PLANADVISER - September/October 2019 - 11

that their plan sponsor clients include
an arbitration clause in their plan.
The court ruled that the plan
expressly said all Employee Retirement
Income Security Act (ERISA) claims
should be individually arbitrated and
that the plan also included a waiver of
class-action suits. Dorman's original
suit accused Schwab of breaching its
fiduciary duties by including poorly
performing Schwab-affiliated funds
in the plan. He brought the suit on his
own, seeking class-action remedy for
the entire plan. The 9th Circuit's decision
is " significant because it is the first
case in the nation to explicitly permit
the implementation of an arbitration
provision in a plan document, " says
Nancy Ross, a partner at Mayer Brown.
" However, the ramifications of this are
still very much uncertain. "
DOL Sends Electronic
Disclosure Rule to OMB
In mid-August, the Department of
Labor (DOL) sent the Office of Management
and Budget (OMB) a proposed rule
relating to the providing of electronic
disclosures to retirement plan participants.
The title of the rule is " Improving
Effectiveness of and Reducing the Cost
of Furnishing Required Notices and
Disclosures. " According to the DOL, the
rule attempts to reduce the costs and
burdens imposed on employers and
other plan fiduciaries responsible to
produce and distribute retirement plan
disclosures required under Title I of the
Employee Retirement Income Security
Act (ERISA). It also aims to help make
the disclosures more understandable
and useful for participants and beneficiaries.
It is being proposed in response
to Executive Order 13847, Strengthening
Retirement Security in America.
The OMB has up to 60 days to
review and act on the submission-but
could act more quickly-after which
the DOL would propose the rule in the
Federal Register and provide a 60-day
comment period for stakeholders. In
this spring's regulatory agenda, the
agency had indicated it planned to
issue a notice of proposed rulemaking
(NPRM) on electronic delivery of disclosures,
this coming December.
Supreme Court Asked to
Review Retirement Plan
Annuity Case
The plaintiff in a case alleging GreatWest
Life & Annuity Insurance Co.
engaged in prohibited transactions
has petitioned the U.S. Supreme
Court to review the case. The plaintiff
alleged that Great-West engaged in
self-dealing transactions prohibited
under Employee Retirement
Security Act
Income
(ERISA) Section 406(b)
and caused the plaintiff's retirement
plan to engage in prohibited transactions
with a party in interest, in
violation of ERISA Section 406(a).
According to the complaint, GreatWest
had breached its general duty of
loyalty under Section 404 by setting
the credited rate of its Key Guaranteed
Portfolio Fund-an annuity contract-
for its own benefit rather than for the
plans' and participants' benefit. It also
allegedly set the credited rate artificially
low, retaining the difference as
profit, and charged excessive fees.
The 10th U.S. Circuit Court of
Appeals agreed with a district court
ruling that Great-West was not a fiduciary
in this matter and that the plaintiff
had not adduced sufficient evidence
to impose liability on Great-West as a
nonfiduciary party in interest.
In his petition to the Supreme
Court, the plaintiff says Great-West's
conduct violates ERISA's clear rules
barring parties in interest from using
plan assets-i.e., the fund contract-
to benefit themselves. He points out
that the Supreme Court previously
held, in Harris Trust & Sav. Bank v.
Salomon Smith Barney, that where a
party in interest violates those rules,
plan participants can force them
to disgorge their ill-gotten gains.
Multiple courts of appeals have held
the same.
The plaintiff says the 10th
Circuit " flouted that rule, holding
that disgorgement was unavailable
because the plan asset at issue
was the fund contract-not specific
property over which petitioner could
himself assert title. " So, the question
presented to the high court is: May an
ERISA plan participant or beneficiary
seek disgorgement of unreasonable
profits derived from a plan contract
from a nonfiduciary party in interest?
ERISA Complaint
Questions the Use of
Alternatives in Custom TDFs
As it awaits the results of a Supreme
Court appeal on another case scrutinizing
its investment decisions, Intel
Corp. now faces an additional lawsuit
questioning the fees and performance
of custom target-date funds (TDFs)
offered to its defined contribution
(DC) retirement plan participants.
The lawsuit, filed in the U.S. District
Court for the Northern District of California,
suggests that a number of Intel
defendants breached their fiduciary
duties by investing billions of dollars
of employees' retirement savings in
" unproven and unprecedented investment
allocation strategies featuring
high-priced, low-performing illiquid
and opaque hedge funds. "
The complaint further states that
Intel defendants failed to properly
monitor the performance and fees of
either the custom TDFs or of a custom
multi-asset portfolio with a fixed-allocation
model that is also available to
participants.
Additionally, the complaint states,
Intel defendants failed to provide
adequate disclosures associated with
the custom investment options' " heavy
allocation " to hedge funds and private
equity, and either misinformed or
failed to inform participants about
the allocation mix represented in their
account balances and the allocation
strategy of the custom options.
" As a result of these imprudent
decisions and inadequate processes,
defendants caused the plans and
many participants in the plans to
suffer substantial losses in retirement
savings, " the complaint alleges.
As to the first lawsuit Intel is facing,
that, too, questions the company's
decisions in offering custom investments.
In November 2015, plaintiffs
filed what has now proved to be a
long-running complaint that similarly
alleges fiduciary failures by various
Intel defendants. -PA
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