PLANSPONSOR - June/July 2019 - 10

Rules & Regulations
Supreme Court to Hear
IBM Stock Drop Case
The Supreme Court has accepted IBM's
request to hear Retirement Plans Committee
of IBM v. Larry W. Jander. In March, IBM
asked the high court to hear the case after
the 2nd U.S. Circuit Court of Appeals
reversed the company's district court win.
In the original case, plaintiffs
alleged that IBM imprudently managed
company stock investments in one of its
retirement plans. The lawsuit alleged that
the plans committee continued to invest
retirement plan assets in IBM common
stock despite being aware of undisclosed
troubles relating to the company's microelectronics
business. In doing so, the
plaintiffs argued, the company violated its
fiduciary duty of prudence to the participants
under the Employee Retirement
Income Security Act (ERISA).
In its initial ruling on these arguments,
the district court had determined
that the plaintiffs did not plausibly plead
a violation of ERISA's duty of prudence,
because a prudent fiduciary could have
concluded that earlier corrective disclosure
would have done more harm than
good. This ruling mirrors many stock
drop decisions handed down after the
Supreme Court's consequential decision
in Fifth Third Bancorp.
IBM asked the Supreme Court to
answer " whether Fifth Third's 'more
harm than good' pleading standard can
be satisfied by generalized allegations
that the harm of an inevitable disclosure
of an alleged fraud generally increases
over time, " what IBM called " boilerplate
allegations " that " subverted [FifthThird's]
pleading standard. "
SEC Approves Final
Regulation Best Interest
On June 5, the Securities and Exchange
Commission (SEC) voted to adopt a final
amended version of its Regulation Best
Interest rulemaking package. The agency
10 PLANSPONSOR.com June - July 2019
settled on a disclosure-based approach to
policing conflicts of interest in the retail
investment marketplace; the securities
regulator also published an updated interpretation
of key sections of the Investment
Advisers Act of 1940.
SEC staff highlight that the rule
includes key enhancements over broker/
dealers (B/D)s' current obligations.
Importantly, they say, the updated rulemaking
will apply a best-interest standard
to account recommendations, including
... brokers may
not put their
own financial
interest ahead
of the client's
when making a
recommendation.
rollovers from retirement plans into individual
retirement accounts (IRAs) and
recommendations to open particular
types of accounts. The rule as amended
also requires best interest care from
brokers, meaning brokers may not put
their own financial interest ahead of the
client's when making a recommendation.
In addition, the commission voted
to approve an updated version of the
customer relationship summary form, or
Form CRS, which will require registered
investment advisers (RIAs) and broker/
dealers to provide investors with easy-tounderstand
information about their relationship
with their financial professional.
2020 HSA Contributions
The IRS has issued Revenue Procedure
2019-25, which reports next year's inflation-adjusted
amounts for health savings
accounts (HSAs). For calendar year 2020,
the annual limitation on deductions for an
individual with self-only coverage under
a high-deductible health plan (HDHP)
is $3,550; the limitation for an individual
with family coverage under an HDHP is
$7,100. These are increases of $50 and
$100, respectively, from this year's limits.
For 2020, an HDHP will be defined
under Section 223(c)(2)(A) as a health plan
with an annual deductible no less than
$1,400 for self-only coverage or $2,800 for
family coverage; its annual out-of-pocket
expenses-deductibles, co-payments and
other amounts, but not premiums-
should not exceed $6,900 for self-only
coverage or $13,800 for family coverage.
A Documented Process
National Indemnity Co. was granted
summary judgment in a case alleging the
company breached its fiduciary duties by
offering the Sequoia Fund in its retirement
plan. The lead plaintiff in Muriv v.
National Indemnity Co. contended that the
fund violated the company's policy by overconcentrating
its investments in the highrisk
stock of Valeant Pharmaceuticals.
The court found nothing, however,
to suggest that the plan committee was
failing to review the prudence of the
Sequoia Fund. The committee repeatedly
sent out advisories to participants that
owned shares of the fund, emphasizing
that alternative investment options were
available. Such advisories noted that
the committee had discussed various
options, one of which was whether to
remove the fund as an investment option,
but did not want to force participants
into liquidating. The plaintiff's expert
said committee members seemed to
have believed that the fund's popularity
among participants was a reason to defer
any removal decision. The court said that
comment " bolsters the conclusion that
the committee members were acting with
the participants' interests in mind. " -PS
For in-depth coverage of these topics and more, go to plansponsor.com/compliance.
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