Category: Benefits

Today’s Federal Register.

Today’s edition of the Wall Street Journal (subscription required) is reporting that the Jobs and Growth Tax Relief Reconciliation Act of 2003 (“JAGTRRA”) will put about $46.7 billion in investors’ pockets this year through the dividend tax cut: “Dividend Tax Cut Pleases Firms More Than Investors.” A slew of companies have increased their dividends since the bill was passed. The article reports that, according to Standard & Poor, 44 companies in the S&P 500-stock Index raised their dividends this month, and six initiated new dividends. In addition, the article quotes Howard Silverblatt, an analyst at S&P who tracks dividend activity, as saying that there has not been this kind of dividend activity since the 1970’s: “It’s at a point where, if you’re a company whose competitors are raising their dividends, the question is, why aren’t you?”

“Judge Gives Initial Approval To Medco Settlement“: the Journal reports in this article that a federal court judge has given preliminary approval to an agreement to settle a series of ERISA-related class action lawsuits against pharmacy benefit manager Medco Health Solutions for $42.5 million.” (Subscription required.) FT.com also reports: “Medco wins tentative approval for settlement.” However, this article–Federal Judge Grants Preliminary Approval to Medco Health Class-Action Settlement“–at Stock World (Germany) provides the most detailed coverage of the settlement.

Brian Tumulty for the Journal Washington bureau via the Poughkeepsie Journal reports on the IBM and Xerox cash balance plan cases recently handed down: “Pension rulings put pressure on fed officials: IBM says it will appeal decision.” The article provides an interesting view of how some plaintiffs’ lawyers are viewing the decision and quotes Eva Cantarella, a Michigan-based lawyer who represents Georgia Pacific employees in a pension case pending before the 11th U.S. Circuit Court of Appeals in Atlanta, as saying:

[M]any employers have amended their plans to avoid the deficiencies that occurred in the IBM and Xerox plans. A lot of them have done a pretty good job or come so close that we wouldn’t even bother bringing a suit. . .We have looked at over 40 plans and only felt compelled to file lawsuits in two.

Apparently, Cantarella also represents employees challenging the legality of pension plan changes at another paper company, Bowater.

The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) today announced a new compliance assistance guide to help employers, plan sponsors, service providers and state officials understand the federal health benefits law regarding qualified medical child support orders. You can access the Compliance Guide for Qualified Medical Child Support Orders here.

KaiserNetwork.org is reporting in the Daily Health Policy Report that payment of health care premiums are a big issue in the contract negotiations with two unions representing 78,000 employees of Verizon Communications. The union is claiming that “none of the unionized telecommunications companies … require employees to share the cost of insurance premiums.”

“Pricey perk lets executives fly high“: USA Today reports.

Today’s Federal Register contains the final regulations relating to golden parachute payments under section 280G of the Internal Revenue Code. The regulations which were mentioned here last Friday incorporate changes and clarifications to reflect comments received concerning the proposed regulations, primarily in these areas: the small corporation exemption, repayment of the excise tax, and the definition of change in ownership or control.

News regarding the IBM and Xerox cash balance plan decisions:

“Pension Rulings Roil Hundreds of Businesses: Companies Seek U.S. Role In Cash-Balance Plans.”: Ellen E. Schultz for the Wall Street Journal reports today. The article discusses both the IBM and Xerox cash balance plan decisions handed down late last week. (You can access previous discussions on the IBM case here and previous discussions on the Xerox case here). With respect to IBM’s plans to appeal, the article makes the point that employers will have reason to worry since the IBM appeal “will be heard in the Seventh Circuit, where it may be decided by one or more of the judges who just ruled against Xerox on appeal. These include Judge Posner, a highly regarded judge whose opinions have been cited by the Supreme Court, and a prolific writer of Erisa decisions that have had substantial impact.”

Deepa Babington for Reuters has this: “IBM ruling turns promising pension move into headache.”

Milliman USA has issued this Client Action Bulletin: “Emerging Developments for Cash Balance Plans.”

Stephen Taub for CFO.com also reports: “Court Decision Big Blow to Cash-Balance Plans.”

News regarding pension funding and accounting:

David Reilly discusses pension accounting and pension deficits in the U.K. in today’s Wall Street Journal: “‘How Much?’ Is Just First Issue On Companies’ Pension Deficits.”

Dennis Cauchon reports for USA Today in an article entitled: “Pension peril hits W.Va. hardest.” The article states that “the West Virginia teachers retirement system is the worst-funded public pension fund in the nation” and that it “has only 19% of the assets needed to pay current and future benefits.” Another article for USA Today reports: “State pensions face loss of billions.”

Lawrence B. Lindsey and Marc Sumerlin for the Washington Post make some very interesting comments regarding the pension funding crisis in this op-ed: “Herbert Hoover Pension Rules.” The article makes the point that “[j]ust as the government works to discourage contributions during good times, it also forces companies to make excessive payments during bad times.” Regarding fixes to the problem, the article states: “The best way to get out of any hole is to stop digging. Proposals in this area must specifically preempt collective bargaining contracts that allow pension benefits to rise automatically, even though the plan is underfunded and the company is in trouble.”

“The Next Scrambled Nest Egg? Companies are struggling to meet their pension-plan obligations, and Washington is starting to worry. How your retirement plan could be at risk“: Jyoti Thottam for Time Online reports.

News regarding health care:

Finally, “Mandated employer health insurance gains support” in California, reports Kathy Robertson for the Sacramento Business Journal via MSNBC.com. Richard Costigan, a lobbyist for the California Chamber of Commerce, states that if the legislation is passed it will create a Pandora’s box on many levels, one of which is ERISA which makes self-insured plans exempt from state insurance laws.

You can now access the IBM cash balance plan decision, Cooper et al. v. the IBM Personal Pension Plan and IBM Corporation online here at the website for the United States District Court for the Southern District of Illinois.

In May of this year, U.S. District Judge Sven Erik Holmes of the Northern District of Oklahoma entered an order in the case of Millsap v. McDonnell Douglas Corporation, No. 94-CV-633-H, which was reported on previously here. The outcome in the case represented only the third time that employees have prevailed on a claim that a company violated Section 510 of 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. The court approved a $36 million settlement that would require McDonnell Douglas to compensate former employees for the pension and benefits they lost when the company shut down its Tulsa, Oklahoma plant. However, the settlement was conditioned upon the Tenth Circuit Court accepting the Court’s certification of its September 25, 2002 order denying McDonnell’s motion for summary judgment on the issue of back pay. If for some reason the Tenth Circuit had not accepted the Court’s certification, then the settlement would be void according to the May 28th Order entered by Judge Holmes.

Reliable sources have reported to me that the Tenth Circuit has indeed accepted the Court’s certification of its September 25th order. Therefore, according to the settlement entered into by the plaintiffs and defendants in the case, plaintiffs are guaranteed to receive a minimum of at least $36 million recovery in the case, even if the court’s decision is overturned on appeal.

Now the issue is whether or not the 10th Circuit will rule that an award of backpay if permissible under ERISA.

“Benefits squeeze eats away at paychecks: This is not ‘just a benefits issue, it’s a business issue‘”: Mark Schwanhausser reports for the Mercury News. The article reports companies are attempting to pare down benefits costs–by reducing company matches in their 401(k) plans and by forcing workers to pay more of a share of their health care costs. The article discusses how health care costs can be “the difference between reporting a profit or loss.” Edward Lehman, a senior benefits consultant with Watson Wyatt, is quoted as saying that “[u]ntil 2003, it didn’t really hit the CFO’s or CEO’s radar screen” and how now “[i]nstead of being just a benefits issue, it’s a business issue.” The article predicts more paring back as companies asses the impact of the costs of their underfunded defined benefit pension plans.

“Lower Taxes Change Thinking on Options“: J. Alex Tarquinio reports for the New York Times on why you should consider exercising your stock options “sooner rather than later” due to tax considerations brought about by JAGTRRA (the “Jobs and Growth Tax Relief and Reconciliation Act of 2003”).

(You can read more about JAGTRRA here.)

That’s what this article is reporting at FT.com: “US pension rules make investors nervous.” The article reports that U.S. pension accounting is badly broken” and that balance sheets are “misleading.” The article states: “Of the 500 S&P constituent companies in 2002, 63 reported net pension income when their pensions were in deficit.” The article also reports that “FASB is likely to face pressure if IASB, the international accounting body, follows the path of the UK by adopting a rule that has forced British companies to disclose pension liabilities with brutal clarity.”

Proskauer Rose has published this article in a Client Alert: “IRS Issues Final Regulations on Catch-Up Contributions and Proposed Regulations on Optional Forms of Distribution in Defined Contribution Plans.”

The Philadelphia Inquirer today reports: “For a major union, a new label: Index-fund investor.” The article states that “[e]ffective June 30, Local 56 fired private money-management firms in Boston, Chicago, Milwaukee, Philadelphia and other cities, and replaced them with low-cost index funds from Malvern-based Vanguard Group.” The labor union is reportedly making the move because they “figure they can save $1.6 million a year through lower management and trading fees – plus many millions more from what they expect will be higher investment returns in the future, since indexes tend to outperform private money managers.” The article states that Anthony R. Cinaglia, president of the labor union, “is crusading to persuade other U.S. unions, which together control an estimated $300 billion in joint worker and employer pension plans, to do the same.” Cited in the article as influencing the decision is Ten Broeck’s post-master’s thesis at Philadelphia University in which he makes a strong case that index funds offer superior returns at lower cost.

More on the IBM Cash Balance Plan Case:

Ellen E. Schultz and William M. Bulkeley for the Wall Street Journal report: “IBM Pension-Plan Changes Are Ruled Discriminatory: Finding Is Viewed as Boon To Older Workers in U.S.” (Subscription required.)

Reuters has this: “IBM ruling turns promising pension move into headache.”

The Times Argus Online also has an article entitled: “IBM workers in Vermont welcome ruling on pension plan.”

“IBM pension move penalizes older workers, U.S. court says“: Mary Williams March for the New York Times reports (via the International Herald Tribune.)

Friday brought more cash balance plan news, with a federal appeals court ordering Xerox Corp. to pay $300 million to former employees who the court determined were shortchanged when Xerox calculated lump-sum pension benefits due them when they left the company. You can access the opinion by Circuit Judge Richard A. Posner of the U.S. Court of Appeals for the Seventh Circuit at this link. The following news sources are reporting:

Albert B. Crenshaw for the Washington Post reports: “Court Backs Workers In Xerox Pension Fight.”

Bloomberg.com has an article entitled: “Xerox Must Pay $300 Mln Judgment Over Pension Dispute.”

“Xerox to Pay $300 Million In Suit Over Pension Plan“: the Wall Street Journal reports. (Subscription required.)