Washington Update | Published in September 2016

Rules and Regulations

Summaries of the latest news from Washington and the courts—what’s coming, what’s contemplated and what’s critical for plan sponsors to know

By PLANSPONSOR staff | September 2016
Art by Alex Eben Meyer
Law Firm Files Suits Against University Plans
Schlichter, Bogard & Denton has filed lawsuits against numerous major universities for excessive fees in their 403(b) plans. In two recent suits, against New York University (NYU) and Yale University, complaints allege that, instead of using their plan’s bargaining power to benefit participants and beneficiaries, the defendants let participants be charged unreasonable fees for plan administration, and allege further that they retained high-cost and poor-performing investments compared with available alternatives. The suits call out the traditional 403(b) plan model of offering multiple funds (fund lineups range from 78 to over 400 for all the plans targeted) and using multiple recordkeepers. The firm also filed suit against Massachusetts Institute of Technology (MIT), alleging the school chose Fidelity as recordkeeper due to a trustee relationship and offered high-priced Fidelity retail funds when cheaper institutional funds were accessible. In addition, an Employee Retirement Income Security Act (ERISA) excessive-fee suit was filed by Sanford Heisler against Columbia University.
Morgan Stanley Faces Excessive-Fee, ­Self-Dealing Lawsuit
A participant in Morgan Stanley’s 401(k) plan has filed a lawsuit on behalf of approximately 60,000 current and former plan participants, alleging the plan included investment options with excessive fees and used Morgan Stanley proprietary funds rather than other funds that would be better and cheaper for participants. The complaint alleges Morgan Stanley failed to honor its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by not using its sophistication and the plan’s bargaining power to select lower-cost, better-performing investment options for participants.
Tibble to Get En Banc Appellate Court Review

A majority of non-recused, active judges in the 9th U.S. Circuit Court of Appeals ordered the case of Tibble v. Edison International to be reheard en banc—French for “in bench”—by the full panel of appellate judges. In its order, the appellate court said the previous decision by a three-judge panel “shall not be cited as precedent by or to any court of the Ninth Circuit.” The appellate court ruled in April that, because he failed to raise the argument in a timely way and there has been no change in the law that could justify failure to raise the argument, Tibble forfeited the argument.
Reporting on Missing Participants

Based on comments received in response to a Paperwork Reduction Act notice regarding the 2016 Form 5500 and Form 5500-SF, the Internal Revenue Service (IRS) announced that filers who have made a concerted effort to locate missing participants will face less of a reporting burden associated with the missing individuals. Specifically, plan sponsors will not have to report “unpaid required minimum distribution (RMD) 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.” The new guidance does not actually change plan sponsors’ duty to search out missing participants and is instead “limited to completing the identified annual return/report line items.”
Amendments Required Before Termination

The Internal Revenue Service (IRS) has published a short, informal guidance document to help plan sponsors and fiduciaries understand key requirements that must be addressed before a retirement plan can be fully terminated under the law. In particular, the IRS warns there are final plan amendments that must be made to protect the plan’s tax-favored status at termination and to ensure that any related distributions to participants are eligible for rollovers to other qualified plans or individual retirement accounts (IRAs). To this end, the agency urges plan officials overseeing a soon-to-be-terminated plan to closely review the annual Cumulative List that applies to the period in which the plan terminates.