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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The sponsor of 403(b) plans did not breach its fiduciary duty to properly implement participant investment instructions when it transferred participants' investments in stable value accounts into an asset allocation fund, in order to comply with Labor Department regulations governing qualified default investment alternatives, a federal district court in Kentucky has ruled in Bidwell v. University Medical Center. The plan sponsor effectuated the transfer only after notifying the participants of the change and providing them with an opportunity to retain their prior investment.
Investment in stable value fund transferred to time based allocation model
Participants in University Medical Center 403(b) plans affirmatively elected to invest their accounts in stable value funds (SVF) offered under the plans. The stable value funds also served as the plans' qualified default investment alternative (QDIA) for participants who did not choose an investment option when opening an account. However, following the issuance of DOL regulations in 2007 that prohibited stable value funds from being used as a QDIA, the plans changed their default investment vehicle to a life span time based asset allocation model (LSA).
Incident to the change in the default investment alternative, the plan's service provider mailed a notice to participants informing them that the funds in the SVF would be reinvested in the LSA, unless the participants made a special election to maintain their present allocation. Two plan participants claimed not to have received the notice and maintained that they would have retained their investment in the SVF. However, because the participants did not contact the plans, the employer, or the service provider during the one-month period after the mailing of the notice, the participants' accounts were transferred to the LSA. Upon subsequently discovering the changes in their investment profiles in quarterly statements received in October 2008, the participants immediately switched their investments back to the SVF. However, they alleged that during the three-month period their accounts incurred significant losses ($85,000 and $16,900). In order to recover the losses, the participants filed suit against the employer and the service provider, alleging that the defendants had breached their fiduciary duty under ERISA to administer the participants' investments in accordance with their instructions.
Transfer of funds consistent with SPD and QDIA regulations
The employer argued that the governing DOL rules empower a plan administrator with discretionary authority to transfer a participant's funds among investment options if the participant has failed to provide specific investment instructions. In addition, the employer maintained that it complied with notice procedures that were reasonably calculated to apprise the participants of changes to the plans' nvestment policies. The participants charged, however, the employer's decision to transfer the participants' investment funds from the SVF directly contradicted the plans' summary plan descriptions (SPD), which stated that a participant's affirmative election controls until a new election is made. The participants' argument was based on ERISA §404(a)(1)(D), which requires a fiduciary to act in accordance with the documents and instruments governing the plan insofar are as they are consistent with ERISA.
The court rejected the participants' argument, noting that the language in the SPD indicated that it was subordinate to the plan, which authorized the plan administrator to alter the participants' previous investment decisions and apprise participants that a failure to make an affirmative investment election would result in the transfer of the accounts to the QDIA. The plan language, the court added, not only authorized the plan administrator to alter prior elections in the face of participant inaction, but empowered the administrator to revisit an initial election by the participant at its discretion.
The court further stressed that plan terms and the governing safe harbor QDIA regulations were consistent, explaining that ERISA Reg. §2550.404c-5(c)(2) shields fiduciaries from liability where a participant has failed to direct the investment of assets. The participants were notified of changes to the plans' QDIA and provided with an opportunity to direct their investments. The plans, following the participants' period of silence, thus, operated within the scope of the governing regulations by reallocating the participants' interests.
For more information, visit http://www.wolterskluwerlb.com/rbcs.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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