PLANSPONSOR - October/November 2021 - 10

RULES & REGULATIONS
failing to monitor or control the allegedly
excessive compensation paid to the plan's
recordkeeper. The plaintiff contends that
the plan and its participants suffered
millions of dollars in losses because
of these alleged breaches. The plaintiff
argued that the agreement does not
preclude his claims for breach of fiduciary
duty under ERISA because they belong
to, and are brought on behalf of, the plan,
and he is thus incapable of waiving them.
But Judge Thomas W. Thrash Jr. of
the U.S. District Court for the Northern
District of Georgia noted in his opinion
that the plaintiff agreed " not to bring,
continue or maintain any legal proceedings
of any nature whatsoever " against
the defendant " by reason of or related
to " the released ERISA claims. " In other
words, even if the plaintiff did not actually
waive the plan's ERISA claims, he
nonetheless gave up his ability to bring
those claims on behalf of the plan, "
Thrash wrote in his opinion. With that,
he concluded that the agreement forecloses
the plaintiff's action.
Multiple Triggers for
Deemed Distributions
An IRS Issue Snapshot reminds plan
sponsors about failures that will cause a
participant loan, or portion of a loan, from
a qualified retirement plan to become a
deemed distribution for tax purposes.
Sponsors may be most familiar with the
failure that occurs when a participant loan
goes into default for lack of payments. But
the IRS says failures also could occur when
loans exceed the maximum dollar amount,
have payment schedules that fail to meet
the time or payment requirements, or are
not legally enforceable agreements.
The IRS says a participant loan
must be a legally enforceable agreement,
which may include more than one document,
and the terms must comply with
the requirements of Internal Revenue
Code (IRC) Section 72(p)(2) and Treasury
Regulation Section 1.72(p)-1. These say
the agreement must specify the amount
and date of the loan as well as the repayment
schedule. The IRS says the agreement
need not be signed if it is enforceable
under applicable law without a signature;
however, the agreement must be set
forth in either a written paper document
or in a document that is delivered through
an electronic medium under an electronic
system. All of these requirements must be
met or a deemed distribution will occur.
and pensions by removing the artificial
impediments-and chilling effect on
environmental, social and governance
investments-caused by the prior administration's
rules, " said Acting Assistant
Secretary for the DOL's Employee
Benefits Security Administration (EBSA)
Ali Khawar. He described the proposal
as a significant change in direction for
EBSA and the DOL and said it clarifies
... the proposal also affirms that ESGfocused
investment options may be
used as a retirement plan's qualified
default investment alternative.
The IRS reminds sponsors that the
plan may provide a cure period for participants
to catch up on missed loan payments,
and that the Coronavirus Aid, Relief and
Economic Security (CARES) Act of 2020
increased the allowable amount for loans
made to a qualified individual between
March 27, 2020, and September 23, 2020.
The bill also provided for an extension of
payment terms.
DOL Proposes New Rule
On ESG Investing
On October 13, the Department of Labor
(DOL) announced a proposed rule that
would free plan fiduciaries' to consider
climate change and other environmental,
social and governance (ESG) factors when
they select investments and exercise
shareholder rights.
DOL leadership said their goal is to
implement policies to help safeguard the
financial security of America's families
by permitting them to confront the challenges
of climate change in their retirement
plan portfolios.
" The proposed rule will bolster the
resilience of workers' retirement savings
that ESG factors are materially financial
factors that fiduciary decisionmakers can
and should consider in their role as investment
stewards for plan participants.
Under the proposal, when these fiduciaries
make an initial investment decision
or monitor portfolios, for example, they
can treat ESG factors as important and
directly related to the risk and reward
opportunity at hand, Khawar said.
He said the proposal also affirms
that ESG-focused investment options may
be used as a retirement plan's qualified
default investment alternative (QDIA).
Further, it seeks to address what Khawar
called " the anti-proxy voting bias created by
the previous administration's rules. " The
new proposal includes specific language
about ESG factors-plus other " collateral
benefits " such as social good-serving as
a tiebreaker when a fiduciary is selecting
between economically indistinguishable
investment options. In short, the proposal
approves this practice.
Khawar said the proposal represents
an endorsement of ESG investing by the
Biden administration but does not alter
fiduciaries' responsibilities of serving
their investors prudently and loyally. -PS
For in-depth coverage of these topics and more, go to PLANSPONSOR.com/compliance.
10 PLANSPONSOR.COM October - November 2021
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PLANSPONSOR - October/November 2021

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