August 26, 2014
- Council Urges Full Rehearing of Fiduciary Duty Case by Fourth Circuit Court of Appeals
- IRS to Host Webcast for Employers on Reporting of Minimum Essential Coverage under Tax Code Section 6055
Council Urges Full Rehearing of Fiduciary Duty Case by Fourth Circuit Court of Appeals
On August 25, the Council formally asked the full U.S. Court of Appeals for the Fourth Circuit to rehear a case alleging breach of fiduciary duty by a retirement plan sponsor in connection with the removal of a company stock fund from a plan’s investment lineup. In a split decision issued August 4 in the case of Tatum v. R.J. Reynolds, a three-judge panel from the Fourth Circuit found that the plan sponsor needed to prove that a prudent fiduciary would have made the same decision. The plan sponsor is now asking the entire Fourth Circuit Appeals Court (“en banc”) to take up the matter.
A new amicus (“friend of the court”) brief, filed by the Council along with the U.S. Chamber of Commerce, argues that “the panel’s decision is contrary to 40 years of ERISA law” and “the panel’s decision will discourage individuals from serving as fiduciaries and increase plan costs.” In Tatum v. R.J. Reynolds, the plaintiffs asserted a breach of fiduciary duty because of the elimination of the Nabisco single-stock investment option from the R.J. Reynolds (RJR) 401(k) plans shortly after RJR was spun off from Nabisco in 1999. After the fund’s removal, Nabisco received an unsolicited takeover bid and the resulting bidding war drove the price of Nabisco stock significantly higher. This is commonly referred to as a “reverse stock drop” case.
As described more fully in the Council’s August 7 Benefits Byte story, the panel’s majority opinion accepted the arguments of the plaintiffs (and the U.S. Department of Labor, as outlined in its own amicus brief) and remanded the case back to the district court level “to review the evidence to determine whether RJR has met its burden of proving … that a prudent fiduciary would have made the same decision.”
After a decade of litigation, the U.S. District Court for the Middle District of North Carolina ruled that RJR breached its fiduciary duty of procedural prudence when it removed the Nabisco stock option from the plan without a significant review and investigation. However, the removal was “objectively prudent,” with no evidence of being unreasonable or actually causing a loss to the plan. In appealing this decision to the Fourth Circuit, the plaintiffs (supported by an amicus brief from the Department of Labor) asserted that the district court applied an erroneous legal standard to determine whether the breach resulted in losses to the plan.
The Council, in its initial amicus brief with the Fourth Circuit, argued that the plaintiffs’ challenge to the original holding by the U.S. District Court for the Middle District of North Carolina sets a dangerous precedent in future ERISA cases. The August 25 brief also warned that under this holding, every participant who challenges a fiduciary decision will add a claim that the fiduciary failed to make adequate investigation so that the participant can recover monetary damages even if the fiduciary’s decision is found to have been prudent but not one that the majority of prudent men would have made.
For more information on this issue or the Council’s amicus brief program, contact Jan Jacobson, senior counsel, retirement policy, or Lynn Dudley, senior vice president, global retirement and compensation policy, at (202) 289-6700.
IRS to Host Webcast for Employers on Reporting of Minimum Essential Coverage under Tax Code Section 6055
The Internal Revenue Service (IRS) will host a webcast for employers on September 9 at 2:00 p.m. Eastern Time to describe how applicable large employers should report minimum essential coverage under Internal Revenue Code Section 6055, as required by the Patient Protection and Affordable Care Act (PPACA).
(This follows the agency’s recent webcast on employer reporting of health care coverage under Section 6056. A digital playback is available here.)
Code Section 6055 requires every health insurance issuer, including sponsors of self-insured health plans, to file annual returns reporting certain information for each individual for whom minimum essential coverage is provided and to provide a copy of the return to the individual.
On March 5, the Internal Revenue Service (IRS) issued final regulations on Section 6055 reporting, followed by the release of draft forms on July 24. IRS instructions for completing the forms have not yet been released. These reporting requirements will not be effective until 2015 (first reporting is due in early 2016).
The September 9 IRS webinar will cover:
- Internal Revenue Code Section 6055
- Who is required to report
- What elements are required to be reported
- How do government entities designate reporting
Speakers for the webcast will include Tennille Francis, Tax Law Specialist, IRS office of Federal State & Local Governments; Stephen Tackney, Deputy Division Counsel/Deputy Associate Chief Counsel, IRS office of Chief Counsel; andJeffrey T. Rodrick, Senior Technician Reviewer, IRS office of Chief Counsel. Tackney and Rodrick have previously participated in the Council’s “P4P … Preparing for PPACA” webinar series on implementation topics.
Interested individuals can register for the IRS webcast here. Please note, this is not a Council webinar. For more information on PPACA employer reporting, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.