Category: Benefits

Thanks to RothCPA.com for the link to the new Federal Tax Reform website. Excerpt from the press release:

“The President has tasked our Panel with developing reforms to make the tax code simpler, fairer and more growth oriented. I look forward to the opportunity to hear from Secretary Snow as well as this distinguished group of experts as we begin the process of examining the problem and formulating solutions,” Senator Mack stated.

“The current tax system is an unfair burden on Americans,” added Senator Breaux. “When it takes the average taxpayer 11 hours to fill out the short tax form, something is wrong. This is a unique opportunity to work in a bipartisan effort and find ways to make the tax system serve Americans better.”

Want to be involved in the process? You can submit written comments by snail mail, or attend meetings which begin February 16th as discussed here. Or, you could start a blog . . .

The highly publicized insurance industry investigations have spawned concern over how employers can meet their ERISA obligations when it comes to maintaining life and disability programs for their employees. (Read about the ERISA implications of the investigations in this previous post–“Action Required by ERISA Fiduciaries in Recent Insurance Probe.”) This article from BenefitNews.com–“Scandals may prompt more online insurance bidding“– indicates that “some consultants are recommending that employers use online bidding for their plan purchases to avoid any hint of impropriety” and that “the software lowers benefit costs” and “adds transparency to the bidding process.”

The article rightly points out that an “employer’s ERISA fiduciary duty demands companies choose benefits on more than price alone.” Before jumping on this bandwagon, an employer should consult with its legal adviser to determine what other “prudent practices and procedures” should be involved in assessing the carriers, in order to make sure that the employer and/or fiduciaries of the plans are meeting their fiduciary obligations under ERISA.

Something to take home and read over the weekend–here is a link to the recent WorldCom directed trustee decision discussed in this previous post here:

In re WorldCom, Inc. ERISA Litigation, 2005 U.S. Dist. LEXIS 1218 (S.D.N.Y. 2005)

Also, on a related matter, the Wall Street Journal is reporting: “Settlement Accord With Ex-Directors Of WorldCom Fails.” According to the article:

Less than a month after it was announced, an extraordinary agreement by 10 former WorldCom Inc. directors to pay $18 million out of their own pockets to settle a class-action suit has collapsed after the judge rejected a key provision of the deal.

The agreement unraveled as the plaintiffs, led by New York State Comptroller Alan Hevesi, said they are withdrawing from the settlement because U.S. District Judge Denise Cote rejected a provision that relates to how much the remaining defendants in the suit might have to pay if they lose the case.

For those of you interested in the litigation surrounding legislation of pharmacy benefit managers, you will want to read this opinion here from a federal district court in Maine issued February 2, 2005, holding that Maine’s Unfair Prescription Drug Practices Act (UPDPA), as amended, 22 M.R.S.A. § 2699 (“UPDPA”) is not preempted by ERISA. The Pharmaceutical Care Management Association (PCMA), the national trade association representing pharmaceutical benefits management companies (PBMs), sued Attorney General Rowe in 2003 alleging that the UPDPA is preempted by ERISA and the Federal Employee Health Benefits Act; that it would effect a regulatory taking of trade secrets, revenues, and contractual rights; that it violates PBMs’ civil rights; and that it is unconstitutional for violations of due process, the Commerce Clause, and freedom of speech. Yesterday, after more than a year of intense litigation between industry lawyers and the Attorney General’s Office, U.S. Magistrate Margaret Kravchuk found in favor of the Attorney General on all claims.

The Attorney General’s press release is here.

PCMA’s press release is here.

Law.com is reporting: “Merrill Lynch Wins Workers’ Suit Over WorldCom 401(k) Choices.” The article reports that “Southern District of New York Judge Denise Cote, who is also presiding over WorldCom’s securities class action cases, held that as a “directed trustee” under ERISA, Merrill Lynch’s fiduciary duties were limited in nature and that its decision not to block investment in WorldCom stock by the company’s 401(k) participants did not amount to a breach of its fiduciary duties.” The article further notes Judge Cote’s statements regarding the “duty of inquiry”:

“When a directed trustee receives a direction to invest plan assets in the securities of a company … [it] has a fiduciary duty of inquiry under ERISA when it knows or should know of reliable public information that calls into serious question the company’s short-term viability,” Judge Cote held.

“Knowledge that a company’s fortunes are declining does not impose a duty of inquiry,” she continued.

More on this when I have had a chance to read through the decision. . .

Jim Calloway, Director of the Oklahoma Bar Association Management Assistance Program, has written a good article here–“Was 2004 The Year of the Blog?” Thanks to Jim for listing me among some of the first “Okie lawyer-bloggers” in his article. Jim has recently joined the blogosphere himself with his own blog entitled “Jim Calloway’s Law Practice Tips” which he says he thought about for two years and “then did it in two days.” I look forward to all of the good information that I know he will sharing there as I have greatly enjoyed reading his articles that are published in the Oklahoma Bar Journal from time to time.

Sen. Chuck Grassley, chairman of the Committee on Finance, and Sen. Max Baucus, ranking member, have re- introduced their pension protection legislation — the National Employee Savings and Trust Equity Guarantee (NESTEG) Act – which received unanimous Finance Committee support last year but never won final approval. The NESTEG bill would expand protections for retirement plan participants and require companies to allow their employees to diversify out of company stock, adopt a replacement for the 30-year Treasury rate used for pension funding purposes, expand the portability of retirement plan assets, and “simplify pension laws and regulation.”

The press release here states that the Committee will consider additional pension funding reforms in light of concerns regarding pension underfunding and the financial health of the PBGC.

A section-by-section summary of the provisions of the bill is attached to the press release which you can access here. You can access more information about the bill (S. 219) here. Among the changes proposed is a permanent replacement of the 30-year Treasury rate with a yield curve based on corporate bond rates. Last year, Congress approved a temporary replacement of the 30-year Treasury rate with a long-term corporate bond rate for pension funding purposes.

A good article from the Oklahoma Bar Journal discusses the interplay of bankruptcy laws, ERISA, the Internal Revenue Code and COBRA: “Employee Benefits in Bankruptcy: The Employer’s Perspective and the Employee’s Perspective.” The article written by Kenni Merritt begins with some humor:

. . . This article will discuss the interplay of these laws as they relate to employee benefit issues that typically arise in a Chapter 11 bankruptcy of the employer who sponsors a benefit plan, and in a bankruptcy filing by the employee who participates in a retirement plan.

At the outset, it is important to understand that bankruptcy attorneys are from Mars and employee benefits attorneys are from Venus. It is unusual to find a bankruptcy attorney with expertise in ERISA or a benefits attorney with expertise in bankruptcy. Although bankruptcy attorneys and employee benefits attorneys often use the same key words (i.e., Plan, Trustee, Code, priority categories), these terms have very different meanings in the bankruptcy context than they do in the ERISA/employee benefits context. Let me hasten to add that I am from Venus, though I have had spent several summers on Mars. . .

The end of 2004 brought an important development in the ERISA employer stock litigation arena. A federal appellate court granted a discretionary petition on December 29, 2004 to consider some critical questions, including whether such cases may be maintained as class actions under Fed.R.Civ. P. 23. In the case of In re Electronic Data Systems Corp. ERISA Litig, Case No. 6:03-MD-1512 (filed March 14, 2003, E.D.Tex), plaintiffs filed a class action against EDS after its stock fell from 36.46 to $17.20 a share in a day following an earnings warning. Plaintiffs asserted claims that it was imprudent for the fiduciaries to permit participants to invest any funds in EDS stock and that the fiduciaries misrepresented certain information regarding the company and its stock to participants.

Following the district court’s denial of defendants’ motions to dismiss, plaintiffs moved for class certification. The district court granted the motion in part, holding that the prudence claims could be maintained by the plan as a class action, but refusing to certify the misrepresentation claims. The district court reasoned that the misrepresentation claims could not be certified because the class representatives lacked commonality and typicality. It also reasoned that the investments were made by investors in their individual capacity and that section 404 of ERISA, 29 U.S.C. sec. 1104(c) provided fiduciaries with a defense against such claims arising from participants’ investment election.

Defendants filed a petition to review the district court’s decision on class certification and the United States Court of Appeals for the Fifth Circuit granted the discretionary petition on December 29, 2004. EDS is arguing that the claims are not certifiable under Rule 23 because they are not held by the plan, but are really asserted by participants. If so, defendants argue that the claims are for individualized relief under section 502(a)(3) of ERISA, 29 U.S.C. sec 1102(a)(3) and that section does not allow for monetary damages, only equitable relief. Defendants also assert that the class representatives continued to invest their retirement savings into EDS stock, which has somewhat recovered and are therefore estopped from complaining about the fiduciaries conduct.

Courts have recently struggled with ERISA’s civil enforcement provisions and plaintiffs’ ability to recover for such claims under them. A district court in New Jersey held that plaintiffs could not recover damages for defendants’ alleged breaches of fiduciary duty because such recovery was really for individual participants rather than the plan. In re Schering-Plough Corp. ERISA Litig., 2004 WL 1774760 at 6 (D.N.J. June 28, 2004). Most courts have held that plaintiffs are seeking such recovery for the plan which is authorized to file actions for breach of fiduciary duty and recover damages on such claims. The fact that the Fifth Circuit granted discretionary petition to review these claims is extremely noteworthy. If the Fifth Circuit, in fact, decides the case, it will shed considerable light on whether these claims may be maintained as class actions.

Read more about employer stock litigation at the Jenner & Block website entitled “ERISA Fiduciary and Company Stock Update Center.”

The ABA Law Practice Management Section has published its annual rundown on the highs and lows of the legal services market here. “Red Hot” areas of practice are listed as employment law, intellectual property, and contingency litigation.

Source: MyShingle.com.