The ERISA Edit: Spotlight on Recent DOL Activity
Employee Benefits Alert
DOL Declines to Extend Comment Deadline for New "Fiduciary Rule," But Schedules Hearing
The U.S. Department of Labor (DOL) declined requests from multiple trade organizations to extend the deadline for the submission of comments to its new proposed rulemaking to amend the ERISA definition of an "investment advice" fiduciary, but has indicated that public hearings on the proposal will begin on December 12, 2023. According to DOL, an extension was not warranted because its current proposal reflects significant input already received from public engagement over 13 years and holding public hearings before the end of the comment period will allow for comments to be informed by the testimony, although DOL specifically did not address whether extending the comment period would benefit the regulated community in addressing changes in the new proposed rule that were not present in the 2010 and 2016 rulemaking. Industry groups have stated that the comment period is "brief" and "unprecedented" for a major federal rulemaking and will not allow for meaningful public engagement. They also argued that an extension is warranted because the timing of the comment period over several federal holidays will restrict the number of actual working days for the public to prepare comments.
The hearings will be held online via WebEx beginning at 9:00 a.m. EST and are expected to last two to three days. Requests to testify at the hearing must be submitted on or before November 29, 2023, via www.regulations.gov. Comments on the proposed rule, and on amendments to related prohibited transactions exemptions, are due on January 2, 2024.
DOL Urges Fifth Circuit to Reject Limitation on Plan-Wide Relief in ESOP Class Action
Last week, DOL filed an amicus brief in support of the plaintiffs-appellees in Coleman v. Brozen, No. 23-10832 (5th Cir. Nov. 16, 2023), urging the U.S. Court of Appeals for the Fifth Circuit to affirm a district court's holding that an arbitration provision in a plan document limiting ERISA plan participants to individualized relief was unenforceable. Participants in the RVNB Holdings, Inc. (RVNB) Employee Stock Ownership Plan (the Plan) filed a putative class action alleging ERISA fiduciary breach and prohibited transaction violations under ERISA section 502(a)(2) against the Plan trustee and the RVNB Board of Directors related to a 2017 decision by the trustee to terminate the Plan and sell the Plan's company shares back to RVNB for what plaintiffs asserted was less than fair market value. According to the allegations, the termination and share redemption was done to facilitate a subsequent sale by the company to a private equity firm benefiting company executives. The district court, aligning with the Third, Seventh and Tenth Circuits, denied the defendants-appellants' motion to compel arbitration, including enforcement of the remedy limitation, concluding that it prevented the effective vindication of the statutory right to seek plan-wide relief under ERISA sections 502(a)(2) and 409(a). DOL urged the Fifth Circuit to affirm that decision, arguing that the non-severable remedy limitation in the arbitration provision constitutes an unenforceable prospective waiver of remedies authorized by ERISA.
In its brief, DOL argued that the district court was correct in rejecting each of the defendants-appellants' arguments in support of the arbitration provision. Among other things, DOL rejected the position that the Supreme Court's ruling in LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248 (2008), should be interpreted to mean that plaintiffs can fully vindicate their statutory rights in individualized proceedings that limit their recovery to their individual accounts. DOL also rejected the argument that the district court's decision was at odds with the Supreme Court's decision in Viking River Cruises, Inc. v. Moriana, 142 S.Ct. 1906 (2022), which, in part, upheld employers' ability to obtain waivers of employees' rights under California state law to pursue aggregate claims on behalf of other employees against employers for labor law violations. DOL argues that ERISA section 502(a)(2) claims seeking class-wide relief are "broadly analogous" to the type of representative claims under California law that the Supreme Court found could be subject to state non-waiver rules without conflicting with the Federal Arbitration Act (FAA), emphasizing the Court's discussion in Viking River that "the FAA does not require courts to enforce contractual waivers of substantive rights and remedies."
The Fifth Circuit has not yet weighed in on the enforceability of contractual limitations on remedies in arbitration provisions in ERISA plans or participant employment agreements. A decision in this case is expected in early 2024.
GAO Issues Audit Report on EBSA's Resources and Management of Responsibilities
The U.S. General Accounting Office (GAO) released a report of its audit of DOL's Employee Benefits Security Administration (EBSA), finding a decline in the agency's human and financial resources over the past decade in the face of increased responsibilities and a lack of "a systematic process for reallocating resources." Noteworthy points related to ERISA enforcement in the report include:
- One-quarter to one-third of EBSA's enforcement budget went to mental health parity and No Surprises Act (NSA) responsibilities in fiscal year 2022.
- EBSA would like to dedicate "a full division to its missing participants program" and modernizing its efforts to respond to hard-to-value assets such as alternative investments and private equity and be more pro-active in its enforcement of Multiple Employer Welfare Arrangements (MEWAs).
- EBSA has taken several steps to manage its limited resources, such as focusing on cases with high monetary recoveries, establishing timeliness and monetary benchmarks for their investigations, and moving trainings online to save costs.
GAO recommends that the Secretary of Labor direct EBSA to develop and document a systematic decision-making process for oversight responsibilities and allocating staff in a changing budget environment.
Informational Copies of 2023 Form 5500 and Related Schedules Now Available
EBSA, the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC) recently released informational copies of the 2023 Form 5500, Form 5500-SF, IRS Form 5500-EZ, IRS Form 5558, and their related instructions online. The IRS will release paper copies of the 2023 Form 5500-EZ and its instructions separately and provide the form's instructions on the agency's website after January 1, 2024. The Changes to Note section of the 2023 instructions for each of the forms highlights important modifications to the forms, schedules, and instructions. The Form 5500 and Form 5500-SF Changes to Note sections include changes related to the following:
- A new Schedule DCG for defined contribution group reporting arrangements
- A new Schedule MEP for multiple-employer pension plans
- Revised small plan audit participant count method
- Improved Schedule H administrative expense transparency
- Schedule MB regarding asset reporting for plans receiving special financial assistance
- Schedule R tax compliance questions and revisions to asset allocation reporting
- Schedule SB target normal cost reporting clarifications
Informational copies cannot be used to file a 2023 Form 5500 Series Annual Return/Report. Filers should monitor efast.dol.gov for information on when the official electronic versions are available and can be filed using software from EFAST2-approved vendors or directly through the EFAST2 website.
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