Category: Benefits

Today’s Federal Register.

More on the IBM Cash Balance Plan Decision:

The Wall Street Journal has an intriguing article today that raises all sorts of questions in my mind: “Memos Sent to IBM Show Awareness Of Pension Moves.” (Subscription required.) While I am sure that there are many other ERISA cases where memos/emails from non-lawyer professionals have turned out to be terribly damaging to a defendant’s cause, one comes to mind which has been in the news lately. Would these cases have had different results if the defendants’ attorney(s) had hired the consultants to do the analysis so that the correspondence would have been protected by the attorney-client privilege?

In another article, Ari Weinberg for Forbes reports: “Pension Plans Wade Into Murky Water.” The article quotes James Klein, president of the American Benefits Council, as saying that even though the IBM decision issued last week really “flies in the face of other court decisions,” critics of cash balance plans will try to play it for all that is worth. The article suggests plaintiffs’ attorneys may attempt to bring more lawsuits in the cash balance plan arena.

Mary Deibel for Scripps Howard News Service via the Albuquerque Tribune also has this article entitled “Pension tension prompts legal fight.” The article contains some information regarding the cash balance plans for Verizon and FedEx which give older workers a choice between the old formula and the cash balance plan formula.

Andrea Coombes for CBS Marketwatch reports: “Cash-balance plans under fire: Court ruling against IBM could invalidate all such plans.

On other news:

While hardly anything new could be said about expensing stock options, this article–“Unhatched Chickens“–breathes some new life into a subject we are all tired of hearing about–stock option expensing. The op-ed by Stephen W. Stanton for Tech Central Station says that stock option expensing can be likened to the “mandatory counting of unhatched financial chickens.” The article also reports that while William Donaldsen, the SEC’s Chairman, is a proponent of stock option expensing, Bush is not.

With all of the worry about retirement plan investment returns, there seems to be a greater focus on controlling plan expenses as was reported about here yesterday and now in this article at 401khelpcenter.com: “What Does Your Plan Really Cost, And How Can You Lower It?”

“In 10 Years, Family & Medical Leave Act Has Transformed Lives, Workplaces“: a very interesting article by Kenneth Aaron for Times Union via the International Foundation of Employee Benefits Plans about how the Family and Medical Leave Act has changed the workplace.

The Wall Street Journal also reports: “EEOC Sees Rise in Complaints Involving Intrarace Color Bias.” (Subscription required.)

There is an interesting discussion going on at the Message Boards for Benefitslink.com on the recent IBM cash balance plan decision which you can access at this link.

In a letter to the IRS dated August 6, 2003, ASPA requested guidance from the IRS that will enable plan sponsors to administer cash or deferred arrangements in accordance with USERRA. The issues addressed include: year to which the make-up employee deferrals relate; required timing of employer contributions, whether they constitute discretionary profit sharing, QNEC, or matching; and testing implications of a brief military leave.

“Pay to U.S. Directors Reveals Back-Scratching“: an op-ed by Graef Crystal for Bloomberg.com. Mr. Crystal makes a very interesting statement: “There would be nothing wrong, and a lot right, with the idea of requiring that shareholders approve the pay of the outside directors, after being provided a reasoned justification by the directors themselves. That would remove a significant conflict of interest in which every board finds itself these days.”

Monday, Howard posted his 20 Questions for Circuit Judge Gerald Bard Tjoflat of the U.S. Court of Appeals for the Eleventh Circuit. As usual, it is very enjoyable reading. I particularly liked this statement by Circuit Judge Tjofliat:

. . .for justice to be done in a case three things are required: (1) a fair and impartial judge; (2) lawyers who adhere to the highest ethical and professional standards; and (3) witnesses who testify truthfully. I likened these requirements to a three-legged stool. If one leg breaks, the stool collapses.

Circuit Judge Tjoflat also expresses his views on the Feeney Amendment which was apparently adopted by Congress in April to strengthen judges’ adherence to new, stricter sentencing guidelines and which was the subject of this Wall Street Journal article today. (Subscription required.)

Christopher Oster for today’s edition of the Wall Street Journal reports: “The ERISA Trap: When Employees Can’t Sue.” The article makes the point that whether or not a disability insurance plan is covered by ERISA could make a big difference from a litigation standpoint if the employee is wrongfully denied a claim and wants to sue, i.e. that insurance companies prefer that ERISA apply because the likelihood of recovery by the employee is less.

The subject was also covered by Workforce Management magazine (at Workforce.com) in their July, 2003 issue in an article by Douglas P. Shuit entitled “Nasty Business” (Subscription required.) That article provides a more in depth discussion of why recovery under ERISA is so difficult to obtain, stating correctly that ERISA limits the participant’s right to a jury trial and prevents participants from recovering punitive or compensatory damages. (Despite the difficulties with suing under ERISA, the article quotes Raymond Bourhis of San Francisco as predicting that there are going to be a huge number of class action “lawsuits filed against employers, as well as insurance companies, alleging conspiracy and collusion to deprive ERISA-preempted workers’ protections under state law.”)

Note: In contrast, another area of ERISA litigation–involving alleged ERISA fiduciary breaches–has been called an “oasis for plaintiffs’ lawyers.” (See this previous post which mentions an article by Jason Hoppin for the Recorder at Law.com–“A Matter of Trust: Stung by corporate collapses, workers look to ERISA for relief“–which discusses how ERISA has become 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.”)

Today’s Federal Register.

Christopher Oster for today’s edition of the Wall Street Journal has a very interesting article entitled: “The ERISA Trap: Workers Find Limited Rights to Sue Insurers.” (Subscription required.) To be discussed in a separate post today . . .

The National Association of Securities Dealers, Inc. (“NASD”) has launched the Smart 401(k) Learning Center which has some good information for 401(k) plan participants. A summary of what the site offers is found in NASD’s news release about the site:

Whether an investor is just starting out or has already retired, Smart 401(k) Investing has the information needed to understand 401(k) plans. Smart 401(k) Investing guides investors through the process of enrolling and managing a 401(k) account and answers questions about everything from 401(k) investment options to asset allocation and diversification, from moving a 401(k) when changing jobs to handling withdrawals after retirement. It also provides a number of interactive tools, including a Minimum Required Distribution Calculator that allows the user to quickly calculate the amount of money the law requires investors to withdraw from their 401(k), or traditional IRA by April 1st of the year following the year they turn 70 1/2. By simply inputting the investor’s age and account balance, the calculator determines the required withdrawal factor, minimum required distribution (MRD), and the required rate of return needed for the next year to maintain an account balance following a withdrawal.

An interesting section of the site provides some guidance about whether or not company stock is a wise investment for a 401(k) plan participant. The plan participant is warned that employers may encourage them to choose company stock as an investment and that too much company stock is not a good thing. How much is too much? The site states that experts disagree on how much company stock in a 401(k) account is too much, “but many prefer a maximum of 10% to 20%.”

While we are on the subject of 401(k)’s, John Wasik writes this op-ed for Bloomberg.com with some more tips for 401(k) plan participant-investors: “You Can Take Back Your 401(k) Plan.” Mr. Wasik says that “[t]aking back control of your 401(k) or any defined- contribution retirement plan involves asking your company if they’ve recently reviewed your plan to select better-performing funds that charge lower operating expenses.” He goes on to say that “[I]f they haven’t, you can ask them to improve the plan, because they are legally obligated as fiduciaries to do so.”

More on fund expenses from a Standard & Poor’s report (issued August 4, 2003): “Mutual Funds Closed to New Investments Continuing to Charge 12b-1 Fees, Says S&P.” This article by Thompson Publishing Group discusses the release: “Closed Mutual Funds Still Charging 12b-1 Fees.”

News on an underfunded pension plan from Reuters: “General Mills pension plans underfunded by $224 mln.” The article states that GM’s “pension plans were underfunded by $224 million at the end of its recent fiscal year after being overfunded by $571 million the prior year” according to SEC filings.

PlanSponsor.com in this article–“Thomas Bill Includes New Corporate Tax Structure–is reporting that US Representative Bill Thomas (R-California), Chairman of the House Ways and Means Committee, has introduced a bill (HR. 2896) to replace the Foreign Sales Corporation-Extraterritorial Income Act (FSC-ETI). The bill apparently also contains provisions overhauling the rules governing nonqualified deferred compensation plans. A previous post here has discussed the fact that changes to the nonqualified plan rules have been contemplated by Congress for some time, and were actually dropped from the Jobs and Growth Tax Relief Reconciliation Act of 2003 before it was passed last May. Apparently, they have now made their way into this bill introduced by Thomas.

The ABA Litigation Section has posted an article with tips for lawyers for that dreaded daily detail of preparing timesheets. (Thanks to Ernie Svenson for the link. By the way, you should check out Ernie Svenson’s new pad–I mean Typepad, that is.)

Deloitte & Touche has published this detailed analysis of the IBM cash balance plan case, Cooper, et. v. The IBM Personal Pension Plan, et al.: IBM’s Cash Balance and Pension Equity Formulas Violate ERISA, District Court Rules .