1. 2010 HRM “Stimulus Package”
7 Best Practices for Your Retirement Savings Plan1 in a Tough Economy
By: Dan Van Bogaert, J.D.2
“To acquire knowledge, one must study, but to acquire wisdom, one must observe.”
Today’s tough economy has caused many employers to react in a survival mode with their retirement savings
plans, sometimes without considering potential unintended consequences. Awareness of latent long term
problems that could emerge is crucial for employers who seek immediate ways to reduce employee benefit costs.
HR professionals must reexamine best practices to control costs; particularly costs related to retirement savings
plans, to avoid potential long term problems. HRM can play a key role in helping their organizations ensure that
retirement savings plans incentivize employees, especially in the current period of slow economic recovery.
Employer sponsored retirement savings plans can and should still be an incentive to motivate employees and
inspire loyalty. Special attention should be paid to these plans because they are largest or second largest assets
employees will ever own. It is, therefore, important for HR professionals to understand best practices when
responding to the impact on retirement savings plans from a down market and volatile worldwide equities
The term “Retirement Savings Plan” for purposes of this article means primarily Defined Contribution Plans, e.g. 401(k), Profit Sharing plans, and Defined Benefit Plans,
e.g. Pension and Annuity plans, as defined under the Employee Retirement Income Security Act (ERISA) of 1974, as amended, and the Internal Revenue Code, e.g. §§
401(a), 410(b), et al. Although 403(b) plans (aka “401 (k) plans for non-profits”), and certain other retirement plans in the public sector, are not subject to ERISA, the best
practices reviewed in this paper generally may also be useful to such plans, e.g. California Public Employees Retirement System
(http://www.calpers.ca.gov/index.jsp?bc=/investments/home.xml), Pension Savings Plan of Los Angeles County
(https://countyla.gwrs.com/static/CountyOfLA/html/menus/guest_psp.html). (For background information regarding non-profit retirement plans visit:
http://www.ftwilliam.com/articles/403BNonProfit20081209.html and http://www.amper.com/publications/section-403-b-plan-compliance2.asp)
Dan Van Bogaert, J.D. is an adjunct professor of business and employment law, as well as the northern California representative for MMC, Inc, a national HR outsourcing
firm headquartered in Los Angeles (mmchr.com). Dan also has extensive experience in the design and implementation of qualified Employee Benefit Plans and ERISA
compliance duties within multiple industries, including major corporations, e.g. Carnation/Nestle′ USA and Blue Cross. (email@example.com)
Employee Pension Benefit Plan" is a generic term used to describe most retirement plans under ERISA, § 3(2); DOL Reg. § 2530.3-2
2. Overview and Brief Historical Perspective
Retirement plan benefits are primarily intended to provide workers with a degree of lifetime financial security.
They also give employers a vehicle with which to motivate workers to be productive. Retirement plans have been
around in the U.S. since the late 1800s, starting with the railroad industry. The first pension plans guaranteed
annuity payments to retired or disabled employees, and beneficiaries. However, employer sponsored retirement
plans did not become prevalent until after the enactment of the Social Security Act in 1935.
In 1974 the comprehensive and complex Employee Retirement Income Security Act (ERISA) was enacted to
protect interests of participants and their beneficiaries in most employee benefit plans, among other things.3 It
established minimum national standards for financial reporting and disclosures, guidelines on how employers
were to operate their plans, as well as uniform standards for vesting, participation, funding, and fiduciary conduct.
Currently, retirement plans come in many shapes and sizes, although there are two general categories: defined
benefit (“DB”) plans or defined contribution (“DC”) plans. DB plans (pensions and annuities) provide periodic
benefit payments, usually monthly, based on a formula using age, years of service, pay and/or other factors.4 In
DC plans the contribution, not the benefit, is defined under terms of the plan. 5 The employer and employee may
make the contributions to individual participant accounts for investment purposes.
The trend for the past couple of decades has been an almost complete shift away from DB plans, e.g. pensions
and annuities, toward DC retirement savings plans, e.g. 401(k), 403(b) and similar plans with individual accounts.6
As a result about two-thirds of all workers participate in DC plans.
* * *
Here are 7 suggested best practice areas for retirement savings plans that HRM may want to consider for 2010:
Hold Investment Managers accountable
Encourage maximum employee participation
Equip employees to make informed investment decisions
Evaluate (or resume) employer match contributions
Beware of “furlough fallout”
Plan ahead with pre-retirement planning programs
Learn Compliance Issues Re: Plan Changes
Employee Pension Benefit Plan" is a generic term used to describe most retirement plans under ERISA, § 3(2); DOL Reg. § 2530.3-2
Many retirements plans permit participants to choose between a lump sum payment and fixed monthly payments. (For an informative video presentation on this issue,
“Qualified” plans receive favorable tax treatment and are regulated by ERISA. The technical definition of qualified does not agree with the commonly used distinction. For
example, 403(b) plans are not considered qualified plans, but are treated and taxed almost identically.
The Shift From Defined Benefit Plans To Defined Contribution Plans by Samuel Estreicher & Laurence Gold, 11 Lewis & Clark L. Rev. 331 (2007); Also, EBRI Issue Brief
#249, September 2002
3. 1. Hold Investment Manager Accountable
Who’s Minding the Store?
Employers/Plan Sponsors need to hold Investment Managers accountable.7 After all they are responsible for
managing the investment of Plan contributions. One of the best ways to hold them accountable is to evaluate
their performance, as well as their proposed strategy and objectives for 2010.
One Plan – Several Fiduciaries
Investment Managers are one of several Plan fiduciaries.8 As such they have both the legal authority and a duty to
make decisions regarding financial matters on behalf of the employee/participants. Other fiduciaries with
assigned duties under retirement savings plans include those who 1) exercise discretionary authority or control
over management of the Plan or management or disposition of its assets, 2) render investment advice for a fee,
and/or 3) have discretionary authority or responsibility in Plan administration.
Role of HRM: Strategic Partner & Use of Investment Manager Checklists9
In light of the fact that there is so much involved in the management of the investment of Plan assets, and the
required high level of specialized expertise, what role should HRM play in this area? One suggestion is to use
comprehensive checklists for a step by step review of key areas, including (but not limited to):
compliance with applicable laws, trust documents and written investment policy statement
acceptable level of risk and appropriateness of portfolio diversification
definitions of each fiduciary’s duties and responsibilities
investment expenses and fees
application of Safe Harbor provisions10
financial reporting of investment performance
In light of extraordinary recent changes that have taken place in the global economy, there is a need to re-
examine each Plan’s investment policies and procedures. HRM should partner with their organization’s CFO or
other responsible finance officer in this effort. Strategic partnering is needed in order to insure a basic
understanding of the Plan’s investments to effectively communicate principle features of the Plan to
employee/participants and beneficiaries, particularly general investment options.
DOL regulation §2550.404(a)-1(b)(2). Investment performance is required to be periodically monitored for compliance with investment guidelines. Investment
considerations include diversification of risk, new volatility of portfolio, liquidity relative to plan’s funding objectives, projected return of portfolio relative to plan’s funding
objectives, fees, and particularly prevailing and projected economic conditions of investments.
Fiduciaries may also include Plan Sponsors, officers, principal shareholders, owners, Board of Directors, Retirement Committee Members, money managers and
investment advisors, Directed Trustees, Plan Administrators, and human resources managers.
For samples of comprehensive checklists, examine Arnold T. Beck’s “Investment Fiduciary Checklist” and “Setting Up a Due Diligence File” (www.fmacentral.com)
Employee and employer Safe Harbor matching or non-elective contributions are 100% vested immediately. (For explanation of safe harbor rules visit:
4. The investment policy has strategic importance. This policy sets objectives and goals, and assigns responsibilities,
risk tolerance, asset allocation, objective performance measurements, and criteria for selecting and monitoring
Other Investment Management Issues
Plan fiduciaries must exercise due diligence to control investment expenses and to avoid prohibited
transactions.11 The performance of other Plan service providers, e.g. trustees, record-keepers, also needs to be
ERISA requires Plan fiduciaries to be identified in a written plan document. This legal plan document must also
include funding policy, procedures for allocation of responsibility for operating and administering the plan,
amendment procedure and authority, and the basis on which contributions are made and benefits paid. 12
Plan assets must be held in trust by one or more trustees13, and the Trustee(s) must be named in plan document,
trust instrument, or appointed by a named fiduciary. The Trustee typically has exclusive authority and discretion
to manage and control plan assets, unless a designated as “directed trustee.”
Retirement plans should not be over invested in illiquid assets, such as real estate and commodities. Retirement
plan investments in real estate are restricted because real estate is an illiquid asset that generally cannot readily
be sold for cash when needed for distribution to participants. 14
2. Encourage Maximum Employee Participation
Save for (more than) a rainy day.
As a best practice, HRM should encourage employees to increase (or at least maintain) Plan contributions. One of
the biggest challenges in tough economic times for employees - and HRM - is to maintain participation in
retirement savings plans.
In response to the down economy, many organizations made unpleasant choices to eliminate positions, freeze
pay increases, reduce pay, and have layoffs. In such as belt tightening environment, employees predictably decide
to cut back or discontinue contributions to their retirement savings plans, perhaps with unintended
ERISA § 406(a) and IRC § 4975. Prohibited Transactions involve the sale, exchange or lease of property, lending of money or other extension of credit, or furnishing
goods, services or facilities, or transfer or use of plan asset between the Plan and Party in Interest
ERISA §§402(a)(1), 402 (b)(1)-(4). Note that the Trustee is not necessarily the Investment Manager.
ERISA § 403(a); Exceptions: insurance contracts, ERISA § 403(b)
For example, most IRA custodians limit available investments to traditional brokerage accounts such as stocks, bonds, and mutual funds, and do not permit real estate in
an IRA, unless it is held indirectly via a security, e.g. real estate investment trust (REIT). Problems that can occur with real estate investments in retirement plan portfolios
was recently demonstrated by public sector retirement plans, CalPERS (California Public Employees' Retirement System) and CalSTRS (California State Teachers' Retirement
System). The 2 systems may have lost more than ½ $billion due to cyclical real estate losses and related bankruptcies. CalPERS also lost nearly $1 billion on a single large
housing investment known as LandSource. (Sacramento Bee, Oct. 15, 2009, page 2 “Our Region”)
5. consequences. In many instances, HRM should be stepping up to encourage workers to contribute regularly and
significantly to their retirement accounts. Furthermore, HRM should be implementing communication strategies
that highlight the advantages of participation, despite the down economy. This best practice lessens “leakage” of
savings and discourages withdrawals, except as a last resort.
When the economy starts to recover turnover will tend to pick up. HRM needs to develop a strategy in
anticipation of such recovery. There will be a general reversal of turnover rates from the current low 7-8%
average annual rate to about 17% (median turnover in 2007 ) when the economy turns around.15 This strategy is
particularly important for employers who have stopped ER match contributions and who are thereby perceived as
not loyal to their employees. Post recession, workers will “pay close attention to how organizations treated
employees when times were tough,” warns Jennifer Schramm, manager of Workplace Trends and Forecasting
program at SHRM.
A new push in early 2010 should be made to encourage increased participation in retirement savings plans.
Although a growing number of workers in the over age 30 category are starting to increase participation anyway,
averaging 7.7% of pay.16 HRM needs to take steps to insure that younger participants are on board too.
Organizations should not miss out on the healthy increasing participation trend. The main advantage of riding out
the tough years is the avoidance of missed opportunities to purchase stocks at a relatively low price. When the
market turns the corner equities may be priced too high, possibly resulting in widespread inadequate savings for
retirement, and greater reliance on Social Security.
Special ERISA fiduciary protection
Employer/Plan Sponsors may also utilize the Qualified Default Investment Alternative (“QDIA”) option to
encourage participation. Generally, QDIA provides safe harbor relief from liability for a retirement savings plan’s
default investment when there are automatic enrollments.17
3. Equip participants to make informed investment decisions
Give a man a fish and you feed him for a day; teach a man to fish and he can charge a consultant’s fee
The best investment decisions are unemotional informed decisions. Yet, many participants frequently make
investment decisions based on their feelings, and solely in reaction to the latest swings in the marketplace.
SRHM Capital Benchmarking Database, page 96, HR Magazine, October 2009
Fidelity Investments 2009 2Q report shows that the trend of employees reducing contributions to retirement savings plans started to reverse at the end of 2008; 5% of
all participants actually increased their deferral rate while 3% reduced contributions; those that maintained contributions during the period 2004-2008 netted on average
netted a 35% increase in account values. The report, however, also shows that “only 44% of workers in their 20s contribute to retirement savings plans.”
The Pension Protection Act of 2006(PPA) includes the rules governing automatic enrollment in 401(k) plans and the availability of investment advice. In addition, the PPA
made permanent the retirement savings incentives and contribution limits of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).
6. As a best practice, HRM can help employees make appropriate (informed) choices with their investment options
by offering a valuable employee benefit: a financial planning and advisor program.
In the process of providing assistance HRM must, however, keep in mind the important distinction between
investment advice and investment education in participant-directed retirement plans.
Employer/Plan Sponsors and third party agents are permitted to educate employees about investment options.
Generally, only a licensed professional, e.g. SEC-registered Investment Advisor is legally permitted to give
investment advice. Investment education, as opposed to advice, is defined by the Department of Labor as the
furnishing of the following general categories of information and materials to participants or beneficiaries in
retirement savings plan participant-directed individual accounts: 1) Plan information; 2) general financial and
investment information, e.g. historic differences in rates of return between different asset classes (e.g., equities,
bonds, or cash) based on standard market indices, 3) asset allocation models, and 4) interactive investment
Rendering investment advice to a participant or beneficiary, however, is determined based on facts and
circumstances, but generally involves 1) “furnishing information relating to the value of securities or other
property, or recommendations regarding investing in, purchasing, or selling securities or other property, and 2)
the person, either directly or indirectly, (A) has discretionary authority or control with respect to purchasing or
selling securities or other property for the participant or beneficiary, or (B) renders the advice on a regular basis to
the participant or beneficiary, pursuant to a mutual agreement, arrangement or understanding (written or
otherwise) with the participant or beneficiary that the advice will serve as a primary basis for the participant's or
beneficiary's investment decisions with respect to plan assets and that such person will render individualized
advice based on the particular needs of the participant or beneficiary.”
Education: What, How, Who
A fiduciary named under a Plan, including HRM, may be exempt from liability for investment decisions under DC
plans when complying with proper instructions of participants.18 However, a fiduciary is protected only to the
degree that a participant actually exercises decision-making control. It is important for fiduciaries to provide
sufficient information to participants to make an informed investment decision in order to be exempt from
ERISA § 404(c), et al; Employer/Plan Sponsors must still comply with the nondiscrimination and prohibited transaction rules under
ERISA. Specifically, if an investment advice offered to participants imposes charges or requires minimum account balances that result in a
disproportionate number of highly compensated participants – as compared to non-highly compensated participants - taking advantage of
such advice, then there may be violation of the nondiscrimination requirements of 401(a)(4) of the Internal Revenue Code and Treas. Reg.
For straightforward explanation of top-heavy and anti-discrimination rules under ERISA by the Profit Sharing Council of America, go to:
7. Essentially, participants must have an opportunity to choose between a broad range of investment alternatives. A
broad range of asset classes and styles, generally at least 3 diverse core investment alternatives, e.g. equities,
bonds or debt, and cash or Guaranteed Investment Contracts (GICs), are required to be made available from
which participants or beneficiaries may choose to invest in based on appropriate risk tolerance.19 Participants
must also be able to give investment directions at least once every three months.
There are certain duties that may not be delegated to employee/participants that may cause a Plan fiduciary to be
liable for investment activities. For example, participants must receive information materials regarding available
investment choices, as well as prospectuses of investment funds in which assets are held. Additionally,
participants and beneficiaries must be given information about investment managers and fees or expenses
Someone once said that education is what you have left after you have lost all your notes. The question then
becomes how good our note-taking is. As the baby boomer generation gets older and closer to retirement, this
group in particular needs to figuratively “take good notes” in order to make important investment decisions.
There is a legitimate national concern about whether older workers are saving enough for retirement. We as a
society in the U.S. have not been adequately saving for our "golden years.”20.
Employer/Plan Sponsor Duty of Care
HRM is in an ideal position to influence employees to properly save for retirement, primarily by helping them to
make informed decisions regarding how their retirement savings plan contributions are invested. Employer/Plan
Sponsors have a fiduciary duty to educate participants. Conversely, a breach of this duty may occur when
employees are not given enough information or choices to prepare them for retirement.
Employees are hesitant to admit that they do not know the meaning of various investment terms and may never
ask for clarification. Employers need to take the time to define the terms within a variety of communication
approaches, e.g. newsletters, employee handbooks, bulletin boards, payroll stuffers, intranet.
A diverse workforce means that employees have different financial goals and objectives. Therefore, offering
training sessions or hold meetings on retirement options need to be targeted to various age groups or knowledge
In summary, an HRM best practice is to provide the valuable employee benefit of a financial planning and advisor
program. These programs primarily bestow advice regarding retirement savings plan investments to insure that
employees in participant-directed investment accounts make informed decisions. After careful selection of a
Ibid. For more information on requirements for broad range of investments visit:
For example, reliable studies at http://www.bea.gov/BRIEFRM/SAVING.HTM and http://dinomite.net/2009/united-states-personal-
savings-rate / show that while personal savings rate (as a percentage of personal income) has recently risen to almost 5% - perhaps
temporary due to national feelings of financial insecurity from the down economy – the rate for the past decade averaged only about 2%.
8. licensed financial planner with a proven track record, HRM would need to develop a comprehensive strategy to
effectively communicate the program to all employees.21
4. Evaluate (or resume) employer match contributions
Time To “Mix & Match”
Nearly 1/3 of all U.S. employers with contributory retirement savings plans have recently reduced or suspended
matching contributions. “In tough economic times, many employers are seeking to cut compensation-related
costs; employer contributions to 401(k) plans are an obvious target. While reducing employer contributions can
hurt employee morale, it is sometimes a better option for reducing labor costs than furloughs and layoffs, for
The Internal Revenue Code requires qualified DC Plans meet special non-discrimination tests to insure lower paid
workers join such plans. Therefore, Employer/Plan Sponsor must be cautious when adjusting employer match
contributions, particularly with regard to compliance with notice requirements and non-discrimination standards.
Most 401(k) plans, for example, are written to give the employer the discretion to set the amount of employer
match at any time. Reducing or suspending employer match contributions that are intended as safe harbor
contribution must provide:
Eligible employees are provided with timely notice and explanation;
An effective date of reduction or suspension no earlier than the later of 30 days after eligible employees are
provided the notice and the date amendment is adopted23;
Eligible employees with a reasonable opportunity to change their elective contributions;
A Plan amendment for satisfying ADP/ACP tests the entire Plan Year; and,
Lastly, the requirements for the safe harbor must have been satisfied for the period through the effective date of
Conversely, stopping employer match contributions may be impermissible if 1) it would result in discrimination in
favor of highly compensated employees (generally employees who earned in excess of $110,000 in 2009), or 2) it
would violate a safe harbor commitment.
Automatic Contribution Arrangements Alternative (“ACA”)
Another way to increase employee participation in DC plans, albeit more expensive, is to utilize a special safe-
harbor ACA alternative. The primary purpose would also be to insure compliance with non-discrimination
For examples of a successful personal financial planning & advisor programs (includes user-friendly video) visit:
https://pwceadvisor.pwc.com/portal/images/Demo/Demo.swf and http://www.ayco.com/
Spectrem Group, 2008-2009 report; Details at http://www.spectrem.com/
IRC §4980F(e) and ERISA § 204(h); “Anti-cut back” rules require advance notice of change to participants and Alternate Payees; DC
plans that specifically states the level of employer match and commits the employer to make that match must amend plan on a
prospective basis for any modification. (For related infomrative article visit:
9. provisions of ERISA by increasing Plan participation.24 A particular retirement savings plan may thereby satisfy
employer contribution requirements through safe-harbor employer non-elective contributions to non-highly
compensated employees, rather than through safe-harbor matching contributions to all eligible participants.
In summary, an HRM best practice is to resume or increase employer match contributions as soon as possible
because when the economy fully turns around, the cost of recruitment will quite possibly increase to a point
greater than the savings from not making the match.
5. Beware of “Furlough Fallout”
Public sector employers in 28 states, including California25, have used furloughs to stretch 2009 budgets. Furloughs have
also frequently been used in the private sector.
The best practice for handling necessary furloughs is to minimize the adverse impact, particularly as related to retirement
savings plans. Since a furlough is an unpaid leave (typically about 1 to 2 weeks), contributions to retirement savings plans
would be reduced. The negative impact of furloughs may be minimized by:
offering retroactive “make up” contribution, subject to specific condition applied on a uniform non-discriminatory
meeting one-on-one with affected employees;
being flexible regarding when leave without pay is taken, but subject to supervisor approval, e.g. around child care
spreading pay losses over several future pay periods. Give as much advance notice as possible to allow employees
time to budget
Encouraging employees to share ideas on how to they may constructively use time off;
Giving full and transparent disclosure to the extent possible, and include information about unemployment benefits;
Explain how retirement savings plan benefits and other employee benefit are affected;
Addressing post-furlough morale issues; Make an announcement of the organization’s sincere appreciation of
employees’ sacrifices to help organization survive during difficult times.
6. Plan ahead with pre-retirement planning programs
I started out with nothing and I still have most of it left.
As Baby Boomers approach retirement age, they face a series of profoundly important decisions that will
determine their economic wellbeing during their remaining lifetime. They must decide when to retire, when to
start Social Security income payments and employer pensions, and how DC plan balances should be distributes.
Lack of knowledge in these areas may lead to poor decision making.26
§401(k)(13), 414(w) of the Internal Revenue Code; For more detailed information on “ACA”, including notice requirements and
sample employee communications, visit: http://ftp.irs.gov/pub/irs-tege/sample_notice.pdf
For background: http://www.shrm.org/Publications/hrmagazine/EditorialContent/Pages/0909fox.aspx
For an informative example of a comprehensive retirement planning software made by Society of Actuaries, visit
10. You are only young once, but you can be immature forever.
The economic meltdown has caused employees to postpone their plan for retirement. One of the many causes for
postponement is the fact that those invested primarily in equities have seen their retirement assets shrink by as
much as 30% to 40%.
Many employers are implementing win-win “phased retirements” as a form of change in response to the current
economic crisis. As part of pre-retirement planning programs, employers may offer older workers the option of
continuing to contribute their talent and experience on scaled-back basis. Employers save on salary expense,
while employees who cannot currently afford to retire are able to continue working but at fewer and more
flexible hours with less responsibility. Phased retirements may require changes to organizational policies,
amendments to plans, and/or the development and implementation of “bridge” plans or bonuses. One study
shows that nearly 24 percent of workers over age 50 participate in some type of phased retirement
It is also important to advise any employees eligible for the program to determine any impact continued working
would have on Social Security benefits and overall financial planning.
* * *
It’s not the pace of life that bothers me; it’s the sudden stop at the end
HRM may learn about pre-retirement planning program by first surveying services offered by professional consultants.28
However, beware of firms merely marketing their insurance and investment products.
The complexity of decision that have to be made, coupled with the postponement and phased retirement trends
have resulted in increased need for pre-retirement planning. Older workers who have been forced to leave their
jobs must also make decisions on how and when retirement benefits are to be distributed, e.g. cash out, IRA
rollovers, deferral, immediate annuity, or conversion to deferred annuity.
7. Learn Compliance Issues Re: Plan Changes
Look Before You Leap
The following are highlights of some key court cases that relate to retirement savings plans. Monitoring landmark
court rulings and new laws enables HRM to interface with legal counsel, and to build a basic understanding of
legal issues that may impact retirement savings plans.
Retrieved October 15, 2009 at:
For information on retirement planning consultants, access: http://www.mercer.com/home.htm; http://www.retirement-planning-
software-guide.com/retirement-planning-consultants.html ; http://www.laterlife.com/laterlife-learning-services.htm ]
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11. Highlights – Recent Court Cases
Pegram v. Herdrich, 530 U.S. 211, 226 (2000) – Breach of ERISA fiduciary duty
The threshold question is whether [the defendant] was acting as a fiduciary, i.e. was performing a fiduciary function, when
taking the action subject to complaint. (ERISA § 502(a)(2): codified at 29 U.S.C. § 1132(a)(2) and authorizes a suit by a plan
participant “for appropriate relief” against a plan fiduciary for breach of fiduciary duty, i.e. harmful errors in Plan
Vaughn v. Bay Environmental Management, Inc., 544 F.3d 1008 (9th Cir. 2008) – Former participants have standing to
A former employee who has voluntarily withdrawn account balance from a defined contribution ERISA plan has statutory
standing as a “participant” of that plan, and may hereby assert claims for breach of fiduciary duty under section502(a)(2) of
ERISA even if claims under Section § 502(a)(1)(B) are also available; Participants who voluntarily cash out their defined
contributions plans have statutory and constitutional standing to assert breach of fiduciary duty claims under ERISA
section 502(a)(2) even if relief is available under 502(a)(1)(B).
Paulsen v. CNF Inc., 559 F.3d 1061, 1073 (9th Cir. 2009)
The Supreme Court has held that recovery for a violation of 29 U.S.C. § 1109 for breach of fiduciary duty inures to the
benefit of the plan as a whole, and not to an individual beneficiary.”
LaRue v. DeWolff, Boberg & Assocs., Inc., 128 S. Ct. 1020 (2008)
Supreme Court held that an ERISA plan participant may recover monetary losses to individual (DC)plan account due to an
alleged fiduciary breach (failure to implement investment election in a timely manner to avoid drop in stock market).
Steve Harris, et al. v. Amgen, Inc. et al., 2009 U.S. App. LEXIS 15499; Ninth Circuit, No. 08-55389
Employees who cash out of a defined contribution ERISA plan are still “participants” in that plan, as defined by 29 U.S.C. §
1002(7), regardless of whether they withdrew their assets voluntarily;
Background: Harris and Ramos filed a class action complaint alleging that during a 22-month class period the defendants
breached their fiduciary duties by allowing the Plans to purchase and hold Amgen stock while knowing that the stock price
was artificially inflated because of improper off-label drug marketing and sales.
Braden v. Wal-Mart - 8th Cir. November, 2008 - $10B 401(k) plan – Excessive fees issue
Class action lawsuit filed alleges that Wal-Mart violated mutual fund ERISA statutes and cost its 401(k) employee
plan holders and investors $60 million in unnecessary expenditures by purchasing expensive mutual funds, when
cheaper alternatives were available.
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12. Wal-Mart 401(k) plan is one of the largest plans in the U.S., with over 1 million participants and almost $10 billion in
assets under the plan.
The Eighth Circuit will hear appeal on the issue of excessive fees and alleged kickbacks, and will focus on the plans size
in reviewing its ability to have negotiated the fees to the participants. (Wal-Mart 401(k) plan offers 10 mutual funds, a
common/collective trust, Wal-Mart common stock, and a stable value fund. )
In re Tyco International Ltd. Multidistrict Litigation, D.N.H., No. 02-1335-PB
Tyco Fiduciaries not shielded by ERISA section 404(c); The U.S. District Court of the District of New Hampshire
appears to be in line with DOL’s position on the extent of protection offered by ERISA section 404(c). Tyco offered
company stock as an Plan investment option; Court held that Tyco could not use 404(c) as a defense for choosing
poor investment options for the plan.
Note #1: If losses occur as a result of participants’ direct control in investment choices, as opposed to fiduciary’s direct
control, then Plan fiduciary should not be held liable.
Note #2: The Seventh Circuit held that participants had "control" over the investments and, therefore, ERISA section 404(c)
shielded the fiduciaries from liability. The participants alleged that the fiduciaries breached their duties by failing to inform
the participants of the fees associated with the investments in their accounts. The DOL stated that it is the employer not the
participant who "controls" the investment menu, since it is the employer choosing the investment line up within the plan.
ERISA section 404(c) cannot shield the employer from choosing investments that have excessive fees. The Seventh Circuit
did not agree.
(More details are shown at: http://www.planadviser.com/NewsCompliance.aspx?id=2918;
Register v. PNC Fin. Servs. Group, Inc., 477 F.3d 56, 61-62 (3d Cir. 2007)
Employee bears the investment risks and the employer does not guarantee a retirement benefit (defined
contribution plan") to the employee;
AK Steel Corporation Retirement Accumulation Pension Plan, Et Al v West, No. 07-663 – Cash Balance plan issue;
ERISA's anti-forfeiture and actuarial-equivalence provisions
Participant took early retirement and elected to receive pension benefits in a lump-sum distribution. If the rate used to
calculate interest credits is greater than statutory discount rate, then the lump-sum benefit would be greater than the
participant's hypothetical account balance on the date of distribution.
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13. Alternative form must be the “actuarial equivalent” of an annuity commencing at normal retirement age;
Ambiguity in Plan formula calculation must be resolved in participant’s favor to avoid violation of ERISA's anti-
forfeiture and actuarial-equivalence provisions.
* * *
Various compliance issues must be carefully considered before making retirement savings plan changes. Other
compliance issues may inadvertently arise in relation to cost-cutting measures.
As employers look for ways to cut costs to stay competitive, alternatives outside of Plan changes should be
considered, e.g. suspension of pay increases, furloughs, unpaid vacations, and hiring freezes. “There is no denying
the need to cut costs as revenues decline. But we will be better off as a whole if employers temporarily cut pay
more steeply, or perhaps shed a few more jobs, rather than create a new norm whereby retirement plans are
funded only during economically healthy years.” (J. Nittoli, AVP, Rockefellers Foundation, May 20, 2009)
The foregoing highlights are not intended as an exhaustive listing of court cases and regulations relating to retirement
savings plans. Plan Administrators still have to meet annual reporting and disclosure requirements, anti-discrimination
testing, and occasional plan amendments necessitated by new statutes. HRMs should regularly keep abreast of these types
of compliance issues by attending seminars, workshops, and watching for reliable professional “legal updates”.29
An excellent source for keeping abreast of landmark court cases, rulings, and related statutes and informative seminars, visit
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