President Obama’s Retirement Saving Surprise

As the contents of President Obama’s 2014 fiscal year budget proposal were revealed, it became evident that it would break new ground with one of its provisions for retirement saving.  Most attention-grabbing was a plan for a per-taxpayer retirement accumulation cap, tied to a projected future benefit.  The motive for this is to generate revenue by limiting tax-advantaged saving.  Put simply, you or I would not be permitted to accumulate combined IRA and employer plan assets greater than an amount which—when applying an actuarial formula—would yield an annual payout at retirement age greater than the maximum that can be paid out from a defined benefit (DB) pension plan.  That limit is $205,000 for 2013.  The amount would be indexed to inflation, as is the maximum annual DB plan benefit. 

There are administrative complexities to this proposal, to be sure, such as determining when a taxpayer’s limit has been reached, the effects of investment gain or loss on contribution eligibility, consequences of breaching the cap with an otherwise-eligible contribution, and more.  But, beyond such details is the larger issue of the philosophy behind it, and the consequences—intended and otherwise—of such a proposal.  

Philosophically, should government be telling taxpayers how great or how limited their assets should be upon entering retirement?  Taxpayer circumstances differ greatly, as do their commitments, responsibilities and aspirations, both during working years and upon actual retirement.  The assets needed to meet these responsibilities and realize these aspirations must naturally differ, too. 

The counter-argument is likely to be that everyone is free to save as much for retirement as they are able to, but may have to do it without the benefit of a tax Code incentive, which tax-preferred retirement saving programs give them.  While this may sound reasonable, the reality seems to be that without tax incentives retirement savings suffer.   For example, many will recall the Taxpayer Relief Act of 1986 (TRA-86) and the restrictions it placed on Traditional IRA deductions.  Those participating in an employer-sponsored retirement plan, or who were married to someone who was,  had to consider their income when determining their eligibility for a deductible IRA contribution. IRA contributions fell by about 50% in one year starting with the first year tax incentives were not available.  This seems to be pretty clear and convincing evidence that tax incentives do matter.

While the TRA-86 changes resulted in less savings, at least the changes were prospective ones  that did not penalize taxpayers for past saving behavior.  The president’s proposal can be viewed as penalizing past behavior, in effect asking many who have saved diligently and invested well to recalibrate the vision they have for retirement.  While others who are similar in age, income, profession, or some other parameter can continue to save the maximum amounts permitted under the Internal Revenue Code, those with larger accumulations will be required to stop saving in a tax-advantaged manner.  The rules will have been changed in the “middle of the game” for many who have played the game fairly and well. 

There is also the matter of employer incentives for maintaining retirement plans, which benefit many thousands of rank-and-file workers who may never accumulate enough to be affected by the proposed cap.  When an employer reaches the maximum accumulation and must restrict future contributions, will he or she continue to sponsor a plan that only benefits the rest of the workforce?  And what about the loss of capital formation, which is the outcome of saving of all kinds?  While the largest share of U.S. retirement assets are now in capital-rich IRAs, the lion’s share did not originate as IRA contributions, but as contributions to employer-sponsored plans, whose balances were ultimately rolled over to IRAs.  The employer-sponsored plan is the goose that has laid many golden eggs.

It is unlikely that President Obama’s complete budget proposal will be accepted as-is, or will progress to legislation and become law in current form.  The Republican-led House and Democrat-led Senate have adopted their own budgets, neither of which matches the one proposed by President Obama.  Following hearings on the president’s budget by each body, compromise is inevitable if any budget resolution is to be adopted; there may not even be a consensus budget achieved this year. 

Nonetheless, laws begin life as proposals, and “parts” from multiple sources can become assembled into a legislative whole sometimes unrecognizable in its origins.  Not entirely unlike sausage making, as the saying goes.  Now is the time to make sure that the budget ingredients are not harmful to the mission of encouraging retirement saving.  Harmful, as we believe this particular ingredient to be.   

What Can We Expect From DOL’s “New Sheriff in Town?”

Whenever there is a change in the senior leadership of any organization, there is a period of uncertainty.  This is true in both the private and public sectors.  At such times it can be unclear whether the status quo will be maintained, or if major change in direction will occur.  President Obama’s recent nomination of Thomas Perez to succeed the departing Hilda Solis as Secretary of the Department of Labor (DOL) leaves my headline question unanswered for the moment.   

First, of course, comes Mr. Perez’ confirmation, and it is already clear that some Senators have a some concerns with him.  Perez currently serves as Assistant Attorney General for the U.S. Justice Department’s Civil Rights Division.  Among his critics, long-time Iowa Republican Senator Charles Grassley has threatened to oppose Perez’ nomination over allegations that he used his department’s influence to keep a potentially important housing discrimination case from going to the U.S. Supreme Court.  Others have expressed the opinion that he has leaned toward lax enforcement of immigration rules.  It remains to be seen how the nomination will proceed through Congress.

But what is of most immediate interest to the retirement industry is the direction that DOL may take on employee benefits in 2013 through 2016, during the remainder of President Obama’s second term.  Perez’ predecessor Solis’ pre-DOL experience included four terms as a California congresswoman, and featured a focus on labor issues.  Perez’ record of public service has had a focus weighted more heavily towards immigration and civil rights issues. 

This does not mean that he doesn’t or cannot grasp labor issues, but they do not appear to be his forte.  If this is an accurate assessment, then it would not be a huge surprise if Perez vision in a DOL leadership role—again, if confirmed—might logically be influenced by 2^nd term holdover Phyllis Borzi, Assistant Secretary for the DOL’s Employee Benefits Security Administration (EBSA).  I think it if fair to say that Borzi is considered to be among the more aggressive of recent EBSA leaders in advancing an agenda that places greater compliance demands on retirement plan sponsors and industry service providers.  For example, she is believed to be an advocate for a fairly broad definition of “fiduciary,” including applying these rules to the IRA environment, something that is an item of concern for many in the financial industry and on Capitol Hill.

It is not the case that retirement industry players are anti-compliance.  But there are fears that some of the directions EBSA might take would add compliance complexity and cost, without significant benefits to retirement plan participants—or IRA savers for that matter.  If Perez is confirmed, it is hoped that he will become familiar with the turf on both sides of the compliance fence, and will not adopt an adversarial and litigious attitude in the mistaken belief that this is in the best interest of U.S. workers and retirement savers.

Needed IRS Roth and ATRA Guidance

Whoever coined the phrase “the devil is in the details,” could easily relate to the uncertainty now facing the retirement industry following enactment of the American Taxpayer Relief Act of 2012 (ATRA).  Very few of ATRA’s provisions deal with retirement, but one issue is single-handedly making up in complexity and mystery what ATRA’s retirement dimensions lack in number.  Specifically Section 902, which allows pre-tax assets in certain employer-sponsored retirement plans to be converted to Roth status at any time, not just when they are distributable.  For those who may need reminding—and similar to Roth IRAs—the benefit of Roth-type assets in an employer plan is that they can generate tax-free earnings.

The Small Business Jobs Act of 2010 (SBJA), made it possible to convert pre-tax plan assets to Roth assets.  That legislation permitted a participant to convert pre-tax funds into Roth funds at such time as the participant was eligible for a distribution of that particular money type, or in other words had a distribution event .   For example, under SBJA a participant had to wait until age 59 ½ to convert his pre-tax deferrals to Roth assets.  ATRA now allows a participant to convert the pre-tax deferrals at any time, as long as the plan allows the conversion, even though there may not be an actual statutory distribution event for the money type.   

At first blush this new option seems an improvement over the old rules, which—due to their restrictiveness—did not generate much employer enthusiasm, or participant response.  Now, more participants may be able to more rapidly increase the volume of Roth-type assets in their accounts, which can be expected to yield more tax-free earnings.  What could be better than that?  Unfortunately, there are plenty of remaining uncertainties.  Until they are answered with IRS guidance, we would be surprised if a high percentage of plans adopt this option.  Here are just some of those questions.

Vested amounts only? Does the statute limit such conversions to vested amounts?  Industry interpretations differ but it appears based on the language of the statute that ANY amount can be converted, including non-vested amounts .  It is likely most would adopt a plan provision that would limit such ATRA-enabled conversions to vested amounts, as it is hard to imagine a participant being allowed to convert—and pay tax on—an amount, and subsequently have the risk of forfeiting it.  As this is something very new, guidance from the IRS as to how they view this is needed.

How to handle withholding?  The one unpleasant consequence of converting pre-tax assets to Roth assets is current taxation.  To avoid an under-withholding penalty, some taxpayers might prefer to convert less than the whole amount, and have some sent to the IRS as withholding to satisfy their anticipated tax obligation for the event.  This could readily be done with an in-plan Roth conversion under SBJA 2010’s rules, because only amounts eligible to be distributed could be converted.  Under ATRA, however, amounts NOT eligible for distribution CAN be converted.  Under ATRA’s rules, can an amount calculated to satisfy the tax obligation for the conversion be sent from the plan to the IRS as withholding, when the participant could not  take an actual distribution?   Our current interpretation is that it cannot be.  Based on this interpretation,  only participants who can satisfy the anticipated tax obligation by making an estimated tax payment from their non-plan resources may be in a position to take advantage of this option.  Or alternatively, individuals may be forced into numerous conversions, over different years to avoid excess income tax liability.   

Amendment guidance and timing?  Clearly understood is the general rule that plans must amend for a voluntary or discretionary change by the last day of the plan year in which the change occurs.  This would certainly apply to ATRA’s in-plan Roth conversion option, now available in 2013.  However, given the extent of unanswered questions, and the fact that IRS guidance is unavailable, flexibility to amend for a 2013 implementation by a more reasonable date is very important.  Without the expected IRS guidance in-hand when such an amendment is drafted there is a very real possibility that plans amending in 2013 could be required to amend a second time to shore up an amendment drafted prior to receiving IRS guidance.  We hope that the IRS will consider modifying the amendment deadline unless guidance is forthcoming very early in the year.

Disclosure of tax implications?  It is required that a notice of rollover options and tax consequences be provided to a plan participant or beneficiary when a distribution from a retirement plan is requested.  This is also true when an in-plan Roth conversion was requested under the provisions of SBJA 2010, because that conversion or rollover took place when the amount was distributable.  Under ATRA, a conversion may take place without a distributable event, so the detail provided in a typical distribution notice would appear not to apply.  However, given the tax consequences that could befall a plan participant or spouse beneficiary who executes an in-plan Roth conversion, one might expect that this information would have to be provided.  We hope the IRS will thoughtfully and adequately address this.

Motives and consequences?  The questions presented here are a sampling of some of important issues that should be addressed by the IRS, and soon.  Something beyond the IRS realm, however, is congressional motives.  The ATRA provisions permitting anytime conversion of pre-tax retirement plan assets were inserted into the legislation at the 11^th hour.  The purpose was to raise some $12.2 billion in tax revenues over the next 10 years, in order to offset the cost of other tax -related provisions in this “fiscal cliff” legislation.  This is the same strategy employed when Congress enacted the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), which offered special 2-year taxation in 2011-2012 for 2010 Roth IRA conversions.  The objective then was to generate tax revenues in 2010, through Roth IRA conversions, in order to pay for other TIPRA tax provisions. 

While it can be argued that some taxpayers will be better off with more Roth assets and their potential for tax-free earnings, this is not necessarily true for everyone.  Furthermore, neither the 109^th Congress nor the present one appears to have been motivated by the principle of enhancing retirement security.  It is also ironic that, with so much focus on the national debt and on balancing federal revenues with expenditures, this Congress traded away greater future tax revenues for lesser immediate tax revenues in order to avert the fiscal cliff.  That is called “kicking the can down the road.”  Hopefully, the IRS will not do the same with the ATRA guidance that is so much needed. 

U.S., Denmark Are Not a Good Retirement Saving Comparison

At a time when the U.S. retirement savings structure is a potential target for generating new tax revenues to balance the federal budget, the last thing  the industry needs is high-profile, big-name research that undercuts its value.  That is just what seems to have happened, with the release of a study authored by Raj Chetty and John Friedman of Harvard University, and several Danish counterparts.  Their study evaluated the effects of recent Danish tax changes that reduced retirement saving incentives for some workers.

Chetty and his fellow researchers drew the following conclusions. 

1.       The vast majority of workers are “passive savers,” meaning they do not respond to tax incentives.    

2.       Those who do respond to retirement tax incentives (the study determined it to be 15 percent) would still save without incentives, just in a different kind of savings vehicle.

3.       The net result is that for every dollar’s worth of tax incentives or subsidies provided to workers, total savings increased by only one (1) cent;

To their credit, Chetty and his fellows did also conclude that automatic contribution arrangements were likely to be the best answer to increasing U.S. savings rates, essentially forcing saving behavior on those who are unlikely to act on their own.

Before pointing out some very important differences between the Danish tax and social environments and those of the U.S., it is worth noting that this study has already been seized upon by some as a pat answer to the question of whether incentives increase real saving, or are worth the cost.  Perhaps worse, some are repeating the same inaccurate characterizations of the tax treatment of U.S. retirement saving.

For example, Boston College economist, professor and retirement researcher Alicia Munnell was quoted in her Encore blog, printed in the February 8^th Wall Street Journal Market Watch, as saying that “The federal government provides generous tax subsidies for retirement saving.  These subsidies cost the Treasury more than $100 billion annually in foregone tax revenues.”

It is one thing to question how effective the current system of employer tax deductions and employee tax deferral is in increasing saving.  It is quite another to say that their cost is $100 billion annually, and that the Treasury forgoes these revenues.  The impression left by such statements is that these are truly lost revenues.  This is hardly the case.  Using data from the IRS Statistics of Income compilations, in 2010 alone (the latest year available), some $753 billion—that’s with a “b”—in retirement assets were distributed from employer plans and IRAs and included in taxable income.  So, in most cases, taxation is delayed until a future date, not lost.  Delayed use is the whole point of retirement saving!

Those entrusted with making our laws and shaping and guiding our economy and social policy should be made aware, and take the time to inform themselves, that most amounts saved for retirement on a tax-advantaged basis do eventually generate taxes, and do not result in a permanent tax loss.  It is a peculiarity of the federal legislative scoring and budgeting process that revenue credits and debits are usually calculated over a very limited five-year window.  I believe this is an unrealistic snapshot of the net effect of retirement saving incentives on the federal budget.  But it has led far too many people to conclude—or to propose policy—on the premise that deferred taxation equals lost taxation.

The Employee Benefit Research Institute (EBRI), a well-respected industry analytics group, thoughtfully questioned the Harvard study’s conclusions about the importance of tax incentives in Denmark versus the U.S.  Here are just two EBRI observations.

Non-governmental retirement plans in Denmark are primarily established by worker unions, not by individual employers, as is the case in the U.S.  A reduction in tax incentives is unlikely to prompt widespread plan termination there, whereas American employers have repeatedly declared that meaningful tax incentives are central to their continuing to sponsor retirement plans.  Without a meaningful business tax deduction, and the opportunity for business owners themselves to save substantially in a tax-advantaged fashion, many employers are likely to conclude that the effort, expense and potential liability are not worth the trouble.  If this happens, few should doubt that a much smaller number of U.S. workers will be financially prepared for retirement.

EBRI indicated that a large and growing share of accumulated U.S. retirement assets will be spent on health care, whether it is in insurance premiums, co-pays, or out-of-pocket expenditures.  It is estimated that a 65-year-old U.S. couple retiring today will need roughly a quarter of a million dollars for health-related expenses over typical life expectancies.  This is over and above their living expenses, and that RV they envision purchasing to travel and enjoy their supposedly golden years.  As EBRI points out in its analysis of the Harvard study, Danish citizens have taxpayer-funded universal health care, so this potentially huge additional retirement expenditure is absent there.  The absence of this cost would seem to lead to a lesser sense of urgency when it comes to retirement savings.  As such, we believe that comparing the experience in that environment to the US is a comparison of apples to oranges.

Ms. Munnell and others are correct in suggesting that workers’ lack of responsiveness to saving opportunities argues for greater use of automatic enrollment in retirement plans, as well as automatic increases over time.  But without employer tax incentives to establish and maintain plans in the first place, the best guess is that there would simply be fewer plans in which to auto-enroll or to auto-escalate, and fewer employees prepared for retirement. 

Retirement Industry Hopes to Avoid Another “1986”

Consistent with the behavior in Washington D.C. these days, lawmakers labored into the final hours of 2012, and early hours of 2013, to complete legislation to avert the so-called “fiscal cliff.”  That legislation, the American Taxpayer Relief Act (ATRA), temporarily avoided mandatory cutbacks in federal spending, preserved lower income tax rates for most Americans, and addressed a multiplicity of other things, including provisions that have a direct impact on IRAs, Coverdell Education Savings Accounts, and designated Roth accounts in employer plans.

But ATRA did not solve the nation’s debt crisis.   Nor did it address the need to find a long-term solution to the imbalance between federal expenditures and tax revenues.  These tasks remain ahead for the 113^th Congress and President Obama.  Unfortunately, there are few signs that the sometimes bitter partisanship that ruled the 2012 congressional session and general election cycle are going away anytime soon. 

Regardless of how the politics of 2013 play out, and however long it takes to resolve, there is virtually no escaping the need to restore some semblance of balance between federal revenues and expenditures.  How that will be done could affect any of a number of taxpayers, and niches in the U.S. economy. 

Among them are retirement and other tax-advantaged savings vehicles, and the American workers and taxpayers who contribute to them.  Some lawmakers and independent policy “wonks” have suggested tax reforms that eliminate or cap itemized tax deductions, including those for IRA and employer sponsored retirement plan contributions.  Others have suggested reducing annual contribution limits; for example, limiting annual retirement plan benefits to the lesser of 20 percent of income, or $20,000.  It’s not unreasonable to expect still other “creative” solutions to find their way into the budget balancing dialogue.

As worthy an ambition as balancing the federal budget is, that goal must be weighed against the long-term, big picture priority of a U.S. workforce able to retire with reasonable financial security.  This is not a selfish goal that benefits only retirees.  Their financial needs and preparedness directly impact the nation as a whole.  It is a matter of their ability to support themselves without dependence on government assistance, and to help drive the U.S. economy through their participation as consumers.  To hinder workers ability to save for their retirement now almost assures that there will be unfavorable economic and fiscal consequences for the nation in the future.

While some seem to believe that Americans will still save without the tax incentives now present in the Internal Revenue Code, those of us who were around in 1986 can point to the Tax Reform Act of 1986 (TRA-86) as an example of what occurs without tax incentives.  Following the significant reduction in IRA deductibility that was the result of TRA-86, the volume of IRA contributions fell dramatically.  From 1986, when the IRA deduction was universal and fully deductible, to 1987 and later years, when deductibility was limited by household income for those participating in an employer plan, we saw regular IRA contributions drop almost immediately by half.  This seems to be a fairly clear-cut example demonstrating that tax incentives do encourage saving, and that without them saving will not occur in many cases.

A big difference between 1986 and 2013 is that the retirement industry is mobilized to defend the presence of retirement saving incentives in the Code.  Many industry voices have already been heard, delivering what I consider to be among the most effective and accurate  arguments, this being that retirement saving results in a delay in the receipt of tax revenue until retirement, not a loss of tax revenue.  Those in Washington need to consider the long term effect savings has and not focus solely on the short term tax revenue impact. 

That said, no one in the industry should be complacent, or confident that there is no real threat to today’s retirement saving model.  Continuing to make our voices heard loud and clear by our congressmen and senators is vital to preserving all workers’ chances for a secure retirement.

Fiscal Cliff Avoided

Some may view it as a belated Christmas present, or an attempt at a New Year’s resolution.  However one characterizes it, Congress finally completed and passed legislation that at least temporarily averts the so-called “fiscal cliff” facing our government.  As this drama was unfolding, most Americans and lawmakers were focused on income tax rates, jobless benefits, payroll tax withholding, and possible cuts to federal entitlement programs.  Pending legislation to extend a long roster of expiring tax provisions was not even part of the dialogue, and both lawmakers and Capitol Hill watchers questioned whether all, or any, of those provisions would be extended at any time in the foreseeable future.  

But, as if to prove that one can never be too sure of what will happen in Congress, an 11^th hour agreement was reached that led both House and Senate to pass—and the president to sign—the American Taxpayer Relief Act of 2012 (ATRA).  As it turned out, this legislation will have a direct impact on IRAs, Coverdell Education Savings Accounts, and employer sponsored retirement plans that allow designated Roth account deferrals.   The IRA qualified charitable distribution (QCD) option has been extended from its December 31, 2011 (yes 2011!) expiration through the 2012 year just passed, and through the remainder of 2013.  It maintains the ability of IRA owners age 70 ½ or older to contribute up to $100,000 tax free to qualifying charities.  This popular and bipartisan-supported option was expected by many to someday be resurrected, but just when was certainly in doubt.  Coverdell Education Savings accounts (ESAs) were set to revert to pre-2001 contribution limits and other provisions that would have made these accounts much less attractive as a means to save for our children’s education.  Thankfully the 2001 enhancements have been made permanent.

The real surprise in ATRA was the provision allowing plan participants to convert any pre-tax amounts in their employer’s 401(k), 403(b) or governmental 457(b) plan to Roth status—via what’s known as an in-plan Roth rollover, or IRR—at any time, if the plan allows Roth deferrals and elects this liberalized provision.  This will allow participants to begin accumulating potentially tax-free assets much sooner than under prior law, which required that such pretax-to-Roth conversions take place only after a participant had satisfied a statutory or regulatory distribution trigger for the type of assets in their accounts.  For example, 401(k) plan deferrals generally are unavailable for distribution before a participant reaches age 59 ½.  As a result, only at age 59 ½, or later, could an IRR of elective deferrals take place.  ATRA changes this and permits an IRR at any time, without the participant having a statutory or regulatory distribution trigger.

It’s clear that lawmakers included this provision in ATRA in the belief that the option would prove popular, and perhaps more important, would generate significant federal tax revenues, since the act of converting a pretax balance to Roth status is a taxable event.  In fact, $12.2 billion in tax revenue over 10 years was the estimate of the Congressional Budget Office.  This revenue was sought as a way to offset the tax revenue cost, or losses, expected of the other provisions of ATRA.  This provision is strikingly similar to earlier legislation that allowed the tax impact of 2010 Roth IRA conversions to be split over 2011 and 2012 tax years, and ultimately raised significant tax revenues in the process. 

It’s almost a certainty that we will see more legislation in 2013 that will have an impact on retirement arrangements.  Aiding the victims of Hurricane Sandy is almost a certainty, with liberalized access to retirement assets a possible result.  There is also the possibility of very fundamental Tax Code restructuring, with consequences we cannot fully predict at this time.

Stay tuned, because in this business it seems that nothing is as constant as change.

A New "Trend" in ERISA Litigation?

Few would argue the point that we live in a society that has become somewhat “lawsuit prone”.  Sometimes it’s a matter of people or entities not wanting to accept responsibility for the decisions they make. At other times it’s greed, with the prospect of exploiting a deep pocket too tempting for some to resist.  And of course, there are plenty of legitimate, justifiable legal actions that complete the mix.

The world of ERISA is no exception to the phenomenon of intensified litigation.  The sum and substance of retirement saving is the accumulation of, if not wealth, at least adequate resources to support a reasonably comfortable lifestyle in retirement.  With retirement plan balances usually being one of the top two largest assets(along with their home) an individual has at retirement time, the stakes are high for all who save through an employer sponsored retirement plan.  As such, more litigation over wrongs or perceived wrongs are the result.      

The spectrum of ERISA lawsuits is as broad as litigation in commerce and society in general.  At times there is out-and-out thievery of workers’ assets, which obviously must be rectified.  At other times there is litigation in the wake of poor judgment, bad luck or just bad timing, typically in investment performance.  When a saver’s assets fail to grow as hoped, or worse yet, they “tank,” to use an unscientific term, more and more the matter ends up in court.

ERISA litigation is characterized by many layers of complexity, including employers, trustees, investment providers, third-party administrators, recordkeepers, accountants and actuaries.  These days, the real hot buttons in ERISA litigation are the fairness and disclosure of fees associated with plan administration and investments, and the propriety of investments offered to plan participants. 

A recent “push” of a hot button was the decision by the U.S. Supreme Court not to hear the case known as Santomenno v. John Hancock Life Insurance Co.  This action lets stand an April 2012 ruling by the 3^rd U.S. Circuit Court of Appeals, and its effect will be to allow a lawsuit against John Hancock alleging excessive 401(k) plan fees to go forward.

What’s concerning to some about this particular suit is that the plaintiffs sued the service provider, John Hancock, directly, without having exhausted the customary remedies of demanding that the sponsoring employer and/or plan trustee take action, and adding these parties to the lawsuit first.  The Supreme Court in deciding not to hear this case, appears to have given tacit approval to this approach.    

It is probably small comfort that the 3^rd Circuit ruled that the plaintiffs could not also sue under the Investment Company Act of 1940 (ICA), because during the course of this lawsuit the lead plaintiffs had divested the investment funds that gave rise to their lawsuit, and technically no longer had standing to sue under that law.  The Supreme Court had been asked to overrule the 3^rd Circuit and allow the plaintiffs to sue under the ICA. 

While it is unclear whether John Hancock will ultimately be found to have charged excessive fees, it does seem clear that entities that provide services and investment products to retirement plans are likely to feel more vulnerable to such litigation; vulnerable at least to having to expend resources to defend themselves against direct litigation before the exhaustion of standard legal remedies.  And it’s hard to avoid the conclusion that their costs will ultimately become the costs of plans and their participants.