Non Profit Report - April 2012
Retirement Plan Disclosure Deadline Looms
By: Mary Claire Chesshire
Nonprofit organizations and associations may be feeling a little more loved by the custodians of their retirement plan assets and third party administrators lately, if “love” means how many communications you’re getting about the upcoming deadline for fee and investment disclosures.
The deadline for retirement plan sponsors to issue the required information to participants is August 30, 2012. At some point in the near future, individuals charged with responsibility for retirement plan communications should move this issue to the top of their inbox. The disclosure requirements will require distributing a substantial amount of information and the penalties for failing to comply with the rules are meaningful.
Penalties for Compliance Failures
Failure to provide timely and appropriate fee disclosures to retirement plan participants and beneficiaries will result in a breach of fiduciary duty to those individuals. Accordingly, the named “plan administrator” (typically a committee of employees or the organization’s or association’s officers – not the outside advisor to the plan) may have personal liability to the participants and beneficiaries of the retirement plan. In addition, the Department of Labor is empowered to assess excise taxes on fiduciaries who breach their duties. Failing to give timely and appropriate fee disclosure may also result in the loss of a defense to plan sponsors sued by participants who inappropriately select the investment choices for their accounts.
What Plans are Subject to the Disclosure Rules?
The disclosure rule applies to all retirement plans in which the participants can designate how their individual accounts will be invested. Virtually all 401(k) plans and 403(b) plans allow participants to designate how their account balances will be invested.
If you understand the philosophy behind the fee disclosure rules the rules will make more sense.
The U.S. Department of Labor - the government agency overseeing and enforcing the fee disclosure requirements - believes that participants can’t choose among the various investment options in their retirement plans unless they know the true cost of each investment. Furthermore, participants should be aware of all expenses charged to their accounts.
To Whom Must Disclosure Be Made?
The disclosures must be made to anyone who has the right to designate the investment of accounts in a retirement plan. Therefore, an organization’s or association’s current employees who have met the eligibility requirements for participation in the plan must receive the materials. In addition, a former employee who continues to maintain an account balance in the plan must receive the information, as should the beneficiary of a deceased employee who continues to maintain an account, and the former spouse of a divorced participant to whom all or a portion of an employee’s account was assigned pursuant to a qualified domestic relations order.
What Must Be Disclosed?
The disclosures pertain to administrative expenses that may be charged to a participant’s account as well as individual expenses that may be paid from the account, for example, the fee to process a loan from the plan. Investment results for the plan’s investment lineup must be set forth in a comparative chart, calculated to be understandable to the average plan participant. The comparative chart must include performance results for one, five and ten years, the benchmark for the comparison, the total annual operating expense or expense ratio expressed as both a percentage and a dollar amount for each $1,000 invested, and investment transfer restrictions and fees. Special disclosure rules may also apply for “target date” funds and model asset allocations.
The disclosure should also include a website address that will enable the participants and beneficiaries to obtain detailed information regarding the investment alternatives (fund style, strategies, portfolio turnover, and performance data) and a glossary of terms to assist participants and beneficiaries with understanding the designated investment alternatives.
Your plan advisor should understand all these requirements, do the necessary analysis and prepare the disclosure forms. However, the named plan administrator is ultimately responsible for the accuracy of the disclosures.
When Must Disclosures Be Made?
If your plan operates on a calendar year, the first disclosure must be made to all current participants and beneficiaries by August 30, 2012. This deadline also applies to plans with a plan year beginning between November 1, 2011 and July 1, 2012. Disclosure to new participants or beneficiaries is due at the time of their enrollment in the plan or at the time of the establishment of an account in their name (for example, upon the entry of a qualified domestic relations order and segregation of the participant’s account for the ex-spouse). Thereafter, annual and quarterly disclosures are required.
How is the Disclosure Delivered?
The disclosure is generally required to be made by paper mail or hand delivery of the information to participants. Quarterly disclosure requirements may be satisfied via the quarterly benefit statements provided to account owners. Electronic delivery is allowed provided a number of specific requirements are met, although the Department of Labor has stated that it is exploring alternatives to enable plan sponsors to utilize electronic disclosure more readily.
What is the Responsibility of My Custodian/Third Party Administrator?
Service providers for retirement plans are also subject to new rules requiring the disclosure of information to the retirement plans they serve. Essentially, disclosure of the compensation received by the service provider is required to be provided to the plan sponsors by July 1, 2012. If the service provider refuses to provide the information, the plan sponsor is required to terminate its contract with the provider.
- The plan sponsor is ultimately responsible for complying with the new disclosure rules. Failure to comply with the disclosure requirements is a breach of the fiduciary duty owed to plan participants and beneficiaries.
- Reach out to your service provider now to ensure that you will be prepared to meet the disclosure obligations at the end of the summer.
- Be prepared for questions from participants who will be receiving a large amount of information regarding their retirement plan, some of which may be unfamiliar.
- Now may be an ideal time to identify those individuals with account balances who are not active employees and alert these individuals to the fact that they may roll over their account balances to another retirement vehicle. This exercise may reduce the number of people to whom disclosure must be made.
Fourth Circuit Holds That Internal FLSA Complaint Can Support Retaliation Claim
By: Kevin C. McCormick
In a recent decision, the United States Court of Appeals for the Fourth Circuit held that an employee’s internal complaint to company management about possible wage-hour violations may be protected under the Fair Labor Standards Act’s anti-retaliation provisions. The Fourth Circuit reversed the decision of the trial court, which had dismissed the case based on its finding that the informal complaints were not protected under the FLSA. This article examines the facts of this important case, as well as the significant implications for employers.
The plaintiff in the case, Cathy Minor, worked for Bostwick Laboratories, Inc. as a medical technologist. According to her Complaint, Minor and several other members of her department met with Bostwick’s chief operating officer (COO) on May 6, 2008. The purpose of the meeting was to call to the COO’s attention the fact that Minor believed her supervisor had willfully violated the FLSA. Specifically, Minor informed the COO that her supervisor routinely altered employees’ timesheets to reflect that they had not worked overtime when they had. At the conclusion of the meeting, the COO told the group that he would look into the allegations.
The following Monday, Bostwick terminated Minor’s employment. Minor was told that the reason for her termination was that there was “too much conflict with her supervisors and the relationship just was not working.” When Minor further questioned the rationale behind her termination, she was told that she was “the problem.”
Minor filed an action against Bostwick alleging that her termination was in retaliation for her having engaged in protected activity under the FLSA’s anti-retaliation provision. The alleged protected activity consisted of Minor’s report to the COO concerning the alteration of the timesheets and the resulting lack of overtime pay. Minor sought compensatory damages, punitive damages and attorneys’ fees.
Bostwick moved to dismiss Minor’s claim. The trial court framed the issue as whether an employee’s intra-company complaint regarding possible FLSA violations by her employer qualifies as protected activity under the FLSA. The trial court found that it did not, in large part because the plain language of the statute indicated that a formal official proceeding was required to invoke the clause’s protection. As a result, the trial court dismissed Minor’s claim.
The Appellate Decision
According to the Fourth Circuit, the sole question presented by the appeal was whether an employee’s compliant lodged within her company, as opposed to a complaint filed with a court or government agency, may trigger the protection of the FLSA’s anti-retaliation provision. Finding that the issue was of first impression in the Fourth Circuit, the court then carefully reviewed statutory language, as well as relevant case law addressing this issue.
Under Section 215(a)(3) of the FLSA, it is unlawful for a covered employer to “discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to this chapter, or has testified or is about to testify in any such proceeding.”
In her appeal, Minor contended that an employee who complains of FLSA violations to her employer is protected because she has “filed any complaint” within the meaning of the statute. In support of her position, Minor relied on a recent Supreme Court decision, Kasten v. Saint-Gobain Performance Plastics Corp., 131 S.Ct. 1325 (2011).
In Kasten, the Supreme Court found that an employee did not have to file a formal written complaint with the U.S. Department of Labor in order to be entitled to the anti-retaliation provisions of the FLSA.
In considering the applicability of Kasten on Minor’s claim, the Fourth Circuit found that while the reasoning in Kasten was persuasive, it was not directly controlling. According to the court, in Kasten the Supreme Court considered whether an employee’s oral complaint to his employer qualified as protected activity. In so doing, the Supreme Court looked at the text of the statute, focusing on the word “filed.” It concluded upon review that the word “filed” did not unambiguously require a writing.
The Supreme Court also looked at Congress’ intent in drafting Section 215(a)(3). It concluded that Congress intended the anti-retaliatory provision to cover oral complaints based in large part on the FLSA’s remedial purpose requiring a broad interpretation to achieve its basic objectives. The court also considered the positions of the Secretary of Labor and the EEOC that oral complaints are protected activity within the meaning of the FLSA.
The Supreme Court did, however, stress that an employer needed fair notice as to when a complaint had been filed and held that “to fall within the scope of the anti-retaliatory provision, a complaint must be sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute and a call for their protection.”
Significantly, in Kasten, the Supreme Court declined to address the question of whether an intra-company complaint could qualify as protected activity under the FLSA. The Supreme Court did, however, state that “insofar as the anti-retaliation provision covers complaints made to employers,” limiting the scope of protected activity to written complaints would “discourage the use of desirable informal workplace grievance procedures to secure compliance” with the FLSA.
In reaching its conclusion that Minor’s oral complaints to the COO could be protected under the FLSA, the Fourth Circuit emphasized that it did not intend that every employee complaint would constitute protected activity. To the contrary, according to the Fourth Circuit, the statute requires fair notice to employers.
Thus, to protect employers from unnecessary uncertainty, some degree of formality is required for an employee complaint to constitute protected activity—certainly to the point where the employer has been given fair notice that a grievance has been lodged and does, or should, reasonably understand that matter to be part of its business concerns. Therefore, the Fourth Circuit directed that the proper standard to be applied was whether Minor’s complaint to her employer was sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute and to call for its protection.
In this case, Minor’s allegations met that standard. The facts as alleged by Minor indicated that she expressed her concerns regarding FLSA violations to the COO in a meeting specifically called for that purpose. Minor also alleged that the COO agreed to investigate her claims, indicating that the COO had a clear and detailed understanding of the issues.
While the court opined that it expressed no view as to whether Minor should ultimately prevail on her claims, in reversing the trial court’s decision, the Fourth Circuit found that her allegations were sufficient to survive summary dismissal and proceed to trial. (Minor v. Bostwick Laboratories, Inc., 669 F.3d 428 (4th Cir. 2012))
Takeaway for employers: This is a significant decision for employers in Maryland (and other states encompassed by the Fourth Circuit) who must now tread carefully in responding to any oral complaints raised by employees alleging FLSA violations. Prior to Kasten, and now Minor, it was well-settled in the Fourth Circuit that in order to be protected under the FLSA’s anti-retaliation provisions, the employee needed to file a complaint alleged FLSA violations with the Department of Labor. Kasten held that an oral complaint was sufficient. Now, under Minor, an employee need not even file an oral complaint with the DOL or any other appropriate agency.
To be sure, under Minor and Kasten, the employee must specifically complain about FLSA violations such that the employer understands the nature of the complaint. However, as long as the employee includes the initials “FLSA” in his or her oral complaints, it would be prudent to consider such a complaint as protected under Section 215(a)(3) of the FLSA, and to avoid taking any actions that could constitute retaliation against that employee.