Wednesday, August 12, 2020
A 401(ok) plan and its directors are defending the administrator’s choice to require a particular valuation of former workers’ account values, given extraordinary market adjustments as a result of COVID-19 pandemic. Beneath the phrases of the plan at challenge, when a former worker seeks a distribution of his or her plan account, the account is often valued as of December 31 of the prior yr. The plan invests in a pooled funding account so the cash paid in distributions lessens the funds obtainable to pay the remaining contributors. Plaintiffs are former workers who had been eligible for a full distribution of their accounts in 2019 however, as a result of the market was rising in 2019, delayed their distribution requests till January 2020, after the December 31, 2019 valuation. Whereas the 2019 valuation occurred, the plan administrator set a particular valuation date of April 30, 2020, given the extraordinary market volatility within the first quarter of 2020.
Plaintiffs filed an ERISA declare for advantages and breach of fiduciary duties arguing that the administrator’s choice improperly locked them into the market’s 2020 losses. The plan and administrator are defending their choice arguing that the go well with ought to be dismissed as a result of the plan gives discretion to set a particular valuation date underneath extraordinary circumstances corresponding to a serious change in financial situations and since permitting plaintiffs to depend on a pre-pandemic valuation would trigger a windfall for plaintiffs on the expense of present contributors. The case is Lipshires, et al. v. Behan Bros., et al., No. 20-cv-252 (D.R.I.).
That is essentially a brand new sort of case with case-specific details. That stated, many plan directors – and never simply 401(ok) directors – could face related points because the pandemic persists and the market reacts. It’s too quickly to know whether or not defendants will reach having the case dismissed on the pleadings however this case shines a light-weight on some greatest practices for a fiduciary contemplating an interim valuation to mirror subsequent materials adversarial occasions just like the COVID-19 pandemic, together with: (1) working with the plan sponsor and plan counsel to verify the plan paperwork allow this or are revised to allow this, earlier than continuing, and (2) contemplating whether or not not setting a particular valuation will increase the danger of loss for the plan belief so failing to conduct interim valuations might be a fiduciary breach in itself.
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