Crypto 401(k) Warning Casts Shadow Over T. Rowe Price Settlement

Pressure is mounting on the US Department of Labor to roll back its guidance against investing in cryptocurrencies because its implication for future brokerage window regulations has already jeopardized a class action settlement.

The possible consequences of the anti-crypto guide, issued by the department last month, they have already goaded the global money manager T. Rowe Price Group Inc. to hit the brakes on an $18 million class action settlement I agree in January.

The windows, which give workers access to a broader investment market through tax-advantaged retirement plans, are becoming a routine concession as plan sponsors fend off a growing wave of overcharge lawsuits. , like the one solved by T. Rowe. But companies may be less willing to settle for those grounds if the Labor Department tightens its regulatory checks on them.

“If the DOL were to require fiduciary oversight of individual investment options offered through brokerage windows, the monitoring obligations associated with maintaining such an offering in the plan would become materially more onerous and costly than they were previously. at the time the settlement agreement was signed. Lawyer for T. Rowe Price brian boyle he wrote in a Maryland federal court filing Monday.

T. Rowe Price has been finalizing the details of his settlement with a class of workers they sued in 2017, alleging the company padded his 401(k) with expensive internal funds. The brokerage window option in the plan “would allow Plan participants, for the first time, to invest in a broad range of stocks other than T. Rowe Price Mutual Funds,” according to the proposed settlement filed in Court. US District for the District of Maryland.

But the $18 million value the company agreed to in that deal doesn’t take into account the additional costs the Labor Department’s new interpretation of the brokerage window could add to the company, said Boyle, an attorney with O’Melveny & Myers LLP. .

The department’s warning that plan sponsors could face investigative action even if their participants access cryptocurrency investments through brokerage windows has the benefits industry fearful that regulators are setting a new standard for monitoring. Never before have plan sponsors been required to monitor brokerage window assets.

The plaintiffs in the case have said that the window “has the potential to be the most valuable feature of the Settlement for Plan participants.” But the tentative agreement allows T. Rowe Price to remove the feature if “there has been a change in law or regulation” regarding monitoring requirements,” Boyle wrote. The firm does not yet believe that plan sponsors have a duty to monitor the brokerage window’s investments, but the court should consider the DOL’s guidance when considering the value of the deal, he added.

Boyle did not respond to phone calls or emails seeking additional comment. Representatives for T. Rowe Price declined to comment. The lead attorney for the plaintiffs, James Moore of McTigue Law LLP, also declined to comment on the firm’s letter or its clients’ response.

“Attractive offer, so far”

T. Rowe Price is not alone.

“The idea of ​​wresting control away from an employer and giving participants the freedom to invest broadly may be an attractive deal, so far,” he said. Phil KohlerSenior Counsel for Hall Benefits Law LLC.

Since then, the guidance the department issued in March has been met with fierce endurance from plan sponsors and industry groups representing record-keeping and money-management companies. Brokerage windows are near the top of their list of complaints.

The crypto guide says that employers who “allow such investments through brokerage windows” could be investigated. Those companies “should expect to be asked how they can square their actions with their duties of prudence and loyalty in light of the risks” posed by cryptocurrencies, the guidance states.

Historically, plan sponsors have understood that they have little or no responsibility for monitoring the thousands of potential investments that participants can access through a brokerage window.

“There can be thousands of individual investments within a brokerage window; How can one plan sponsor be expected to control them all?” saying Lynn Dudleysenior vice president of global retirement and compensation policy at the American Benefits Council.

invest in anything

Brokerage windows often serve as pawns in lawsuits over excessive fees, as a defense against accusations that investment options are too limited, or as evidence that plan sponsors are offering too many.

Six colleges and universities were the subject of a series of lawsuits in 2016 that claimed the hundreds of options at brokerage windows those employers offered in their plans led to “decision paralysis” among investors.

But in cases where employers have offered very few indistinguishable investments, brokerage windows can appease participants who want more options to diversify their portfolios.

“Adding a window allows participants to better control the investment universe in some way in their plans going forward that did not exist prior to the litigation,” he said. George LeonPartner at Michael Best & Friedrich LLP in Chicago.

Windows that give participants access to more of Wall Street allow employers to offer a nonmonetary element in an expensive lawsuit and can be a last resort when plaintiffs’ claims have gone too far.

“They’re opening up the universe as much as possible and allowing participants to invest whatever they want within the window,” said Hall Benefits Law’s Koehler. “In a way, they’re throwing their hands up in the air and saying ‘damn it all; Go ahead and invest in whatever you want.’”

Department of Labor responds

The Department of Labor maintains that its cybersecurity guidance does not deviate from its longstanding position on brokerage windows.

It’s important the benefits community doesn’t misunderstand what the intent was behind the guidance, he said. ali jawaracting deputy secretary of the Employee Benefits Security Administration.

The guide was not written to find a “backdoor way to regulate brokerage windows in a completely new way,” Khawar said. In subregulatory guidance issued in 2012, the department specifically said that a plan sponsor’s duty of prudence and loyalty to participants does not end simply with the choice to offer brokerage windows.

That approach hasn’t changed, Khawar said.

“The guide doesn’t say and it didn’t mean to say that what you now need to do is, if you have a thousand options available in a brokerage window, you need to go and review each one of them and make sure that you personally invest in them as a trustee. “, said.