July 2016


Volcker Rule, Extension of Conformance Period

On July 7, the Federal Reserve Board extended the Volcker Rule conformance period with respect to relationships with and investments in foreign and covered funds placed prior to December 31, 2013. The new conformance period extension is until July 21, 2017. This is the final extension permitted by statute.



Bancorp Services v. American General – Update

On July 21, the District Court of the Southern District of New York approved the parties’ joint motion to dismiss Bancorp’s complaint with prejudice. This followed a July 15 motion submitted by Bancorp requesting that the case be dismissed without prejudice. In its materials filed with the Court, Bancorp stated that “based on the review of AGL’s [American General’s] document production, it now appears clear that AGL’s efforts to market its infringing SVP product have been unsuccessful and monetary damages are not now recoverable for AGL’s misappropriation.” Bancorp went on to state, “If, and when, AGL is successful in marketing and selling its infringing SVP product, Bancorp can reassess whether to renew its claims.”

On July 17, AGL filed an objection to a dismissal without prejudice, asking the court to either dismiss with prejudice or proceed with the litigation. In a letter to the Court, AGL stated: “Allowing Plaintiffs to dismiss this case now with the ability to refile it later would allow them to use the threat of future litigation as an anti-competitive tool to discourage potential customers from utilizing AGL’s independently developed SVP wrap, leaving a cloud over AGL’s SVP wrap business.”

To be clear, the Court did not rule on whether or not the case should be dismissed with prejudice; the parties agreed to the dismissal with prejudice.

Case Reference: Bancorp Services, LLC and Addle Management LLC v. American General Life Insurance Company No. 1:14-cv-09687 (S.D. NY)


BB&T v. MassMutual – Update

As a brief reminder, BB&T first filed a complaint against MassMutual in 2009 (“BB&T I”). On May 1, 2015, BB&T voluntarily dismissed BB&T I and filed a new, substantially similar complaint (“BB&T II”). On June 11, 2015, MassMutual sought to dismiss BB&T II and/or requested an award for attorneys’ fees related to BB&T I. On April 29, 2016, the court denied MassMutual’s motion to dismiss BB&T II.

The following updates have occurred since we last reported on this matter:

  • On May 12, in a Scheduling Order, the court indicated that “A plaintiff who voluntarily dismisses an action is required to pay the costs of that action.” The Order included a timeline for the parties to agree on MassMutual’s costs that BB&T was to bear related to BB&T I.
  • On June 2, MassMutual filed its response to BB&T’s complaint in BB&T II.

On July 12, a new Case Management Order was entered. Among other things, it provides for fact discovery to be completed by 2/13/2017 and a subsequent sixty days for discovery of expert witnesses (through 4/14/2017). It also instructs the parties to file any pre-discovery motions (including motions to dismiss) prior to 8/11/2016.


Transamerica COI Rate Increase Litigation – Update

We have been reporting on the litigation arising from Transamerica’s COI rate increases for retail life insurance policies. On June 28, two more of the pending cases (Lyons and White) where voluntarily dismissed. Below is an updated table of the ongoing litigation, the Feller case and DCD Partners case are still ongoing.

Case Name Case Number Date Filed Jurisdiction and Status
DCD Partners v. Transamerica 2:15-cv-03238 4/30/2015 Open, California Central District
Feller v. Transamerica 2:16-cv-01378 2/28/2016 Open, California Central District
White v. Transamerica 2:16-cv-03578 5/23/2016 Dismissed, California Central District
Lyons v. Transamerica 8:16-cv-00973 5/26/2016 Dismissed, California Central District
Kriegman v. Transamerica 1:16-cv-21074 3/25/2016 Dismissed, Florida, Southern District
Thompson v. Transamerica 2:16-cv-03361 5/16/2016 Dismissed, California Central District



FASB Proposed Accounting Standards Update – Income Tax Disclosures

On July 26, FASB issued a Proposed Accounting Standards Update for Income Taxes (Topic 740), titled Disclosure Framework – Changes to the Disclosure Requirements for Income Taxes. The proposed ASU is part of the FASB’s broader disclosure framework project to improve the effectiveness of disclosures in notes to financial statements by clearly communicating the information that is most important to users of a reporting organization’s financial statements.

The proposed ASU would modify a number of existing disclosure requirements and add a number of new disclosure requirements, including a description of an enacted change in tax law that is probable to have an effect on the reporting entity in a future period.

The amendments in this proposed ASU would also reduce diversity in practice by explicitly requiring a public business entity to disclose the amounts of federal, state, and foreign carryforwards (not tax effected) by time period of expiration for each of the first five years after the reporting date and a total for any remaining years.

In reviewing the proposed ASU, it does not appear to have any direct impact on information reporting or disclosure associated with BOLI/COLI programs. The comment period for this proposed ASU runs through September 30, 2016.



Basel Revisions to Securitization Framework

On July 11, the Basel Committee published an updated standard for the regulatory capital treatment of securitization exposures. The revised framework embodies the following hierarchy of computational approaches:

The SEC-IRBA uses a modified form of the Simplified Supervisory Formula Approach (SSFA). The SEC-ERBA assigns risk-weights based on external ratings; this is currently not permitted in the U.S. The capital requirement under the SEC-SA is defined as the weighted-average capital charge of the entire portfolio of underlying exposures, calculated using the risk-weighted asset amounts in the Standardized Approach in relation to the sum of the exposure amounts of underlying exposures, multiplied by 8%.

The updated standard also distinguishes the capital treatment of “simple, transparent and comparable” (STC) securitizations from other securitization transactions. If a securitization exposure qualifies as STC, it is eligible for a preferential risk-weight.

Of course, changes to the U.S. methodology will be subject to the U.S. regulatory rule-making process.


New York DFS Announces It Will Adopt Principle-Based Reserving

Last month we reported that the NAIC activated principle-based reserving (PBR). On July 6, the New York Department of Financial Services announced that it will adopt PBR for its regulated life insurers beginning January 2018.


DOL, IRS, and Pension Benefit Guaranty Corporation Propose Form 5500 Changes

On July 21, the Department of Labor (DOL), IRS, and the Pension Benefit Guaranty Corporation (PBGC) published in the Federal Register a Notice of Proposed Forms Revisions. The proposed revisions in this notice reflect efforts to improve employee benefit plan reporting for filers, the public, and the regulatory agencies by modernizing financial information filed regarding plans; updating fee and expense information on plan service providers; requiring reporting by all group health plans covered by Title I of ERISA; and improving compliance under ERISA and the Code through selected new questions regarding plan operations, service provider relationships, and financial management of the plan.

Notably, the proposed changes have significant impact on the reporting of service provider compensation. The proposal states that, with regard to service provider compensation, the changes are focused on harmonizing Form 5500’s Schedule C indirect compensation reporting with the reporting required by the DOL’s final regulation under Title I of ERISA on service provider compensation at 29 CFR 2550.408b-2.

Some of the main changes to the reporting of service provider compensation in Schedule C are as follows:

  • Reporting of indirect compensation is required only for “covered” service providers and for compensation that is required to be disclosed, as defined in 29 CFR 2550.408b-2(c)(1);
  • The concept of “eligible indirect compensation” is eliminated, this will require specific amounts to be listed for plan-level allocation of insurance contract fees and commissions, any amount will be permissible so long as it is based on a reasonable method of allocation for the estimate of plan level fees, provided the method is disclosed to the plan administrator;
  • Filers would be required to report “covered” service providers who have received $1,000 or more in total direct and indirect compensation;
  • Filers will use a separate Schedule C for each service provider required to be reported; and
  • Clarification and expansion of the existing question that asks the filer to indicate generally whether the service provider has a relationship to the employer, an employee organization, or a person known to be a party-in-interest.

The proposal would apply for plan years beginning on or after January 1, 2019. The comment period ends on October 4.