memorandum, the answer was not clear. The IRS Memorandum answers the question by providing that either amount can be used as the maximum loan amount. Notably, from the participant’s perspective, the $20,000 is a better resolution since the employee can get another loan. Of course, many employers discourage loans and would not want to provide such flexibility.

In any event, whichever approach the plan decides to use, it must be used consistently. In addition, the best practice would be to have the methodology set forth in the plan’s loans procedures.


As a result of rulings on motions to dismiss within a day of each other (May 10 and 11, 2017, respectively), Emory University and Duke University must continue to defend claims challenging aspects of their Section 403(b) retirement plans in plaintiffs’ proposed class actions: Henderson v. Emory Univ., N.D. Ga., No. 1:16-cv-02920-CAP; and Clark v. Duke Univ., M.D.N.C., No. 1:16-cv-01044. As we have previously reported, these cases are two out of a series of twelve proposed class actions filed against the retirement plans of 12 prominent American universities, challenging various aspects of plan management, including excessive fees and fiduciary prudence.

In granting in part and denying in part the Emory defendants’ motion to dismiss, Judge Charles Parnell found that the plaintiffs could move forward with a claim that choosing retail-class shares (with higher expense ratios) over institutional-class shares is imprudent. The plaintiffs allege that Emory could have but did not use its bargaining power to negotiate lower cost fees, and that no reasonable fiduciary would “choose or be complacent with being provided retail-class shares over institutional-class shares.” (Order, Doc. 61, p. 7, Henderson v. Emory Univ., N.D. Ga., No. 1:16-cv-02920-CAP (May 10, 2017)).

A novel theory proceeding in both the Duke and Emory cases is the claim that the defendants were imprudent to hire multiple record keepers, where consolidating services with one record keeper could have resulted in lower fees for participants.

Plaintiffs in both cases also raised the novel theory that the defendants acted imprudently by offering too many investment options—111 at Emory, and more than 400 at Duke. Judge Catherine Eagles, who issued the ruling in the Duke case, allowed this claim to go forward. In contrast, Judge Charles Parnell disagreed with the Emory plaintiffs. In his ruling, he reasoned that “[h]aving too many options does not hurt the Plans’ participants, but instead provides them opportunities to choose the investments that they prefer.” (Order, Doc. 61, p. 7, Henderson v. Emory Univ., N.D. Ga., No. 1:16-cv-02920-CAP (May 10, 2017)).

In Duke, the court dismissed as time-barred plaintiffs’ claims that Duke imprudently “locked” itself into offering TIAA-CREF products and recordkeeping, because the actual act of “locking” into the arrangement with TIAA-CREF occurred more than six years before the complaint was filed. Judge Eagles disagreed with the plaintiffs’ argument that their claim is based on Duke “maintaining” the arrangement with TIAA-CREF, as though the failure to monitor and remove CREF stock from the plan were a continuing violation.

In contrast, the “locked in” claim is moving forward in Emory. Emory made the same arguments that the “locked in” claim is time-barred; however, Judge Parnell was persuaded by plaintiffs’ argument that they challenge not just the initial arrangement, but the maintenance of the arrangement and failure to monitor and remove CREF stock within the six years preceding the complaint. However, the Emory plaintiffs may only recover damages resulting from being “locked in” to TIAA-CREF that occurred within six years before the filing of the complaint.

We’ll continue to post updates as decisions in the other University cases are handed down. In the meantime, if you have any questions about these cases or issues, please contact René Thorne (thorner@jacksonlewis.com), one of the firm’s senior ERISA class action litigators.


Explaining that “[a]s any sports fan dismayed that instant replay did not overturn a blown call learns, it is difficult to overcome a deferential standard of review,” a panel of the Fifth Circuit Court of Appeals has called for a re-examination of the Court’s standard of review in ERISA denial of benefits cases where the plan does not provide deference to the plan administrator.

Since its 1991 decision in Pierre v. Conn. Gen. Life Ins. Co. of N. Am., 932 F.2d 1552 (5th Cir. 1991), the Fifth Circuit has held that an ERISA plan administrator’s factual conclusions are reviewed for an abuse of discretion even if the plan does not provide deference to the plan administrator. See also, Green v. Life Ins. Co. of N. Am., 754 F.3d 324, 329 (5th Cir. 2014) (noting that the standard of review for factual determinations is abuse of discretion regardless of the presence of a discretionary clause).

Pierre was one of the first cases to address the standard of review for a plan administrator’s factual determinations. Pierre was based on the Fifth Circuit’s interpretation of the Supreme Court’s then relatively new ruling in Firestone v. Bruch, in which the high court drew from the law of trusts, analogized deference to administrative agency decisions, and pointed to concerns about courts’ ability to conduct de novo reviews of factual determinations.

Last month, in Ariana M. v. Humana Health Plan of Tex., Inc., 2017 U.S. App. Lexis 7072 (April 21, 2017), the Fifth Circuit was tasked with reviewing Humana’s decision to deny benefits to a plaintiff diagnosed with eating disorders. The Plan in Ariana did not provide deference to the decisions of Plan Administrator. However, adhering to Pierre and its progeny, the Court applied the abuse of discretion standard to examine the plan administrator’s factual determinations.

The result, not surprisingly, was a decision to affirm the District Court’s grant of summary judgment in favor of Humana. Significantly, however, in a separate concurring opinion (joined by all three judges), the panel called into question the precedent upon which its decision was based.

Taking down the “pillars supporting Pierre” one by one, the Court noted that it is the only circuit that would apply deference to factual determinations made by a plan administrator when the plan does not vest them with that discretion, and also pointed to the growing number of state laws prohibiting discretionary clauses in insurance contracts.

Based on these factors, the concurring opinion concluded that Pierre has not withstood the test of time: “This question concerning the standard of review for ERISA cases is not headline-grabbing. But it is one that potentially affects the millions of Fifth Circuit residents who rely on ERISA plans for their medical care and retirement security.” They concluded that, given the “lopsided split” in the circuits and the potential for conflicting standards across different jurisdictions, further review of Pierre is warranted.

The First Dinosaur Has Died

This is another article in our series which has focused on the deterioration and downward spiral of the multi-employer defined benefit pension fund.

Death Notice

Decedent:  The New York Teamsters Road Carriers Local 707 Pension Fund

Date of Death:  March 2017

Cause of Death:  The failure of successive administrations and Congresses to address the serious underfunding of multi-employer defined benefit pension funds.

Immediate mourners: The 4,000 retirees in the pension fund.

Other mourners:   The American working person.


The New York Teamsters Road Carriers Local 707 Pension Fund (the “Local 707 Pension Fund”) is dead, reportedly having run out of money in early March 2017.

The Pension Benefit Guaranty Corporation (“PBGC”) the federal insurance agency created by ERISA to “back stop” pension payments reportedly has taken over pension payments to retirees. However, those will be paid at a reduced rate.

The projected impact upon retirees will be dramatic. According to the PBGC, prior to its takeover, the average Local 707 Pension Fund retiree was receiving $1,313 per month.  The average monthly payment will be slashed by the PBGC to $570.  This is a reduction of 56% for a population which is aging and unlikely to be able to engage in full-time employment.  This a crisis which is going to get worse.

For a historical perspective, the Local 707 Pension Fund was one of several pension funds that sought relief under the Multiemployer Pension Reform Act of 2014 (“MPRA”) to be permitted to have its participants consider a reduction of core benefits. However, its application was rejected by the Department of Treasury.  At that time, the fate of the Local 707 Pension Fund was clear.

The Central States Southeast and Southwest Areas Pension Fund, one of the largest pension funds in the country, also sought relief under the MPRA. Like the Local 707 Pension Fund’s submission, its application was rejected by Department of Treasury after a much publicized campaign spearheaded by Senator Elizabeth Warren of Massachusetts. More than twenty Senators formally joined Senator Warren in expressing their disapproval of granting relief.

Although the financial impact upon retirees is clear, employers should not lose sight that they are not immune. Moneys which employers agree to contribute on behalf of their employees to the multi-employer defined benefit pension funds in future negotiations will not benefit their employees.   Therefore, employers should consider strategies to address this problem.

Be Wary of Designs to Avoid Employment Taxes through Wellness Plan Benefits

We are aware that employers are being marketed various types of benefit arrangements designed to reduce the employer’s tax obligations by using a combination of wellness programs, voluntary benefits, and cafeteria plans. Not surprisingly, the Internal Revenue Service (IRS) has taken interest in these designs and has provided guidance which may dampen the enthusiasm for such arrangements.

In the IRS Chief Council Advice Memorandum 201622031, the IRS addresses the tax treatment of three different situations in which wellness benefits result in taxable income to employees.

Situation 1: The employer provides health coverage, with a separate no-cost wellness program that provides health screenings and other services that generally qualify as a tax-favored accident and health plan under Internal Revenue Code (Code) section 106. Employees that participate in the wellness program may also earn cash rewards and other benefits that do not qualify as Code section 213(d) medical expenses, such as gym memberships. Those cash rewards are taxable income to the employee and subject to income tax withholding and employment taxes. Similarly, benefits not otherwise excludible from income, such as the payment of gym membership fees, are included in employee’s gross income at fair market value and are also subject to income tax withholding and employment taxes.

Situation 2: The same as situation 1 except that to participate in the wellness program, employees pay pre-tax premiums through a Code section 125 cafeteria plan. The use of the cafeteria plan makes no difference as to the tax treatment of cash rewards and other benefits not excludible from income. They are taxable income subject to income tax withholding and employment taxes.

Situation 3: The same as above with the added wrinkle that the wellness program benefits include reimbursement of the wellness program premiums made by the employee. The IRS found the reimbursements should be included in the employee’s gross income and be subject to income tax withholding and employment taxes.

The IRS reviewed similar wellness plan arrangements in IRS Chief Council Advice Memorandum 201703013. In that memo, the IRS addressed the tax treatment of fixed indemnity cash payments paid by a wellness plan without regard to the amount of medical expenses incurred by the employee, where the employee is paying premiums to participate in the wellness program. If the premiums are paid on a pre-tax basis through a Code section 125 cafeteria plan, any amounts paid by the plan are included in the employee’s gross income and subject to income tax withholding and employment taxes. Of course, this raises the administrative issue of how the employer is to account for the taxes if the payments are from the third-party insurance carrier.

Key Employer Takeaway

Note, though the Chief Counsel Advice Memoranda cannot be used or cited as precedent, they do provide useful insight into the IRS’s interpretation of the law. Accordingly, employers being marketed these or similar arrangements should take care that the offered program comports with this IRS guidance.

DOL Continues Investigating Defined Benefit Plans Regarding Procedures for Locating Participants and Paying Benefits at Mandatory Retirement Age

The U.S. Department of Labor (DOL) publicized last year its stepped up enforcement efforts inquiring about procedures used by larger defined benefit plans for locating, and then beginning payment of benefits to, terminated vested participants who have reached the age when the plan mandates benefits must begin. Those audit activities are continuing. For years, the Social Security Administration (SSA) has tracked retirement plan reporting of terminated participants with deferred vested benefits, and used those reports to notify SSA old-age benefit payment recipients that they may be entitled to an employer based pension benefit. Many retirement plan administrators are familiar with participant benefit eligibility inquiries based on these SSA reports.

The DOL reportedly has experienced an increase in retirement benefit inquiries based on these same SSA statements. In response, DOL began investigating larger defined benefit plans to determine if they are paying benefits to their retirement-eligible participants when the plan requires payments to begin. DOL’s focus appears to be primarily on those participants who terminate employment prior to normal retirement age with a deferred vested benefit, and particularly those who are past their mandatory age 70 ½ required beginning date. The DOL found that many plans had inadequate procedures (including lapses in following existing procedures) for locating participants when benefits are required to begin. The DOL has expressed the view that these failures could amount to a breach of fiduciary duty under the Employee Retirement Income Security Act of 1974, as amended (ERISA).

Pension Issues Affecting Benefits for Missing Participants

Defined benefit plans can have various provisions mandating the latest date when participants must commence payment of benefits. For participants who terminate with a vested benefit prior to normal retirement age (e.g. age 65), defined benefit plans commonly require benefits to begin at normal retirement age. Under the “minimum required distribution” rules, benefits must begin no later than April 1 following the end of the calendar year during which occurs the later of the participant’s reaching age 70 ½, or separating employment.

ERISA and the Internal Revenue Code (Code) also mandate that vested benefits for terminated participants must be nonforfeitable at normal retirement, which means the “value” of that benefit must be preserved. For example, if a terminated vested participant reaches normal retirement age, but the plan does not locate the participant to begin payment until three years later, the plan must “restore” the value of the benefits the participant did not receive for those three years to avoid an impermissible forfeiture. The actual cost for restoring that lost value can result in additional actuarial cost for the plan.

However, plans may and generally do require that a participant must apply for benefits as a pre-condition for payment to begin. This is a procedural requirement necessary to protect the plan.

Retirement plans may also include terms for forfeiting benefits after participants have been missing for some stated time period. Notice requirements may apply, and forfeited benefits must be restored if the participant is later located. These forfeiture clauses can be useful to defend against State authorities asserting claims for lost pension benefits under State escheat laws, without having to resort to complex ERISA preemption legal arguments.

Form 5500 reporting for both large and small plans has included a question since 2009 asking, “Has the plan failed to provide any benefit when due under the plan?” In the absence of other guidance, the IRS informally stated late last year that plans do not need to report “unpaid required minimum distribution amounts for participants who have retired or separated from service, or their beneficiaries, who cannot be located after reasonable efforts or where the plan is in the process of engaging in such reasonable efforts at the end of the plan year reporting period.”

Locating Participants When Benefits Are Due

The challenges and costs of meeting ERISA and Code compliance and reporting requirements for missing terminated vested participants and retirees entitled to benefits can be significant and difficult, for example when attempting to pay required nonforfeitable lifetime benefits to a missing retiree who is identified as deceased. Defined benefit plans increasingly include an older participant population approaching retirement age, and maintaining effective procedures for communicating with these participants as they approach retirement age is both good fiduciary practice and provides protection in the event of a government agency audit.

The demise of IRS and SSA programs for locating missing participants, has caused pension plan sponsors to increasingly rely on their plan record keepers to locate missing participants. Many of these vendors use their own locator services. Other independent locator services are also available such as the National Change of Address Registry (maintained by the U.S. Postal Service), various credit service bureaus, and subscription services.

Key Plan Sponsor Takeaways

Defined benefit plan sponsors can minimize the above complexities associated with compliance by adopting and implementing procedures for maintaining contact with participants and timely commencing payment of benefits. Steps employers might wish to take include:

• Determine when plan benefits are required to commence under the terms of the Plan, including payments to:
 Terminated vested participants over normal retirement age, where a plan provides that these participants must commence at that time;
 Participants who are required to receive automatic payments under the terms of the plan, but who have not yet paid; and
 Beneficiaries who should have commenced receiving payments under the terms of the plan, but who have not yet commenced receiving payments;
• Determine if participant date of birth data is available to identify when payment must begin;
• Review procedures with financial institutions for uncashed stale checks, plan forfeiture provisions, role of state escheat;
• Implement addressing procedures, including use of return addresses, address updating, other security measures when annual plan mailings such as Annual Funding Notices are returned undeliverable;
• Within a reasonable period prior to the required benefit start date:
 Verify participant addresses;
 Notify participants of requirement to begin receipt of benefits;
 Verify role of record keeper and review administrative service agreements;
 Maintain logs to demonstrate practices and failed attempts.

The above are a few of the “best practices” developed by record keepers and advisors that help plan sponsors minimize issues arising in connection with missing participants.


The Department of Labor (“DOL”) recently published a final regulation providing a 60-day extension (from April 10th to June 9th) of the applicability date for the Fiduciary Rule — the rule that expands the definition of an employee benefit plan “fiduciary” to include members of the financial services industry — as well as exemptions from that definition, including the Best Interest Contract Exemption (“BIC Exemption”) (PTE 2016-01) and the Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016-02).

The DOL’s final regulation also requires those fiduciaries who rely on the exemptions — which include securities broker/dealers, agents, insurance companies and benefit consultants who advise employee benefit plans — to adhere to “Impartial Conduct Standards” through a new transition period from June 9, 2017 to January 1, 2018.

Effective January 1, 2018, the Impartial Conduct Standards require written statements to appear in any contract for services when a securities broker/dealer, agent or consultant renders advice to an employee benefit plan in exchange for fees or commissions. The Impartial Conduct Standards also require, among other things, that such broker/dealers, agents or consultants disclose in a written contract that they are ERISA fiduciaries, that they will render advice solely for the benefit of the plan, that they will charge a reasonable fee, that they will disclose any conflicts of interest, and that they will not receive incentives for recommending any particular investment.

Also extended for 60 days are the new amendments to prohibited transaction rules: PTEs 75-1, 7-4, 80-83, 84-24, and 86-128. These amended PTEs provide relief from prohibited transaction excise taxes when securities are sold to employee benefit plans, when plan assets are deposited in mutual funds, when securities are sold to generate funds to be paid out as retirement benefits to plan participants, and when non-discretionary trustees or other fiduciaries receive fees in connection with plan investment transactions.

What does this mean for employers who sponsor retirement plans, such as 401(k) and 403(b) plans? Employers need to be aware that the Fiduciary Rule — and any delay of the applicability date thereof — does not impact employer fiduciary responsibility under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) with regard to the retirement plans they sponsor. Employers should expect that their financial service industry plan service providers will be in touch concerning amendments to service agreements to incorporate the terms required by the Impartial Conduct Standards.

For more information on the DOL announcement, please see https://federalregister.gov/d/2017-06914.