Spencer Fane LLP Logo

Fiduciary Advice

The SEC’s Fiduciary Proposal – Form CRS

On April 18, the Securities and Exchange Commission issued a proposal package that includes two new rules and one interpretative release.  The package consists of three components – Regulation Best Interest, Investment Adviser Standard of Conduct Interpretation, and Form CRS – Relationship Summary.   According to the SEC, the proposal is intended to balance investor protections and regulatory requirements with investor access and choice.  Each component of the proposal is available for public comment for 90 days after publication in the Federal Register.

In a series of three articles, Spencer Fane LLP describes the SEC’s proposal and potential impacts on broker-dealers and investment advisers.  This third article describes the Form CRS – Relationship Summary portion of the SEC’s fiduciary proposal.

The SEC’s Fiduciary Proposal – Investment Adviser Standard of Conduct

The Securities and Exchange Commission voted on April 18 to issue a proposal package that includes two new rules and one interpretative release.  According to the SEC, each component of the proposal – Regulation Best Interest, Investment Adviser Standard of Conduct Interpretation, and Form CRS – Relationship Summary – is intended to enhance investor protections and regulatory clarity while maintaining investor access and choice.  Each part of the SEC’s proposal is available for public comment for 90 days after publication in the Federal Register.

In a series of three articles, Spencer Fane LLP describes the SEC’s proposal and potential impacts to broker-dealers and investment advisers.  This second article describes the Investment Adviser Standard of Conduct Interpretation.

The SEC’s Fiduciary Proposal – Regulation Best Interest

In an open meeting on April 18, the Securities and Exchange Commission voted four to one to issue two new rules and one interpretative release that are intended to provide investor protections and regulatory clarity, as well as investor access and choice.  Specifically, the SEC issued Regulation Best Interest, Investment Adviser Standard of Conduct Interpretation, and Form CRS – Relationship Summary.  Each component of the SEC’s proposal is available for public comment for 90 days after publication in the Federal Register.  In a series of three articles, Spencer Fane LLP describes the SEC’s proposal and potential impacts on broker-dealers and investment advisers.  This first article describes the Regulation Best Interest portion of the SEC’s fiduciary proposal.

Target Date Funds: Don’t Just “Set It and Forget It”

The Department of Labor (“DOL”) has released an informal set of tips for ERISA plan fiduciaries to consider when selecting and monitoring target date funds (“TDFs”) for their 401(k) plans.  Fiduciaries that offer TDFs as an investment option under their 401(k) plans should review these tips and incorporate them into their investment review process.

THE FIDUCIARY CORNER: Correcting Operational Mistakes Can Eliminate Fiduciary Liability

Operational errors in administering a retirement plan not only threaten the plan’s “qualified” status under the Tax Code, but can also result in fiduciary liability under ERISA for those who are responsible for the errors.  As a Massachusetts employer recently learned, however, correcting those administrative mistakes can eliminate the risk of fiduciary liability under ERISA.  (Altshuler v. Animal Hospitals Ltd., (D. Mass. Oct. 31, 2012)).

To Be or Not To Be: Court Holds TPA “To Be” an ERISA Fiduciary

In Borroughs Corp. v. Blue Cross Blue Shield of Michigan, a federal trial court held that a third-party administrator of self-funded employer health plans was an ERISA fiduciary.  Moreover, because the TPA had not disclosed certain of its fees that it deducted from plan assets, it was held to have breached its fiduciary duty under ERISA.  Although this decision is somewhat surprising in finding the TPA to be a fiduciary, it may spur plan sponsors and TPAs to reexamine their funding arrangements and service agreements.

Murder Victim’s Mother May Rely on Post-Amara Equitable Remedies

In McCravy v. Metropolitan Life Insurance Company, an ERISA plan continued to accept life-insurance premiums for a participant’s dependent daughter after the daughter was too old to be covered as a dependent.   But when the daughter died, the insurer denied the plaintiff’s claim.  Citing the Supreme Court’s 2011 decision in CIGNA Corp. v. Amara, the Fourth U.S. Circuit Court of Appeals held that the “other equitable relief” available to the plaintiff under Section 502(a)(3) of ERISA should include a monetary recovery equal to the amount that would have been due under the terms of a plan, had the daughter satisfied the plan’s definition of dependent child at the time of her death.  In so doing, the Fourth Circuit became the first federal appellate court to reverse its own pre-Amara rejection of such a remedy under Section 502(a)(3).

THE FIDUCIARY CORNER: Unintended Consequences of Individual Benefit Discussions

Although a retiree’s promissory estoppel claim against the sponsor and fiduciaries of an employer pension plan was ultimately rejected by a federal court, the case of Stark v. Mars, Inc., illustrates the importance of coupling any pension calculation with an appropriate caveat.  It also demonstrates why plan fiduciaries should avoid answering participant questions that are more properly delegated to individuals who can respond in a purely ministerial capacity.

Overview of Medical Loss Ratio Rebates

The Affordable Care Act requires health insurers to spend a minimum percentage of their premium dollars on medical claims and quality improvement.  Insurers that fail to achieve these percentages must issue rebates to their policyholders.  The first of these MLR rebates are due in August of 2012, so plan sponsors should begin planning how to handle any rebates they might receive.  Among other things, this article discusses both ERISA and tax implications that any plan sponsor receiving a rebate should consider.

As Fee Disclosure Deadlines Approach, DOL Issues Additional Guidance

After more than four years of regulatory starts and stops, plus the threat of a legislative solution, two separate sets of fee disclosure regulations issued by the Department of Labor (“DOL”) will finally become effective this summer.  Covered service providers must provide certain compensation and fee information to plan fiduciaries by July 1, and fiduciaries of participant-directed plans must provide participants with certain plan expense and investment fee information by August 30.  As those deadlines approach, the DOL has just issued additional guidance (in the form of Field Assistance Bulletin 2012-02) on the participant fee disclosure rules, and has indicated that it plans to issue similar guidance regarding the service provider fee disclosure requirements in the very near future.

Federal Appeals Court Rejects Equitable Remedies When SPD Promises More Generous Benefits Than Pension Plan Document

A federal appeals court has handed down the first significant decision to interpret the Supreme Court’s recent ruling on ERISA remedies.  In CIGNA Corp. v. Amara, the Supreme Court suggested three methods by which participants might enforce the terms of an SPD that promises greater benefits than the underlying plan document:  estoppel, reformation, and surcharge.  In Skinner v. Northrop Grumman Retirement Plan B, participants tested two of these methods.  The Ninth Circuit rejected both.

THE FIDUCIARY CORNER: Costly Fiduciary Breaches in 401(k) Fee Case Provide Many Lessons

The recent decision in Tussey v. ABB, Inc. provides many lessons for 401(k) plan fiduciaries.  One such lesson is to avoid having an overly rigid investment policy statement.  Failing to follow the protocol outlined in a plan’s IPS for replacing an underperforming investment option led the Tussey court to tag the plan’s fiduciaries with substantial liability for the participants’ lost earnings.