Broker Check

Q1 2021 Retirement Legal & Compliance Update

April 20, 2021

Participant Data NOT a Plan Asset

Another federal court has weighed in on the status of participant data as a plan asset. 

The lawsuit filed in January 20201, alleged that Fidelity breached its ERISA fiduciary duties and engaged in prohibited transactions by sharing information it maintained about the 401(k) plan participants with various Fidelity affiliates. The lawsuit accused those affiliates of then using the participant data to solicit the purchase of non-plan-related retail financial products and services.

U.S. District Judge Jeffery Vincent Brown of the District Court for the Southern District of Texas, Galveston Division, granted Fidelity’s motion to dismiss.  In the nine-page opinion2, Judge Brown explained that “ERISA provides that the term ‘plan assets’ means plan assets as defined by such regulations as the Secretary of Labor may prescribe. Two such regulations have been prescribed.” 

The first – in 29 CFR §2510.3-101- Definition of ‘plan assets’ – plan investments, which Judge Brown notes “…expressly defines ‘plan assets,’ provides that ‘the plan’s assets include its investment,’ but makes no mention of any ‘data’.”

The second regulation, focusing on “participant contributions” to the plan, “likewise fails to mention ‘data,’” he writes. Judge Brown comments that ‘neither of the promulgated regulations either expressly or by any plain-language interpretation includes participant data as plan assets under ERISA.”

What This Means 

The issue of participant data as a plan asset is relatively new in retirement plan litigations. It is worth noting that in recent months settlements were negotiated in cases where this was raised as an issue calling for restrictions on data usage.


Re-Enrollment Can Lead to Better Participant Outcomes

By offering a qualified default investment alternative (QDIA) such as a target date fund (TDF), sponsors can help ensure that their participants are appropriately diversified.

While new enrollees tend to choose QDIAs, such as TDFs, or end up being defaulted into them, many existing participants remain invested in a portfolio of individual funds that were available when they initially enrolled. Their accounts may not be suitably allocated given their current goals or the options available to them, a situation that may reflect participant inertia, a lack of investment understanding or simply indecision.

To address these issues, plan fiduciaries have pursued re-enrollment, a process that is much more straightforward than many realize. The plan sponsor announces that, as of a specific date, current balances and future contributions to the plan will be automatically invested in the plan’s QDIA unless participants opt out by re-selecting their current investments. Participants can then revisit their plan selections to correct imbalances or take advantage of investments that were not available when they originally enrolled. In effect, the re-enrollment is more of a reallocation that can help improve the participant’s long-term retirement outcome. 

Weigh Participant and Fiduciary Concerns Against Plan Objectives

While some sponsors may wonder how participants will respond to a re-enrollment, they tend to appreciate the help.

  • Many participants prefer TDFs because of the built-in diversification and automatic rebalancing they provide.
  • Participants can still make changes. Participants retain the ability to change their investment selections in the future.
  • Fiduciary protection may be expanded. Default investments in QDIAs are covered by an ERISA safe harbor.
  • Because markets rise and fall without warning, plan fiduciaries are not expected to try to time a re-enrollment based on market events.

Tips for a Successful Re-Enrollment

  1. Announce early and repeat often. Announce the event 60 to 90 days in advance and explain the benefits with on-site meetings. 
  1. Verify current addresses, especially for former employees and beneficiaries. Have a process in place to track undeliverable mail. 
  1. Go beyond emails and signs. Use newsletters, texts and even a confirming telephone call as the re-enrollment period nears its end. 
  1. Tell participants they have choices. Selections can and should be revisited regularly.


Sponsors are committed to looking out for the best interests of participants. Conducting plan re-enrollments is an expression of that commitment, as they can help participants positively improve their financial security in retirement.

Is COVID-related sick pay considered compensation?

The Families First Coronavirus Response Act1 (FFCRA) requires certain covered employers to provide eligible employees with paid sick leave (for two weeks) and expanded family and medical leave pay (for an additional 10 weeks) if taken for specified reasons related to COVID-19. The Department of Labor has published a helpful FFCRA summary2 for employers that define which employers are affected, who eligible employees are and how to calculate the qualified leave wages. 

The IRS further clarified in question and answer (Q&A) #54 of a Special Issues News Release3 that plan sponsors should include qualified leave wages paid to employees due to the COVID-19 pandemic as plan compensation, unless that plan’s provisions specifically exclude this compensation from the definition. According to Q&A #54:

“The FFCRA does not distinguish qualified leave wages from other wages an employee may receive from the employee’s standpoint as a taxpayer; thus, the same rules that generally apply to an employee’s regular wages… would apply from the employee’s standpoint. To the extent that an employee has a salary reduction agreement in place with the Eligible Employer, the FFCRA does not include any provisions that explicitly prohibit taking salary reduction contributions for any plan from qualified sick leave wages or qualified family leave wages.”


Unless a 401(k) plan’s provisions specifically exclude COVID-19-related qualified leave wages, plan sponsors should include such amounts in the definition of compensation for plan purposes.