Reckless Pension Bosses Could Get Seven Years in Prison

British employers may now face up to seven years in prison if they recklessly mismanage employee pension schemes under strict new rules announced by the UK’s Department for Works and Pensions (DWP).

A new criminal offense of “willful or reckless behavior” in relation to pensions will be introduced under the proposals to crack down on abuse of final or average salary pension plans. Potential targets for penalties include all of those who have responsibility to a pension plan, including directors, sponsoring employers, and any associated or connected persons, and in some circumstances, trustees.

The DWP said the move is designed to be a deterrent for company bosses who allow deficits to escalate to unsustainable levels, or who endanger their workers’ savings through chronic mismanagement.

“For too long the reckless few playing fast and loose with people’s futures have got away scot-free. Acts of astonishing arrogance and abandon punished only with fines, barely denting bosses’ bank balances,” Amber Rudd, the UK’s secretary of state for work and pensions, said in a release. “Which is why, for the first time, we’re going to make willful or reckless behavior relating to pensions a criminal offence.”

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

The recommended maximum sentence of seven years is included in the government’s response to a consultation on enhancing the powers of workplace pensions watchdog The Pensions Regulator’s (TPR).

“We welcome the proposed new powers which, as a package, would allow us to identify potential problems earlier and take more effective action,” Nicola Parish, TPR’s executive director for frontline regulation, said in a release. “Our new powers will act as a powerful deterrent against the poor treatment of pension schemes and help us in protecting members. We are working closely with government to ensure that the new legislation is effective and works in practice.”

The decision to make tougher penalties for pension mismanagement comes as the number of British participating in pension plans continues to rise thanks to the introduction of automatic enrollment. According to TPR, more than 10 million have been brought into workplace pensions saving by automatic enrollment since it was launched in 2012.

“The vast majority of scheme sponsors and trustees already do the right thing,” said Parish, “and we will be helping them further by delivering clearer funding standards and a revised Defined Benefit (DB) Code of Practice.”

Tags: Department for Works and Pensions, Pension, The Pensions Regulator, UK

A US court has dismissed a class action lawsuit that alleged Exxon Mobil and fiduciaries of its employee stock ownership plan violated their Employee Retirement Income Security Act (ERISA) duties because they knew, or should have known, that the company’s stock “had become artificially inflated in value due to fraud and misrepresentation.”

The plaintiffs are current and former employees of Exxon Mobil who were participants in, and beneficiaries of, the Exxon Mobil Savings Plan, in which the company’s stock represented the single largest holding with a value of approximately $10 billion.

The lawsuit claimed that Exxon failed to disclose that its reserves had become impaired due to the proxy cost of carbon, which incorporated the future effects of global climate change, thus making its public statements “materially false and misleading.” The plaintiffs also alleged that the defendants should have sought out those responsible for Exxon’s securities disclosures “and tried to persuade them to refrain from making affirmative misrepresentations regarding the value of Exxon’s reserves.”

The plaintiffs said the fiduciaries violated their duty to plan participants because they continued to invest in Exxon’s stock despite knowing the share prices were artificially inflated. The complaint said the plan purchased at least $800 million worth of Exxon stock during the class period, which was from November 1, 2015, through November 1, 2016.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

But the US District Court for the Southern District of Texas ruled against the plaintiffs, saying they failed to meet the pleading standards for a claim under ERISA of failure to prudently manage the company’s savings plan assets.

“The court cannot say that attempting to prevent Exxon’s alleged misrepresentations would have been so clearly beneficial that a prudent fiduciary could not conclude that it would be more likely to harm the fund than to help it,” wrote Judge Keith Ellison in his ruling. He added that the “complaint does not show that a prudent fiduciary could not conclude that remaining silent could have resulted in a drop in stock prices that would have done more harm than good to the plan.”

Ellison also emphasized that the court’s ruling “does not decide whether Exxon or any of its affiliates engaged in false advertising, concealed negative financial or environmental information, or contributed to climate change.”

Tags: ERISA, ExxonMobil, Lawsuits, Pension, Southern district of Texas, US District Court