PLANADVISER - July/August 2017 - 13

The deadline for responses about
extending the January 1 applicability
date is 15 days after the request's publication
in the Federal Register, while
the deadline for all other comments is
30 days after the publication date.
CVS Wins For 3rd Time In
Fiduciary Breach Challenge
A district court judge has dismissed an
Employee Retirement Income Security
Act (ERISA) lawsuit filed against CVS
Health Systems, representing the third
victory for the company in the case.
According to the plaintiffs, the
company's leadership breached fiduciary
duties owed to retirement plan
investors by " imprudently investing
too much of the plan's stable value
fund assets in ultra-short-term cash
management funds that provided
extremely low investment returns. "
Following an initial dismissal, the
matter was put again before the U.S.
District Court for the District of Rhode
Island " on review of the second Report
and Recommendation (R&R) issued
previously in the case by Magistrate
Judge Sullivan. " Upon this third review,
the district court " [has] adopt[ed] the
R&R in its entirety. "
Bill Would Encourage More
Employee Stock Ownership
The House of Representatives passed
the Encouraging Employee Ownership
Act (H.R.1343) by a bipartisan vote of
331 to 87.
A press release from the office
of representative Lee Zeldin, R-New
York, says the legislation would reform
outdated Securities and Exchange
Commission (SEC) Rule 701, which
imposes a slew of complicated regulations
on small businesses, especially
newly formed startups. Rule 701
exempts companies that offer securities
as part of employee compensation
from having to comply with federal
securities registration requirements if
those securities are valued at $5 million
or less in a 12-month period. Companies
exceeding that threshold must provide
disclosures, including
to participants,
" creating a significant obstacle
for [those] that want to compensate
their employees through equity or
other securities such as stocks, " the
release says.
According to the National Center for
Employee Ownership (NCEO), the bill
would increase to $20 million the cap
on how much stock closely held companies
can award to employees before
triggering SEC reporting requirements.
The amount would be indexed for
inflation annually.
Zeldin called the act " bipartisan
legislation that will help small businesses
grow and expand, encouraging
job creation and economic growth,
by allowing companies to retain their
employees through incentives. "
Suit Against Chevron Dismissed
For the second time, Chevron Corp. has
won dismissal of a lawsuit alleging it
caused participants to pay excessive
fees due to its choices of funds offered
in its 401(k) plan.
U.S. District Judge Phyllis Hamilton
of the U.S. District Court for the
Northern District of California found
that, for repeated claims, the plaintiffs
failed to correct the deficiencies
in the original complaint identified by
the court in its prior order dismissing
the suit.
In her new order, Hamilton wrote
that the plaintiffs failed to distinguish
between the Employee Retirement
Income Security Act (ERISA)'s duties of
loyalty and prudence.
Specifically, the six plaintiffs who
filed the proposed class action alleged
that plan fiduciaries " breached their
duties of loyalty and prudence by
providing participants with a money
market fund as a capital preservation
option, instead of offering them
a stable value fund; by providing retail
investment options that charged
higher management fees than lowercost
institutional versions of the same
investments; by providing mutual
funds that charged higher management
fees
than
other
lower-cost
investment
options such as collective
trusts and separate accounts;
by failing to put plan administrative
services out for competitive bidding
on a regular basis, and instead paying
excessive administrative fees to
Vanguard as recordkeeper through
revenue sharing from plan investment
options; and by retaining the
Artisan Small Cap Value Fund as an
investment option despite its underperformance
compared [with] its
benchmark, peer group, and lowercost
investment alternatives. "
All of these claims were again
dismissed.
Starwood Excessive Fee Claim
Found Plausible by Court
A federal district court has moved
forward one claim in a lawsuit against
Starwood Hotels regarding excessive
recordkeeping and administrative fees
for its 401(k) plan.
U.S. District Judge Dale Fischer of
the U.S. District Court for the Central
District of California said in his opinion,
" When viewed in the light most
favorable to Plaintiffs, the Court can
infer from these facts that Starwood's
recordkeeping and administrative fees
were excessive prior to 2015 and are
still excessive. Although Plaintiffs do
not specifically allege how Starwood
breached its fiduciary duty through
improper decisionmaking, they have
pleaded sufficient facts from which the
Court can reasonably infer that Starwood
employed a flawed process for
selecting recordkeeping and administrative
services. "
Besides their breach of fiduciary
duty claims that Starwood failed to
ensure reasonable recordkeeping and
administrative fees, the plaintiffs had
similarly claimed the hotel chain failed
to offer a stable value fund, follow
participants' investment instructions,
provide adequate disclosure regarding
revenue sharing, and eliminate the
BlackRock LifePath 2050 Index Fund,
which charged excessive fees, from
the plan's investment menu. Starwood
argued the statute of limitations bars
all five claims.
For the claim regarding the BlackRock
LifePath 2050 Index Fund, Fischer
relied on In re Northrop Grumman Corp.
ERISA Litig., which found that a breach
of fiduciary duty claim was timebarred
because documents sent to
plaintiffs disclosed the fees charged,
putting them on notice of the allegedly
excessive fees. -PA
planadviser.com july-august 2017 | 13
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PLANADVISER - July/August 2017

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