Covington represents plan sponsors, financial services companies, and fund managers on a wide range of issues involving the investment of plan assets.
Covington represents plan sponsors, financial services companies, and fund managers on a wide range of issues involving the investment of plan assets. The companies that we have advised on plan investment matters include Aspen Systems Corporation, Computer Technology Associates, General Electric, MeadWestvaco, M Financial Group, the National Football League, Pantheon Ventures, Textron, United Technologies, and Verizon Communications.
These are some examples of the investment-related services we routinely perform:
- We help clients comply with ERISA’s fiduciary requirements when their benefit plans invest in employer stock, private equity funds, derivative instruments, real estate, and other assets;
- We advise on the unrelated business income tax consequences of debt-financed investments;
- We negotiate and draft a variety of investment arrangements, from group trusts and investment management agreements to securities lending arrangements, proxy voting policies, and special-purpose investment vehicles;
- We help financial services companies design products for benefit plans and plan sponsors; and
- We work with Covington’s insurance lawyers to help clients address the effect of insurance insolvencies on their insured plans and terminal funding annuities.
ESOPs & Company Stock
We have extensive experience resolving the issues that arise when retirement savings plans offer employer stock as an investment option. We help clients re-design their 401(k) plans’ fiduciary structure, diversification rules, and employee communications to reduce the risk of litigation. We assist clients with participant voting and tendering issues when plans holding company stock are involved in corporate transactions.
We help companies that wish to use their common stock to fund pension plans and retiree medical liabilities. We also advise on funding arrangements that involve other employer securities, such as preferred stock, corporate bonds, and the stock of operating subsidiaries.
Covington has handled some of the largest leveraged ESOP transactions, involving hundreds of millions of dollars in financing and the issuance of both common and convertible preferred stock. We led a coalition of ESOP sponsors to persuade the Labor Department to modify its position on ESOP refinancing transactions, an effort that resulted in favorable guidance in Field Assistance Bulletin 2002-1. We also advise private companies and employee-owned companies on ESOP issues, including the valuation of stock and the requirements for Subchapter S corporation ESOPs.
Private Equity
We assist clients in every aspect of private equity investing. At the fund formation stage, we help clients develop appropriate strategies for compliance with the Labor Department’s plan asset regulations and the ERISA fiduciary requirements. We advise plan sponsors, investment professionals, fund managers, and other clients on direct investment in hedge funds and private equity funds. We also represent both buyers and sellers in secondary market transactions involving large portfolios of fund interests.
Our recent private equity assignments have included the following:
- We helped a pension asset manager negotiate the acquisition of a $10 million interest in a real estate fund with a unique fiduciary structure.
- Working with corporate lawyers in our London and New York offices, we helped a leading global fund-of-funds sponsor comply with ERISA when it acquired several large portfolios of European private equity interests.
- We collaborated with corporate lawyers in our New York office to help a U. S. public company sell its pension fund’s $128 million portfolio of private equity interests.
Derivatives
Covington’s employee benefits lawyers work with the firm’s corporate and securities lawyers to provide sophisticated advice on swaps, index options, and other derivative instruments. We advise plan sponsors and investment managers on the use of derivatives to reduce volatility in their pension asset portfolios. We help plan asset managers evaluate the fiduciary responsibilities associated with investments in derivatives.
Exemptions
We regularly advise plan sponsors and financial services companies on the application of Labor Department advisory opinions, prohibited transaction exemptions, and judicial decisions to proposed plan investments and client service initiatives. We have helped our clients secure advisory opinions and exemptions from the Labor Department on issues of critical importance to their operations.
Our knowledge of ERISA exemption and fiduciary matters has permitted us to take a leading role in litigation on these issues. For example, we successfully represented Harris Trust, as trustee of the Ameritech pension trust, before the U.S. Supreme Court in Harris Trust and Savings Bank v. Salomon Smith Barney, Inc., establishing that ERISA permits a fiduciary to sue a non-fiduciary party in interest that participated in a prohibited transaction. We have filed amicus briefs in a variety of ground-breaking fiduciary duty and prohibited transaction cases before the Supreme Court and federal courts of appeal, including Lockheed v. Spink (U.S. 1996) and Systems Council EM-3 et al. v. AT&T Corp. (D.C. Cir. 1999).
Plan Expenses
We have successfully represented a number of companies in Department of Labor audits examining the use of plan assets to pay the expenses of employee benefit plans. We have prepared guidelines for the payment of plan expenses involving both outside service providers and in-house administrators and investment professionals. We have developed a coded billing system that allows our clients easily to identify legal expenses that can be charged to their employee benefit plans.
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