PLANSPONSOR - October 2017 - 13

Schedule SB instructions relating to an attachment required of
plans having Internal Revenue Service (IRS) permission to use a
substitute mortality table. The notice of intent includes a request
for public comments.
Multiemployer Plans May Impose More
Than Withdrawal Liability on Employer
The 11th U.S. Circuit Court of Appeals has rejected claims from
an employer withdrawing from a multiemployer pension plan
that the plan may impose nothing more on it than the withdrawal
liability.
WestRock RKT Co., an employer contributing to the Pace
Industry Union-Management Pension Fund, is challenging an
action taken by the fund's board of trustees. The fund was in
" critical status, " meaning dire financial condition. For multiemployer
plans with this status, the Employee Retirement
Income Security Act (ERISA), as amended by the Pension
Protection Act of 2006 (PPA), requires that they adopt a rehabilitation
plan, consisting of actions-e.g., increasing contribution
rates and reducing plan expenditures and future benefit
accruals-designed to improve the fund's financial outlook.
The Pace plan's board adopted such a plan in 2010, and
two years later amended it to include a provision requiring any
employer that withdraws from the fund to pay a portion of its
accumulated funding deficiency. The fund argued that the
amendment was valid and that those two sections of ERISA
do not provide WestRock with a cause of action for declaratory
relief. A district court agreed with the fund that ERISA
provides no cause of action and granted the fund's motion to
dismiss the complaint. The subsequent Circuit Court rejection
relied on the same sections of ERISA that WestRock had used
for its cause of action. The court ultimately determined there
is no explicit restriction saying a critical-status multiemployer
plan's board of trustees may not charge withdrawing employers
for their share of the accumulated funding deficiency.
IRS Again Extends Closed
DB Plan Nondiscrimination Relief
The Internal Revenue Service (IRS) has issued Notice 2017-45,
extending the temporary nondiscrimination relief for closed
defined benefit (DB) plans that is provided in Notice 2014-5.
The extension makes that relief available for plan years beginning
before 2019 if the conditions of Notice 2014-5 are satisfied.
The IRS and Treasury Department expect that the final regulations
concerning closed DB plans will include some significant
changes, in response to stakeholder comments. However,
the two departments anticipate that the final regulations
will not be published before Notice 2014-5, and its extension,
Notice 2016-57, expires-too late for plan sponsors to adjust
for the regulations when making plan design decisions. For
this reason, the departments find it appropriate to extend the
relief for an additional year. Lawmakers have introduced a bill
to permanently amend the nondiscrimination rules that apply
to DB plans that have been closed or frozen.
Wells Fargo Stock Drop Suit Dismissed
The U.S. District Court for the District of Minnesota has
dismissed a consolidated lawsuit alleging that Wells Fargo
violated its duties of prudence and loyalty under the Employee
Retirement Income Security Act (ERISA) by keeping company
stock as an investment in its 401(k) plan when plan fiduciaries
knew the stock price was inflated. The court relied on the
pleading standards set forth by the U.S. Supreme Court in Fifth
Third Bancorp v. Dudenhoeffer to make its decision. The plaintiffs
put forth alternative actions plan fiduciaries could have
taken to avoid participant losses, following the September 2016
disclosure of fraud allegations against Wells Fargo that caused
its stock price to drop significantly. However, the court found
the plaintiffs failed to plead specific facts to make plausible
their allegation that, under the circumstances of the case, a
prudent fiduciary " could not have concluded " that a later disclosure
would result in a smaller loss to the company stock fund
than an earlier disclosure.
Plaintiffs alleged that the plan fiduciaries knew or should
have known about the fraud as early as 2005. But the court
called plan fiduciaries' decision about whether to disclose the
information earlier than 2016 " a fact-sensitive inquiry. " Citing
a court decision in a lawsuit against Target Corp., the judge
said the fiduciary's decision should not be " evaluated from the
'vantage point of hindsight.' "
The plaintiffs argued that their case was different because
it involved fraud that was ongoing at the time defendants
failed to disclose. The court conceded that ongoing fraud is
one factor that a prudent fiduciary might consider in deciding
whether early disclosure would better protect the plan's assets:
Disclosing the fraud will usually end the fraud, and less fraud
usually means less damage to the company. However, the judge
said, " ongoing fraud is not a talisman that will always satisfy
Dudenhoeffer's pleading standard. Rather, it is simply another
factor that Defendants might have considered when deciding
whether to make an earlier disclosure. " Wells Fargo and the
U.S. government announced last September that thousands of
Wells Fargo employees had engaged in unethical sales practices,
including opening deposit accounts and issuing credit
cards without the knowledge or consent of customers. Plaintiffs'
attorneys took no time to start filing lawsuits, with three
filed last October. -PS
For in-depth coverage of these topics and more go to www. plansponsor.com/compliance.
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