Enacted in 1974, ERISA celebrates its 45th birthday this year. A lot has changed in those 45 years. While ERISA has kept up with the changes at time, one area where ERISA has not stayed current is Section 404(b). Here we discuss this section in brief and offer a word of caution to ERISA fiduciaries pursuing global investment strategies.

ERISA Section 404(b) is a sneaky section, stuck between two arguably more prominent sections: Section 404(a), which sets forth the fiduciary duties, and Section 404(c), which helps fiduciaries protect themselves against claims of breach of those duties. But there between them—clocking in at a slim 44 words—is Section 404(b):

Indicia of Ownership of Assets Outside the Jurisdiction of District Courts.—Except as authorized by the Secretary by regulation, no fiduciary may maintain the indicia of ownership of any assets of a plan outside the jurisdiction of the district courts of the United States.

After more than two years without one, three ERISA cases will come before the US Supreme Court in 2019–2020. Exciting times for ERISA attorneys, to be sure, but each case also presents issues of practical consequence for plan sponsors, fiduciaries, and participants in ERISA plans across the country.

Intel Corp. Investment Policy Committee v. Sulyma, No. 18-1116

In a case that may end up being the most impactful, the Court will address how to apply ERISA’s three-year “actual knowledge” statute of limitations. ERISA Section 413 requires that a plaintiff file suit in the six years following an alleged breach or violation. But if a plaintiff has “actual knowledge” of a breach or violation, that period shrinks to three years. In this case, Intel argued that the plaintiff’s claims were time barred because plan disclosures gave the plaintiff “actual knowledge” of all information necessary to challenge the Intel plans’ investments and fees—even though the plaintiff claimed not to have read them or remember whether he had read them. The US Court of Appeals for the Ninth Circuit held that this was enough to create a factual dispute, preventing summary judgment and requiring a trial.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was passed in the US House of Representatives on May 23. While the act is still pending in the Senate, it contains many provisions that would affect sponsors of large defined contribution and 401(k) plans, as well as sponsors of traditional pension plans and retirement plan service providers. Please see our LawFlash summarizing the act’s key provisions and noting the legislative hurdles that it faces.

The Internal Revenue Service (IRS) has primary jurisdiction over the qualified status of retirement plans, and this jurisdiction includes examining plans. An IRS agent can notify a plan sponsor at any time that its plan has been selected for audit. A plan sponsor should thus consider a compliance self-review to minimize the pain of audit and ensure that the plan is operating correctly, that its plan documents comport with plan operation, and that plan records are complete and organized before the IRS comes knocking. Please see our recent LawFlash detailing the top 10 issues of IRS focus in its audit of qualified plans. Also, please see our prior LawFlash addressing the top 10 areas of focus in US Department of Labor (DOL) investigations of retirement plans.

If you have questions about IRS or DOL investigations of retirement plans, please reach out to the LawFlash authors or your Morgan Lewis contacts.

Partner Matthew Hawes was quoted in a recent Law360 article about strategies employers can use to safeguard their retirement plans against cybersecurity risks. Matt discusses how the lack of sufficient protections against cybersecurity breaches can been seen as a violation of fiduciary duty. Read the full article, 4 Tips For Handling Retirement Plans’ Cybersecurity Risks.

The US Department of Labor has been extremely active in recent years as the federal agency investigating compliance with and enforcing the fiduciary responsibility provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA). These investigations have frequently resulted in findings of fiduciary breach and monetary recoveries for ERISA retirement plans. Please see our recent LawFlash on this topic, and reach out to the LawFlash authors or your Morgan Lewis contacts if you have additional questions.

The Internal Revenue Service (IRS) issued an important update late last month to the Employee Plans Compliance Resolution System (EPCRS) in Revenue Procedure 2019-19. The IRS provided a helpful summary of the changes. The most significant changes in the updated EPCRS, which took effect as of April 19, 2019, involved the expansion of the Self-Correction Program (SCP) to allow the correction of certain plan document and operational errors by plan amendment and to correct certain loan failures, obviating the need for plan sponsors to file Voluntary Correction Program (VCP) applications (and to pay the required user fees) for these failures.

In Revenue Procedure 2019-20, the Internal Revenue Service (IRS) provides for a limited expansion of the determination letter program for certain limited categories of individually designed retirement plans – certain “statutory hybrid plans” and “merged plans” as described in more detail below.

As background, the IRS in 2016 formally limited the availability of the determination letter program for individually designed retirement plans to the plan’s initial qualification and then upon its termination. The IRS’s decision was a blow to sponsors of individually designed plans that had come to rely on the determination letter program for purposes of confirming periodically that a plan’s written form satisfied the applicable tax-qualification requirements of the Internal Revenue Code. The decision was particularly difficult for sponsors of older and larger defined benefit pension plans (many of which included complicated benefit formulae and/or legacy provisions from previously merged plans); such plans are ill-suited for being maintained on a third-party provider’s prototype or volume submitter document.

The Employee Benefits Security Administration (EBSA) at the US Department of Labor (DOL) compiles statistics every year to measure its activities as the agency responsible for investigating and enforcing the fiduciary duties under ERISA. Statistics for the agency’s 2018 fiscal year enforcement activities affirm that EBSA’s enforcement program remains extremely active, with a particular focus on terminated vested participant investigations.

It is apparent from the extensive investigation of defined benefit plans on the part of the US Department of Labor (DOL) that the DOL is quite focused on timely payment of plan benefits to participants. The DOL is interested not only in when benefits begin, but in how a participant is made whole when benefits begin after normal retirement age. A defined benefit plan must generally increase a normal retirement benefit actuarially where payment begins after a participant’s normal retirement age. The Internal Revenue Code (Code) and underlying regulations, however, allow a plan to pay instead the normal retirement benefit amount plus make-up payments in some instances. In light of the DOL’s scrutiny in this area, it may be wise for plan sponsors to review pertinent plan provisions and operation to make sure they comply with applicable rules.