• Benefits Bulletin

    Who Owns A Participant's Personal Information?

    Andrew S. Williams
    10/24/19

    Service providers for 401(k) and other retirement plans require access to personal data on participants including name, age, address, date of hire, compensation and possibly social security number. This data is necessary to allow plan administrators and recordkeepers to properly allocate plan contributions and earnings to individual participant accounts, to prepare participant statements and for income tax reporting purposes.

    Some financial institutions providing services to retirement plans have used such participant data to solicit sales of their non-plan products and services, such as individual retirement accounts, outside wealth management services, and life or disability insurance. So, are these plan service providers simply taking advantage of a business opportunity or are they improperly exploiting information that belongs to the retirement plan and its participants? In legal terms, is the personal information of retirement plan participants a “plan asset” that plan fiduciaries must protect, or is it just incidental data of little commercial value?

    At least one district court has concluded that the personal information of retirement plan participants is not a plan asset because it is not “property the plan could sell or lease” (see _Divane v. Northwestern University _which is discussed in more detail HERE).

    But there is a thriving commercial market for personal information and it is bought and sold for marketing purposes every day (think Google here). So, should retirement plan fiduciaries act to protect the personal information of plan participants while the courts sort this out? Recent settlements in cases involving Vanderbilt University and Johns Hopkins University strongly suggest that the answer to that question is “yes.” These settlements, in addition to requiring the payment of millions of dollars to resolve a variety of claims involving retirement plan administration, also require the university plan sponsors to prohibit plan service providers from soliciting current plan participants to “cross-sell” their non-plan products and services. Participant data has value and, like medical records, is not disclosed to service providers with the expectation that it will be used by the provider for its own commercial purposes.

    Takeaways:

    Plan fiduciaries should protect participant information from non-plan use by plan service providers. Whether the basis for doing so is protection of personal privacy or the preservation of “plan assets,” the trend is clear. And that is the case because one court’s conclusion that personal information is not “property” simply does not reflect commercial reality.

    Plan fiduciaries can take action by including appropriate provisions in their agreements with plan service providers. For plans in mid contract, consider inquiring about the non-plan use of participant data and objecting to any such use that comes to their attention. Plan service providers themselves need to take stock of their sales practices and evaluate them in the light of the Vanderbilt and Johns Hopkins settlements as well as any opinion that may be issued in the appeal of Divane v. Northwestern University.

  • Benefits Bulletin

    Retirement Plan Records and the Forever Rule

    Andrew S. Williams
    9/20/19

    A former employee attains age 65 and applies for a retirement pension. That’s normally a routine situation for any plan administrator. But what if the employee stopped rendering covered service 24 years ago and the plan administrator has no records of the employee or his employment because he worked for a separate company that was acquired 14 years ago? Can the plan deny the benefit claim because it has no records relating to either the prior employer’s plan participation or the employee? Or, does the employee have a valid claim because he has W-2s and paystubs showing that he was employed by the separate company for at least a portion of his claimed tenure?

    When both parties have insufficient records, who loses because they have the burden of proof?

    At least one court has considered this situation and concluded that the employee does not have the burden of proof for “matters within the defendant’s control.” So, if the employee asserts a prima facie case that he is owed a benefit, the burden of proof shifts to the plan. This is especially the case where it would be “unreasonable” for the employee to prove his actual hours worked over each of his 20 years of employment during the 60s, 70s, and 80s. The matter was remanded to the trial court for disposition in accordance with these principles by the 9th Circuit Court of Appeals in Estate of Barton v. ADT Security Services Pension Plan (2016).

    It is worth noting that ERISA imposes specific record retention requirements on retirement plans and their administrators. As set out in proposed Department of Labor regulations, participant benefit records must be retained

    "…as long as a possibility exists that they might be relevant to a determination of the benefit entitlements of a participant or beneficiary."

    As the IRS explains: “You should keep retirement plan records until the trust…has paid all benefits and enough time has passed that the plan won’t be audited.” In plan terms, that means forever – actually forever plus the audit period!

    Less restrictive rules apply to retirement plan records that do not relate to the determination of benefit entitlements such as records used to prepare annual reports on IRS Form 5500, which must be retained for six years after the date of filing.

    Takeaways:

    Retirement plan retention requirements are pretty clear. The retention lapses that do occur both in the Estate of Barton case and in our experience usually result from business acquisitions where the acquiring business either does not receive or fails to retain the “forever” records of the acquired entity. So, any due diligence checklist in a business acquisition should contain a detailed inquiry about the target’s “forever” records. And yes, you can retain your own forever records electronically in accordance with applicable Department of Labor regulations.

  • Benefits Bulletin

    ERISA Fiduciary Duties: How to Help Your Clients

    Andrew S. Williams
    11/19/18

    Whether you are an accountant, lawyer, banker, business consultant or investment advisor, many of your business clients will have a 401(k) or other qualified retirement plan. You may not specialize in retirement plans, but consider the following as the kinds of things you might do to assist your clients and prospects with their retirement plans:

    • Introduce your client to responsible third party administrators (TPAs), investment advisors, record keepers and, if necessary, ERISA counsel
    • Make sure your client has an investment policy statement and uses it as a basis for investment decisions
    • Your client should meet at least twice a year with an investment advisor to discuss the plan’s investment funds – and document those discussions
    • Encourage your client to maintain fiduciary liability insurance (not to be confused with the plan’s required ERISA fidelity bond!)
    • See that your client has participants sign a release when they receive benefit distributions (see Howell v. Motorola, Inc.)
    • Suggest that your client include low cost index funds as 401(k) investment selections to provide a defense to claims of excessive costs or poor performance on other fund selections (see Divane v. Northwestern University)
    • Encourage your client to use independent ERISA counsel to assure confidentiality of sensitive information (the company’s lawyer has a confidential attorney-client relationship only with the company, not the plan or its fiduciaries)
  • Benefits Bulletin

    Is Illinois Secure Choice Your Best Option?

    Andrew S. Williams
    8/6/18

    Employers with 25 or more employees in Illinois will be subject to the Secure Choice Savings Program Act (the “Act”) if they do not already have an employer sponsored retirement arrangement like a 401(k) plan. For such employers with 500 or more Illinois employees that have been in business for at least two years, the compliance deadline is November 1, 2018. By that date, these employers must register at the Secure Choice website here and enroll their employees. Subject employers with fewer than 500 Illinois employees have compliance dates deferred until July 1, 2019 (100-499 employees) and November 1, 2019 (25-99 employees).

    Here are some of the details:

    • The required retirement arrangement includes a separate Roth IRA account for each employee that is set up by the employer. Employees are automatically enrolled at a five percent contribution rate but they can elect out of the plan at any time. There are no employer fees to participate in the program and no employer retirement contributions are required or permitted.

    • The program is administered through the Illinois State Treasurer’s Office by a private contractor that will act as the Roth IRA “trustee,” process contributions, manage account records and maintain the website. Program costs are funded through an annual administrative charge not to exceed .75 percent of employee account balances. The Treasurer’s Office also charges employees a fee of .05 percent to cover its costs.

    • Employees may choose between several diversified mutual funds for the investment of their accounts and, if they make no investment direction, their accounts will default into a target date fund. Employee accounts are portable and may be transferred to other Illinois employers.

    • The employer’s role as “facilitator” includes registering as a participating employer, establishing an online “employer portal,” setting up a payroll deduction process, and remitting employee contributions.

    • The program is established with the intent to avoid complication for employers under ERISA, the federal pension law, and it is anticipated that employers will be subject to none of the ERISA responsibilities that apply to sponsors of 401(k) plans.

    • Non-compliant employers are subject to a fine of $250.00 per employee per year.

    The Fine Print:

    Official guidance available at this time provides the following specifics:

    • For purposes of determining program applicability, employers need to count all employees 18 years of age or older who receive wages taxable in Illinois (this includes part-time employees, but some seasonal employees can be excluded).

    • Illinois employers, including not-for-profit organizations, are subject to the Act if: (1) at no time during the prior calendar year they employed fewer than 25 Illinois employees, (2) they have been in business at least two years, and (3) they have not offered an employer sponsored retirement plan in the preceding two years.

    • Employers are required to log on to the Treasurer’s website to create a payroll list and then to input the following information in the employer portal by the applicable deadline: each employee’s address, phone number, email address, legal name, date of birth and social security number or individual tax identification number (undocumented workers are not permitted to participate in the program).

    • For employers with 500 or more Illinois employees, the November 1, 2018 deadline is fast approaching. Employer electronic enrollment of each of its employees may take some time unless data is submitted in bulk form. More important, subject employers may want to give serious consideration to a private retirement plan alternative like a 401(k) plan that also can provide enhanced benefits for management-level employees.

    Takeaways:

    If your company is not among the eighty-eight percent (88%) or so of large Illinois employers that already sponsor a retirement plan under Sections 401(a), 403(b), 408(k), 408(p) or 457(b) of the Internal Revenue Code, then you need to take the steps outlined above to comply with the Illinois Secure Choice Act by November 1, 2018. Also consider the 401(k) and 403(b) options that may work better for you and your work force. Retirement professionals can analyze a census of your current employees to provide specific retirement plan options that might make more sense for you than a Secure Choice arrangement.