"New Rules Require Shareholder Approval of Equity Compensation": That's the announcement of the Securities and Exchange Commission today which approved new rules proposed and adopted by the New York Stock Exchange and the Nasdaq Stock Market requiring shareholder approval of equity compensation plans, including stock option plans. The new rules will also require approval for repricings and material plan changes. Securities and Exchange Commission Chairman William H. Donaldson provided these comments today:
These rule changes are an important step by our nation's principal markets. They have responded to the Commission's call for an increased shareholder voice in the equity compensation practices of listed companies and I applaud them. These changes are part of a broad movement by our markets and the Commission to enhance the corporate governance practices of the companies traded on them. The New York Stock Exchange and the Nasdaq Stock Market have proposed additional listing standards to strengthen corporate governance, and the Commission looks forward to working with them to complete these efforts on behalf of investors and shareholders.
You can access the new rules here.
CorpLawBlog provides this discussion.
Gardner, Carton & Douglas provides this great article by Lisa Collins and Timothy Stanton: "All of a Sudden, a COBRA Deadlines Looms: New DOL rules will likely prompt widespread revisions of notices, provisions--soon." (I love this article because the information in it is so practical and helpful to practitioners. Thanks to Gardner, Carton & Douglas for sharing their analysis with the rest of the world.)
The IRS recently issued Revenue Ruling 2003-83 which provides guidance on reasonable funding methods for pension plans. (Also, via Benefitslink here.)
Reuters via Lycos reports: "GM Opposes Pension Disclosure Changes." The article quotes GM spokeswoman Toni Simonetti as saying: "The proposed new rule assumes you have one defined benefit plan. If you're a multinational and you have several plans, it's virtually impossible to comply with the (new) rule."
Scott Burns reports here for the Houston Chronicle: "Bush tax cuts similar to printing more money."
This article--"Enron pushing for inexpensive mediation decision"--by Mary Flood and Eric Berger for the Houston Chronicle reports on the mediation efforts going on in the Enron bankruptcy and civil litigation cases today.
"Exec Stock Options: Put 'Em to a Vote: SEC will require companies to get shareholder approval for stock-option grants. Elsewhere: . . FASB wants quarterly DB reports": David M. Katz for CFO.com reports here. The article discusses how the Securities and Exchange Commission is expected to adopt a rule today requiring all companies whose shares are traded on U.S. stock exchanges to obtain shareholders' approval for executive stock compensation packages.
Kara Scannell for today's edition of the Wall Street Journal provides this: "Revenues at Law Firms Rise 8.5%, Aided by Diversification and Cuts." The article reports on the American Lawyer magazine's annual survey which found that "gross revenues at the 100 biggest law firms rose 8.5% to $38 billion in 2002, helped by diversified-practice groups, cost cutting and higher billing rates." Does anyone else find it disturbing that when economic times are tough, law firms raise their billing rates? . . .
Today's Federal Register is here.
"Fed explains tricky rules on reporting pension plan health": Pacific Business News has this regarding a report issued by Simon Kwan for The Federal Reserve Bank of San Francisco this week explaining "how current accounting practices for corporate pension funds blur reality."
Another very interesting article by Richard Bernstein for the New York Times on how demographics is making pensions an "urgent political issue" in Europe: "Aging Europe Finds Its Pension Is Running Out." The article discusses how in Europe the population is both living longer and producing fewer children which is beginning to change some of the fundamentals of both social and political life. The article discusses a study by William Frey, a demographer at the Brookings Institution in Washington, which predicts that the median age in the United States in 2050 will be 35.4, only a very slight increase from what it is now. In Europe, by contrast, it is expected to rise to 52.3 from 37.7. The article states: "The likely meaning of this "stunning difference," as the British weekly The Economist called the growing demographic disparity between Europe and the United States, is that American power--economic and military--will continue to grow relative to Europe's, which will also decline in comparison with other parts of the world like China, India and Latin America."
Kris Frieswick for CFO.com reports: "Age Discrimination Snags Lurking in Pension Rules: New federal pension rules are drawing fire from both sides of the cash-balance plan debate."
This report by Jonathan Weil for the Wall Street Journal: "More frequent disclosures on the way for US pension plans." The article reports on FASB's decision last week to require US companies to disclose the impact, in dollar amounts, that the various parts of their pension plans have on each quarter's earnings. The article states that ''[r]eaders of a public company's financial statements would also be able to see for the first time the degree to which various line items on a company's income statement were boosted or dragged down by pension-plan activities."
Christine Dugas for USAToday via Yahoo! News.com reports: "Enron hit with federal lawsuit." The article reports Ann Combs, assistant secretary for the Employee Benefits Security Administration, as saying that the DOL has been under pressure by some in Congress to hold corporations accountable for retirement plan losses and that it has launched investigations into WorldCom and Global Crossing. Combs says her office won't be pressured to bring a case until it is ready. In addition the article reports: "Because the department is in charge of interpreting and applying pension law, its lawsuit puts more pressure on the defendants to settle, some experts say."
Read more about the Enron litigation in previous posts here . . .
"401(k) shifting to back burner": Albert B. Crenshaw for the WashingtonPost via the Seattle Times reports on a study by Hewitt Associates, Inc., which showed that "last year, as the market plunged, millions of American workers essentially blotted their 401(k) plans out of their minds."
Peter Behr for the WashingtonPost.com reports: "Flood of Fees Draining Enron Funds: $496 Million in Charges Rung Up So Far by Lawyers, Others."
Reuters has this via Yahoo! News.com: "SEC May Order Holder Stock-Pay Plan Votes."
If you are in the neighborhood, stop on by the 10b-5 Daily for an interesting post on the Enron securities and ERISA litigation: "Enron's Employees Get Three Bites At The Apple."
"Hedge Funds Gaining Acceptance Among Pension Funds": this report at SmartMoney.com by Allison Bisbey Colter and Arden Dale for the Dow Jones Newswire.
I have read the DOL complaint filed this week against Enron and others, Chao v. Enron Corporation et al., and what follows is a summary of the allegations made in the case. Please remember that these are merely allegations made in the complaint, and that a trier of fact will have to determine which, if any, of the allegations are true. The summary would be helpful, I think, to ERISA plan fiduciaries, as well as those who advise ERISA plan fiduciaries, since it demonstrates to some extent at least the DOL's views on how an ERISA plan fiduciary should or should not act in fulfilling its duties and obligations under ERISA:
Defendants in the Case:
Because they were the "named fiduciaries" the complaint alleges they were responsible for managing and overseeing the Plans' investments in Enron stock "solely in the interest of the Plans' participants and beneficiaries."
It is also alleged that the Savings Plan document specifically gave to the Committee the duty to direct the Trustee as to the investment of the Trust Fund in Enron stock and that the ESOP plan document specifically gave the Committee the responsibility to direct the Trustee as to the purchase and sale of Enron stock as well. If the Committee did not direct the Trustee of the ESOP, the ESOP trustee was responsible for the "administration, investment and management" of the ESOP assets.
Allegations:
The complaint alleges that the Committee only met as a group five times during 2001, that none of the meetings were attended by all of the Committee Defendants, and that "at none of these meetings did the Administrative Committee discuss or review the Plans' investments in Enron stock or discuss the Plans' catastrophic losses." The complaint alleges that, only after an investor class action lawsuit was filed, did the Administrative Committee take notice of the "volatility" of Enron's stock, meeting almost daily after the lawsuit was filed, but even then never taking any action with respect to the Plans' investment in Enron stock.
Finally, the DOL alleges that "at no time did any of the Committee Defendants take any action to effectively monitor, review, analyze, question, alter, slow, stop or protect the plans' investment in Enron stock."
Of particular note, is the allegation that a certain member of the Committee "failed to inform the other members of the Administrative Committee about Watkins' concerns and failed to ensure that any inquiry was undertaken on the Plans' behalf into those concerns."
Comment: Absent from the complaint is any mention of the trustee for the Savings Plan, Northern Trust, which was the directed trustee for the Savings Plan and one of the focuses of the DOL's Amicus Brief filed in the Enron class-action lawsuit.
Also, please note that the governing documents for the ESOP provided that the ESOP would be "primarily" invested in Enron stock. In addition, the governing documents for the Savings Plan provided that participants could contribute up to 15% of their pay to the Plan and could direct their investments into a variety of investment funds, including an Enron stock fund. In addition, Enron made matching contributions to the Savings Plan and the Savings Plan provided that these matching contributions would "primarily" be invested in Enron stock.
More on Enron ERISA litigation here. . .
Perkins & Coie provides more great information: "Practical Guidance on Section 302 and Section 906 Certifications From the SEC's Final Rules Release." The article provides a sample Form 11-K Section 906 certification which has been modified to reflect that the "fairly presents" language relates to only the "net assets available for benefits and changes in net assets available for benefits of the plan." Perkins & Coie reminds readers that, in other contexts, "the SEC has specifically stated that altering the text of a required certificate invalidates the certification." The article also remarks that many companies are going ahead and having the CEO and CFO make the certification, instead of the chair of the employee benefits committee or other committee which oversees the plan(s).
Read more about this here . . .
"Delaware Court Warns Directors and Officers on Oversight of Executive Compensation: In re The Walt Disney Company Derivative Litigation": Perkins & Coie has posted this regarding the decision, In re The Walt Disney Company Derivative Litigation, which was discussed in a previous post here. The article provides practical steps for boards of directors to take to avoid a Disney-like result.
Reish, Luftman McDaniel & Reicher has published this article by Nick White, Bruce Ashton and Fred Reish: "IRS Issues Update On EPCRS Rev. Proc. 2003-44."
The Houston Chronicle has this article by Eric Berger: "Former Enron employees welcome Labor suit." The article discusses the separate class action lawsuit filed some time ago by former Enron employees which you can read about here. The article reports that lawyers for the former employees in the class action suit said "having a government agency endorse many of the same legal theories will only bolster their case." The article also reports that "[t}he biggest pot of money available is probably $85 million in liability insurance Enron had purchased for those responsible for Enron's retirement plans."
More on Enron ERISA litigation here . . .
CFO.com offers this article--"Expensing Options: Better Now Than Later: Study claims many companies will be hurt by waiting for FASB to act?"--by Lisa Yoon. The article refers to a study by Buck Consultants which you can read about here. The study reports on the negative impact of the "wait and see" approach to stock option expensing. According to this press release, the study has this finding:
"High technology companies forced to adopt stock option expensing guidelines in 2004 will experience a median decrease in fiscal year 2003 earnings per share (EPS) of approximately 20 times greater than companies that voluntarily adopt these guidelines before a December 2003 deadline."CFO.com's article makes a good point though about the pending legislation which would put a three year moratorium on stock option expensing if the legislation ever makes its way through Congress. You can read about this legislation here.
More about stock option expensing here . . .
Note to Readers: For those who have not noticed, I maintain another blog called "ERISAblog" which focuses solely on ERISA (without the tax and benefits coverage contained in Benefitsblog). For those wanting to read about the ERISA litigation without wading through all of the other benefits and tax items, ERISAblog is the place to go. I am also categorizing the ERISA posts in a more detailed way at ERISAblog and have further plans for ERISAblog to be revealed later . . .
Today's Federal Register is here and contains temporary and proposed regulations under Internal Revenue Code (the "Code") section 382 and provide guidance on whether a loss corporation has an ownership change where a qualified trust described in Code section 401(a) (a qualified trust) distributes an ownership interest in an entity.
More on the Chao v. Enron Corporation et al. lawsuit filed yesterday . . .
Kirstin Downey for the WashingtonPost reports: "Restitution Sought From Enron Officials." The article quotes Marc Machiz, a former Labor Department lawyer in charge of pension programs, as stating that "the lawsuit could have ramifications for the "30 to 40" private lawsuits moving through the courts that allege that executives exhorted workers to buy stock that subsequently fell in value." The article quotes Mr. Machiz as stating further that workers at many other companies were hurt as badly or almost as badly as at Enron, including those at WorldCom Inc., Global Crossing Ltd., Williams Cos. and Dynegy Inc.
The Associated Press for the Boston Globe reports in this article: "US sues Enron over pension losses: Ex-executives, directors also targeted in attempt to recover millions."
I am reviewing the DOL Enron complaint filed yesterday and will report on it here shortly. In the meantime, you can read more on the lawsuit here . . .
The Associated Press has this article for Yahoo! News: "More Wealthy People Avoided Taxes." The article refers to this report (which you can access here) recently released by the Internal Revenue Service.
The following articles report on the Chao v. Enron Corporation case filed today by the Department of Labor:
In this article by the Houston Chronicle--"Enron facing pension lawsuit; Former executives called negligent"--Eric Berger reports that Rep. John Boehner, R-Ohio, chairman of the House Education and Workforce Committee, praised the lawsuit and stated:
"The Department's action puts corporate executives and pension plan administrators on notice: Take your fiduciary duty to act in the best interests of your workers seriously or the Labor Department will hold you accountable."
The Segal Company has published this article: IRS Issues Final Regulations on ERISA Section 204(h) Notices of Reductions in Future Pension Benefits. The article discusses the final regulations under section 204(h) of ERISA which were issued back in April of this year.
A helpful article at Thompson Publishing Group: Ten Keys Listed to Compliant Debit Card Reimbursement System.
Arden Dale for SFGate.com reports FASB ruled yesterday that companies with defined benefit pension plans will for the first time have to issue quarterly financial reports on their plans. Currently, companies are only required to provide financial statements on their defined benefit plans once a year. FASB's decision is expected to become part of new pension disclosure rules that could go into effect as early as the end of this year. Peter Proestakes, FASB's pension project manager, said the group hopes to have a draft of the new rule out by August.
Today's Federal Register is here.
The Secretary of Labor has filed a lawsuit in the federal district court of Houston, Texas against Enron, Kenneth Lay and Jeff Skilling, the Administrative Committee members of Enron's ESOP and 401(k), and members of the Board of Directors for Enron. According to the press release issued by the DOL, the suit seeks to recover losses plan participants suffered "due to the mismanagement of two of Enron's pension plans." You can view the complaint filed here as well as a Fact Sheet and Chronology of Enron-related DOL Activity, both posted on the DOL's website here.
The following remarks were made by Secretary of Labor Elaine Chao today in announcing the lawsuit:
We are sending a message to every pension plan officer, director and fiduciary: you have a solemn duty to safeguard your employees? pension assets. If you put those assets in jeopardy through neglect or malfeasance, we will hold you accountable.
There was a very interesting article today on the front page of the Wall Street Journal which CorpLawBlog reports on here: "As Some Decry Lavish CEO Pay, Joe Bachelder Makes It Happen."
McDermott, Will & Emery provides this analysis: "IRS Expands and Updates Employee Plans Compliance Resolution System."
This Western District of North Carolina case provides a lesson in how mistakes can often lead to big problems in the plan administration arena. Thankfully, the court allowed the mistake to be rectified, but not without a great deal of legal cost. This article at EBIA Weekly comments on the case.
The case involves the following unfortunate facts:
Mr. Neal was an employee of General Motors and a participant in the GM Plan, for which he designated his wife as the sole beneficiary. They were later divorced. Pursuant to the terms of their divorce, Mr. Neal and his former spouse signed a Qualified Domestic Relations Order (QDRO), which provided that the former spouse (as "Alternate Payee"),would receive 50% of Mr. Neal's total vested account balance in the GM Plan.
The opinion states that, upon Fidelity's receipt of the QDRO, "Fidelity failed to remove" the former spouse's name as sole beneficiary under the GM Plan, which left intact the existing 1992 Beneficiary Form in Fidelity's database. Accordingly, upon Mr. Neal's death, Fidelity declared the former spouse to be the sole beneficiary and established a beneficiary account in her name and transferred all of the remaining GM Plan assets into that account. Subsequently, the former spouse requested and received a complete liquidation and withdrawal of the entire balance from that account. Fidelity later, after determining that the former spouse was not the correct beneficiary for a portion of the account, contacted her and later her estate, requesting that the incorrectly disbursed assets be returned.
In holding for GM and Fidelity, allowing recovery of the payment made in error to the former spouse, the court stated:
"Having determined that a federal common law claim of unjust enrichment is appropriate under ERISA when the facts at issue accord with the archetypal unjust enrichment scenario, and its application would further the plan contract while continuing to advance ERISA policy objectives, and found all of these elements to be present in the instant case, the court holds that it is appropriate to fill in the interstitial gaps of ERISA by allowing a federal common law remedy of unjust enrichment to lie."
Comment: It is interesting to note that there is no mention of whether or not Mr. Neal failed to file a new beneficiary designation form with the Plan as was discussed in a case reported on by EBIA Weekly here which produced a different result. The North Carolina district court seems to focus on a failure by Fidelity to remove the former spouse as sole beneficiary under the Plan and emphasized this language which was contained in the QDRO Approval Guidelines (i.e. QDRO procedures):
"In the event that the [QDRO] contains language divesting the Alternate Payee of all right and interest in the Participant's account under the Plan or waiving such right and interest (with the exception of the amount awarded under the Order), Fidelity will interpret this language as voiding any beneficiary designation completed by the Participant prior to the issuance of the Order to the extent that the Alternate Payee is named as beneficiary."
Today's edition of the Wall Street Journal contains these three articles on pension funding and accounting:
McDermott, Will & Emery has published this article: "Ninth Circuit Case Creates Deduction Opportunity for Companies with ESOPs." The article discusses this case: Boise Cascade Corp. v. U.S., No. 01-36086 (9th Cir. 5/20/2003), in which the Ninth Circuit held that payments made by a corporation to redeem shares of its stock held in an Employee Stock Ownership Plan ("ESOP") and distributed by the ESOP to participants were deductible under section 404(k) of the Internal Revenue Code (the "Code"). The holding was directly contrary to an IRS holding in Rev. Rul. 2001-6 that, under Code section 162(k), a corporation could not deduct amounts paid or incurred in connection with the redemption of its stock.
McGuire Woods LLP also has this report on the case and makes the point "that dividends that are deductible under Code section 404(k) cannot be rolled over to IRAs by participants."
Today's Federal Register is here.
This article at Bloomberg.com: "Bush's Budget Nominee Says No New Tax Cuts Planned." Regarding the economy, the article reports:
"The economy is projected to grow at a 3.5 percent annual rate in the third quarter and improve to a 3.7 percent pace in the last three months of the year, according to the consensus estimate of 53 economists surveyed this month by Blue Chip Economic Indicators. That would follow an expected 2 percent growth rate this quarter."
Bill Mann for the Motley Fool has this very interesting article: "GM's Pension Peril." The article discusses GM's $13 billion debt offering to fund its pension liabilities which was discussed in a previous post here. Mr. Mann writes:
"GM is sort of the worst case scenario of pensions, but its funding problems and its solutions are instructive to investors in any company with a pension fund. It ought to also serve as a warning. The company you hold, or the one you are analyzing, may have an enormous pension liability that you cannot see on the balance sheet or income statement, but is instead buried in the footnotes."
On the same subject, Reuters has this article by Dena Aubin: "Pension gap unlikely to spur US debt issuance wave."
Very interesting post by Steve Covell suggests some blawgers may be "frustrated novelists."
CorpLawBlog here and today's posting at TheCorporateCounsel.net Blog discuss how companies are for now providing the 906 certification with their SEC Form 11-K filings, as evidenced by the filings that are coming in. The subject has been discussed in previous posts which you can access here.
Seyfarth, Shaw posts this article: "Statutory Option Regulations Give Welcome Clarification."
Can you believe it? Pensions the subject of a computer game? That's what the BBC News reports in this article : "Pension crisis: The game." The article states that the Amicus union will e-mail the game to 50,000 people who are not in a trade union in a bid to highlight the threat to company pension schemes.
More on pension deficits from TheStreet.com: "Pension Problems Threaten Earnings Quality."
Reuters reports: "NYSE to Let Investors Block Option Plans." The article reports that the "New York Stock Exchange has informed its U.S. listed companies that new stock option plans or significant changes to existing plans will require shareholder approval under stricter rules expected to take effect next week." A memo provided by the exchange to Reuters on Monday "described the imminent changes to executives of 2,800 companies listed on the Big Board."
Jana Tchinkova for The Ticker reports--"Odd Blend May Be a Match"--and discusses pension funds turning to hedge funds as an alternative investment.
Today's edition of the Wall Street Journal provides this report: "Fidelity Ends Sales Charge On Five of Its Largest Funds."
The WSJ also contains a very good article today: "Employees May Pay More on Retirement Plans: Labor Department Guides Sponsors to Pass on Costs Involving Administration." The article discusses Field Assistance Bulletin 2003-3 which allows certain plan expenses to be passed on to participants. Highlighted is the Internal Revenue Code Section 411 issue which arises due to the fact that, according to the FAB, plan expenses can now be charged to those employees who have left a company yet are still vested in their account, even if those same expenses are not charged to participants still employed by the plan sponsor. The article reports Don Roberts, an IRS spokesman, as stating: "We are aware of the issue that is out there, but we don't have any guidance at this point as it may relate to Code Section 411."
Today's Federal Register is here.
The Federal Register contains temporary regulations which provide rules to prevent the duplication and acceleration of loss through the assumption by a partnership of a liability of a partner in a nonrecognition transaction. The temporary reg.'s also prohibit partners and partnerships engaging in transactions described in IRS Notice 2000-44 from relying on the exception in Internal Revenue Code ("Code") section 358(h)(2)(B).
The Federal Register contains proposed regulations relating to the definition of liabilities under section 752 of the Code. The proposed reg.'s provide rules regarding a partnership's assumption of certain fixed and contingent obligations in exchange for a partnership interest and provide conforming changes to certain regulations. They also provide rules under Code section 358(h) for assumptions of liabilities by corporations from partners and partnerships.
The Federal Register also contains a lengthy DOL Prohibited Transaction Exemption 2003-19, to replace Prohibited Transaction Exemption 97-63, involving State Street Bank and Trust Company (State Street). The Exemption permits securities lending transactions between State Street, its United States (U.S.) domiciled affiliates, and certain employee benefit plans and/or commingled investment funds holding plan assets, provided that State Street (through any division or U.S. affiliate of State Street or of its parent) acts as securities lending agent (or sub-agent). The exemption also permits receipt of compensation by a U.S. registered introducing broker affiliated with State Street in connection with an arrangement whereby securities are lent to an unrelated U.S. registered broker-dealer who in turn lends such securities to clients of the introducing Broker, provided that certain conditions are satisfied.
The Associated Press via the Washington Post reports that the U.S. Supreme Court today "upheld a university law school admissions policy that gives minorities an edge, ruling that race can be one of many factors that colleges consider when selecting their students." Of course, SCOTUSBlog and How Appealing provide extensive reporting on all of the U.S. Supreme Court opinions delivered today.
Today's Federal Register is here.
"Pensions in peril: With 77% of Canadian plans in a deficit position, sponsoring companies are being asked to cover the shortfall. They can't afford to be too generous": the National Post has this excellent article by Paul Purcell which discusses the alternatives for plan sponsors with big pension deficits.
The Washington Post has this article by Albert B. Crenshaw: "401(k)s: Remember Them?" The article reports how employees are ignoring the risks of investing too heavily in company stock, i.e. putting all of their eggs in one basket, even though many companies have eliminated restrictions on participants' ability to shift out of company stock.
Business Week Online provides this good news for the economy: "A Hidden Stash? New research says taxes on boomer retirement savings could bring in trillions." This great article discusses a new, as-yet-unpublished paper by Stanford University economist Michael J. Boskin which estimates that the value of ordinary income tax baby boomers will pay on their retirement accounts as they begin to retire through 2040 is roughly $12 trillion in today's dollars. The article reports that Mr. Boskin has zeroed in on an "issue that has escaped the notice of the vast majority of economists, politicians, and investment experts."
"Lawyers see complex provisions in Bush’s $350-billion tax plan": Mike Colias for Providence Business News reports on the legal intricacies of the Jobs and Growth Tax Relief and Reconciliation Act.
Shearman & Sterling has posted this very good article on the ramifications of the May 28th decision of In Re The Walt Disney Company Derivative Litigation issued by the Delaware Court of Chancery. The article suggests that independent directors--"most typically those comprising a designated compensation committee"-- be involved in the negotiation and review of the terms of executive officers' employment and severance packages and such negotiations be conducted in an "arms' length manner." The article provides a number of steps directors should take in approving such packages.
Lou Dobbs has this article for USNews.com: "Retirement realities." The article warns that there is a "retirement crisis" in America and urges "individuals, policymakers, and corporate decision makers alike to work toward a solution."
That's the advice in this article--"401(k) trustees feel heat"--by Harriet Johnson Brackey for the Miami Herald. Derek Loeser, a partner in the Seattle law firm Keller Rohrback, in discussing ERISA plan fiduciaries states: "[t]heir duty as fiduciaries is the highest known to law. This should remind them they can't operate on autopilot.'' Thomas Noonan, president of Union Financial, a registered investment advisor in Fort Lauderdale, warns that "especially at smaller companies, the 401(k) plan trustees often rely blindly on an investment advisor." A good time for ERISA fiduciaries to consider this . . .
LeBoeuf, Lamb, Green & McRae, LLP has posted this article: "Applicability of Section 906 Certification to Form 11-K Filings." Debevoise and Plimpton has published this article by Lawrence K Cagney and Elizabeth Pagel Serebranskys as well: "Sarbanes-Oxley Certification of Form 11-K Filings Required." The article at Debevoise and Plimpton has a detailed discussion of who should sign the certification and the criminal liability involved.
See previous posts on the subject here.
Liz Pulliam Weston for MSN reports on how the Jobs and Growth Tax Relief and Reconciliation Act ("JAGTRRA") makes 401(k)'s and 403(b)'s "lose a little of their sparkle . . . because the break you receive for contributing to them shrinks along with your tax bracket."
The New York Times calls pension accounting a "dismal science" in this article by Mary Williams Walsh: "Pension Reserve: What's Enough?" The article discusses the lobbying efforts going on in Washington for relief for certain industries from the pension funding rules. The article states that "[a}lways on the minds of pension policy makers is General Motors, whose $25 billion worldwide pension deficit is larger than its market capitalization of $21.8 billion." The Business Roundtable in this letter warns Congress that the whole economic recovery may be at stake if Congress does not provide relief. The letter states: "Companies cannot commit to building new plants, launching new research projects, or hiring new employees if that cash is needed to fund pensions."
That's what this article at AccountingWeb.com reports: "Corporate Failures Lead to ‘Feeding Frenzy’ For Professionals."
As stated previously, you can access the Opinion and Order entered in the In Re WorldCom, Inc. ERISA Litigation case (Southern District of New York) here. (via WorldComErisaLawsuit.com) You can also access the pleadings in the case at WorldComErisaLawsuit.com as well. The action is being brought by participants in the WorldCom 401(k) Salary Savings Plan (the "Plan").
The facts as alleged: The Plan provided a number of different funds, among which was a fund invested in WorldCom stock. WorldCom was the sponsor of the Plan, the named fiduciary of the Plan, the Plan Administrator, as well as the Investment Fiduciary. The Plan authorized WorldCom to appoint others to act as Administrator or Investment Fiduciary for the Plan, but WorldCom did not do so. A very key provision of the Plan was Section 14.02 which provided that "any WorldCom officer had authority to perform WorldCom's functions as Plan Administrator and Investment Fiduciary." However, if WorldCom did not appoint individuals to carry out the duties, then "any officer" of WorldCom had "the authority to carry out" on behalf of WorldCom, the "duties of the Administrator and the Investment Fiduciary."
Here is a rundown of the complaints which did or did not survive the Motions to Dismiss:
Key Points of the Case:
1) The court held that plaintiffs stated a claim for breach of ERISA fiduciary duty "by alleging that Ebbers, Miller and Merrill Lynch were obligated to but failed to act with prudence regarding the Plan's continued offer of WorldCom stock as a Plan investment." The court went on to say: "WorldCom stock could have been removed as one of the investments offered under the Plan without amending the Plan and plaintiffs have adequately alleged that these fiduciaries should have, but failed, to consider or recommend doing so."
2) The court also held a claim was sufficient that alleged Ebbers failed to disclose "material facts he knew or should have known about the financial condition of WorldCom." Ebbers had argued that the duty to disclose arose under the federal securities laws and not under ERISA. The court stated that "Ebbers's potential liability to employees who invested in WorldCom stock through the Plan for violations of the federal securities laws cannot shield him from suit over his alleged failure to perform his quite separate and independent ERISA obligations." The court also stated: "When a corporate insider puts on his ERISA hat, he is not assumed to have forgotten adverse information he may have acquired while acting in his corporate capacity."
3) Plaintiffs' third claim alleged that Ebbers and Miller (Employee Benefits Director) breached their fiduciary duties by making material misrepresentations about the soundness of WorldCom stock and the prudence of an investment in WorldCom stock, and by transmitting materials containing the misrepresentations to Plan participants. The misrepresentations were alleged to have been contained in WorldCom's SEC filings.
Ebbers and Miller argued that this claim imposed "a continuous duty of disclosure on ERISA fiduciaries that overwhelms the federal securities law disclosure requirements and compels fiduciaries to violate the prohibitions against insider trading." The court noted that the defendants were trying to describe a "tension between the federal securities laws and ERISA that would require the dismissal" of the claim, but ruled against the defendants, stating that "[t]hose who are ERISA fiduciaries . . cannot in violation of their fiduciary obligations desseminate false information to plan participants, including false information contained in SEC filings." The court acknowledged the "difficulties that exist in the analysis of this claim" due to the fact that Ebbers was both a corporate insider and an ERISA fiduciary, but stated:
"While there may be some case in which there will be a conflict between the two statutory schemes, it is not so evident that a conflict exists here. The Complaint alleges that WorldCom's SEC filings contained material misrepresentations regarding WorldCom's financial condition. Having spoken in its periodic SEC filings about the company's financial condition, WorldCom had a duty under the federal securities laws to correct any prior material misrepresentation when it became aware of the falsity."
This article at PlanSponsor.com reports that defined contribution health plans are becoming more popular since they "engage the consumer in the cost of care, thereby making them more cognizant of what medical care really costs." The article discusses a report from Atlantic Information Services, Inc. (AIS), a publishing and information company in the health care industry. The article also reports on an earlier study by Deloitte & Touche which finds that "[m]ore than half (52%) of the companies surveyed agreed that CDHPs will result in immediate employer-cost savings, while slightly more than one third (36%) believe these new plans will reduce the long-term health care cost trend."
Marguerite Higgins for the Washington Times reports: "House advances small-business health care." The article reports that "The Small Business Health Fairness Act" passed the House 262-162 with the support of 36 Democrats. The bill allows small businesses to band together to purchase health insurance through a national association at group rates.
UPDATE: PlanSponsor.com also reports on "The Small Business Health Fairness Act (HR 660)" here.
This article--"Corporate Choice"--by Ashlea Ebeling for Forbes.com (via Yahoo! News) discusses how the Jobs and Growth Tax Relief Reconciliation Act can affect the type of entity that is best for a new business.
Today's Federal Register is here.
This article by Michael Ellis for Reuters discusses how the company with the "largest pension deficit among U.S. companies" is meeting its pension funding obligations: "GM to Fund Pension with $13 Billion Debt."
"[A]ttorneys and accountants should be pillars of our system of voluntary compliance, not the architects of its circumvention." This is what IRS Commissioner Mark W. Everson is reported to have said in this article by David Cay Johnston for the New York Times: "IRS Seeks Names of Wealthy Clients Who Used Tax Shelters." According to the article, the IRS is ordering one of the nation's biggest law firms, Jenkens & Gilchrist, to disclose the names of 600 wealthy clients who bought tax shelters that it considers abusive. The law firm has said it would not comply. The IRS won approval yesterday from a federal judge in Chicago to issue its summons to Jenkens & Gilchrist, which is based in Dallas. The article reports that the "government has not used this particular type of summons before."
This article by Ben White from the Washington Post: "Excellent Year for Executives--CEO Compensation Rose Nearly 17%."
You can access the Opinion and Order issued Tuesday by U.S. District Judge Denise Cote of the Southern District of New York in the case of In Re WorldCom, Inc. ERISA Litigation here. (via WorldComERISALawsuit.com) To be discussed . . .
Ernie alerts us to two very interesting items in the blogging world:
1) MSNBC now has a column called "Blogspotting."
2) British Parliament MP Richard Allan now has a blog which reads:
Welcome to the weblog of Richard Allan, Member of Parliament for the Sheffield Hallam constituency. This log contains occasional observations of a mostly political nature..."
Also, this article from the New York Times (free subscription required) by Catherine Greenman: "A Blogger's Big-Fish Fantasy."
CFO.com provides this article by Jennifer Caplan--"Comp Formulas: Execs Riding the Right Side of the Curve--Some companies move to exclude pension expenses from exec comp formulas; during bull market, pension gains were included"--which discusses the whole topic of pensions and their effect on executive compensation which was the subject of an article in the Wall Street Journal reported on here yesterday.
This article--"House Votes to End Federal Estate Tax as Senate Battle Looms"--by David Firestone for the New York Times (free subscription required) discusses how the House of Representatives voted yesterday to end the federal estate tax in a vote of 264 to 163, with 41 Democrats joining the Republican majority. The federal estate tax was scheduled to disappear in 2010, but then reappear in 2011 under a "sunset provision." The measure approved by the House would end that "sunset provision" and kill the tax permanently in 2011. President Bush issued a statement praising the House for its vote, but Republicans and Democrats in the Senate expressed more interest in a substitute bill. The article reports that Senate Republicans "agreed today to meet their House counterparts in a conference about another divisive tax issue, increasing the child tax credit for 6.5 million families who did not receive it in the tax law signed by Mr. Bush last month."
Today's Federal Register is here.
Lee Berton, a journalist and a consultant to the accounting department of the City University of New York's Baruch College, writes this article at Bloomberg.com: "Pension Accounting Rules Create False Profits." The article reports that companies do not have to "practice fraud to create suspect earnings," but merely have to follow accepted pension accounting standards to do so. The article criticizes rules which "permit a company to assume appreciation on pension portfolio assets, even though sharp stock market declines have decimated the portfolio's value." FASB is seeking to revamp pension accounting rules which can be read about in previous posts here.
This article by Rachel Beck at Newsday.com discusses the effect falling interest rates have on pension funding: "Interest Rates Prolong Pension Woes." The article points out that FASB is beginning to look into requiring quarterly, instead of annual, pension disclosures in order to avoid annual investor "sticker shock."
This article--"Investing with Safety"--at KansasCity.com reports on the study by Hewitt Associates Inc. (discussed here yesterday) indicating the three most popular places participants are putting their 401(k) money while stocks are suffering: money market funds, bond funds, and stable value funds.
Also, this very good article by Sharon Epperson at Time.com on a new disability insurance product which is becoming more popular: "Saving Your Nest Egg: Retirement funds suffer if you go on disability--An insurance policy can help." The article discusses group and individual disability insurance products which cover employee contributions and employer contributions to a defined contribution plan, if the individual becomes disabled.
U.S. District Judge Denise Cote of the Southern District of New York, in a 49-page opinion released late Tuesday, refused to dismiss ERISA claims against WorldCom Chief Executive Bernie Ebbers and others as reported here at Law.com. Much more on this later . . .
Sidley Austin Brown & Wood LLP provides this great discussion on the 906 Certification issue regarding SEC 11-K filings as well as this discussion. See also this post at Bowne Securities Connect. (Previous posts on the subject are here.)
Interesting post by John Palfrey on how Reed Smith encourages Denise Howell with her blog. (Check this out as well.)
Reuters provides this article by Martha Graybow: "Study finds 401(k) investors not diversified enough." You can access the study performed by Hewitt Associates Inc. here. The study reports that "the average participant holding company stock had 42 percent of balances in company stock." It also reports that "more than one quarter (28 percent) of employees held 50 percent or more of their 401(k) plan balances in company stock." This is all pretty amazing when you consider all of the publicity over Enron about how participants lost their life savings in their 401(k) accounts due to not being properly diversified.
This very interesting study by the Vanguard Group Center for Retirement Research--"Can There Be Too Much Choice in a Retirement Savings Program?"--provides useful information for plan sponsors designing their plans. The study applies the "choice overload hypothesis" to the
401(k) plan arena and may provide some insight as to why employees continue to be heavily weighted in company stock. In my opinion the study seems to say that people simply do not respond very well when provided with too many choices, and may choose what is most familiar to them when confronted with more choices than they can handle.
Thanks, Howard, for pointing us to this great press release from U.S. Senator John Cornyn (R-TX) responding to suggestions by members of the Senate that despite constitutional mandate, and 200 years of Senate precedent, the Congress should select nominees to the Supreme Court. This statement in Senator Cornyn's letter to President Bush says it all, in my opinion:
"Of course, individual Senators, like all Americans, have the right to suggest possible nominees to the Supreme Court. But no one should be confused into believing that the President is in any way bound, as a constitutional, political, or traditional matter, to follow any of those recommendations. Indeed, it is impossible to comprehend how the President would obey the wishes of 100 individual Senators, each of whom might submit their own slate of nominees."
Kilpatrick Stockton provides a very good discussion and analysis of defined contribution health plan arrangements which are becoming more popular due to rising health care costs. These types of arrangements were sanctioned in IRS Rev. Rul. 2002-41 and IRS Notice 2002-45 issued July 15, 2002.
This link will take you to the Pension Benefit Guaranty Corporation website page listing all states which have received disaster relief from deadlines due to tornadoes, ice storms, etc. Illinois, Mississippi and Kentucky are among the most recent states which have been given relief.
Today's edition of the Wall Street Journal has this important article (subscription required) by Jesse Drucker and Theo Francis: "Pensions Fall--Not CEO's Bonus." The article discusses how in good times, pension surpluses helped to boost corporate earnings which in turn increased executive compensation under executive bonus plans which were tied to net income. However, now that pension plans are underfunded, with many companies having to pump money into their pension plans, companies have been inserting special language into their bonus plans so that bonuses can continue to be paid, despite earnings, according to the article. The article quotes Carol Bowie, director of governance research at the Investor Responsibility Research Center, a Washington research and advisory firm for institutional investors as saying, "This pattern where pension surpluses are included for bonuses but pension expenses are excluded just underscores how these incentive programs can be manipulated in order to maximize payouts." The article quotes a Verizon spokesman as saying that their executives have always been compensated "based on operational performance and strategic factors" and not based on "losses or gains in the pension fund."
The 10b-5 Daily by Lyle Roberts has a good commentary on the wave of ERISA 401(k) litigation which has been the subject of multiple posts here.
Today's Federal Register is here.
This article--"Ruling Approaches in IBM Pension Lawsuit"--by Arden Dale for the Associated Press at MercuryNews.com reports that a ruling in the IBM cash balance plan conversion case is forthcoming, with lawyers having submitted their final documents last week to U.S. District Judge G. Patrick Murphy, who is presiding over the case. (See previous posts on the subject here.)
Stock option expensing is becoming a hot topic among presidential candidates, as reported in this article by Laura Kurtzman at MercuryNews.com--"Gephardt backs foes of options expensing." Also, this article for Reuters by Ben Klayman reports on the call for better valuation methods for stock options by Cisco Systems Inc. Chief Executive John Chambers: "New method to value options essential-Cisco CEO."
The news is full of benefits issues today. Much more later . . .
Readers have been expressing interest in some links for the ERISA litigation which has been the subject of several posts so I will list some important ones here and will create a section in the index under "401(k) Litigation Links":
VentureBlog has this discussion about stock option expensing.
Jim Calloway, Director for the Oklahoma Bar Association's Management Assistance Program, has this great article on tools for electronic discovery which is a must link for litigators: "Tools for Electronic Discovery."
That is what Ronald Kilgard of Keller Rohrback says about the wave of post-Enron litigation against 401(k) plan sponsors under ERISA. This article--"Send in the Lawyers: Ethical Lapses Spawn Fiduciary Lawsuits"--for Defined Contribution News discusses the lack of staffing at the DOL and reports why the DOL has seemed to focus on filing amicus briefs in the cases, instead of filing its own actions. The article reports Steven Saxon, a partner in the Groom Law Group, as saying the DOL "doesn't have the staffing to do its own cases" so that they have "made a decision to expend resources in appellate work...to have an impact when they file an amicus."
See yesterday's post here for additional articles on the subject.
Today's Federal Register is here.
"Federal tax relief on the way": this article by Dave Copeland for the Pittsburgh-Tribune Review discusses how 21,000 Pennsylvanians will be eligible for the new health care tax credit--a 65 percent tax credit against health care payments for people between the ages of 55 and 65 who are receiving a pension from the Pension Benefit Guaranty Corporation. The article reports that in Pittsburgh, the tax credit could have a substantial impact, as retirees from both LTV Steel and Bethlehem Steel Corp. are potentially eligible for the tax credit. The tax credit was discussed here in an article by Deloitte & Touche at Benefitslink.com. You can also read about the credit on the IRS website here.
This article--"Nation's largest pension fund targets executive stock options"--by Don Thompson for the Associated Press at KansasCity.com (Kansas City Star) reports that the investment committee of the California Public Employees' Retirement System ("CALPERS") on Monday set new standards for executive stock option plans it will support for the 1,000 largest companies in which the $130 billion fund invests its money. According to the article, CALPERS will only support plans if 5 percent or fewer of the stock options go to the company's top five executives, and if the executives have to wait at least four years to cash in.
403bwise.com has this article explaining in layman terms the differences between 403(b) plans and 457 plans: "Read Between the Numbers: 403(b)s & 457s."
Today's edition of the Wall Street Journal provides this article by Lenn Cowan in its special E-Commerce section discussing do-it-yourself investment-management tools online: "Buy? Sell? Hold? A Guide to some of the best online investment-management tools." Some of the ones reviewed and discussed were Financial Engines Inc., mPower.com Inc. (which you can access at MSN.com) and Morningstar Inc..
An enjoyable article at BusinessWeekOnline--"This SEC Cop Means Business"--gives the inside story on William H. Donaldson, SEC Chairman, who took over on February 18th of this year. Another article at BusinessWeekOnline--"A Conversation with Bill Donaldson"--reports him as stating the following in regards to why he took the job at age 71:
"I ask myself why I took this job at this stage in my life. It's because we're at a pivotal point in the reestablishment of faith in the business and financial communities. I would like to be remembered for having an effect on that, for bringing everybody back to a sense of business integrity. There are alot of people out there, not just business people but also some of the gatekeepers -- accountants, lawyers -- where there has been a shift in ethics and morality, [thinking] that cutting corners a little bit is justified because "everybody else is doing it." I hope [to] have an impact in righting that."
Sutherland Asbill & Brennan LLP provides us with this very good article discussing the new incentive stock option proposed regulations issued June 9th by the IRS and discussed in previous posts here.
A very analytical article by David M. Gische and Jo Ann Abramson of Ross, Dixon & Bell LLP at Findlaw.com: "Corporate Fiduciary Liability Claims In The Post-Enron Era." The article provides a detailed discussion of the class-action litigation that is going on in the ERISA arena against ERISA plan fiduciaries of 401(k) plans. The article gives a rundown of the Enron, Global Crossing, WorldCom, and Qwest cases which are making their way through the courts and provides a discussion about the parallel securities law claims which may provide double exposure for insurers, if the ERISA claims succeed.
Another article by Jason Hoppin for the Recorder at Law.com--"A Matter of Trust: Stung by corporate collapses, workers look to ERISA for relief"--also discusses the "burgeoning arena of ERISA cases filed on behalf of company employees who lose their retirement savings when corporate scandals hit." He calls it "an oasis for plaintiffs' lawyers, where you can make new law, the bar is friendly on both sides of the aisle, there are few competitors and, of course, huge recoveries are the norm."
CorpLawBlog at a post here and Securities Beacon have also reported on the subject today.
This article by Jill Elswick for BenefitNews.com--"DOL develops educational resources for fiduciaries"--comments on the ERISA Advisory Council's Working Group on Fiduciary Education and Training and its educational initiative to help fiduciaries comply with the myriad requirements of ERISA. The Group's final report can be accessed here. The article also reports that the Foundation for Fiduciary Studies has released 27 "prudent investment practices"--each substantiated with existing legislation, case law, and regulatory opinion letters and vetted by the American Institute of Certified Public Accountants (AICPA)--into the public domain for comment here. Finally, the article discusses a new program for fiduciary education offered by New York Life Investment Management's (NYLIM) retirement plan services division which you can read about here.
This article by David Firestone for the New York Times--"Fate of Tax Credits Rests With Houses Divided"--reports on the political and philosophical divide between the Senate and the House regarding bills introduced which would provide tax credits for low-income families.
The words of Federal Reserve Chairman Alan Greenspan at a recent congressional hearing, according to this report by Sue Kirchhoff for USA Today.com: "Aging population makes this deficit scarier." The article addresses the concerns of economists over rising government deficits in the face of demographic concerns over the aging baby boomer population which will be tapping into Social Security and Medicare in the years to come. The article reports Paul Hewitt, director of the global aging initiative at the Center for Strategic and International Studies, as saying that the USA will have the "slowest rising median age of any country for the next 50 years." He goes on to say that the "boomers leaving will create a giant sucking sound in the workforce."
Today's Federal Register is here.
"Avoiding Pension Plan Time Bombs": this article by Fei Mei Chan for Forbes.com discusses the pension plan funding issues facing S&P 500 companies.
Vinod Khosla speaks out for stock option expensing in this article for SiliconValley.com: "Expensing options at big firms could boost innovation at startups."
AccountingWeb.com reports on congressional support for the "Broad-Based Stock Option Plan Transparency Act" which was introduced in March by Rep. David Dreier (R-Calif.) and Rep. Anna Eshoo (D-Calif.): "Congress Gains Support in Stock Option Fight."
This article by John Snow for the Business Journal--"Humana rolls out swipe card"--reports that Humana Inc., in conjunction with Evolution Benefits Inc., MasterCard International and BankFirst, is offering a combined identification card and prepaid MasterCard for accessing funds in flexible spending accounts. The new program takes advantage of a recent ruling by the Internal Revenue Service, Revenue Ruling 2003-43 (via Benefitslink), which "blesses" such programs. (The ruling was discussed in previous posts here.) The article reports Humana Inc. as stating that a 60% increase in flexible spending account enrollment occurred as a result of adopting the "swipe card" program.
The PBGC provides this Interest Rate Update.
This CCH article discusses comments made by Don McPartland of the IRS's Large and Mid-Size Business (LMSB) Division during the IRS Research Conference held in Washington, D.C. on June 11: "Stock Options in Cost-Sharing Arrangements Represent Dilemma for IRS." The article highlights the complexities with stock option expensing for foreign-based operations.
The online edition of the Wall Street Journal (subscription required) has this article by Judith Burns: "Call for More Certifications Leaves Companies Confused." The article reports on the history behind the confusion over the 906 certification, and reports Paula Dubberly, an associate director in the SEC's corporation finance division, as stating a "stronger case could be made to certify 11-Ks" than the 8-K which is also under debate as well. The article also reports Dial Corp.'s general counsel, Christopher Littlefield, as saying that they are proceeding as if the 906 certification is required for the 11-K due to comments made by SEC officials at a public meeting in May, even though some outside lawyers said it wasn't necessary. The 11-K 906 certification issue has been discussed in previous posts which you can access here.
Piper Rudnick has posted an excellent summary and analysis of the Jobs and Growth Tax Relief Reconciliation Act of 2003.
Erik Heels' blog has this post discussing how a major law firm has started a weblog, and this post on how a weblog can be the "main publishing platform for any website, including a law firm website."
Broc Romanek at TheCorporateCounsel.net Blog has a June 12th post on the SEC Form 11-K 906 Certification requirement discussed in previous posts here.
You can't tell from this article by Joyce M. Rosenberg for the Associated Press at WashingtonPost.com--"IRS Reaches Out to Small Businesses"--whether, in fact, the IRS is merely trying to encourage small businesses to adopt retirement programs or track them down for noncompliance.
Today's Federal Register is here and contains the PBGC's interest assumptions for valuation dates in July, 2003.
This very important news--"House approves new tax-cut package; Measure includes extension on child tax credit'--from Ted Barrett for the CNN Washington Bureau at CNN.com. The article reports that the White House has expressed support for both the House and the Senate versions of the bill. The article also reports that a White House statement released Thursday urged congressional leaders to "quickly resolve their differences." Today's edition of the Wall Street Journal reports Republicans as saying that "the White House is eager to put the matter to rest, and beyond the fix, cares little about specifics," but also reports that "prospects look bleak for a quick resolution."
A very good article by Sandra Block at USAToday discusses the practical effect of JAGTRRA for married couples--"Tax cut may enhance wedded bliss."
An article by Michael Kaye discusses overfunded pension plans at BusinessWeekOnline: "Plenty in the Pension Pool: These 10 companies have well-funded retirement plans, and they're highly rated by S&P analysts."
"Candidate Edwards Calls for Pension Reforms": this article at MercuryNews.com by Mike Glover discusses Democratic presidential candidate John Edwards' comments in Iowa on his proposals for pension reform to correct what he calls pension inequities.
This article from the U.S. Newswire: "Snowe, Colleagues Take Aim at Attorney General's Effort to Block Expansion of Health Care Plans for Uninsured."
This article by Thompson Publishing Group at Benefitslink.com offers an inside look at the processes one company has gone through to meet compliance with the HIPAA privacy rules.
This article has been published by Seyfarth, Shaw: "IRS Correction Program Updated and Expanded."
CCH.com has this article: "Bush Administration may be reviving retirement savings proposals." Many have been saying that the Retirement Savings Proposals which were contained in the budget released on February 3, 2003 would never be enacted due to all that is going on right now in Congress. However, the article references a speech made at the Retirement Savings Conference, sponsored by the Investment Company Institute and the Securities Industry Association in Washington DC on June 2, 2003 by Assistant Treasury Secretary Pamela Olson in which she discussed the President's proposals. You can access the speech here. (via Benefitslink.com)
This article by David M. Katz at CFO.com: "Needed: $36 Billion in Pension Contribution; Pension plans of S&P 500 vastly underfunded; same story for federal agency that backstops pension plans." The article cites a report by FTI Consulting which examined GAAP pension data and disclosures for fiscal 2002, and found that 19 of the S&P 500 companies' pension funding requirements will "top 30 percent of their most recent fiscal year's free-cash flow."
AccountingWeb.com has this article by Dixon Odom: "Timeliness of Remitting Employee Contributions to Retirement Plans." The article discusses how the Employee Benefits Security Administration (formerly the Pension and Welfare Benefits Administration) a division of the Department of Labor (DOL) is emphasizing its position regarding the timeliness of remittances of participant contributions to employee retirement plans. The article reports that the 2002 Form 5500 (Annual Retirement/Report of Employee Benefit Plan) has a revision to question 4a of Schedule H (large plan filers) and Schedule I (small plan filers) which highlights EBSA's position. The 2001 Form 5500 asked whether the employer had remitted participant contributions within the maximum time period allowed (i.e. the fifteenth business day). The 2002 Form 5500 asks: Did the employer fail to transmit to the plan any participant contributions within the time described in 29 CFR 2510.3-102? These reg.'s require an employer to segregate employee contributions, including plan loan repayments, from its general assets "as of the earliest date on which such contributions can reasonably be segregated from the employer's general assets." The article reports that employers can correct violations of this rule under the DFVC program.
The Small Business Health Fairness Act (H.R. 660) was approved today by a vote of 26 to 21 by the House Education and Workforce Committee. The bill would allow small businesses to band together through associations to purchase health care for their employees. President Bush and the U.S. Department of Labor support the legislation, as well as groups such as the U.S. Chamber of Commerce and the National Federation of Independent Business (NFIB). This article by Thompson Publishing Group reports on the bill: "AHP Bill Clears House Committee."
This news release by the Department of Labor on the subject was just issued: "Labor Secretary Elaine L. Chao Applauds Passage of Association Health Plans Legislation."
This article by Matt Marshall for the MercuryNews.com: "Top VC at odds with valley on options." The article reports that Vinod Khosla, a very prominent and successful venture capitalist, has broken ranks with the rest of Silicon Valley and come out in favor of stock option expensing. He argues that requiring companies to expense stock options would "level the playing field for young private start-ups that he says are so important to the nation's economy."
Bloomberg.com reports here: "Intel, Dell May Award Fewer Options, More Cash to Pay Workers."
And "The battle heats up over stock options" reports Paul Taylor for FT.com. The article points out the tension between FASB's accounting proposals which would make stock options less appealing to employers and the tax advantages of stock options brought about by JAGTRRA.
Today's Federal Register is here.
Read this article by James Dawn for the Toronto Star at TheStar.com for a pleasant surprise: "Fairy godmother bails out staff." The story details how TransCanada PipeLines Ltd. of Calgary is dumping its defined contribution plan ("DC plan") and reinstating employees in its defined benefit plan, at a cost of nearly $92,000 per employee. The article reports that the company is abandoning its DC plan due to poor perfomance by employees' investments and also because it felt that the defined contribution plan contributed to a "culture of transience" and a "lack of loyalty." The article reports that the company's intent in taking this giant step is to "tie its highly skilled employees to their jobs and remove any distractions or concerns related to retirement income."
"Fear of losing insurance keeps workers from moving on": this article at SFGate.com on how health insurance coverage is affecting worker mobility.
The Washington Times has this article by Stephen Dinan: "House GOP seeks $82 billion tax cut." The article reports that House Republicans will try to pass a $82 billion tax-cut bill today, "sending back to the Senate a much broader tax cut than the $10 billion bill senators passed last week." The bill extends the $1,000 per child tax credit through 2010, eliminates the eligibility disparity between married couples and individuals in qualifying income for the child credit, and includes several smaller tax cuts for military families.
This article from the ABA Journal--"Court Surprises with Family Leave Act Ruling: Rehnquist Opinion Marks Exception in Trend Toward Empowering States" by David L. Hudson, Jr. The article discusses the May 27th U.S. Supreme Court case of Nevada Department of Human Resources v. Hibbs discussed previously in this post and reports that Georgetown law professor Nina Pillard, who argued for William Hibbs, was told by a colleague that she had a 95% chance of losing the case. The article reports Pillard as saying that a major significance of the case is that it is the first decision in which the court has upheld Congress’ power under Section 5 of the 14th Amendment since 1996 when the court ruled in Seminole Tribe of Florida v. Florida, 517 U.S. 44 (1996), that individuals were limited from suing states under various federal laws.
Attorneys who leave big firms to practice solo are highlighted in this article by Tania Anderson for Washington Business Journal at MSNBC.com: "Solo attorneys like their decision--For those who say big is better, solo attorneys offer a dissenting opinion." (via MyShingle.com.)
This just in from Reuters: "Siebel shareholders vote against option expensing." The article reports that TIAA-CREF's proposal to tie executive compensation to performance was also defeated. Both items were discussed in an earlier post here today.
Ropes & Gray has published this article on the 11-K 906 Certification issue discussed here in previous posts.
AccountingWeb.com has this article (provided by CCH, Inc) regarding the tax implications of the Jobs and Growth Tax Relief Reconciliation Act of 2003 ("JAGTRRA"): "Industry Sector Implications of Tax Cuts."
In addition, today's edition of the Wall Street Journal reports on important implications of JAGTRRA on margin accounts. The article discusses how investors who own margin accounts may be in for a surprise when they discover that the dividends they receive in these accounts may not be eligible for the new lower tax on dividends and refers us to the very helpful site for the Securities Industry Association (Wall Street's trade group), SIA.com, which has a brochure explaining the implications of JAGTRRA. You can access the brochure here. Two more articles today in the Journal discuss JAGTRRA as well: "Tax Plan Puts Crimp in Short Selling" by Allison Bisbey Colter, and "New Law Leaves Recapture Tax Rate Unchanged" by Roy A. Smith.
Thanks Benefitslink for this article by Watson Wyatt at WatsonWyatt.com: "Ratification of U.S.-U.K. Tax Treaty Is Good News for Expatriate Employees." As discussed here in previous posts, there is a growing movement of outsourcing to other countries, so that companies will have to grapple more and more with the tax treatment of pension benefits for expatriate employees. The article discusses how the United States has agreed under this treaty with the U.K. not to tax U.S. citizen employees working in the United Kingdom on their current benefit accruals or contributions to U.K. pension schemes. Apparently, according to the article, this is the first time the United States has agreed not to tax its citizens on foreign pension income.
McDermott, Will & Emery has posted an excellent article on the new proposed COBRA regulations.
Today's edition of the Wall Street Journal has a very good article about a shareholder proposal for Siebel Systems, Inc., submitted by TIAA-CREF, that advocates stock options issued to Siebel senior executives be tied to the company's performance. The article describes the battle that has been waged by TIAA-CREF over the proposal which will be voted on today. Another article at CBSMarketWatch.com reports that representatives of the American Federation of State, County and Municipal Employees union pension plan are picketing outside the shareholder meeting site today to register their complaints against Siebel's stock option compensation for executives.
Thanks CorpLawBlog for providing us with these comments (via the Los Angeles Daily Journal) by former SEC Chairman Harvey Pitt that Sarbanes-Oxley has "critical deficiencies," "redundancies" and "inconsistencies" and "may not be comprehensible." Read more about it here.
Today's Federal Register is here and contains temporary regulations providing an automatic extension of time to file certain information returns and exempt organization returns. The temporary reg.'s eliminate the signature and explanation requirements for certain types of automatic extensions.
Another day of chaos in France over pensions as reported by AFP for Yahoo! News at Yahoo.com. Baby boomer demographics is the root cause reports this article by Reuters via Yahoo! News at Yahoo.com.
More on today's news later . . .
The first of two NASA rovers, Spirit, began its 311 million mile journey to Mars yesterday as reported here for Comcast News at Comcast.net. Opportunity, another NASA rover, should follow it into space later this month, but no earlier than June 25th. Spirit should arrive on Mars in January of next year. The article reports that Spirit and Opportunity will join two other NASA spacecraft, both orbiters, already at Mars, and that additional spacecraft from Britain, Europe and Japan are on their way to the planet as well. Firouz Naderi, manager of NASA's Jet Propulsion Lab's Mars exploration program, calls this "an unprecedented assault on one planet."
Benefitslink points us to this article by John Carroll for Managed Care Magazine at ManagedCareMag.com: "AWP Reimbursement Ruling May Be More Than Meets [the] Eye." The article discusses how managed care will be affected by the U.S. Supreme Court case of Kentucky Association of Health Plans v. Miller (discussed here) which held that a state's "any willing provider law" was not preempted by ERISA. The article cites predictions that the fallout of this ruling will be, for states that have "any willing provider" laws, different levels of co-pay and different levels of care that patients can choose from (since HMO's can no longer restrict which providers will be part of the network) as well as different levels of pay to providers based on performance.
Watson Wyatt has posted an article with some interesting thoughts on the stock option accounting problem: "New Study on Disclosure of Stock Option Expense: Substance Matters More Than Form." The article suggests that FASB's proposals to expense stock options may not have the downward effect on stock prices that has been widely predicted. The article also suggests that companies look at alternatives to stock options, such as restricted stock, performance-based shares and management stock purchase plans (MSPP). Another article by Watson Wyatt looks at nonqualified plans and discusses the provisions governing these types of plans that were part of the Senate version of the Jobs and Growth Tax Relief Reconciliation Act before the provisions were dropped from the bill. The article suggests that the provisions have support from both the House and the Senate and may make it into legislation by the end of the year.
This article posted at MIT Enterprise Technology Review and recommended by Tom Mighell at Inter Alia is a good one. Thanks, Tom!
Gary Young for the National Law Journal at Law.com reports on the case of Millsap v. McDonnell Douglas Corp., No. 94-CV-633-H, from the Northern District of Oklahoma. The case, according to Law.com, represents only a handful of cases in which employees have prevailed in a claim that their employer violated ERISA "by closing a plant with the intent to shed employees whose benefit costs were high or who were on the verge of vesting in pensions." Unfortunately, the $36 million settlement will never reach the hands of plaintiffs unless a 10th Circuit Court accepts the Court's certification of its September 25, 2002 order denying McDonnell's motion for summary judgment on the issue of back pay. Many are saying the "backpay" issue is doomed under the holding of Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, decided by the U.S. Supreme Court last year.
With all the bad news about Social Security and corporate pensions, this article by Robert Brokamp for the Motley Fool via Yahoo! News has the answer: open an IRA.
Today's Federal Register is here.
French transport workers are again striking over pension changes as reported by Bloomberg.com.
Bloomberg.com also has this article: "U.S. Economy: Pension Costs Rise, Threatening to Slow Growth."
CFO.com has this report on the rankings in the corporate governance report by Corporate Library discussed here yesterday.
There have been multiple posts here about the issue of whether 906 Certifications are required for SEC Form 11-Ks for employee benefits plans. The SEC recently came out with a statement discussed here that it is deliberating on the whole issue. Assuming the certification is required, it has been suggested that the proper party to sign the 906 Certification probably is the chair of the plan committee which is normally appointed to oversee the plans, since the plan is really the "issuer" in this context. This should really cause a stir in the plan fiduciary community! They are still reeling from all of the fallout from Enron and the ERISA fiduciary litigation which is running through the courts. So, now they are not only subject to personal liability for fiduciary violations under ERISA, but they are subjected to possible criminal liability under Sarbanes-Oxley as well? Since I am not a securities lawyer, am I right on this? After the DOL's Amicus Brief in the Enron case, many practitioners are advising that high level individuals in the company (with insider information) not be allowed to serve on plan committees where employer stock is involved, due to the conflicts which may arise, so who would be left to sign these certifications? If readers are so inclined, comments would be welcome . . .
Today's edition of the Wall Street Journal reports on the ratings release today by Corporate Library, a governance-research firm, which ranks companies on corporate governance. Unlike Institutional Shareholder Services Inc.("ISS") the leading proxy-advice firm which has been the subject of reports in the Journal last week and the subject of this blog today, Corporate Library refuses to take consulting or other fees from its ratings subject, according to the Journal. A common thread among those companies ranked the worst in corporate governance were lavish compensation and benefits to executives.
A real disappointment! PlanSponsor.com has reported that the House of Representatives has abruptly pulled from the schedule the Comp Time Bill that was going to be voted on. This bill would have allowed employees to choose between getting overtime pay or compensatory time off, both calculated at a time-and-a-half rate. The bill, called the Family Time Flexibility Act, would have been particularly good for families, allowing individuals to spend time with their families instead of receiving overtime pay. It would have also been good for employers who would not have had the expense of paying the overtime during these tough economic times. Apparently, the bill did not have enough support from "pro-business Democrats to counter opposition from a sizable pro-labor bloc among the 228 House Republicans."
Benefitslink provides us with IRS Revenue Ruling 2003-65 to be published soon. The ruling provides that years of service earned following the establishment of a plan must be counted for vesting purposes under a frozen plan which is later amended to provide for a new benefit formula. The ruling also provides: "If, instead, the accruals are earned under a new plan maintained by the same employer and the new plan is merged with the frozen plan, then this holding also applies, so that, after the merger, service after the frozen plan was established must be taken into account for purposes of vesting in any benefit accruals under the new plan."
Benefitslink points us to this Special Report which has it all when it comes to learning about the IBM cash balance plan conversion case to be decided soon and discussed here yesterday.
CFO.com has this article--" Stock Option Standoff: Bill would place three-year moratorium on revising employee stock option accounting; angry Herz says the move could impair FASB's independence"--by Craig Schneider. According to the article, HR 1372, "The Broad-Based Stock Option Plan Transparency Act" introduced by Rep. David Dreier (R-Calif.) and Rep. Anna Eshoo (D-Calif.) in March has gained nine new co-sponsors, since the hearing on the subject (discussed here) last week, bringing the total backers for the bill to 44. The article reports FASB Chairman Robert Herz as saying that intervention by Congress would appear to be inconsistent with the language and intent of the Sarbanes-Oxley Act and the related SEC Policy Statement, both of which were intended to enhance the independence of FASB. It also reports SEC Chairman William Donaldson as opposing legislation by Congress.
What do you think about the whole subject? Smart Pros provides this article--"The Accounting Cycle Here They Go Again! More political attempts to thwart good accounting"--by Edward Kertz. You can take a poll at SmartPros by clicking here.
This article at SeattleTimes.com by Mark Schwanhausser--"Accounting rules threaten worker stock-buying plans"--highlights how FASB's proposals to expense stock options might be the death knell for employee stock purchase plans ("ESPPs"). The article reports that 10 to 15 million workers could potentially lose their benefits under these types of plans, if FASB's proposals are adopted, and that executives at companies are re-examining their ESPPs to determine the effect that ESPPs could have on profits. One bank executive apparently learned, according to the article, that the bank's ESPP could potentially wipe out $20 million in profits under the proposed accounting changes.
Today's Federal register is here and contains the proposed incentive stock option regulations.
A parallel tax universe? Fortune.com has posted this very good article by Shawn Tully: "Taxpayer, Beware! Washington will soon be taking back a good chunk of that new tax cut. How? By using the sneakiest trap it's got: the Alternative Minimum Tax." The article discusses how many taxpayers may, under tax changes brought about by the Jobs and Growth Tax Relief Reconciliation Act of 2003, find themselves falling into the Allternative Minimum Tax ("AMT") world despite the tax cuts. According to a recent study by the Urban-Brookings Tax Policy Center, 95% of families and individuals with incomes from $100,000 to $500,000 will fall into the AMT zone by 2010.
I guess none of us are really surprised at what this article at GreenvilleOnline.com by Brian Tumulty for the Gannett News Service reports on IBM's motives for converting to a cash balance pension plan in the 90's: "Documents reveal IBM's reason for pension-plan change: saving money." The U.S. District Court for the Southern District of Illinois is expected to issue a ruling within weeks on charges that the new pension plan, instituted in mid-1999, and an earlier one that took effect in 1994, discriminates against workers based on age. However, here's what U.S. District Judge G. Patrick Murphy is reported to have said at a hearing on the case: "I'm not a priest," the judge observed at one of the hearings. "I'm not here to look into the souls of the IBM people . . ."
It's great to read news like this that some companies are reinstating bonuses and benefits that were cut during hard times. The article--"Novel idea: Happy people--Worker retention back in the picture"--by Karin Rives is at NewsObserver.com.
The Society for Human Resource Management has posted this article online: "Helping Employees Work With Their 401(k)s--Employers have many resources for helping employees manage retirement assets."
Regarding the Jobs and Growth Tax Relief Reconciliation Act of 2003, Kilpatrick & Stockton LLP has posted this article--"Tax Points"--and BusinessWeekOnline via Chanel4000.com has posted this article: "What The Cuts Mean To You:
The Tax Reform Bill May Require A Major Rethinking Of Your Investment Strategy. Here's A Rundown Of What The Changes Could Bring."
SunGard at Corbel.com has posted this article regarding what to do if you receive a letter from the IRS assessing penalties ($25 per day) for the late filing of IRS Form 5500. The article recommends filing immediately with the DOL's Delinquent Filer Voluntary Compliance ("DFVC") program and paying the fine under the DFVC program ($10/day to a maximum of $750 ($2,000 for a large plan)) and then filing an amended IRS Form 5500, telling the IRS you have filed under the DFVC program. By taking this action, a plan sponsor can limit the DOL penalties that could also be imposed (without the DFVC filing, up to $1100 per day) and eliminate the IRS penalties entirely. IRS Notice 2002-23, provides that, if an employer is eligible for the DFVC program and files under the DFVC program satisfying the requirements of the program, the IRS will not impose a penalty. Although not mentioned in the article, please note that the DFVC program is not available to plans not subject to Title I of ERISA.
The IRS has issued this press release via Benefitslink, announcing that it has issued new proposed regulations governing incentive stock options ("ISOs"). Under the ISO rules, employees have the ability to acquire employer stock without realizing income when the option is exercised. If the employee holds the stock for a required period, any gains on the sale of the stock are capital gains. In addition to restating the existing rules, the new proposed regulations include updated rules addressing current issues and practices, such as rules pertaining to ISOs issued by limited liability companies and other entities that elect corporate tax treatment. The proposed regulations which can be accessed here via Benefitslink will apply 180 days after publication of the final regulations. Taxpayers may rely on these proposed regulations for any ISO granted after June 9, 2003.
See also this article at myStockOptions.com which discusses the tax advantages of ISOs under the new Jobs and Growth Tax Relief Reconciliation Act of 2003: "How The Bush Tax Cuts Affect Your Stock Option Planning" by Tom Davison (free registration required).
This report--"Did Pension Plan Accounting Contribute to a Stock Market Bubble?"--by Julia Coronado and Steven Sharp, both with the Federal Reserve Board, can now be found online. The report was mentioned in an article at AccountingToday.com-- "GAAP for pensions: Sanctioned fraud must go" and discussed here in a previous post.
The SEC has issued SEC Release 33-8238, its final rules regarding "Management's Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports." The SEC states the following regarding the Form 11-k 906 Certification requirement which has been discussed in previous posts:
"In light of these developments, we are considering, in consultation with the Department of Justice, the application of Section 906 to current reports on Forms 6-K and 8-K and annual reports on Form 11-K and the possibility of taking additional action."
In other words, the SEC is deferring on the issue until a later date.
The Release is discussed here at CorpLawBlog.
If you have a little time, there is this amazing advertisement for the Honda Accord which you can access here. By the way, these cars have the same feature that created "rain" in Ernie's car as discussed here. Glad to know about the potential drawback of this feature because we own cars that have this feature.
Also, you can access the United Health Foundation's 2002 rankings for the healthiest states to live in here. Rankings are based on crime, public health care, and other factors. Pennsylvania is ranked #23, Utah #4, Missouri #32, and Oklahoma #46. The least healthiest is Louisiana, according to the report.
Today's Federal Register is here.
PlanSponsor.com has this article: "IRS Strips Down Complex Voluntary Compliance Rules." The article discusses new Rev. Proc. 2003-44, posted here yesterday, and states that one of the major changes to EPCRS made by the Rev. Proc. is the fee schedule.
The International Foundation of Employee Benefit Plans has this article: "New proponents of overhaul for healthcare: CEOs."
CFO.com reports here on stock option expensing and pension funding. Then there's this article for the Chicago Sun Times at Suntimes.com--"State awfully creative in balancing the budget"--which discusses how the state with the greatest unfunded pension liability took care of the problem, at least for this year.
The Heritage Foundation has published an interesting summary of an economic impact analysis of the Jobs and Growth Tax Relief Reconciliation Act of 2003 performed by economists at the Center for Data Analysis (CDA). CDA introduced the tax policy changes contained in the Act into a model of the U.S. economy that is widely used by Fortune 500 companies and government agencies and then produced estimates of how the bill would likely affect economic performance between 2003 and 2013.
The article that has been posted here as an explanation of "What is a blog?" has now been published by the The Law Practice Management Section of the American Bar Association. The article-- "Blogs, Bloggers and Blawgs"--originally appeared in the Oklahoma Bar Journal. The article was written by Jim Calloway, an attorney from Oklahoma, who serves as the director of the Oklahoma Bar Association Management Assistance Program. Jim does an excellent job of keeping the Oklahoma Bar abreast of all the latest "techie" developments and his articles in the Oklahoma Bar Journal are always some of my most favorites.
This article for Reuters at Yahoo! News reports: "Senate Passes Child Tax Credit Refund Bill." The bill would ensure that low-income families benefit from an increase in the child tax credit that was part of Jobs and Growth Tax Relief Reconciliation Act.
Perkins & Coie has this article discussing the SEC's stance on the 906 Certification requirement for SEC Form 11-K. The article points out that the SEC and the Department of Justice are leaning towards a conclusion that Form 11-K is covered by the 906 Certification requirement. The article also discusses who should make the certification. Finally, there is this discussion thread at Benefitslink on the issue. The issue has been discussed in prior posts which can now be viewed under this topic--Securities Requirements: Form 11-k 906 Cert.
The Volokh Conspiracy has posted some interesting thoughts on how bloggers may in the future begin to wield "considerable influence" in the legal academic community.
While it is always important for a plan fiduciary to have an ERISA attorney involved in advising them about their fiduciary duties under ERISA, CFO.com does provide some very good online resources and tools for ERISA plan fiduciaries: this 401(K) Checklist for Fiduciaries, and this article delving into why employees file lawsuits against their employers over their 401(k) plans, as well as this very handy Buyer's Guide to 401(k) Plan Providers. The Guide allows users to compare the different providers and links allow the user to visit, from the online guide, the different websites of the various 401(k) providers.
Today's Federal Register is here.
It really is true that the IRS is becoming more user-friendly! They have published today in their online version of their Employee Plan News the following:
New Revenue Procedure 2003-44
A red-lined version of the Revenue Procedure
A Chart comparing the substance of the old Revenue Procedure (Rev. Proc. 2002-47) and the new Revenue Procedure (Rev. Proc. 2003-44)
A topical index to the Rev. Proc. (very handy when it comes to trying to find something in that voluminous document!)
And, yes! it's true!, a powerpoint presentation of the changes made to EPCRS by this new Rev. Proc.
Also, coming this summer, says the IRS is a new Correction Programs CD-ROM with video clips and a comprehensive overview of the program.
More on pension funding with this article at PlanSponsor.com regarding a report by Credit Suisse First Boston (CSFB) Corp. accounting analyst David Zion who sees the decline in interest rates as being the main reason behind the whole pension funding crises. More on the report by Arden Dale for the Associated Press at SFGate.com.
Did you know that Abraham Lincoln was responsible for this country's first income tax which was levied to help pay the army in the Civil War? According to today's edition of the Wall Street Journal, citizens complied by declaring their own income and publishing the figure in the newspaper--it was assumed that no one would publicly lie.
Mr. Svenson points out this article by John Dvorak for PC Magazine on what the future might look like for blogging.
Two articles analyzing the DOL Field Assistance Bulletin 2003-3 regarding allocation of plan expenses have been posted: one article by Jeffrey Kroh at Pepper Hamilton LLP and another article by Cigna at Cigna.com.
Benefitslink points us to this wonderful article by the Small Business Council of America which will be published as Chapter 15 in the "New York University Review of Employee Benefits and Executive Compensation." The article discusses how small businesses can utilize cafeteria plans.
Luce, Forward, Hamilton & Scripps LLP has published a summary of the Jobs and Growth Tax Relief Reconciliation Act of 2003.
Today's Federal Register is here and contains corrections to temporary regulations issued under section 1502 of the Internal Revenue Code, pertaining to the suspension of losses on certain stock dispositions.
Benefits are certainly in the news today. The protests in Europe which began in France over pensions has spread to Austria, Germany and Italy as reported by Catherine Bremer for Reuters with demonstrators touting: "Make the jet set pay" and "Retirement for everyone at 60." And then there is this article by Jonathan Chevreaua at the National Post in Canada: "Actuaries fended off day of reckoning over pensions: Regulators are ... trying to identify the wounded so they can be shot."
Regarding this hearing of the House Financial Services Capital Markets Subcommittee, chaired by Rep. Richard H. Baker (LA), which was held yesterday, to discuss accounting treatment of employee stock options, the Associated Press for the Boston Globe reports that "fault lines are forming in Congress" over the issue. FASB Chairman Robert Herz wants Congress to stand aside and let FASB regulate the matter. The Board is currently working on a proposed rule which will be submitted for public comment. This article by Carolyn Lockhead for the Chronicle Washington Bureau at SFGate.com--"Stock options battle raging; State lawmakers aid Silicon Valley"--indicates that congressional subcommittee members seemed more "friendly" to legislation sponsored by Rep. Anna Eshoo, D-Atherton, and Rep. David Dreier, R- San Dimas (Los Angeles County), that would prevent expensing of options but require greater disclosure. Today's edition of the Wall Street Journal in an article by Judith Burns reports that Former Federal Reserve Board chairman Paul Vocker, a trustee on the International Accounting Standards Board, reminded the panel that European companies likely will start expensing stock options in 2005 and that "lavish options awards to U.S. executives" may have been a major contributor to the recent corporate scandals. The article reports that "lawmakers are split."
CorpLawBlog has just posted an excellent discussion on the question raised here (and other places) yesterday regarding whether or not a 906 Certification is required for SEC 11-K filings with respect to employee benefit plans. The issue pertains to new requirements under the Sarbanes-Oxley Act of 2002.
Carrie Johnson for the Washington Post reports: "SEC Again Probes IBM Accounting." William Bulkeley for the Wall Street Journal points out that among the criticisms levied at IBM in past years by SEC staffers has been a criticism that IBM failed to disclose what proportion of its earnings came from gains on its overfunded pension fund. The article reports that IBM agreed to include much more info on pension income in its future annual reports (which it reportedly did in its 2001 annual report.) However, pension income issues do not appear to be the problem in this recent investigation.
This article at Computer World discusses the new virus reeking havoc across the globe: "Sobig.C worm getting bigger: While not malicious, it specifically targets e-mail traffic." The virus is apparently gaining notoriety for featuring a Microsoft e-mail address from the company's technology support desk and even pretends to be the founder of the company, using the address bill@microsoft.com.
Today's edition of the Wall Street Journal has an inciteful article by Michael Schroeder--"States Fight Exodus of Jobs"--which discusses the battle that is being waged by states and labor unions to stop the flow of jobs to foreign countries, including legislation which would require foreign call center employees to identify where they are located. This article at IndiaExpress.com highlights the controversy. For many years, HR demographers have been predicting an abundance of jobs and fewer workers in the coming years when the baby boomers retire, but with the amount of jobs moving out of the country, will the predictions hold true?
Today's Federal Register is here which includes the DOL's proposed class exemption for the acquisition and sale of REIT shares by individual account plans sponsored by trust REITS.
Some very good articles have been posted at EBIA Weekly: this article on the recent Supreme Court case of Nevada Dept. of Human Resource v. Hibbs previously discussed in this blog and this article on another U.S. Supreme Court ERISA case of Black & Decker Disability Plan v. Nord also discussed here. The latter article emphasizes what plan administrators need to be reminded of (if they do not know it already), that is, that even though a plan administrator need not give deference to a treating physician's opinion, a treating physician's opinion cannot be ignored and must at least be considered in the decisionmaking process along with the other evidence provided by the claimant.
An action item has been pointed out in this wonderful article by Deloitte & Touche via Benefitslink: "ACTION NEEDED-- Proposed Guidance on COBRA Notice Requirements Warns Administrators to Stop Using Old Model Notice Immediately, Update Description of COBRA Rights in SPDs." (By the way, a new category called "Action Items" will be added under the "Browse By Topic" section to catalogue action items that benefits professionals must worry about.)
Speaking of worry, the Philadelphia Inquirer points out in an article yesterday that scientists have discovered a gene that is associated with worrying . . .(now I have an excuse for worrying) . . and that is why some people worry more than others.
Can you believe the pandemonium in Europe over France's pension system as reported in the news by Reuters and other news sources? Is this what we're in for in the U.S. sometime down the road if we don't take care of the whole Social Security malady as discussed in this article at StarTribune.com by Mike Meyers: Will baby boomers see less of their retirement in coming years? Or the health care crisis as discussed in this article by Don McCanne, MD for the Journal of the American Board of Family Practice: Why Incremental Reforms Will Not Solve the Health Care Crisis. More things to worry about . . .
And there's this very good article by Kris Frieswick at CFO.com which highlights the issues and concerns associated with ESOPs which are now under the post-Enron magnifying glass: "ESOPs: Split Personality: An ESOP is a retirement plan. No, it's an ownership investment. Wait — it's neither one."
Thanks, Jerry, for the very kind words about this blog! The support and encouragement one receives from the blawging community as well as the general blogging community as a newbie blogger is simply heart-warming. I am amazed that Ernie and Howard took the time to answer my newbie questions and I too wonder (along with Denise and Circuit Judge Michael Daly Hawkins of the U.S. Court of Appeals for the Ninth Circuit in this interview with Howard) when the prolific Mr. Bashman has time to sleep. In the vein of Rick Klau (who simply posts his questions about blogging on his website), I am still searching for a news aggregator that will search the internet for certain topics in the benefits and ERISA area and deliver them to my desktop each morning (or is this a clipping service I want?). I still do not know how to make permalinks or do static pages in Movable Type, but I am learning something new each day . . . including a little bit of html and css.
Great-West provides us with this commentary on the new deemed IRA regulations at 403bwise.com.
Section 906 of the Sarbanes-Oxley Act of 2002 requires that all periodic reports containing financial statements that are filed with the SEC be accompanied by a written statement of the CEO and the CFO of the issuer (or officers performing equivalent functions), certifying the accuracy of certain information contained in such reports (referred to as a "906 Certification"). Apparently there has been a great deal of concern as whether or not the 906 Certification is required for Form 11-K filings for employee benefit plans. For calendar year ERISA plans, the Form 11-K is to be filed with the SEC within 180 days after the close of the plan's fiscal year, or June 30th. Please see this article by Cleary, Gottlieb, Steen & Hamilton on the subject, this message thread on Benefitslink which contains a link to the 11-K filing for Amazon.com (containing a 906 Certification), this commentary at realcorporatelawyer.com, and the recent SEC News Release 2003-66 by the SEC. Any corporate securities bloggers out there who can shed any light on the subject?
UPDATE: Read more about the subject here . . .
Today's Federal Register is here. This article by Craig Schneider--"Congress, FASB in Stock Option Flap: Dreier-Eshoo bill would prevent expensing of stock options -- and derail FASB initiative"--at CFO.com points out that tomorrow morning, the House Financial Services Capital Markets Subcommittee will hold a hearing on HR 1372, the Broad-Based Stock Option Plan Transparency Act, a bill which was introduced by Reps. David Dreier (R-Calif.) and Anna G. Eshoo (D-Calif.) on March 20. The bill would require greater disclosure of corporate stock options, but would commission a three-year study on the effects of such disclosure. During the study, new accounting standards would not be recognized which would delay any changes promulgated by FASB. Also, see this article at the WashingtonPost.com by Jackie Spinner: "Executives Resigned To Their Options: Change in Accounting Rules Would Cost Some Local Companies."
401(k) plans are "tiptoeing back into stocks" as reported in this article by John Waggoner and Christine Dugas for USA Today (via Yahoo! News). The article states that the 401(k) Index from Hewitt Associates, which tracks 1.5 million participants, indicates investors moved into stocks for 14 out of the 21 trading days in April which was the first time since January of 2000 that the Index recorded so many days in which investors shifted 401(k) assets into stock funds.
There is a very good article at Workforce.com showing trends in executive compensation. The article--"Executive Compensation: Recent Trends, Changes, and Highlights" discusses the results of a study performed by Sibson Consulting, the human-capital consulting division of The Segal Company, which reviewed a random sampling of large-company proxy statements filed with the SEC. The article contains tables showing the executive compensation provided by various companies, such as Merck and Eastman Kodak.