Month: September 2003

I highly recommend reading How Appealing‘s 20 Questions for Circuit Judge William Curtis Bryson of the U.S. Court of Appeals for the Federal Circuit posted yesterday. Circuit Judge Bryson reports how suprising it is that so many lawyers are unprepapred for oral argument:

The thing that most surprises me the most about oral arguments is how unprepared lawyers are. By and large, the judges on our court prepare pretty thoroughly for oral argument (my experience is that the same is true of other federal appellate courts as well). As a result, a lawyer’s lack of preparation sometimes has the awkward consequence that the lawyer knows less about the case than the judges do.

He also states that if he were arguing before the court, his opening line in every case would start: “The central issue in this case is . . . .”

Finally, I greatly enjoyed Judge Brysons’s comments about his love of astronomy:

There is something magical to me about looking through the telescope at a galaxy cluster hundreds of millions of light years away containing trillions of stars in a single eyepiece field. When you are taking in photons that have been traveling for half a billion years on their way to your retina, it puts into some perspective questions such as whether particular regulatory action was consistent with the agency’s authorizing statute and whether the statute of limitations was equitably tolled.

The New York Times ran this interesting article yesterday: “In These 401(k)’s, Workers Do Less to Save More.” The article discusses how employees are not saving enough, despite their desire to do so:

New research from the field of behavioral finance, which draws on psychology and economics, provides data on the disconnect between the desire to prepare for retirement and the failure to do so. Researchers have found that for many investors, the task of sifting through pamphlets about their company’s 401(k) plans ranges from unpleasant to horrible. Some people end up doing nothing when confronted with the need to pick savings goals, select appropriate asset allocations, screen investment choices and rebalance their portfolios regularly.

The article reports that when employees must open their own 401(k) plans, “the participation rate for workers with less than 12 months of tenure is 50 percent, compared with 90 percent when employees are enrolled automatically but may opt out.” According to the article, one solution might be to “protect people from themselves” by providing for automatic enrollment percentages which increase slightly each year.

A slightly different picture is presented in this article from the Des Moines Register–“Events puts icing on 401(k) Day“–in which a study by the Principal Financial Group Inc. showed that “of the 2 million people enrolled in Principal 401(k) plans, participation increased 2 percent from 2001 to 2002″ with participants also increasing their contributions from 6.3 percent to 6.5 percent of pay.” However, the study also found that “42 percent of eligible employees under age 35 do not participate in 401(k) plans.”

David R. Francis for the Christian Science Monitor writes: “Pension funds pinched, stirring calls for reform.” The article reports: “Of the companies in the Standard & Poor’s 500 index, 353 offer traditional pension plans, as opposed to voluntary savings plans for employees such as 401(k)s. Of those firms, at least 322 pension plans were underfunded as of mid-June.”

Today’s Federal Register contains a Department of Labor (“DOL”) Notice of Proposed Amendment to Prohibited Transaction Exemption (PTE) 84-14 for Plan Asset Transactions Determined by Independent Qualified Professional Asset Managers. The original PTE 84-14 provides an exemption from the prohibited transaction rules under ERISA for various parties that are related to employee benefit plans who engage in transactions involving plan assets if, among other conditions, the assets are managed by “qualified professional asset managers” (QPAMs), which are independent of the parties in interest and which meet specified financial standards. The Notice issued today proposes certain amendments be made to PTE 84-14.

The reason behind the proposals, according to the Notice, is that a number of interested persons had expressed concerns over difficulties encountered in complying with several conditions contained in PTE 84-14. According to the Notice, the difficulties have to do with consolidation in the financial services industry and the large size of the resulting institutions, so that many financial institutions have found it more difficult to ensure that section I(a) (power of appointment) and section I(d) parties “related” to the QPAM) of PTE 84-14 are satisfied. Therefore, with respect to section I(a) (power of appointment), the proposed amendment would delete the “one year look-back rule” under which the exemption would be unavailable to a party in interest if it had exercised the power of appointment within the one-year period preceding the transaction. Second, the proposed amendment would clarify that section I(a)’s power of appointment refers only to the power to appoint the QPAM as manager of the assets involved in the transaction, as opposed to any of the plan’s assets.

Interested parties are invited to make comments to EBSA regarding the proposed amendment on or before October 20, 2003. (PTE 84-14 is apparently not available online at the DOL website.)

UPDATE: The Wall Street Journal has this article about the DOL’s proposed amendment: “Labor Department to Propose More Leeway for Pension Funds.”

The Church Pensions Fairness Act, sponsored by Rep. Judy Biggert, R-Ill., would amend the Investment Company Act of 1940, the Securities Act of 1933 and the Securities Exchange Act of 1934 to permit church pension plans to invest in collective trusts. The bill is scheduled for a vote on Wednesday. You can read about the bill in this article at Focus on the Family: “House to Vote on Church Pensions Bill.“

“Delay on options expense could cost companies dearly“: Craig Gunsauley for BenefitsNews.com reports. According to a study by Buck Consultants, a client’s best strategy may be to voluntarily account for the cost of options this year before FASB releases its standards since, after Dec. 31st, FASB will likely require companies to retroactively account for past stock option awards and restate previous years’ financial statements.

Note: A previous post (which you can access here) commented on an article at CFO.com which also discussed the same Buck Consultants study.

The Street.com has a very informative article discussing problem areas in the 401(k) industry: “The Seven Deadly Sins of 401(k) Plans.”

Today’s Wall Street Journal has a very good article on a growing trend of companies offering debit/credit cards for their flexible spending account and health reimbursement arrangements: “Employers Offer New Pretax Perk: Debit Cards Allow Instant Access to Accounts for Medical Fees and Commuting Expenses.” (Subscription required.) The article reports that “[c]urrently, less than 400,000 people have flexible spending accounts with debit cards” but that the “Consumer Driven Market Report, a newsletter covering health-care financing, predicts that number will jump to 1.5 million by next April.” As you may recall, the IRS issued Revenue Ruling 2003-43 back in May sanctioning these types of arrangements.

Quote of Note: “But employers have a good reason to encourage workers to set up flexible spending accounts. The accounts reduce the taxable income of employees, which reduces the amount of money employers have to lay out in payroll taxes to fund Social Security and Medicare. Evolution Benefits Inc., Avon, Conn., which markets a debit card called the “Benny” card, reports that one of its customers generated more than $225,000 in additional tax savings during its first year of offering employees the debit card.”

Read more about these types of plans in previous posts at Benefitsblog which you can access here and in this post–“From My Notes: Harry Beker and Kevin Knopf Speak on FSAs and HRAs at the Mid-Atlantic Area Employee Benefits Conference.”