Category: Benefits

Seyfarth, Shaw has posted this article on the proposed 401(k) and 401(m) regulations: “401(k) Rules Restated With Some New Twists.”

PR Newswire has this regarding the case: “Cash Balance Court Ruling Could Harm U.S. Pension System, According to Watson Wyattt.” From the news release:

“This ruling has the potential to cause great harm to the U.S. private pension system,” said Eric Lofgren, Global Director of the Benefit Consulting Group of Watson Wyatt Worldwide. “Moreover, two other district courts and the U.S. Treasury Department have previously reached the opposite conclusion concerning the validity of cash balance plans.”

SmartMoney.com reports in an article by Arden Dale for the Dow Jones Newswires: “IBM Pension Ruling Stirs Debate.” The article quotes J. Mark Iwry, a senior fellow at the Brookings Institution and the former benefits tax counsel at the Treasury Department as saying that it “is likely that the issue will ultimately be resolved neither by the appellate courts nor by the executive branch but by the Congress.” The article also quotes William Sweetnam, benefits tax counsel at Treasury as saying that Judge Murphy’s decision does not refer to the Treasury initiative. Mr. Sweetnam also commented that the agency would continue to go “forward with our reg writing process.”

UPDATE: Another good article, this one by the Journal News.com: “Ruling on IBM pension plans causes stir“

Today’s Federal Register.

More on the IBM Cash Balance Plan decision handed down yesterday and reported on here yesterday:

Albert B. Crenshaw for the WashingtonPost.com reports: “Judge Finds Age Bias in IBM Pensions: Experts Say Ruling Could End Other Employers’ ‘Cash Balance’ Plans.“

The American Benefits Council has issued a statement on the case. James Klein, ABC’s President, states:

“Conversions to cash balance plans are currently the one good thing going on in the defined benefit pension plan system because they demonstrate a commitment by employers to remain within the defined benefit world. Other companies are exiting the system altogether. A decision like this sends one more negative signal to employers that ‘no good deed goes unpunished’ since it penalizes employers trying to provide their workers with a pension that is funded by the employer and guaranteed by the government, as opposed to requiring workers to rely solely on employee-funded retirement alternatives.”

You can also access a copy of the case on their website as well.

PlanSponsor.com reports: “Murphy’s Law: IBM Loses Cash Balance Ruling.” (One time registration required.)

The Associated Press in this article–“IBM loses lawsuit over pensions: Federal judge rules firm discriminated against older workers at MSNBC.com quotes Mr. Klein as saying that “cash balance plans are ‘currently the one good thing going’ in an environment where many companies are dropping pension plans altogether and requiring employees to save for retirement on their own.”

On other matters:

“FASB vetoes more disclosure on some pension changes.”: Reuters reports. The article states that “FASB has agreed that companies do not need to disclose the impact of changes in assumptions used to calculate pension income or costs on earnings, arguing that existing and other proposed disclosure requirements are enough.” You can also read about the decision at PlanSponsor.com in this article: “FASB Passes on Pension Assumption Change Reporting.”

CFO.com has published this article: “Who Rules Accounting? Congress muscles in on FASB — again.” If you like charts, at the very end of the article is a chart showing the history of the debate over stock option accounting which you can access here.

Benefitslink.com has posted final Internal Revenue Code section 280G regulations (golden parachute). Benefitslink.com also reports the IRS has issued Revenue Procedure 2003-68 which provides guidance on the valuation of stock options solely for purposes of Internal Revenue Code sections 280G and 4999.

Thanks to Dennis Kennedy for these great links:

• “Tight ties could damage eyesight“: the BBC News reports.
• “PC replacements: Lawyers, auditors and common sense“: SearchCIO.com reports.

This post by Larry Bodine from the LawMarketing Blog provides some great information for lawyers on managing client relationships.

Chief United States District Judge G. Patrick Murphy for the Southern District of Illinois rendered an opinion in the IBM cash balance plan case, Cooper et al. vs. the IBM Personal Pension Plan and IBM Corporation. The following news sources are reporting on the case:

• USA Today: “IBM loses closely watched pension lawsuit“
• Reuters: “IBM loses pension plan lawsuit, will appeal“
• The Wall Street Journal: “IBM Pension-Plan Changes Are Ruled Discriminatory: Finding Is Viewed as Boon To Older Workers in U.S.” (Subscription required.)
• The Associated Press via Yahoo! News.com: “IBM Loses Closely Watched Pension Lawsuit.”
• Dow Jones Business News via Yahoo! News.com: “Attorney: Judge Rules Against IBM in Pension Case.”
• San Jose Mercury News: “IBM Loses Closely Watched Pension Lawsuit.”

More to come on this . . . In the meantime, you can read previous posts about the case here.

This article by Reish, Luftman, McDaniel & Reicher highlights one of the problem areas for plan administration: “What Difference Does It Make If I Hire a Former “Leased” Employee?” Hiring “leased” employees can lead to plan compliance violations since employers are required by IRS rules to credit service for purposes of eligibility and vesting back to the date the “leased” employee began work for the employer as a “leased” employee, i.e. you cannot begin crediting service as of the date of hire as a “regular employee.” One of the problems with this requirement is the record-keeping involved. Many employers simply do not keep records of service for their “leased” employees, rather the vendors have these records, which are often difficult to obtain. If an employer is audited by the IRS where this problem is discovered, the employer would likely be required to give the affected employees the benefits (adjusted for earnings) and vesting credit they would have received if they had been correctly credited with their service as “leased” employees. The employer would have to reconstruct records as far as possible and provide the service crediting that is required under the rules.

In the case highlighted in the article, the employer, with the help of legal counsel, most likely utilized the IRS’s Employee Plans Compliance Resolution System (under which an employer can voluntarily submit a plan to the IRS which has compliance violations, correct those violations, pay a minimum sanction, and obtain approval for the correction from the IRS) and was able to come up with what could be termed an “educated guesstimate” which satisfied the IRS, even though the employer did not have records for the service.

Today’s Federal Register.

The IRS issued Revenue Ruling 2003-98 which provides guidance concerning the application of section 83 of the Internal Revenue Code where stock options are granted and the company granting the options is later acquired.

The University of Pennsylvania’s Wharton School Newsletter has published this article of interest: “Underfunded Pensions: Causes, Cures and Questions.”

“Our pension mess could be worse.”: the article by Janet McFarland for Globe and Mail talks about how the Canadian “pension plan mess” is better off than the U.S. “pension plan mess.” The article highlights how Canadian companies seem to be using more realistic assumptions for future investment returns than U.S. companies.

USA Today reports: “Stock options showdown will affect future of U.S. economy.” The article talks about research by economist Stephen Bryant and his colleagues, published in The Journal of Business in October 2000, which found that, unlike options, “restricted stock, due to its linear payoffs, is relatively inefficient in inducing risk-averse CEOs to accept risky, value-increasing investment projects.”

PlanSponsor.com reports: “Companies Asking Financial Professionals to ‘Subcertify’ Financial Data.” The article refers to a survey by the Association for Financial Professionals which reports that “approximately a third of corporate financial professionals are now being asked to “subcertify” data used in Securities and Exchange Commission (SEC) reports, as senior financial executives look for added Sarbanes-Oxley reporting assurances.” You can access the actual AFP survey here: “Sarbanes-Oxley One Year Later: Sign-Offs on Financials “Trickle Down” to Other Finance Staff: AFP survey reveals widespread practice of ‘subcertification.‘” The survey found the following areas were the most common areas where financial professionals were being asked to subcertify:

• specific disclosures in Management’s Discussion and Analysis or footnotes
• specific account balances
• compliance with company policies and procedures
• adequacy of internal controls in their department/area
• compliance with company code of conduct

(If you recall, there has been a great deal of discussion here over the certification requirements in relation to the Form 11-K filings for employee benefits plans. You can access the previous postings on that subject here.)

UPDATE: Mike O’Sulllivan for CorpLawBlog also reports on the survey here.

Also, regarding another article in the Wall Street Journal reported on here–“Most Workers Are in Dark on Health of Their Pensions: US Airways Killed a Plan That Pilots Had No Inkling Was in Financial Danger” (a change in the title has occurred since the article was published–the article is now entitled “Firms Had a Hand in Pension Plight”), today’s Wall Street Journal carries a response from David N. Siegel, President and CEO of US Airways: “The Pension Fund War at US Airways.” (Subscription required.) The hard copy edition of today’s Wall Street Journal also carries an additional comment from a retired US Airways pilot.