PLANSPONSOR - October-November 2022 - 39

INSIDE ANGLE
Sales Tactics
A court interprets rollover practices and the use of plan data
A
recent decision in a closely watched lawsuit involving
a major Employee Retirement Income Security Act
plan recordkeeper has important implications for two
of the most challenging questions facing the regulated community
today. In Carfora v. TIAA, the court considered whether
a service provider acts as a fiduciary when supplying rollover
recommendations, as well as whether plan data is a plan asset.
While the case is significant, it likely does not represent the
final word on these important issues.
The lawsuit alleged that the recordkeeper breached its fiduciary
duties by engaging in extensive marketing and promotional
practices to solicit and recommend rollovers to participants in
its employer-sponsored client plans and that it earned additional
fees by transferring assets out of plans to individual retirement
accounts that it maintained. Notably, the viability of the claims
depended on the threshold question of whether the recordkeeper
acted as a fiduciary under ERISA.
On September 27, the District Court for the Southern
District of New York dismissed all claims against TIAA after
concluding that it did not act as a fiduciary under ERISA with
respect to the challenged conduct. The court's conclusion rested
on a detailed analysis of ERISA's statutory fiduciary definition, as
well as the evolving Department of Labor guidance in this area.
At the outset, the court rejected the plaintiffs' claim that the
recordkeeper fell within ERISA's fiduciary definition because its
rollover recommendations constituted investment advice. The
court considered what it called the " DOL's shifting perspective "
on what constitutes fiduciary investment advice and reviewed
the evolution of the department's guidance.
The court noted that the department's 2005 Deseret Advisory
Opinion would have supported the recordkeeper's position that it
wasn't a fiduciary with respect to rollovers. However, because the
DOL had withdrawn that guidance, the court held that the proper
analysis required application of the agency's 1975 five-part test.
In applying the five-part test, the court focused primarily
on the " regular basis " prong. Notably, the court articulated a
much narrower interpretation of regular basis than the relatively
expansive view the DOL articulated as part of its exemption
within Prohibited Transaction Exemption 2020-02. Similar
to other decisions, the court's opinion was that regular basis
requires that " there must have been some number of instances
in which advice was provided " but that " two or three interactions
are clearly insufficient. " Moreover, the court noted that rollover
recommendations are generally one-time transactions and thus
may not be considered to be provided on a regular basis. In this
regard, the court opined that " [t]he plain meaning of 'regular'
runs counter to advisement related to a one-time decision, even
if this decision is a consequential one. "
The court next considered
... the viability
of the claims
depended on
the threshold
question of
whether the
recordkeeper
acted as a
fiduciary
under ERISA.
the plaintiffs' argument that the
recordkeeper's use of plan data
in connection with promoting
rollovers was an exercise of
discretionary authority or
control over plan management
and administration, and thereby
rendered the
recordkeeper
a
fiduciary under ERISA.
It should be noted that the
plaintiffs' argument depended
on the court first making a
determination that plan data
was a plan asset under ERISA.
Significantly,
the
court
concluded that plan data is not
a plan asset. Here, the court
opined that the concept of plan assets " plainly extends to money
or invested capital, but does not extend to encompass any information
that may potentially benefit a servicer of the plan. " Thus, the
court concluded that the recordkeeper's alleged use of plan data
to promote rollovers did not amount to sufficient discretionary
authority or control over the plan to render the provider a fiduciary.
This decision indicates that courts are willing to perform
their own independent analysis rather than defer to the DOL's
views. However, the decision is not necessarily the last word
on either rollovers or plan data. By all accounts, the DOL is still
expected to issue further guidance on fiduciary status, which
may affect the analysis going forward. Moreover, with plan data's
growing importance, there may be more to come on both the
regulatory and litigation fronts regarding its status.
Steve Saxon is a partner in Groom Law Group, Chartered,
and George Sepsakos is a principal in Groom. Offices for
Groom are in Washington, D.C.
PLANSPONSOR.COM October - November 2022 39
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PLANSPONSOR - October-November 2022

Table of Contents for the Digital Edition of PLANSPONSOR - October-November 2022

INSIGHTS
INDUSTRY ANALYSIS
RULES & REGULATIONS
UPFRONT
Deep Dive
Managing Volatility
New Solutions
Participant ESG Demands
Good Practices
FIDUCIARY FORUM
INSIDE ANGLE
PLAN PROFILE
PLANSPONSOR - October-November 2022 - Cover1
PLANSPONSOR - October-November 2022 - Cover2
PLANSPONSOR - October-November 2022 - 1
PLANSPONSOR - October-November 2022 - INSIGHTS
PLANSPONSOR - October-November 2022 - 3
PLANSPONSOR - October-November 2022 - RULES & REGULATIONS
PLANSPONSOR - October-November 2022 - 5
PLANSPONSOR - October-November 2022 - 6
PLANSPONSOR - October-November 2022 - 7
PLANSPONSOR - October-November 2022 - 8
PLANSPONSOR - October-November 2022 - 9
PLANSPONSOR - October-November 2022 - UPFRONT
PLANSPONSOR - October-November 2022 - 11
PLANSPONSOR - October-November 2022 - 12
PLANSPONSOR - October-November 2022 - 13
PLANSPONSOR - October-November 2022 - 14
PLANSPONSOR - October-November 2022 - 15
PLANSPONSOR - October-November 2022 - Deep Dive
PLANSPONSOR - October-November 2022 - 17
PLANSPONSOR - October-November 2022 - 18
PLANSPONSOR - October-November 2022 - 19
PLANSPONSOR - October-November 2022 - 20
PLANSPONSOR - October-November 2022 - 21
PLANSPONSOR - October-November 2022 - 22
PLANSPONSOR - October-November 2022 - 23
PLANSPONSOR - October-November 2022 - 24
PLANSPONSOR - October-November 2022 - 25
PLANSPONSOR - October-November 2022 - Managing Volatility
PLANSPONSOR - October-November 2022 - 27
PLANSPONSOR - October-November 2022 - 28
PLANSPONSOR - October-November 2022 - 29
PLANSPONSOR - October-November 2022 - New Solutions
PLANSPONSOR - October-November 2022 - 31
PLANSPONSOR - October-November 2022 - 32
PLANSPONSOR - October-November 2022 - 33
PLANSPONSOR - October-November 2022 - Participant ESG Demands
PLANSPONSOR - October-November 2022 - 35
PLANSPONSOR - October-November 2022 - Good Practices
PLANSPONSOR - October-November 2022 - 37
PLANSPONSOR - October-November 2022 - FIDUCIARY FORUM
PLANSPONSOR - October-November 2022 - INSIDE ANGLE
PLANSPONSOR - October-November 2022 - PLAN PROFILE
PLANSPONSOR - October-November 2022 - Cover3
PLANSPONSOR - October-November 2022 - Cover4
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