PLANSPONSOR - June/July 2020 - 6

RULES & REGULATIONS
The act provides that qualified individuals
may treat as coronavirus-related
distributions (CRDs) up to $100,000 withdrawn
from their eligible retirement plans
this year, without paying the standard
10% excise tax for an early-i.e., pre-age
59.5-distribution. Additionally, sponsors
may suspend loan repayments due March
27 through December 31, and amounts
available for loans may be increased up to
double the maximum during this time.
Remote Notarization
Of Elections
Due to restrictions created by COVID-19,
the IRS is providing relief, through this
coming December 31, from Treasury Regulations
Section 1.401(a)-21(d)(6) requiring
that retirement plan participant elections,
including to receive a spousal consent,
must be witnessed " live " by a plan representative
or a notary public. The relief is to
facilitate payment of coronavirus-related
distributions (CRDs) and plan loans to
qualified individuals, as permitted by
Section 2202 of the Coronavirus Aid,
Relief and Economic Security (CARES)
Act. IRS Notice 2020-42 provides relief for
notarization in qualifying states as long as
the live audio/video technology satisfies all
pertinent requirements.
Possible PEP
Conflicts of Interest
The Department of Labor (DOL) has issued
a formal request for information (RFI)
as to what parties and business models
may form and operate pooled employer
plans (PEPs) and regarding anticipated
conflicts of interest. The DOL's Employee
Benefits Security Administration (EBSA)
will use the data and information to evaluate
whether EBSA should propose a new
prohibited transaction class exemption.
Since passage of the Setting
Every Community Up for Retirement
Enhancement (SECURE) Act, which
allows for creating PEPS, legal experts
have warned of potential conflicts with the
6 PLANSPONSOR.COM June - July 2020
Employee Retirement Income Security Act
(ERISA)'s prohibited transaction framework.
For example, financial advisers who
offer a PEP may wish to use affiliates to
service it and to offer proprietary investment
products as investment options under
it-either being a conflict, considering
advisers' fiduciary status. The RFI also
requests information on issues involving
MEPs sponsored by employer groups or
associations or professional employer
organizations. A 30-day comment period
began June 18 with publication of the RFI
in the Federal Register. Complete instructions
for submitting comments are found
in the RFI.
DC Plans May Add
Some Private Equity
The Department of Labor (DOL) issued
an information letter under the Employee
Retirement Income Security Act (ERISA)
stating that sponsors of defined contribution
(DC) plans may offer private equity
investments to their participants as a
component of a professionally managed
asset-allocation fund. " Private equity is
a common investment for DB [defined
benefit] plans and endowments, " says Jon
Breyfogle, of Groom Law Group, Chartered,
who requested the DOL's view. " There has
been a lot of litigation in the DC space that
has chilled innovation. This guidance
provides a road map for plan fiduciaries
to prudently offer private equity as part of
a target-date fund [TDF] or other diversified
managed investment option [that]
might serve as a QDIA [qualified default
investment alternative]. " The letter details
considerations for fiduciaries in evaluating
and monitoring such investments.
SCOTUS Says, No Harm,
No Standing
The U.S. Supreme Court (SCOTUS) sided
with two lower court rulings in Thole v.
U.S. Bank, rejecting the plaintiffs' calls
to revive their fiduciary breach lawsuit,
which cites the Employee Retirement
Income Security Act (ERISA). All three
courts agreed with U.S. Bank's argument
that the two lead plaintiffs have suffered
no concrete harm of the type required to
establish standing under U.S. Constitution
Article III. Therefore, pension plan
participants whose benefit payments are
unaffected by a particular issue may not
sue their employer on behalf of the whole
pension plan for breach of duties. The high
court noted that defined contribution (DC)
plan participants can prove standing in
fiduciary breach lawsuits more often than
participants in defined benefit (DB) plans
because the formers' benefit value directly
fluctuates with the financial condition of
the plan, whereas the employer carries the
risk in pension plans.
Special Valuation Prompts
Ex-Employees to Sue
Three former employees have sued
contractor Behan Bros. Inc. and its 401(k)
plan, alleging plan fiduciaries implemented
a special valuation to avoid paying
them what the value of their accounts
would have been this past December 31.
The participants had terminated employment
in 2018 and were entitled to remove
their savings early last year; however, they
had decided to wait because the market
was doing so well.
In early January, the plaintiffs asked
that their balances be rolled over to their
current employers' plans but were told
that, for logistical reasons, they could not
be helped until possibly mid-March. By
then, the market had dropped, and before
the company processed their payments,
it notified the participants of a planned
special valuation on April 30. The plaintiffs
were denied an opportunity to receive
their distributions at the December 31,
2019, value, and their subsequent appeal
was denied. -PS
For in-depth coverage of these topics and more, go to PLANSPONSOR.com/compliance.
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PLANSPONSOR - June/July 2020

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