PLANADVISER - March/April 2019 - 10

Legislative and Judicial Actions
compliance news
Fiduciaries Get Final Win
In Disney Suit
A federal appellate court has
affirmed a lower court decision
in a lawsuit against Fidelity
Management Trust Co. as
a fiduciary to the Disney
Savings
and
Investment
Plan. That is, it found
retirement plan participants
failed to prove
that continuing to offer
the Sequoia Fund as an
investment option
in
the plan was a breach
of fiduciary duties under
the Employee Retirement
Income Security Act
(ERISA).
In their second amended
complaint, the plaintiffs argued
that the Sequoia Fund purported
to be a value fund but increased
investments in Valeant Pharmaceuticals,
which saw a decline in stock
value after the company's accounting
practices and investment
strategies
were called into question. This created
a " clear indicia of a growth stock, " the
complaint said, and did not meet the
Sequoia Fund's purported investing
criteria of seeking out value stocks.
They argued that plan fiduciaries
should have moved, even before the
Valeant accounting issues and subsequent
losses, to vacate the plan's
investment in the fund, according to
their duties of prudence and loyalty
under ERISA.
In its opinion, the 9th U.S. Circuit
Court of Appeals said allegations based
solely on publicly available information
that a stock is excessively risky
in light of its price do not, generally
speaking, state a claim for breach of
the ERISA duty of prudence.
In addition, the appellate court
found that Sequoia's investment and
concentration in Valeant was facially
consistent with the retirement plan
documents and observed that both the
plan's summary plan description (SPD)
and Sequoia's 2015 prospectus note
options have been available for a while,
in-plan guaranteed lifetime income
solutions are not being used as much
as they could, industry experts
agree. According to Prudential,
less than half of plan sponsors
offer a retirement income solution
as part of their 401(k) or
other defined contribution
(DC) plan, and only onefifth
of those offer a guaranteed
income product.
Fidelity Faces ERISA
Prohibited Transaction
Charges
A participant in the T-Mobile
USA Inc. 401(k) Retirement
Savings Plan and Trust has
sued Fidelity Management &
Research (FMR) and several of its
affiliates, claiming the firm engaged
that the fund is " nondiversified " and
that there are risks associated with its
investment strategy.
Bill Would Create
Annuity Safe Harbor
U.S. Representatives Lisa Blunt Rochester,
D-Delaware, and Tim Walberg,
R-Michigan, have introduced another
piece of legislation aimed at tackling a
longstanding retirement savings issue
faced by private-sector workers.
H.R. 1439, or the Increasing Access
to a Secure Retirement Act, seeks to
help more Americans retire with dignity
and peace of mind, according to
Blunt Rochester and Walberg. In short,
the bill would clarify the rules for annuities
and strengthen safe harbor protections
for plan fiduciaries under the
Employee Retirement Income Security
Act (ERISA). They say their bipartisan
bill " clarifies and strengthens existing
rules to make it easier for retirement
plan sponsors to provide guaranteed
lifetime income products as part of
their employee benefits. "
While a variety of in-plan income
in prohibited transactions by charging
a " secret " fee for mutual funds and
engaging in self-dealing.
In a statement to PLANADVISER,
said,
Fidelity
" Fidelity emphatically
denies the allegations in this complaint.
Fidelity fully complies with all
disclosure requirements in connection
with the fees that it charges. "
The proposed class action explains
that Fidelity acts as a recordkeeper, service
provider, a party-in-interest and a
fiduciary for thousands of defined contribution
(DC) retirement plans in the
U.S. It offers plans the opportunity to
invest in third-party mutual funds and
similar investment vehicles through its
" Funds Network, " which the company
launched in 1989 and, according to
the complaint, describes as " one of the
industry's leading fund supermarkets. "
The complaint also says that,
beginning in or about 2017, Fidelity
began requiring various mutual
funds, affiliates of mutual funds,
mutual fund advisers, sub-advisers,
investment
funds-including collective
trusts-and other investment
advisers, instruments or vehicles
offered to the plans through Fidelity's
Funds Network to make what the
10 | planadviser.com March-April 2019 Art by Joseph Park
http://www.planadviserdigital.com/planadviser/march_april_2019/TrackLink.action?pageName=10&exitLink=http%3A%2F%2Fplanadviser.com
PLANADVISER - March/April 2019

Table of Contents for the Digital Edition of PLANADVISER - March/April 2019
