Compliance Stuff

  The U.S. Department of Labor (DOL) indicated in court documents that it intends to begin new rulemaking to replace a previous rule that permitted 401(k) plan fiduciaries to consider environmental, social, and governance (ESG) factors when choosing investment options in the plan. Quick Hits The DOL will no longer apply a previous rule that allowed retirement plan fiduciaries to take ESG factors into account when selecting investment options . Twenty-six states challenged the rule in the Fifth Circuit Court of Appeals. Plan fiduciaries may continue to rely on financial factors to make decisions about which investments to include in the plan. Under the Employee Retirement Income Security Act (ERISA), retirement plan fiduciaries are required to select and monitor plan investments in accordance with ERISA’s fiduciary duties. Among those duties are the requirements to prudently select and monitor plan investments, to diversify plan investments in most cases, and to act solely in the i...

On April 17, 2025, the U.S. Supreme Court, in a unanimous opinion, resolved a circuit split and established a plaintiff-friendly pleading standard for ERISA prohibited transaction claims in   Cunningham v. Cornell University , No. 23-1007. Background The plaintiffs in  Cunningham  a ccused Cornell’s retirement plans of engaging in prohibited transactions by paying excessive fees for recordkeeping and administrative services, among other claims. The university contended that these transactions were exempt under ERISA Section 408(b)(2), which permits certain transactions with parties in interest if the compensation is reasonable . The Second Circuit had previously affirmed the district court’s dismissal of the participants’ prohibited transaction claims, ruling that plaintiffs must plead and prove the absence of such exemptions to state a claim under ERISA Section 406(a)(1)(C).​ Supreme Court’s Ruling In a decision authored by Justice Sonia Sotomayor, the Supreme Court rev...

Experts recommend retirement plans conduct fiduciary education and training sessions at least annually and any time a new member joins the plan committee. Reported by   Beth Braverman     Art by   Alex Eben Meyer In this era of record-level Employee Retirement Income Security Act litigation, it’s become even more important for plan sponsors and plan committee members to understand their roles and legal responsibilities as fiduciaries. “Under ERISA, the concept of being a fiduciary is a functional one,” says Julie K. Stapel, a partner in Morgan, Lewis & Bockius. “That means if you do things that make you a fiduciary, then you are one, regardless of whether you intended to be or if your governing documents say that you are. That’s why governance is so important.” Anyone who has discretionary authority and control over plan assets or plan administration is a fiduciary, and that typically includes all members of a plan committee. Plan fiduciaries must act in the best...

Retirement plan administration mistakes require difficult conversations with participants, especially when the mistake involves an overpayment.  Changes in the law, specifically, SECURE 2.0 and IRS Notice 2024-77, give plan fiduciaries additional flexibility when addressing overpayments. Overpayment of Matching Contributions Consider the case of a 401(k) plan with an employer matching contribution on the first 6% of compensation that a participant contributes to the plan. The plan sponsor adds a Roth after-tax deferral feature to the plan and confirms that the match formula applies to Roth deferrals. Unknown to the plan sponsor, the payroll program applies the 6% compensation limit separately to traditional pre-tax deferrals and to Roth deferrals, resulting in a maximum match on 12% of compensation if the participant elected a 6% pre-tax deferral and a 6% Roth deferral.  In the course of correcting the error, the plan administrator determines that some affected participants te...