‘Missing’ Inaction?

Recent DOL guidance on missing participants seems to fall short of what plan fiduciaries want/need—but may offer fiduciaries some key insights to avoid future problems.

On Jan. 12, 2021, the Department of Labor (DOL) released a triple dose of guidance related to helping retirement plan fiduciaries meet their obligations under the Employee Retirement Income Security Act (ERISA) to distribute retirement benefits to missing participants.

Arguably the guidance, while welcome, is less than plan sponsors might have wished (and previously asked) for—and it concerns an issue that most plan sponsors of my acquaintance continue to insist isn’t one, though the Labor Department is clearly of a different mind. In fact, in the first of the three pieces of guidance, the Employee Benefit Security Administration (EBSA) cautions: “The first step in addressing any problem often is knowing that there is one.”[i]

The “issue,” of course, is fulfilling the fiduciary obligation to not only keep accurate records, but to take “appropriate steps” to ensure that the participants and beneficiaries are paid their full benefits when due. The question—and one that it seems remains, following the “guidance”—is, what are the “appropriate” steps?

To that end, the first document in the trio—titled “Missing Participants—Best Practices for Pension Plans”—purports to outline just that, the “best” practices. That’s helpful, of course—and if the steps outlined are familiar ground to most (and by no means the “safe harbor” that folks are hoping to get), it is perhaps at least nice to have the bulleted list. 

However, that it is issued alongside a Compliance Assistance Release (which, among other things, also describes the types of records and documents that EBSA has requested during its investigations in the recordkeeping or administration of benefits for terminated vested participants and beneficiaries and the red flags that it looks for) should heighten attention, even though the third component—a Field Assistance Bulletin—actually provides a temporary enforcement policy under which DOL will not pursue a fiduciary breach claim against a plan fiduciary that transfers the accounts of missing participants in a terminating DC plan to the Pension Benefit Guaranty Corporation (PBGC) as part of the PBGC’s missing participant program. 

All in all, it feels like something of a “warning”—alongside a checklist of things to look for in determining if, in fact, a plan fiduciary is living up to ERISA’s standard of care with regard to ensuring that those who have earned those promised benefits actually receive them.

In fact, the guidance does make certain “allowances.” For example, it notes that “not every practice below is necessarily appropriate for every plan,” and that “responsible plan fiduciaries should consider what practices will yield the best results in a cost effective manner for their plan’s particular participant population.” It also acknowledges that, “in deciding what steps are appropriate, plan fiduciaries should also consider the size of a participant’s accrued benefit and account balance as well as the cost of search efforts,” and that “the specific steps taken to locate a missing participant, or to obtain instructions from a nonresponsive participant, will depend on facts and circumstances particular to a plan and participant.”

That said, it also notes as a “best practice” that plan fiduciaries should have in place a written policy with respect to the plan's procedures on locating missing participants. 

And, taken in totality, as far as “guidance,” it’s hard not to see a cautionary element—and sense that the Labor Department is effectively cautioning plan fiduciaries/advisors that if such a policy is currently “missing” from your current plan toolkit—well, you might be well-advised to (re)consider it.

- Nevin E. Adams, JD

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[i] In fairness, In unveiling the guidance, Principal Deputy Assistant Secretary of Labor for the Employee Benefits Security Administration Jeanne Klinefelter Wilson noted that, “In fiscal year 2020 alone, EBSA’s investigators helped missing and nonresponsive participants recover benefits with a present value in excess of $1.4 billion.”

‘Things,’ Remembered – 2019

It is something of a tradition this time of year to look back, to reminisce about past events and lessons learned, and sometimes to look ahead – and who am I to buck that trend? Here’s a look back – and some “things” that I hope will help lay the groundwork for a productive and prosperous 2020 for both you, and those you serve.

‘THINGS’ FOR PLAN FIDUCIARIES

7 Smart Shopping Steps to Avoid Buyer’s Remorse

Shopping for a new provider is not something one would normally equate with a Black Friday foray or a Cyber Week scramble. But if you have a plan sponsor – or plan sponsor prospect – who’s thinking about shopping for a new provider, here are some ideas to share.

6 Things That Scare Plan Fiduciaries

Halloween is the time of year when one’s thoughts turn to trick-or-treat, ghosts and goblins, and things that go bump in the night. But what keeps – or should keep – plan fiduciaries up at night? Well, there are the things like…

5 Things Plan Sponsors (Still) Screw Up

Plan sponsors have a lot of responsibilities and often rely on others to help them keep their plan operating in accordance with the law. And yet, even with the most attentive plan sponsors, mistakes (still) occur. Here’s a list of some of the most common missteps.

4 Fiduciary Lessons from the Game of Thrones

I was late to the Game of Thrones – and though its final season seems a bit “rushed” – there has been plenty to not only watch, but mull over in its eight-season run. And yet, as the series wound to a close on Sunday night, I kept thinking there were some lessons for retirement amidst the mayhem.

5 Things Your Plan Committee Members Need to Know

Over the past decade and change, there have been a number of high-profile excessive fee suits brought against retirement plan fiduciaries, notably the plan committees that oversee these programs. Here’s what your plan committee members should know.

‘THINGS’ FOR PLAN PARTICIPANTS/WORKERS

6 Things That People Get Wrong About Retirement

Retirement planning can be a complicated process – and surveys suggest that most workers haven’t even attempted a guess. But even those who have can overlook some pretty significant factors that can have a dramatic impact on retirement readiness. Here are some critical factors that are easy to get “wrong.”

5 Things Your Retirement Can (Still) Learn From Game of Thrones

Whether you are a Game of Thrones aficionado – or haven’t watched a single episode – there are lessons to be learned nonetheless.

4 Things Those Who Aren’t Saving for Retirement Should Know About Saving for Retirement

While there are plenty of good reasons to save, we all know that it can be tough to start. But in that spirit, here are four things that those who aren’t (yet) saving for retirement should know.

11 Ways Gen Z’s Retirement Will be Different

Those “kids” who were just dropped off at college for the first time? By their sophomore year, their generation will constitute one-quarter of the U.S. population. How will their retirement be different?

- Nevin E. Adams, JD

5 Investment Committee Lessons Learned From Tibble

Two things have been overlooked by many people in the days leading up to the Supreme Court’s decision in Tibble v. Edison International and the weeks thereafter: (1) most of the wrongs¹ initially alleged did not survive the judgment of the district court; and (2) only a single issue — the determination as to how to apply ERISA’s statute of limitations to fund selection — was before the nation’s highest court.

While the Supreme Court rejected the notion that an initial fund review was sufficient in the absence of significant changes in circumstance to preclude the need for an ongoing assessment, the defendants in Tibble did a lot of things right that many plans don’t. Here are five:

1. They had a plan investment committee.

ERISA only requires that the named fiduciary (and there must be one of those) make decisions regarding the plan that are in the best interests of plan participants and beneficiaries, and that are the types of decisions that a prudent expert would make about such matters. ERISA does not require that you make those decisions by yourself — and, in fact, requires that if you lack the requisite expertise, you must enlist the support of those who do have it. No committee required.

2. They had regular committee meetings.

Having a committee and not having committee meetings is potentially worse than not having a committee at all. If there is a group charged with overseeing the activities of the plan and that group doesn’t convene, then one might well assume that the plan is not being properly managed, or that the plan’s activities and providers are not prudently managed and monitored, as the law requires. The Edison investment committee met quarterly to review plan investments and to review reports and recommendations from investment staff.

3. They kept minutes of committee meetings.

There is an old ERISA adage that says, “prudence is process.” However, an updated version of that adage might be “prudence is process — but only if you can prove it.” To that end, a written record of the activities of your plan committee(s) is an essential ingredient in validating not only the results, but also the thought process behind those deliberations.

More significantly, those minutes can provide committee members — both past and future — with a sense of the environment at the time decisions were made, the alternatives presented and the rationale offered for each, as well as what those decisions were. They also can be an invaluable tool in reassessing those decisions at the appropriate time and making adjustments as warranted — properly documented, of course. And they can be useful in subsequent litigation. Or not.²

4. They had an investment policy statement.

While plan advisors and consultants routinely counsel on the need for, and importance of, an investment policy statement, the reality is that the law does not require one, and thus, many plan sponsors — sometimes at direction of legal counsel — choose not to put one in place.

Of course, if the law does not specifically require a written investment policy statement (IPS) — think of it as investment guidelines for the plan — ERISA nonetheless basically anticipates that plan fiduciaries will conduct themselves as though they had one in place. And, generally speaking, you should find it easier to conduct the plan’s investment business in accordance with a set of established, prudent standards if those standards are in writing, and not crafted at a point in time when you are desperately trying to make sense of the markets. In sum, you want an IPS in place before you need an IPS in place.

Not also that, while not legally required, Labor Department auditors routinely ask for a copy of the plan’s IPS as one of their first requests. And therein lies the rationale behind the counsel of some in the legal profession to forego having a formal IPS: Because if there is one thing worse than not having an investment policy statement, it is having an investment policy statement — in writing — that is not followed.

That said, the Edison investment committee had an IPS, and by all accounts, were attentive to its terms. Terms that apparently were focused on the investment and asset allocation aspects of the fund choices, rather than on the costs and alternatives.

5. They hired an investment professional to help.

The Edison plan investment committee had access to, and relied on the services of, an investment adviser (AonHewitt’s investment consulting arm) to review/select/monitor funds. And they did make fund changes during the period in question (in fact, the district court noted that in 33 of 39 instances during the period in question, they replaced funds with others that actually decreased the revenue-sharing received by the plan).

The Tibble defendants clearly did a lot of things right in reviewing and monitoring their investment menu — so what did they do wrong?

Well, with regard to this litigation, what this $2 billion+ plan didn’t do was ask investment fund providers to waive the minimums for investment in institutional class shares, shares that were reportedly identical in every way save one (fees) to the retail class chosen. It might well be that the IPS itself and the focus of the committee didn’t consider all the factors (notably fees) that play into fund performance and suitability, and should be considered.

Following the Supreme Court’s ruling, it’s clear there is a fiduciary duty to review the funds on the retirement plan menu on an ongoing basis, though how much and how often remain to be established.
But perhaps most importantly, one lesson is now crystal clear now, if it wasn’t previously: “set it and forget it” is not an appropriate standard of review for ERISA fiduciaries.

Nevin E. Adams, JD

Footnotes

1. The district court cited three possible rationales for the retention of retail-class shares offered by witnesses for the defendant/employers — but found no evidence for them in the actions taken (or not taken).

2. The district court noted that witnesses for the defendant/employers offered three possible rationales for keeping the retail shares: If the retail share class of a certain mutual fund had significant performance history and a Morningstar rating, but the institutional share class did not; to avoid confusion among participants resulting from frequent changes in the fund; or if there were certain minimum investment requirements. But Judge Stephen V. Wilson noted that, “None of these explanations is supported by the facts in this case.”