PLANSPONSOR - June - July 2022 - 6

RULES & REGULATIONS
More From Washington
And the Courts
Freedom Funds Suit
Gets Dismissed
The 6th U.S. Circuit Court of Appeals
has ruled in favor of the defendants in an
Employee Retirement Income Security Act
lawsuit targeting CommonSpirit Health,
a large not-for-profit corporation that
provides hospital services across the U.S.
The plaintiffs had appealed the matter
out of the U.S. District Court for the Eastern
District of Kentucky, after that court ruled
in favor of the CommonSpirit defendants.
The claims in the case are that the defendants
provided an inadequate selection of
investment options in the CommonSpirit
employer-sponsored 401(k) plan and
allowed for unreasonable expenses to
be charged for investment management
services and plan administration.
In particular, the complaint named
the Fidelity Freedom Funds, a suite of 13
funds that are actively managed by Fidelity
fund managers, as having higher operating
costs than Fidelity's passively managed
index funds. As alleged in the complaint,
while the expense ratio for the passive
index suite was as low as 0.08%, the
expense ratio for funds in the active suite
allegedly ranged from 0.42% to 0.65% for
the K share class, which the plan used until
2018. The plan has since updated to the K6
share class, with expense ratios ranging
from 0.37% to 0.49%.
In its dismissal, the District Court
said the plaintiff had failed to " allege
facts showing that the recordkeeping fees
exceeded those of comparable plans or
were excessive in relation to the service
provided. " The court also stated that the
plaintiff had " failed to identify another
recordkeeper that would have been willing
to conduct the same service as Fidelity "
at a reasonable rate. On the claim that
CommonSpirit Health had breached its
duty of loyalty, the court found that the
complaint did not differentiate between the
defendant's alleged violations of the duties
of prudence and loyalty, as required when
alleging disloyalty under the Employee
Retirement Income Security Act. As a
result, this claim was also dismissed.
The DOL Is Open to
Restricting Crypto
Secretary of Labor Marty Walsh testified
to the full House Committee on Education
and Labor that Congressional approval
of President Joe Biden's budget is key to
the Department of Labor continuing to
protect workers' retirement savings, workplace
benefits and retirement security.
In the prepared testimony, Walsh
outlined the president's DOL fiscal year
2023 budget request. He articulated a
broad agenda that
includes continuing
Biden's commitment to equity, investing
in workers, bolstering the unemployment
insurance system and restoring staff
levels at DOL agencies.
Regarding cryptocurrency, the DOL
Walsh also expressed support
for guidance released by the
DOL's Employee Benefits Security
Administration that he described
as a " one-off recommendation, " ...
6 PLANSPONSOR.COM June - July 2022
is open to a rule that would regulate
such investments in retirement accounts,
Walsh told the House committee. " We're
looking at potentially going through a
rulemaking
process moving
forward
on the industry as a whole, " he said. He
divulged no details about the proposed
restrictions.
Walsh also expressed support for
guidance released by the DOL's Employee
Benefits Security Administration that he
described as a " one-off recommendation, "
after Representative Burgess Owens,
R-Utah, pressed the secretary on why the
guidance was released.
The Financial Times reported that
Investment Company Institute CEO Eric
Pan requested that the DOL void the
guidance, as it had not been approved
by the formal notice and comment rulemaking
process.
" We made a recommendation
because we were concerned about
employees having 20% of their retirement
savings put in cryptocurrency, "
Walsh said. " Our role is to make sure
we're protecting the rights of American
workers and the investments going in. "
The SEC's Climate Proposal
Draws a Mixed Response
The extended public comment period
for the Securities and Exchange
Commission's proposed climate impact
disclosure regulations has ended, and
the regulator is digesting the more than
5,000 comments filed by individuals,
institutional
investors, asset managers
and many other stakeholders in the financial
services ecosystem.
Some of the letters voice outright
opposition to the notion of the federal
government mandating the disclosure
of climate-change-related information of
any kind. But many more of the letters
appear to acknowledge the increasing
importance of climate-related data and
insights when it comes to individual and
institutional investors' decisions. That
said, while many of the commenters argue
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