1.
EBSA ISSUES STATEMENT ON MUTUAL FUND SITUATION:
Ann L. Combs, Assistant Secretary Employee Benefits
Security Administration, U.S. Department of Labor, has issued a statement
entitled “Duties of Fiduciaries in Light of Recent Mutual Fund
Investigations.” Although the statement deals with ERISA -- generally
not applicable to the public sector -- the concepts are equally applicable
to governmental plans. The guidance is important enough to quote at
length:
“As significant investors in mutual funds, plan fiduciaries,
understandably, are concerned about the impact of reported late trading
and market-timing abuses on their pension plans and the steps that
should be taken to protect the interests of their plans’ participants
and beneficiaries. Although investors generally could not anticipate
the late trading and market-timing problems identified by Federal
and state regulators, plan fiduciaries nonetheless are now faced
with the
difficult task of assessing the impact of these problems on their
plans' investments and on investment options made available to
the plans'
participants and beneficiaries.
As fiduciaries conduct their review, it is important to remember that
ERISA requires that fiduciaries discharge their duties prudently. The
exercise of prudence in this context requires a deliberative process.
In this regard, fiduciaries, deciding whether to make any changes in
mutual fund investments or investment options, must make decisions
that are as well informed as possible under the circumstances.
In cases where specific funds have been identified as under investigation
by government agencies, fiduciaries should consider the nature of the
alleged abuses, the potential economic impact of those abuses on the
plan's investments, the steps taken by the fund to limit the potential
for such abuses in the future, and any remedial action taken or contemplated
to make investors whole. To the extent that such information has not
been provided or is not otherwise available, a plan fiduciary should
consider contacting the fund directly in an effort to obtain specific
information. Fiduciaries of plans invested in such funds may ultimately
have to decide whether to participate in settlements or lawsuits. In
doing so, they will need to weigh the costs to the plan against the
likelihood and amount of potential recoveries.
Late trading and market -timing abuses may extend to mutual funds
and pooled investment funds beyond those currently identified by Federal
and state regulators. For this reason, plan fiduciaries will need to
consider whether they have sufficient information to conclude that
such funds have procedures and safeguards in place to limit their vulnerability
to abuse.
The appropriate course of action will depend on the particular
facts and circumstances relating to a plan's investment in a
fund. Plan
fiduciaries should follow prudent plan procedures relating to
investment decisions and document their decisions. The guiding
principle for
fiduciaries should be to ensure that appropriate efforts are
being made to act reasonably, prudently and solely in the interests
of
participants and beneficiaries.”
We appreciate the guidance.
2. PLANSPONSOR.COM
KEEPS UP WITH TRADING SCANDAL:
As usual, plansponsor.com is on the cutting edge of providing useful
information. This time, plansponsor.com provides a list of firms (27)
that have been named, charged or admitted problems with late trading,
market-timing or both. Once at the site, readers can click on individual
fund names to find the latest coverage of events regarding the particular
firm. The list appears at http://www.plansponsor.com/pi_type10/?RECORD_ID=23617.
3.
U.S. SUPREME COURT REJECTS REVERSE DISCRIMINATION ARGUMENT:
One section of the Age Discrimination in Employment Act of 1967 forbids discriminatory
preference for the young over the old. The United States Supreme Court has determined
that the ADEA does not prohibit favoring the old over the young. A collective-bargaining
agreement eliminated the employer’s obligation to provide health benefits
to subsequently retired employees, except as to then-current workers at least
50 years old. Employees who were then at least 40 (and thus protected by ADEA)
but under 50 brought a discrimination action under ADEA. The United States Court
of Appeals for the Sixth Circuit reversed a dismissal in favor of the employer,
and reasoned that ADEA’s prohibition of discrimination is so clear on its
face that if Congress had meant to limit its coverage to protect only the older
worker against the younger, it would have said so. In reversing the Court of
Appeals, the United States Supreme Court held that ADEA’s text, structure,
purpose, history and relationship to other federal statutes show that the statute
does not mean to stop an employer from favoring an older employee over a younger
one. If Congress had been worried about protecting the younger against the older,
it would not likely have ignored everyone under 40. The high court rejected the
following arguments proffered by the employees and amicus EEOC: (1) because other
instances of “age” in ADEA are not limited to old age, the word “age” has
the same meaning wherever ADEA uses it; (2) the employees’ review is supported
by a colloquy on the Senate floor involving an ADEA sponsor; and (3) the court
owes deference to EEOC’s statutory interpretation. General Dynamics Land
Systems, Inc. v. Cline, Case No. 02-1080 (U.S., February 24, 2004).
4.
PENSION FUNDS CAN’T SUE EX-GOVERNOR’S ACCOUNTANTS:
Plansponsor.com reports that the Arizona Supreme Court has agreed with
the Court of Appeals that the statute of limitations bars union pension funds
from suing ex-Governor Fife Symington’s accounting firm. Readers may remember
the long history of the pension fund’s disastrous dealings with Symington
(see C&C Newsletters for October, 1997, Item 8; March,
1998, Item 5; July,
1999, Item 12; April, 2001, Item 5 and November,
2001, Item 12). Although the
unions apparently were aware of their potential claims against the accountants
earlier, they did not file suit until 1998. Unfortunately for the unions, they
admitted that they knew in 1991 the name of Symington’s accountants, concluded
that there might be fraud in connection with his financial statements, but decided
not independently to investigate his financial condition. However, the saga is
not complete, as the unions still have a separate action pending against a bank
they claim also played a role in their loss.
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