Retirement Plan Litigation: Lessons Learned and Challenges Ahead

Transcription

1 Retirement Plan Litigation: Lessons Learned and Challenges Ahead March 15, 2011 Minneapolis Radisson Plaza Hotel Steve Lucke Partner, Dorsey & Whitney LLP (612) Kirsten Schubert Associate, Dorsey & Whitney LLP (612) This presentation was created by Dorsey & Whitney LLP, 50 South Sixth Street, Suite 1500, Minneapolis, MN This presentation is intended for general information purposes only and should not be construed as legal advice or legal opinions on any specific facts or circumstances. An attorney-client relationship is not created or continued by sending and/or receiving this presentation. Members of Dorsey & Whitney will be pleased to provide further information regarding the matters discussed in this presentation. 1

2 Selection and Monitoring of 401(k) Investment Options 2

3 Selection and Monitoring of 401(k) Investment Options: Class Action Challenges Retail Classes of Mutual Fund Options Mutual Fund Options Over Separate Accounts/Collective Trusts Cash Held in Unitized Stock Fund Unreasonable/Undisclosed Revenue Sharing Asset-Based Pricing for Fees Poorly Performing Funds 3

4 Selection and Monitoring of 401(k) Investment Options: Recent Developments Fiduciary Process Lessons Beware: Tibble v. Edison Breach of fiduciary duty in selection of retail share classes of mutual funds Duty to: Evaluate, Negotiate, Terminate Outside consultants no panacea Look to: Taylor v. United Technologies Appropriate process in evaluating fees, cash in Unitized Stock Fund Mutual funds appropriate investments Look to: George v. Kraft Reasoned decision making process; fiduciaries are not required to scour market for cheapest funds or service providers Negotiating, monitoring and disclosing recordkeeper fees Tussey v. ABB Revenue Share to Fidelity Competitive Market Defense 4

5 Selection and Monitoring of 401(k) Investment Options: Class Certification Boeing & International Harvester Broad class including all Plan participants does not satisfy class requirements Requires congruence between investment options held by named Plaintiff and the members of the class Wells Fargo v. Figas Mandatory class rejected Opt-out class consisting only of participants invested in specific funds certified 5

6 Selection and Monitoring of 401(k) Investment Options: Recent Developments Interim 408(b)(2) Service Provider Disclosure to Fiduciaries Covered service providers to provide detailed disclosures to plan fiduciaries (employers) about service provider compensation Effective July 16, C.F.R b-2(c), 75 Fed. Reg. 41,600 (July 16, 2010) Final 404(a) Disclosure to Participants Require quarterly disclosure of fees to participants Sample disclosure format For calendar year plans, effective January 1, C.F.R a-5, 75 Fed. Reg. 64,910 (Oct. 20, 2010) 6

7 Selection and Monitoring of 401(k) Investment Options: Recent Developments Proposed 3(21) Definition of Fiduciary Propose expansion of definition of fiduciary with respect to individuals who provide investment advice Prop. 29 C.F.R (c), 75 Fed. Reg. 65,263 (Oct. 22, 2010) 7

8 Selection and Monitoring of 401(k) Investment Options: Mitigating Risk Evaluate; Ensure Disclosure to Fiduciaries Negotiate, Decide, Document, Monitor Plan Documents/Revenue Sharing Consider Brokerage Window 404(c) Compliance Be Ready for 2012 Disclosures in Form 5500s Fees Reporting Violations Beware the fiduciary exception to the attorney-client privilege Bank of America Proprietary Funds Litigation David v. Alphin 8

9 Higher Hurdles for 401(k) Stock Drop Cases 9

10 Higher Hurdles for 401(k) Stock Drop Cases: Continuing Issues Moench Presumption of Prudence Standard For Imprudence/Disloyalty Viability or Excessive Risk Standard Disclosure Claims Defenses 10

11 Higher Hurdles for 401(k) Stock Drop Cases: Recent Developments Applying Moench Presumption at the Motion to Dismiss Stage MoneyGram, Wright v. Medtronic, Quan v. Computer Sciences Corp., SDNY Bank Cases But see Brown v. Medtronic (Eighth), Morgan Stanley, DOL Amicus Briefs Prudence Claims 15 to 20% Stock Loss Not Enough Wright v. Medtronic Dismissing claims against financial institutions in midst of the financial crisis: Fifth Third, BOA, Wachovia, Citigroup, Amex, Lehman But see Morgan Stanley and Ambac Applying Hard Wire Defense Citigroup and BOA But see Ambac and McGraw Hill, DOL Amicus Briefs Disclosure Claims Wright v. Medtronic Incorporation of SEC Disclosures in Plan Documents are Plan Communications Reliance No Duty to Volunteer; but see Suntrust (certifies to Eleventh Circuit) 11

12 Higher Hurdles for 401(k) Stock Drop Cases: Mitigating Risk Requirement of Stock in Plan Documents Disclosure Stock via Separate Prospectus Apart from SPD c.f., R.H. Donnelly Corp. ERISA Litigation Selection of Fiduciaries; Appointing/Monitoring Section 16 Officers Monitor and Document Stock Investment Employment of Independent Fiduciary 12

13 ERISA Retirement Plan Litigation: The Next Issue? 13