UPDATE ON EXECUTIVE ORDER 13769: \"PROTECTING THE NATION FROM FOREIGN TERRORIST ENTRY INTO THE UNITED STATES\"
February 4, 2017
Higher Education Law ReportHigher EducationUPDATE ON EXECUTIVE ORDER 13769: \"PROTECTING THE NATION FROM FOREIGN TERRORIST ENTRY INTO THE UNITED STATES\"February 4, 2017
We previously reported that on January 27, 2017, the Trump administration issued Executive Order 13769 entitled, “Protecting the Nation from Foreign Terrorist Entry into the United States”. EO 13769 suspends: the entire US refugee admission system for 120 days; the Syrian refugee program indefinitely; and the entry of immigrants and non-immigrants from seven designated countries of concern for an initial period of 90 days. Exactly one week later, on February 3, 2017, the United States District Court for the Western District of Washington issued a temporary restraining order that prohibits the federal government from enforcing Executive Order (“EO”) on a nationwide basis.
On February 4, 2017, the Department of Homeland Security (“DHS”) issued a statement announcing that “…in accordance with the judge's ruling, DHS has suspended any and all actions implementing the affected sections of the Executive Order…” and that “…DHS personnel will resume inspection of travelers in accordance with standard policy and procedure.” In addition, all airlines and terminal operators have been notified to permit the boarding of all passengers without regard to nationality.
Similarly, the Department of State (“DOS”) confirmed that all visas that had been provisionally revoked pursuant to EO 13769 have now been reinstated and are valid once again.
In response to these developments, the Trump administration announced that it would file an emergency stay of the order “at the earliest possible time.” Late in the day on February 4th, the Department of Justice (“DOJ”) filed a formal notice of appeal with the United States Court of Appeals for the Ninth Circuit. The appeal sought to resume the travel ban by requesting an emergency stay of the decision issued by the Western District of Washington. Early Sunday morning, the Ninth Circuit Court of Appeals issued an initial decision denying the DOJ's emergency request. However, the federal appeals court has also asked both parties to brief their respective legal arguments before rendering its final decision. For now, the travel ban remains suspended.
Developments from this past week have demonstrated that the interpretations and implementation of EO 13769 continue to fluctuate and evolve. Accordingly, individuals from the seven designated countries of concern who are currently in the United States would be well-advised not to travel outside of the United States until the issues surrounding EO 13769 have been clearly settled by the judicial system.
What President Trump's Travel Ban Means for Colleges and UniversitiesJanuary 31, 2017 On January 27, 2017 President Trump signed an Executive Order (“EO”) titled "Protecting the Nation from Foreign Terrorist Entry into the United States". Given the diverse composition of colleges and universities, which includes faculty, staff and students, this EO significantly impacts the higher education community. Specifically, the EO suspends the entire US refugee admission system for 120 days and the Syrian refugee program indefinitely. In addition, the EO suspends the entry of immigrants and non-immigrants from certain designated countries of concern for an initial period of 90 days. It should be noted that after 90 days, travel is not automatically reinstated for foreign nationals from these countries of concern. Instead, the EO has mandated that the United States Department of Homeland Security (“DHS”) be required to report whether countries have provided information "needed…for the adjudication of any…benefit under the INA…to determine that the individual seeking the benefit is who the individual claims to be and is not a security or public-safety threat." If a country refuses to provide the requested information regarding its nationals to enable the United States to adjudicate visas, admissions or other benefits provided under the INA, the EO states that foreign nationals from that country will be prohibited from entering the United States until compliance has been achieved. The EO currently applies to individuals from seven designated countries: Iran, Iraq, Libya, Somalia, Sudan, Syria, and Yemen. There has been significant confusion regarding the scope and implementation of the EO’s travel ban. Currently, the travel ban appears to include and apply to the following groups of individuals: non-immigrant visa holders, immigrant visa holders, refugees, derivative asylees, Special Immigrant Visas (SIVs), etc. Moreover, any foreign national holding a passport from one of the seven designated countries is considered to be from the designated country. Accordingly, dual citizens who hold passports issued by both a designated country and non-designated country may also be subject to the travel ban. Further adding to the confusion regarding the scope of this EO, the DHS Secretary John Kelly issued a clarification statement on January 29, 2017 which noted that status as a lawful U.S. permanent resident (a.k.a. “green card holder”) “will be a dispositive factor” used in the case-by-case analysis for determining re-entry and/or admission into the United States. Based on the information set forth in the EO, colleges and universities would be well-served to advise students, faculty and staff who are from any of these seven designated countries to refrain from traveling outside of the United States until further notice. While the EO has specifically identified seven countries of concern, there is speculation that this list may evolve and expand in the future. Therefore, foreign nationals that hold immigrant and/or non-immigrant visas and who are presently in the United States from other Middle Eastern countries should strongly consider avoiding any international travel, where possible, until additional administrative and judicial guidance has been released. To date, legal challenges have been filed in federal courts throughout the United States on constitutional grounds. We anticipate that additional lawsuits by various stakeholders will be pursued in the coming days and weeks. Thus far, courts in New York, Massachusetts, Virginia and Washington have granted stays of removal and/or temporary orders restraining the enforcement of the EO. While each court decision is slightly different, and does not overrule or invalidate the EO on its face, they do send two messages: (i) the subject matter contained in the EO will be subject to legal challenges; and (ii) given the gravity of the situation, the courts will likely address any such legal challenges in an expeditious manner. As suggested above, until more practical guidance is issued from the courts, the DHS and/or the White House, colleges and universities should advise faculty, staff and students that could potentially be impacted by this EO not to travel abroad. A New Year, A New Form I-9 - Higher Education Law ReportJanuary 26, 2017 On November 14, 2016, the United States Citizenship and Immigration Services (“USCIS”) released a new Form I-9 (Rev. 11/14/2016 N) to replace the prior form which expired on March 31, 2016. Beginning January 22, 2017, colleges and universities must use this updated form for the initial employment verification of all new hires (including student employees) moving forward. Use of the updated Form I-9 also applies to the reverification of an individual’s employment eligibility, as appropriate. Institutions should be aware that: (i) the new Form I-9 has an expiration date of August 31, 2019; and (ii) prior versions of the Form I-9 are no longer valid and should not be used in the future. By way of background, the Immigration Reform and Control Act (“IRCA”) requires all employers – including colleges and universities – to verify the identity and legal work authorization of individuals hired after November 6, 1986, including U.S. citizens and legal permanent residents,. Specifically, the I-9 verification process requires individuals to present facially valid documentation to enable higher education institutions to verify an individual’s identity and to further confirm that the individual is authorized to work in the United States. For record-keeping purposes, colleges and universities must retain completed Form I-9s for either three (3) years after an individual’s date of hire or one (1) year after the employment relationship ends – whichever is later. According to the USCIS, the new Form I-9 is “designed to reduce errors and enhance form completion using a computer”. Dubbed a “smart form”, the online version of this updated form now includes various enhancements intended to minimize technical errors commonly made by institutions and employees. For example, some of the new I-9 smart form features include the following:
Higher education institutions are reminded that even if they opt to use the enhanced online version of the Form I-9, they must still print the document, gather the necessary handwritten signatures and store the completed form pursuant to the applicable I-9 recordkeeping requirements. In addition to the electronic enhancements mentioned above, the USCIS has made several other notable revisions to the new Form I-9. A summary of the main changes within each section of the form appears below. Improved Instructions: In this latest round of revisions, the USCIS has separated the instructions from the actual Form I-9. In addition, the USCIS has amended the instructions to provide more detail and guidance in an effort to reduce errors during the verification process. The Form I-9 instructions are now 15 pages in length. Colleges and universities should note that they are still required to make either an electronic or hard-copy of these instructions available to employees when they complete the Form I-9. Section 1: Employee Information and Attestation
Section 2: Employer or Authorized Representative Review and Verification
****** As noted above, the new Form I-9 includes new electronic features to facilitate fewer errors during the completion process. Reducing the number of technical/paperwork violations on the Form I-9 has become increasingly important since the federal government implemented higher civil fines against institutions who commit immigration-related offenses, which includes, among other things, Form I-9 and E-Verify violations. With respect to I-9 paperwork errors (e.g., errors or omissions on the Form I-9), the federal government raised the civil penalty range from $110-$1,110 (per relevant individual) to $216-$2,156 (per relevant individual) – an increase of approximately ninety-six percent (96%). The new penalties took effect on August 1, 2016. Given the anticipation of heightened immigration enforcement by the new administration, colleges and universities may be well-served to review their I-9 procedures and records to ensure compliance with IRCA. If you have questions about the new Form I-9 or general I-9 compliance issues, contact Caroline M. Westover, any of the attorneys in our Immigration Law Practice or Higher Education Law Practice, or the attorney in the firm with whom you are regularly in contact. New York Institutions: Department of Financial Services Cybersecurity Regulations Likely to Impose Significant Obligations on Many Colleges and UniversitiesJanuary 9, 2017 Following a public comment period, the New York State Department of Financial Services (“DFS”) has published a modified version of new regulations, previously issued on September 13, 2016, aimed at creating higher cybersecurity standards within the banking, insurance and financial services industries. The regulations go into effect on March 1, 2017 with phased implementation thereafter, and will likely require significant capital expenditures and operational changes by colleges and universities covered by the regulations. The public comment period for the proposed modified regulations will be open until January 27, 2017. Colleges and universities must already comply with a panoply of laws, regulations and standards relating to data security: the Gramm-Leach-Bliley Act, the United States Department of Education guidance applicable to student loan information, the Red Flags Rule, PCI standards for credit card information, and, for some institutions, the Health Insurance Portability and Accountability Act. The DFS proposed cybersecurity regulations would impose operational requirements and expenditures that are far more burdensome than these existing obligations in many respects, including but not limited to standards for: penetration testing and vulnerability assessments, audit trails, cybersecurity personnel, due diligence, risk assessment, and contracting with third parties, use of multi-factor authentication and annual certification of compliance by the board of directors. For information on the specific requirements of the proposed cybersecurity regulations, please review our Client Information Memoranda dated September 16, 2016 and January 5, 2017. The new cybersecurity regulations apply to “Covered Entities”, which are defined broadly as “any Person operating under or required to operate under a license, registration, charter, certificate, permit, accreditation or similar authorization under the banking law, the insurance law or the financial services law.” Among the 3,800 entities regulated by DFS is a subset of institutions and organizations that are engaged in bona fide charitable, religious, missionary, educational or philanthropic activities and are permitted under N.Y. Insurance Law § 1110 to issue charitable gift annuities to donors. Therefore, unless the new regulations are further modified, such entities (including many colleges and universities) will be required to comply. (To determine if your entity is supervised by DFS, you can perform a search here.) Certain covered entities are exempt from a subset of the new cybersecurity regulations. Exempt entities include those with fewer than 10 employees, less than $5 million gross annual revenue for three years, or less than $10 million in year-end total assets. Additional exemptions exist for covered entities that do not operate, maintain, utilize or control any Information Systems and do not control, own, access, generate, receive or possess Nonpublic Information as those terms are defined by the regulations. Covered entities that qualify for exemptions must file a “Notice of Exemption” with DFS affirming the basis for the exemption. Unfortunately, due to their size, few colleges and universities will qualify for exemption. It is not immediately clear that DFS intended to include entities regulated solely under Insurance Law § 1110 as covered entities alongside traditional insurance companies. In fact, according to the Report on Cyber Security in the Insurance Sector, which was conducted as part of the regulation drafting process, DFS surveyed 21 health insurers, 12 property and casualty insurance providers, and 10 life insurance providers, but no colleges, universities, or charitable or religious organizations. Statements made by the Superintendent of Department of Financial Services, Maria T. Vullo, and Governor Andrew Cuomo in connection with the announcement of the regulations make no mention of not-for-profit organizations or higher education institutions as targets of the regulations. Notwithstanding the apparent primary focus of the regulations, in connection with its reissuance of the regulations on December 28, DFS acknowledged that many of the comments it received concerned the broad definition of “Covered Entity”, but that it opted not to amend that definition at this time. Institutions issued permits under N.Y. Insurance Law § 1110 to issue charitable gift annuities may wish to submit public comments about the impact of the regulations during the current public comment period, but should proceed on the assumption that the regulations will apply unless and until DFS provides definitive guidance to the contrary. New York Institutions: New Amendments to the Nonprofit Revitalization Act of 2013 Signed into Law by Governor CuomoDecember 6, 2016 On November 28, 2016, New York State Governor Andrew Cuomo signed legislation enacting another round of amendments to the Nonprofit Revitalization Act of 2013. The amendments should ease compliance with the NPRA’s related party transaction rules by incorporating express exceptions, allowing for committee approval, authorizing ratification of past transactions, and narrowing the universe of persons subject to the rules. Private colleges and universities in New York State would be well advised to update their governance documents to incorporate these changes so that their governance documents do not prevent them from taking advantage of these provisions. In addition, New York institutions should review their governing documents for compliance with other changes made by the amendments, including changes relating to (1) the definition of interested directors (trustees); (2) the formation, composition and authority of Board committees; (3) the role of audit committees; and (4) certain procedural aspects of conflict of interest. U.S. District Court in Texas Issues Nationwide Injunction Preventing New Overtime Rule From Taking Effect - November 2016November 22, 2016 Yesterday, the U.S. District Court for the Eastern District of Texas issued a nationwide injunction preventing the U.S. Department of Labor from implementing its regulations revising the white collar exemptions. Therefore, the increase in the minimum salary level to $913.00 per week that was expected to go into effect on December 1 will not occur on that date. In granting the injunction, the Court held that Congress intended the executive, administrative, and professional exemptions to be based on an employee’s duties — not on an employee’s salary level. Specifically, the Court stated: “After reading the plain meanings together with the statute, it is clear Congress intended the EAP [executive, administrative, professional] exemption to apply to employees doing actual executive, administrative, and professional duties. In other words, Congress defined the EAP exemption with regard to duties, which does not include a minimum salary level.” Although the USDOL has imposed a minimum salary level requirement to qualify for the white collar exemptions since the 1940s, the Court nevertheless determined that the increase in the minimum salary level from $455.00 per week to $913.00 per week was so large that “it supplants the duties test.” The Court stated: “If Congress intended the salary requirement to supplant the duties test, then Congress, and not the Department, should make that change.” So, what does this mean for the future of these regulations? Although this is only a preliminary injunction that prevents the implementation of the regulations until a final determination is made, this could very well be a permanent end to the regulations. A final determination is unlikely to be issued before the inauguration of President Trump, and it seems less likely that the USDOL under the Trump administration will be inclined to continue to vigorously defend the regulations in this litigation. A more likely outcome is that the USDOL may rescind and reissue the regulations with a less drastic salary increase, or perhaps even not reissue the regulations at all. This development leaves many employers wondering what to do about the employees who have already been told that they will be reclassified from exempt status to non-exempt status beginning next week and the employees who have been told that they will receive salary increases beginning next week in order to maintain their exempt status. The employees who have been told that they will be reclassified from exempt to non-exempt status can certainly be told at this point that they will remain exempt employees (assuming, of course, that their duties continue to qualify them for one of the white collar exemptions). In addition, from a legal standpoint, nothing would preclude an employer from rescinding the salary increases that were scheduled to go into effect next week for employees who were told that they would receive a salary increase to maintain their exempt status (unless the employer has entered into an employment contract that binds the employer to providing the salary increase). Obviously, from a human resources standpoint, this will require clear and prompt communication regarding the reason why the salary increase is being rescinded. Employers in New York should also keep in mind that the New York State Department of Labor has proposed a gradual increase to the minimum salary levels to qualify for the executive and administrative exemptions. If these proposed regulations are adopted, the first salary increase will occur on December 31, 2016. Employers outside of New York City, Nassau, Suffolk, and Westchester Counties will be required to pay a minimum salary of $727.50 per week to executive and administrative employees. Employers in New York City who employ 11 or more employees will be required to pay a minimum salary of $825.00 per week to executive and administrative employees. Employers in New York City who employ 10 or fewer employees will be required to pay a minimum salary of $787.50 per week to executive and administrative employees. Employers in Nassau, Suffolk, and Westchester Counties will be required to pay a minimum salary of $750.00 per week to executive and administrative employees. These amounts will increase each year. There is still no minimum salary under New York law to qualify for the professional exemption even under the new proposed regulations. We will provide an update regarding whether these proposed regulations become final regulations. Recent IRS Audit is a Reminder to Check Whether Your Employment Agreements and Appointment Letters Comply With the Applicable Tax and Benefit RequirementsOctober 27, 2016 The Internal Revenue Service ("IRS") recently notified a major university that it is being audited, and as part of that audit requested copies of the employment agreements of the president of the university, the provost of the university, and the head coaches of the University’s football team, men’s basketball team, and women’s basketball team. This audit is a reminder to higher education institutions of the importance of making sure that all of their employment agreements and appointment letters fully comply with all of the tax and benefit requirements that apply to such agreements and letters. A failure to comply with these requirements could result in serious adverse tax and benefit consequences for the higher education institution, and for the employees covered by such agreements and letters. What Are Some of the More Important Tax and Benefit Issues That Should Be Reviewed in the Employment Agreements and Appointment Letters of Higher Education Institutions? Among the more important tax and benefit issues that should be reviewed in the employment agreements and appointment letters of higher education institutions are the following:
What Are Examples of Provisions In Employment Agreements and Appointment Letters That Are Subject To the Deferred Compensation Requirements? Examples of provisions in employment agreements and appointment letters that potentially could be subject to the Deferred Compensation Requirements, and that generally should be structured to be exempt from the Deferred Compensation Requirements when reasonably possible (such structuring often will require additional language to be added to an employment agreement or appointment letter), include the following:
Consideration should be given to adding a construction clause in each employment agreement (and in certain appointment letters when it would be helpful) that provides that the agreement or letter is intended to comply with any applicable Deferred Compensation Requirements, and should be construed in a manner that is consistent with the intent that the agreement or letter not be subject to the premature income recognition or adverse tax provisions of the Deferred Compensation Requirements. The IRS has indicated that it will give deference to such a construction clause in certain circumstances. Each employment agreement and appointment letter should have language reserving the right of the university or college to withhold any required taxes with respect to any taxable payment or benefit described in the agreement or letter. What Are Some of the More Important Benefit Issues That Should Be Addressed In Employment Agreements and Appointment Letters? Among the more important issues that could arise when a benefit is being provided in in an employment agreement or an appointment letter is the extent to which the benefit is: (1) taxable; and (2) different than what is generally available to other employees on campus. If a benefit is taxable and payable in a future calendar year, it generally should be structured to be exempt from the Deferred Compensation Requirements whenever reasonably possible. If it is not reasonably possible to structure the benefit to be exempt from the Deferred Compensation Requirements, it should be structured to comply with the Deferred Compensation Requirements. If an employment agreement or appointment letter is providing a benefit that is different than what is generally available to other employees on campus, it is important to first check the terms of the applicable benefit plan, program, or policy to make sure the university or college has the authority to provide such a benefit (e.g., if an employment agreement or appointment letter is providing health or retirement benefits during a period when the applicable employee is not rendering any services, the terms of the applicable health or retirement plan should be reviewed to verify that benefits can be provided at a time when no services are being rendered). Such verification is especially important if the applicable benefit is being provided pursuant to a tax-favored retirement plan (a failure to follow the terms of a tax-favored retirement plan could jeopardize the tax-favored status of that plan) or an insured plan (e.g., a failure to comply with the terms of an insured health plan could result in an insurer refusing to provide coverage). It also is important to determine whether any different benefit that is being offered is subject to nondiscrimination requirements under the Code. Such nondiscrimination requirements generally preclude the applicable benefit being provided in a way that discriminates in favor of highly compensated employees, highly compensated individuals, or key employees (depending upon the applicable benefit). Examples of benefits that are subject to such nondiscrimination requirements include:
What Are Some of the More Important Steps Covered Universities and Colleges Should Take To Comply With the "Reasonable Compensation" Requirements? To the extent a university or college is subject to the "reasonable compensation" requirements under the Code, it will want to take the following steps, among others, to comply with those "reasonable compensation" requirements:
Any university or college subject to these "reasonable compensation" requirements generally should have written procedures in place that will help ensure that the required "reasonable compensation" analysis is done whenever there is an increase in compensation or benefits for a Disqualified Person. Certain state universities and colleges are exempt from these "reasonable compensation" requirements. Some states have implemented reasonable compensation requirements, and to the extent those requirements are applicable they also will need to be taken into account. Department of Education Issues Guidance on Campus PolicingSeptember 11, 2016 Citing the ongoing nationwide dialogue on law enforcement-community relations, racial justice and officer and public safety, on September 8 the U.S. Department of Education (in coordination with the Justice Department) released a Dear Colleague Letter providing guidance to colleges and universities with respect to its expectations for campus policing. In the main, the guidance encourages institutions to adopt and implement “applicable” recommendations from the Final Report of the President's Task Force on 21st Century Policing . As noted by the Department, the Task Force Report covers topics including “changing the culture of policing, embracing community policing concepts, ensuring fair and impartial policing, focusing on officer wellness and safety, implementing new technologies, and building community capital.” The Department encourages institutions to use the Task Force Report as a “template for self-assessment and organizational change,” with adjustments appropriate to context (for example, suggesting that in the campus environment, community engagement efforts should include diverse members of an institution’s campus community such as students, faculty, staff, and administrators, as well as community advocacy groups with relevant expertise). The Department’s guidance also reiterates institutions’ security-oriented obligations under the Clery Act and applicable federal civil rights statutes. IRS Issues New Management Agreement Safe Harbor Provisions, Providing Enhanced Flexibility for College and University Food Service, Facilities Management and Similar RelationshipsAugust 22, 2016 New management agreement guidelines were issued by the IRS today in a new Revenue Procedure (Rev. Proc.) 2016-44. Rev_Proc_2016-44 provides revised safe harbors under which a private management contract does not result in impermissible private business use of projects financed with tax-exempt bonds. The former limits on fixed and variable compensation in management contracts involving tax-exempt bond financed facilities have been eliminated. Rev. Proc. 2016-44 will be published in Internal Revenue Bulletin Number 2016-36, dated September 6, 2016. These revised safe harbors give colleges and universities the ability to enter into management contracts with private entities to manage or operate tax-exempt bond financed projects with more flexibility for incentives in reasonable compensation arrangements and longer terms of up to 30 years (subject to an economic life limit). The revised safe harbors also remove the previous requirements for prescribed percentages of fixed compensation for management contracts for different time periods. The revised safe harbors continue a longstanding existing prohibition against sharing of net profits, and add certain new principles-based constraints (governmental control, governmental risk of loss, and no inconsistent tax positions by private service providers). The revised safe harbors are effective for any management contract that is entered into on or after August 22, 2016. Universities Are Targets of Lawsuits over Retirement Plan FeesAugust 10, 2016 Three lawsuits filed in early August suggest that plaintiffs’ law firms, representing employees of colleges and universities, are looking at higher education retirement plans as potential targets for lawsuits seeking millions of dollars in damages. The New York Times reported[1] that class action lawsuits were commenced on August 9, 2016 against three prominent universities – New York University, Yale, and the Massachusetts Institute of Technology – alleging that the schools had allowed their employees to be charged excessive fees on their retirement savings. The law firm bringing the lawsuits – Schlichter Bogard & Denton – has already brought and settled many similar lawsuits against companies such as Lockheed Martin, Boeing, and Novant Health, for amounts in the tens of millions of dollars. The Lockheed Martin settlement, for example, was for $62 million. The new lawsuits suggest that Schlichter, and potentially other plaintiffs’ law firms, are now looking at college and university plans as potential targets for similar kinds of claims. The new lawsuits are putative class actions, which means that the law firm represents certain named employees who are participants in the universities’ retirement plans, and purports to represent all other similarly situated employee participants – plaintiff classes that may have thousands of members each. Once a handful of the college or university’s employees agree to be part of the lawsuit, it can be brought on behalf of all the employees in the retirement plan. The claims against NYU, MIT and Yale are similar to claims made in many of the previous retirement plan lawsuits brought by the Schlichter firm and others: that retirement plan fiduciaries breached their fiduciary duties under the Employee Retirement Income Security Act (ERISA) to prudently select investment vehicles for the plans so as to maximize returns, often by minimizing fees.[2] Under ERISA, the “fiduciaries” of a covered retirement plan – plan fiduciaries can include administrative and investment committees and, frequently, officers and other members of management of the college or university – are subject to strict fiduciary responsibilities and can be held personally liable for any losses caused by a breach of these duties. In short, it means the college or university is obligated to administer the retirement plan funds of employees in a manner that results in the highest possible prudent growth. Beginning about ten years ago, a wave of lawsuits have been brought on behalf of retirement plan participants alleging that fiduciaries had breached their duties by selecting improper investment options, and in particular by allowing excessive fees to be paid from plan assets. If the investment fees paid by a retirement plan are deemed to be excessive, even by a seemingly small margin, the aggregate losses over an employee’s working career can be very large. A frequently cited calculation stated in a U.S. Department of Labor publication more than 10 years ago – and repeated in the Times article – recites that if investment fees are one percentage point higher than a reasonable amount, the participant’s retirement account will be 28 percent lower after a 35 year career. If that is true, then for large plans (like those sponsored by the three universities), the potential losses are enormous – the complaint against MIT alleges that the plan could have saved more than $8 million in fees in a single year by selecting investments prudently. (The complaint’s damage claim is of course not limited to a single year’s losses.) Significantly, these lawsuits also involve claims against major college and university retirement plan managers, including TIAA-CREF and Fidelity. Accordingly, any college currently using these companies for its employee retirement plans could face some of the same claims. To reduce the risk of liability going forward, retirement plan fiduciaries should, among other things:
Colleges and universities may also want to confer with existing retirement plan managers regarding responses to questions which may arise at this time from employees about current retirement plans. Attorneys in Bond Schoeneck & King’s Employee Benefits Practice Group frequently counsel clients with respect to best practices for fulfilling fiduciary duties and avoiding ERISA liability. Often this takes the form of “fiduciary training” we provide to retirement plan committees and other plan fiduciaries. In addition, the firm’s Litigation Group has substantial experience in defending ERISA lawsuits. [1] Tara Siegel Bernard, “M.I.T., N.Y.U. and Yale Are Sued Over Retirement Plan Fees”, NY Times (Aug. 9. 2016, accessed at http://www.nytimes.com/10/your-money/mit-nyu-yale-sued-4013b-retirement-plan-fees-tiaa-fidelity.html. [2] We discussed some of the numerous issues pertinent to these types of claims in previous Memoranda – , for example: ERISA Fiduciary Guidance - Fairness for Defined Contribution Fees, and ERISA Fiduciary Guidance - Making a "Watch List" Work. Recent U.S. Department of Education Dear Colleague Letter Raises the Bar on Standards for Protecting Federal Financial Aid DataJuly 12, 2016 On July 1, 2016 the U.S. Department of Education issued a follow-up Dear Colleague Letter to the Dear Colleague Letter of July 29, 2015. This most recent letter reminds institutions of their legal obligation to protect student data under Title IV and sets forth the new standards and methods the DOE will use when evaluating data security compliance. An institution’s Title IV Program Participation Agreement (PPA) requires that they must protect all student financial aid data. The Student Aid Internet Gateway (SAIG) Enrollment Agreement, the system used by educational institutions and third-party servicers to exchange data electronically with the U.S. Department of Education, contains similar requirements. In addition, the letter reminds institutions that the specific requirements of the Gramm-Leach-Bliley Act (GLBA) governing data security at financial services organizations apply to post-secondary institutions. These include implementing a written information security program, designating an individual to coordinate information security, performing ongoing risk assessments, and properly vetting third-party service providers. It is also noted that compliance with the GLBA will be incorporated into the DOE’s annual student aid compliance audit requirements. Most significantly, the letter “strongly encourages institutions to review and understand the standards defined in NIST SP 800-171.” These standards were developed by the National Institute of Standards and Technology (NIST) to protect sensitive federal information that is used and stored in non-federal information systems and organizations. NIST SP 800-171 sets forth a significant expansion of the data security requirements and controls expected in the handling of student financial aid data and other types of federal data and information. In citing these standards, the DOE acknowledges “the investment and effort by institutions to meet and maintain the standards set forth in NIST SP 800-171” but “strongly encourages those institutions that fall short of NIST standards to assess their current gaps and immediately begin to design and implement plans to close those gaps using NIST standards as a model.” The message from the US DOE is clear – institutions of higher education that use student financial aid data, and other forms of federal data are expected to “immediately” begin to integrate the specific requirements of NIST SP-171. Updated Clery Act Handbook ReleasedJune 27, 2016 The Handbook for Campus Safety and Security Reporting (the “Handbook”), which provides important guidance for institutions as it relates to their compliance with the Clery Act’s safety and security requirements, was recently revised and a new version (the 2016 Edition) released by the United States Department of Education. This valuable resource had not been updated since 2011. The 2016 Edition of the Handbook contains updated provisions with respect to, among other things, the Violence Against Women Reauthorization Act of 2013. The 2016 Edition of the Handbook, which replaces all previous versions of the Handbook, can be accessed here. |
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