More retirement-related regulatory news for plan sponsors, including links to detailed information.
Supreme Court rules in retirement plan fiduciary presumption of prudence in stock drop case
The U.S. Supreme Court has unanimously ruled that the fiduciaries of an ERISA-covered retirement plan that includes employer stock as an investment option are not entitled to any “presumption of prudence” in the investment decisions made by the plan administrator (Fifth Third Bancorp v. Dudenhoeffer (no. 12-751, 6/25/2014)). In overturning the 2012 ruling by the U.S. Court of Appeals for the Sixth Circuit, the high court said that the fiduciaries are subject to the same duty of prudence that generally applies to fiduciaries under ERISA.
The Supreme Court remanded the case, directing the Sixth Circuit to reconsider whether the participants stated a claim under precedents established by the high court. The Supreme Court said that a fiduciary’s conduct should be evaluated in the context of publicly available information and that fiduciaries cannot be found imprudent for failing to buy or sell stock in violation of insider-trading securities laws. In addition, the high court said that a complaint must plausibly allege an alternative action that the defendant could have taken when plaintiffs state a claim for fiduciary imprudence.
Retirement plan and other provisions moving in transportation/highway trust fund bill
Senate Finance Committee Chairman Ron Wyden (D-OR) has modified his proposed transportation/highway funding legislation, which now includes changes to the retirement plan required distribution (“stretch IRA”) provision. The revised bill alters the beginning date for employees who become 5% owners after age 70-1/2 and eliminates rules in the earlier proposal relating to rollovers of distributions from employer-sponsored plans with a delayed effective date, i.e., governmental plans and collectively bargained plans.
Currently, the Internal Revenue Service (IRS) has indicated that a plan under which a participant’s normal retirement age changes to an earlier date upon completion of a stated number of years of service typically will not satisfy vesting and accrual rules. According to the Joint Committee on Taxation’s description of this provision:
An applicable plan is a defined benefit plan that currently provides such a normal retirement age. A plan is generally an applicable plan only with respect to an individual who (1) is a participant in the plan on or before January 1, 2017, or (2) is an employee at any time on or before January 1, 2017, of any participating employer and who becomes a participant in the plan after January 1, 2017.
A plan does not fail to be an applicable plan solely because the normal retirement age described above currently applies only to certain plan participants or certain employers participating in the plan. In addition, subject to the limitation described above relating to participation or employment on or before January 1, 2017, if application of this normal retirement age is expanded to additional participants or participating employers, the plan will be treated as an applicable plan with respect to those participants and participating employers.
Finance Committee members have proposed dozens of amendments in advance of the markup. Among them are changes that would:
• Extend the parity for employer-provided transit benefit with parking benefits
• Allow for the continuation of a normal retirement age (NRA) of 30 years in service for currently existing defined benefit pension plans
• Require appropriate worker/independent contractor classifications in professional services organizations
• Temporarily repeal the Davis-Bacon “prevailing wage” rates for highway projects
Census Bureau: Summary of quarterly survey of public pensions for the first quarter 2014
This quarterly survey of public pensions provides national summary data on the revenues, expenditures, and composition of assets of the largest defined benefit public employee retirement systems for state and local governments. This survey currently consists of a panel of 100 retirement systems, which comprise 89.4% of financial activity among such entities, based on the 2007 Census of Governments.
To access the survey, click here.