The facts of CoreCivic, Inc. v. Owino couldn’t be farther from those involving retirement plan operations. However, if heard by the Supreme Court, the existence of a policy to create a class could impact whether written policies, like plan documents, could create class actions involving plan administration.
We know plan sponsors, especially this year, have full agendas and overflowing inboxes. We monitor developments plan sponsors should track. Often, that means watching regulations and legislation for new compliance issues. Sometimes, it means reviewing arguments and court cases.
Right now, administrative agency authority is a source of tension. Rulings on one agency may signal limits on others that regulate plans and plan sponsors. Also, arguments made in court may signal potential legislation in Congress. Sometimes legislation is introduced to remedy issues not resolved in court.
In 2023, the major dispute over retirement plans involves the Department of Labor’s ESG rule. That rule allows plan fiduciaries to consider aspects other than pecuniary ones in making an investment choice. The DOL’s rule met with heavy criticism from some policymakers. The US congress tried to block its implementation and that was vetoed by President Biden. States have cases to block this rule. To generalize broadly, plaintiffs argue that the DOL lacks the power to make that rule. They also argue that the rule was made in an improper way. These arguments, over the scope of authority, echo ones we have seen involving other agencies.
The Consumer Finance Protection Bureau is one of the administrative agencies whose authority is in question. We've discussed the CFPB’s financial literacy programs in the past. To keep it immune from unpredictable annual funding cycles, lawmakers funded the CFPB through the Federal Reserve Bank. That process, some argue, is unconstitutional. Now, the Supreme Court has said it will hear arguments on its funding in Winter of 2024. That announcement sparked a review of the Supreme Court's petition for certiorari docket to see if similar arguments were being made about other agencies. We found a handful of cases sponsors should consider.
One such example involves the Securities Exchange Commission. In Jarkesy v. SEC, the petitioners argue that agency’s way of deciding penalties, through its administrative law judge (or ALJ). In that case, a hedge fund founder was sanctioned for allegedly fraudulent statements. He disputed the agency’s sanction which then involved a review by the SEC’s commissioners, who agreed with the ALJ. That decision was then disputed in federal courts, ultimately ending up at the Fifth Circuit Court of Appeals. The appellate court found that Congress’s grant of power to the SEC to try penalty cases within the commission, instead of federal courts, was unconstitutional. The appellate court also found that the SEC had too much authority to choose specific cases to try. By having the power to pick and choose cases from which rules and regulations would flow, the SEC was effectively legislating. Instead, the SEC should have been bringing those cases in district court. Calcutt v. FDIC, also concerns ALJ judges. That case, involving the Federal Deposit Insurance Corporation (FDIC), may consider how ALJ judges are supervised and removed from office.
As we’ve mentioned, plan participants often struggle with consumer credit. Debt, and managing credit, also negatively impacts employee performance. Two potential cases, Greebel v. U.S. and Department of Ag. Rural Development Rural Housing Service v. Kirtz, would review aspects of the consumer credit and fair credit reporting act. Greebel importantly involves whether retirement plan payments can be garnished by the Consumer Credit Protection Act. Kirtz concerns how the US government is involved in fair credit reporting.
Finally, there could be a case involving class actions that may impact plan sponsors. We have written on the Hughes case often as it has important implications for plan sponsors. Hughes involved a class of plan participants who argued that the plan sponsors failed to consider fees and didn't provide sufficient choice. If accepted by the Supreme Court, it might consider a case where the class action process might be broadened. The facts of CoreCivic, Inc. v. Owino couldn’t be farther from those involving retirement plan operations. However, the plaintiffs relied on a written policy to define their class. The issue in the case, if heard by the Supreme Court, involves whether the existence of a policy can create a class. Plan sponsors may want to monitor developments in the Supreme Court on how written policies, like plan documents, could be used in class actions involving plan administration.
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.get xpress proposal