A “new” entrant to the forfeiture reallocation suit “suite”—and a decision in favor of fiduciary defendants. Nevin & Fred review the latest developments.

Yet another 401(k) forfeiture fiduciary breach suit has beenfiled—but there are some key differences:

• The plaintiffs are represented by the law firm of Schlichter Bogard, LLC.
• The plan involved was the largest targeted by this type of litigation to date (nearly $8 billion).
• The plan document language prohibited use of forfeitures to offset employer contributions before offsetting administrative expenses (at least according to the suit).

And then there is a case that has been through severalrounds of adjudication—and though winning, has had to keep going back to court. But HP finally prevailed, and though the actions regarding the application of forfeitures were seen as fiduciary decisions—well, there was a bit of a “new” twist in how the judge viewed them.

In this episode Nevin (Adams) & Fred (Reish) examine theissues and potential implications, as well as a quick review of some recent updates.

Episode Resources

Schlichter Targets Massive 401(k) Plan With Forfeiture Suit

401(k) Fiduciaries Fend Off Forfeiture Reallocation Suit

Some “new” News:

DOL Pushes Pause on 401(k) Fiduciary Rule Suits

Breaking News: White House Nominates Next EBSA AssistantSecretary

Supremes Hear ERISA Burden of Proof Case

Could plan fiduciaries violate their duty of loyalty to plan participants despite a prudent process? A recent federal judge says yes. Nevin (Adams) & Fred (Reish) discuss.

Participant-plaintiff (and pilot) Bryan P. Spence filed suit in the U.S. District Court for the Northern District of Texas in June 2023 against Defendants American Airlines, Inc., American Airlines Employee Benefits Committee, Fidelity Investments Institutional, and Financial Engines Advisors, LLC (he subsequently dropped the latter two).

The suit alleged that they “breached their fiduciary duties in violation of ERISA by investing millions of dollars of American Airlines employees’ retirement savings[i] with investment managers and investment funds that pursue leftist political agendas through environmental, social and governance (‘ESG’) strategies, proxy voting, and shareholder activism—activities which fail to satisfy these fiduciaries’ statutory duties to maximize financial benefits in the sole interest of the Plan participants.”

And now—following a four-day bench trial during which there was “testimony from multiple witnesses and examined numerous exhibits,” a review of the record in its entirety and where the Court “has observed the witnesses to assess their credibility and weigh their testimony”—that same Judge O’Connor has now determined what appears to be an unusual divergence.

So, what’s going on with this case, and what does/should it mean for retirement plan fiduciaries? Nevin (Adams) and Fred (Reish) discuss.

Episode Resources:

Judge Says American Airlines 401(k) Fiduciaries ‘Blinded’ by ESG Focus

With apologies to Charles Dickens, Nevin & Fred have done a special year-end tribute (of sorts) to the “ghosts” of retirement past, present – and future.

Several weeks back Brian Brashaw issued a challenge (of sorts) to the podcasters of the retirement industry. Specifically, he expressed an interest in that unique and special group doing a podcast “visited by three spirits: ghosts of 401k past, present and future.”

To date, we’ve seen interest, but no “takers” – but here’s the Nevin & Fred option.

Episode Resources

An ‘Unintended’ Consequence - https://www.napa-net.org/news/2024/11/talking-points-an-unintended-consequence/

4 Things You Need to Know About Default Funds https://www.napa-net.org/news/2019/2/4-things-you-need-know-about-default-funds/

How to SECURE 'Better' Retirements https://www.napa-net.org/news/2024/6/talking-points-how-secure-better-retirements/ Myth Understandings https://www.napa-net.org/news/2019/2/myth-understandings/

It’s the holiday season, and Santa isn’t the only one making a list and checking it twice.

Let’s face it, SECURE 2.0 has a LOT of good, interesting—and potentially complicated options. But there are some that AREN’T optional, like the requirement that new plans adopted after the signing of the legislation into law have to automatically enroll eligible participants beginning in January 2025.

What happens if you forget? What happens if the business is below the threshold—and then goes above it—and then slips below it? And there’s something “special” about the selection of the default investment fund.

And then, there’s the so-called fiduciary rule (also known as the Retirement Security rule). Even if (and it’s still an “if”) it’s allowed to languish, there are still standards of care with regard to rollovers.

There are also some “nice” things in SECURE 2.0 with regard to the ability to fix things you don’t get right the first time.

In this engaging episode, Nevin (Adams) & Fred (Reish) will help you make sure your list is complete —and that you don’t wind up on the “naughty” list.

P.S. Oh, and Fred Reish has gotten some AI assistance in composing a song about retirement (lyrics below)!

Episode Resources:

A Country and Western Retirement lyrics: https://fredreish.com/the-last-rodeo/

Things I Worry About:

SECURE 2.0 automatic enrollment requirements https://fredreish.com/things-i-worry-about-2-automatic-enrollment/

How automatic enrollment requirements will be applied: https://fredreish.com/things-i-worry-about-2-automatic-enrollment/

Automatic Enrollment corrections: https://fredreish.com/things-i-worry-about-3-automatic-enrollment-3/

The SEC Requirements for Rollover Recommendations https://fredreish.com/best-interest-standard-of-care-for-advisors-97/

Staff Bulletin: Standards of Conduct for Broker-Dealers and Investment Advisers Account Recommendations for Retail Investors https://www.sec.gov/about/divisions-offices/division-trading-markets/broker-dealers/staff-bulletin-standards-conduct-broker-dealers-investment-advisers-account-recommendations-retail

IRS Issues Guidance on Expansion of EPCRS https://www.napa-net.org/news/2023/5/irs-issues-guidance-expansion-epcrs/

How to Correct Enrollment Errors for Long-Term, Part-Time Employees https://www.napa-net.org/news/2023/12/how-correct-enrollment-errors-long-term-part-time-employees/

IRS Releases Q&A Guidance on Key SECURE 2.0 Provisions https://www.napa-net.org/news/2023/12/breaking-irs-releases-qa-guidance-key-secure-20-provisions/

On October 21, the dynamic podcasting duo of Nevin (Adams) & Fred (Reish) brought their engaging, informative, and occasionally alliterative discussion to ASPPA Annual.

As one might expect from a crowd composed of the nation's leading recordkeepers and third party administrators (and a bunch of experts that help them succeed), the discussion was, as always, wide-ranging, including constantly compelling topics like:

Latest Lessons from the Litigation Landscape – fending off fiduciary forfeiture suits

Fiduciary Faux Pas, Pitfalls and Best Practices

Scary stuff from SECURE 2.0 – implications of auto-enrollment for all plans, LTPT employee tracking, etc.

Things I Worry About: Automatic Enrollment (1) https://fredreish.com/things-i-worry-about-automatic-enrollment-1/

Nevin & Fred: Forfeiture Litigation, Meeting Minutes and More https://www.napa-net.org/news/2024/10/nevin--fred-forfeitures-meeting-minutes-and-more/

What Expenses Can Be Paid from Plan Assets?

7 Steps to Reduce Fiduciary Exposure

DOL Successfully Sues Employer for Misuse of Forfeitures

Limiting Fiduciary Liability (Costs)

IRS Proposes Regs to Clarify Timing and Use of Forfeitures

Expert Opinions

The Forfeiture Suits to Date

In a “live” version of the Nevin & Fred podcast at the Strategic Retirement Partners (SRP) annual conference, Nevin & Fred (& Bonnie Treichel & Tom Clark) covered recent litigation trends—and more!

In recent months, the plaintiffs’ bar has “discovered” a new litigation target: the use of forfeitures to offset employer contributions, rather than to offset plan fees or to reallocate them to the remaining participants in the plan. The expanded expert podcast panel reviews the current status, the trend(s), and what plan fiduciaries can/should do about it.

And—on a related topic—what should/shouldn’t be included in committee meeting minutes!

Episode Resources

What Expenses Can Be Paid from Plan Assets? https://www.asppa-net.org/news/2018/10/what-expenses-can-be-paid-plan-assets/ 7 Steps To Reduce Fiduciary Exposure https://www.napa-net.org/news/2019/2/7-steps-reduce-fiduciary-exposure/ New Fiduciary Suits, TDF Demographics and a Prudent Process Primer https://www.napa-net.org/news/2024/4/new-fiduciary-suits-tdf-demographics-and-prudent-process-primer/ Litigation Landscape Some 'Wins,' Some Losses and a New Litigation Target https://www.napa-net.org/news/2023/11/litigation-landscapesome-wins-some-losses-and-new-litigation-target/ DOL Successfully Sues Employer for Misuse of Forfeitures https://www.napa-net.org/news/2024/1/dol-successfully-sues-employer-misuse-forfeitures/ Limiting Fiduciary Liability (Costs) https://www.napa-net.org/news/2021/8/limiting-fiduciary-liability-costs/

IRS Proposes Regs to Clarify Timing and Use of Forfeitures https://www.napa-net.org/news/2023/2/irs-proposes-regs-clarify-timing-and-use-forfeitures/

Expert Opinions https://www.napa-net.org/news/2019/2/expert-opinions/

The forfeiture suits to date. https://www.napa-net.org/header/search/?q=forfeitures

ERISA Advisory Council testimony by:

Bonnie Treichel - https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/about-us/erisa-advisory-council/2024-qdia-treichel-written-statement-07-10.pdf

Tom Clark: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/about-us/erisa-advisory-council/2024-qdia-clark-written-statement-07-10.pdf

The so-called fiduciary rule has been stayed—and legal challenges regarding forfeiture reallocation are picking up. Nevin & Fred discuss what you should be doing…now.

About a month ago two separate federal judges put a hold on the effective date (09/23) of the Labor Department’s new fiduciary rule—indefinitely. n ordering the stay, United States District Judge Jeremy D. Kernodle explained that “the 2024 Fiduciary Rule suffers from many of the same problems” that were found in the version vacated by the Fifth Circuit back in 2018.

On the other (unrelated) hand, the number of suits alleging a fiduciary breach in the use of forfeitures to offset employer contributions is increasing—and most recently those charges have been appended to the more “traditional” excessive fee suits. That, and a couple of the original group have now gotten past the motion to dismiss.

In light of those trends, what should plan fiduciaries do? In this podcast episode, Nevin & Fred will discuss the trends, the issues, the implications, and some next steps.

Episode Resources:

Staff Bulletin: Standards of Conduct for Broker-Dealers and Investment Advisers Account Recommendations for Retail Investors https://www.sec.gov/tm/iabd-staff-bulletin

Fiduciary Rule

Federal Judge Slams Brakes on Fiduciary Rule https://www.napa-net.org/news-info/daily-news/breaking-news-federal-judge-slams-brakes-fiduciary-rule

Another Federal Court Slams Fiduciary Rule https://www.napa-net.org/news-info/daily-news/another-federal-court-slams-fiduciary-rule

Department of Labor Releases Final Investment Advice Fiduciary Rule https://www.napa-net.org/news-info/daily-news/breaking-department-labor-releases-final-investment-advice-fiduciary-rule

Forfeiture Reallocation Litigation

Major Forfeiture Fiduciary Breach Suit Gets Green Light https://www.napa-net.org/news-info/daily-news/major-forfeiture-fiduciary-breach-suit-gets-green-light

Another Excessive Fee Suit (Also) Claims Forfeiture Use a Fiduciary Breach https://www.napa-net.org/news-info/daily-news/another-excessive-fee-suit-also-claims-forfeiture-use-fiduciary-breach

Nordstrom Nailed With Massive Allegations in 401(k) Fiduciary Breach Suit https://www.napa-net.org/news-info/daily-news/nordstrom-nailed-massive-allegations-401k-fiduciary-breach-suit

Future Live Appearances:

Strategic Retirement Partners: https://www.srpretire.com/ ASPPA Annual: https://asppaannual.org/

NAPA 401(k) Summit: https://napasummit.org

With far-reaching implications—likely including the Labor Department’s fiduciary rule—the nation’s highest court has set aside a long-standing judicial deference to federal regulators in interpreting the law. In this episode Nevin (Adams) and Fred (Reish) consider the impact(s).

While the full implications will take time to emerge, it’s almost certainly going to produce more litigation, and in the process, less certainty for advisors, plan sponsors and recordkeepers trying to operate within those boundaries.

Why It Matters

Since 1984, courts have adopted a review framework for challenged regulations. First, to consider whether Congress has directly spoken to the precise question at issue—specifically how the regulation is to be administered/applied—and if so, the court "must give effect to the unambiguously expressed intent of Congress and reverse an agency's interpretation that fails to conform to the statutory text.” And then, if the statute is ambiguous, the court “may not disturb an agency rule unless it is, 'arbitrary or capricious in substance, or manifestly contrary to the statute.’”

Under the new Supreme Court decision, those administrative agency perspectives can, but do not have to, be considered in deciding the case. In sum, courts will no longer be required to defer to the judgement of the regulatory agencies in terms of applying/interpreting ambiguous laws.