New York State Judge Orders Repayment of Millions under Supplemental Executive Retirement Plans

The Corporate Counsel.net. Blog has the latest here on yesterday’s decision issued by New York State Justice Ramos in Spitzer v. Grasso. (Access the opinion here.) This opinion is a must-read for every benefits lawyer who drafts or advises clients on nonqualified deferred compensation plans. There are pages and pages of discussion regarding the NYSE SESP’s and SERP’s terms.

Also, excerpt from this Wall Street Journal article here:

Jim Barrall, head of the global executive-compensation and benefits practice at Latham & Watkins LLP in Los Angeles, described the findings as “stunning.” “I have never heard of a court decision finding a breach of fiduciary duty based on the failure to disclose all the numbers” about the size of a supplemental pension.

At a minimum, Mr. Barrall suggested, corporate CEOs will have to make sure “the board understands the numbers and all the elements of the [leader's] pay package and how they work together.” At many companies, the size of an executive’s supplemental pension swells along with the magnitude of bonuses and equity awards.

Legal experts expressed surprise that the justice would make such a ruling before the case went to trial. “It’s really extraordinary,” said Christopher Clark, a former assistant U.S. attorney who is now an attorney at LeBoeuf, Lamb, Greene & MacRae LLP. “I’m not used to seeing cases with this many facts and this many depositions decided without a trial.”

More links:

The Confusing World of ERISA Preemption

Many of us will fondly recall the discussion by Third Circuit Judge Edward Becker (1933-2006) on ERISA preemption in the case of DeFelice v. Aetna (which was eventually decided by the U.S. Supreme Court – read about it here and here). In that case Judge Becker discusses how trying to understand ERISA preamble is like a “descent into a Serbonian bog wherein judges are forced to don logical blinders and split the linguistic atom to decide even the most routine cases.” (I discussed Judge Becker’s opinion here.) While not related to the same issues as were decided in the DeFelice case, I was reminded of Judge Becker’s discussion when I saw that the Fifth Circuit had recently withdrawn its opinion pertaining to ERISA preemption in the case of Bank of Louisiana v. Aetna. You can access the prior opinion here and the latest opinion issued October 18, 2006 here. The case is interesting because it shows how, even in trying to resolve contract claims between employers and insurers, the whole tangled mess of ERISA preemption can be a real challenge.

(Also, it seems unusual to find folks arguing that they are ERISA fiduciaries, but that is exactly what happened in the Bank of Louisiana case where the insurer was trying to claim that ERISA preemption applied. See page 9 of the October 18th opinion.)

The Confusing World of ERISA Preemption

Many of us will fondly recall the discussion by Third Circuit Judge Edward Becker (1933-2006) on ERISA preemption in the case of DeFelice v. Aetna (which was eventually decided by the U.S. Supreme Court – read about it here and here). In that case Judge Becker discusses how trying to understand ERISA preemption is like a “descent into a Serbonian bog wherein judges are forced to don logical blinders and split the linguistic atom to decide even the most routine cases.” (I discussed Judge Becker’s opinion here.) While not related to the same issues as were decided in the DeFelice case, I was reminded of Judge Becker’s discussion when I saw that the Fifth Circuit had recently withdrawn its opinion pertaining to ERISA preemption in the case of Bank of Louisiana v. Aetna. You can access the prior opinion here and the latest opinion issued October 18, 2006 here. The case is interesting because it shows how, even in trying to resolve contract claims between employers and insurers, the whole tangled mess of ERISA preemption can be a real challenge.

(Also, it is rare to find folks arguing that they are ERISA fiduciaries, but that is exactly what happened in the Bank of Louisiana case where the insurer was trying to claim that ERISA preemption applied. See page 9 of the October 18th opinion.)

Pension Protection Act Resource Center

I thought it would be a good idea to keep track of all the governmental agency promulgations and news items relating to the Pension Protection Act of 2006 in one central location. Therefore, I have created the Pension Protection Act Resource Center for Potter Anderson & Corroon LLP. (Please note that the text of the Pension Protection Act is indexed.)

(Many thanks to Frank Gribbin in Potter Anderson’s IS department for helping to put this together.)

IRS Extends Compliance Deadline for Section 409A

As predicted, IRS has issued a Notice extending the deadline for complying with many aspects of Internal Revenue Code section 409A from January 1, 2007 to January 1, 2008. See Notice 2006-79 accompanied by a press release. Full compliance with the operational and documentary requirements of section 409A is delayed until January 1, 2008 to give taxpayers and practitioners sufficient time to digest and comply with the final regulations (which the press release states will be issued by the end of this year.) The Notice also extends certain transition relief provided for in the preamble to the proposed regulations (except with respect to certain discounted stock rights) and provides additional transition relief for payment elections in linked plans and collective bargaining arrangements.

Items to Note in IRS's Fall 2006 Edition of Employee Plans News

In IRS’s Fall 2006 Edition of the Employee Plans News:

1. Michael Julianelle (Director, EP Examinations) talks about how EP examinations will generally take place at the employer’s place of business. However, exceptions will be made if:

  • The agent’s presence would disrupt the business operations or
  • There is a lack of office space to perform the audit.

Practitioners have generally objected to this practice of IRS coming to the office for an EP examination for a number of reasons, two of which the IRS has noted it will make an exception for. However, there are other concerns (such as HIPAA privacy in a health-related business, as one example) and IRS goes on to note in the Newsletter that:

If it makes better business sense to conduct the examination at a location other than the taxpayer’s place of business (for example, if the agent’s presence would disrupt the business operations), then the taxpayer or their authorized representative may submit a request outlining the reasons. If this is approved, the agent will request an opportunity to conduct a walk-through of the business premises and an opportunity to direct questions to the taxpayer to resolve questions regarding business operations.

2. Employers will want to note the IRS’s Top Ten Tips to Prepare for an Efficient Audit. (Employers can use this as a sort of quick “check-up” even if they are not under audit.)

3. IRS notes that it has posted two new Quality Assurance Bulletins: