Category: Benefits

Broc Romanek has an interesting post (“General Counsels Pay Up“) discussing SEC enforcement actions involving lawyers serving as general counsels. Of particular interest is this link here to a speech given in December of 2004 by Stephen Cutler, Director, Division of Enforcement for the SEC, in which he made the following remarks:

That brings me to the lawyers. And I’m reminded of Judge Sporkin’s question, in the context of another scandal, the S&L crisis: “Where were the lawyers?” Lawyers to funds, their independent directors, and investment management firms also have a critical role to play in helping to prevent violations of the law. So we’re looking at them closely. What are we looking for, exactly? Intentional, knowing misconduct, for one. But we are also looking hard at situations in which lawyer misconduct meets statutory scienter requirements that are short of actual knowledge. Having said that, I do want to be clear that we are not in the business of enforcing malpractice rules or sanctioning lawyers for providing negligent advice.

We all know that the business and professional pressures on lawyers to accede to clients’ wishes are greater than ever. But it is equally true that it is more important than ever (and, as a result of the Sarbanes-Oxley Act, sometimes even legally required) for lawyers to remain firm and stand up against a proposed action or course of conduct that would be inconsistent with the letter or intent of the law. And in advising clients, it is critical that lawyers take a sufficiently broad perspective in evaluating a client’s proposed course of conduct so as to understand not just what the client wants to do, in the most narrow sense, but why the client wants to do it – in order to be able to fully evaluate the legal implications of the client’s course of conduct. By following these principles, lawyers, and particularly in-house counsel, can play an integral role in fostering a culture of compliance within a firm.

The Club for Growth has launched a new blog called Social Security Choice–Because Every American Should Have Their Own NestEgg. The Blog is “dedicated to bringing pro-growth experts together to advocate Social Security reform, by creating personal accounts.” Authors for the new blog are: Pat Toomey, Larry Kudlow, Herman Cain, Brian Wesbury, Donald Luskin, Kerry Kerstetter (the “opinionated CPA” as he calls himself), David Keating, Andrew Roth, Carrie Lukas, Louis Woodhill, and Adam Doverspike.

The IRS has issued final regulations pertaining to when and how certain forms of distribution previously available are permitted to be eliminated from qualified defined contribution plans. The regulations are effective January 25, 2005. Excerpt from the “Explanation of Provisions”:

These final regulations retain the general structure and much of the substance of the proposed regulations, including an example illustrating the provisions. Some changes have been made in connection with a specific recommendation for modification and clarification. . .

The regulations retain the rules under which a defined contribution plan may be amended to eliminate or restrict a participant’s right to receive payment of accrued benefits under a particular optional form of benefit without violating the section 411(d)(6) anti-cutback rules if, once the plan amendment takes effect for a participant, the alternative forms of payment that remain available to the participant include payment in a single-sum distribution. The regulations clarify that such an amendment can apply only to distributions with annuity starting dates after the amendment is adopted and, therefore, cannot apply to distributions that have already commenced. However, these final regulations remove the 90-day notice condition previously applicable to these plan amendments.

The Treasury’s press release is here. You can access a previous post on the proposed regulations here.

Those who handle litigation that involves the need to obtain patient information from healthcare providers may be interested to know that the federal Department of Health & Human Services has issued new Frequently Asked Questions for HIPAA Privacy addressing the permissible use and disclosure of PHI (protected health information) in the context of litigation. The new FAQs can be found here and answer the following important questions:

• May a covered entity that is a plaintiff or defendant in a legal proceeding use or disclose protected health information for the litigation?
• May a covered entity that is not a party to a legal proceeding disclose protected health information in response to a subpoena, discovery request, or other lawful process that is not accompanied by a court order?
• May a covered entity use or disclose protected health information for litigation?
• What “satisfactory assurances” must a covered entity that is not a party to the litigation receive before it may respond to a subpoena without a court order?
• When must a covered entity account for disclosures of protected health information made during the course of litigation?
• For disclosures for judicial and administrative proceedings, when is a copy of the subpoena itself sufficient satisfactory assurance of notice to the individual?
• For disclosures for judicial and administrative proceedings, can notice be provided to the individual’s lawyer instead of the individual?
• May a covered entity disclose protected health information in response to a court order?
• In providing legal services to a covered entity, must a lawyer who is a business associate require that those persons to whom it discloses protected health information agree to abide by the privacy restrictions and conditions that apply to the lawyer?

The New York Times is reporting: “Schwarzenegger Aims at State Pension System.” According to the article, the Governor contends that California can no longer afford a generous traditional pension plan for state employees and teachers and should instead adopt a 401(k)-style plan of individual accounts. The article states that Californians could be asked to vote on the proposed changes as early as this summer. Pension experts and political analysts are predicting that the outcome of the vote will not only have an impact on the state pension system, but also could provide impetus for proposed changes to Social Security. Excerpt:

Mr. Schwarzenegger, in his State of the State address earlier this month, described California’s pension system as “another government program out of control,” careering toward fiscal ruin. He cited the state’s obligation to inject $2.6 billion into the system this year to keep it actuarially sound, compared with $160 million four years ago.

. . . Although Mr. Schwarzenegger described the plans as a looming train wreck, even advocates of privatization in his own administration say the system is currently sound. The plans, taken together, are nearly 90 percent funded, a level that most experts consider quite healthy.

“We’re not warning of imminent collapse,” said Tom Campbell, an economist and former member of Congress who is the state’s new budget director. “There is a potential danger for the state to have a defined benefit system, and to the extent we can move away from it, as many private employers in America have done, we should do that.”

The article reports that opponents of the plan include “almost all Democrats in the Legislature, state employee unions and the trustees of the pension plans themselves” who say that the plans have been well managed and provide a “critical source of income security to workers who sacrifice pay in their working years to toil in the public sector.”

While such action by California to oust its traditional defined benefit public pension sytem in favor of a 401(k)-style plan could impact the national debate over Social Security, the development might have an even great ripple effect on other states which might decide to follow suit.

UPDATE: CALPERS has set up a special website called “The Pension Debate Information Center” and states that the website’s purpose is as follows:

We have created this Information Center in the interest of educating our members, employers, and stakeholders, and correcting misinformation that has permeated public discussions on this issue. This Information Center is also intended to add to the marketplace of ideas the pros and cons of defined benefit and defined contribution plans.

There is a lot of good information on the website which includes this page with links to “research and analysis of defined benefit and defined contribution plans – their effectiveness, employee preferences, and more.”

(Thanks to Benefitslink.com for the pointer.)

KaiserNetwork.org points out here that the topic of benefits made it into the inaugural address (online here) only briefly:

In America’s ideal of freedom, citizens find the dignity and security of economic independence, instead of laboring on the edge of subsistence. This is the broader definition of liberty that motivated the Homestead Act, the Social Security Act, and the G.I. Bill of Rights. And now we will extend this vision by reforming great institutions to serve the needs of our time. To give every American a stake in the promise and future of our country, we will bring the highest standards to our schools, and build an ownership society. We will widen the ownership of homes and businesses, retirement savings and health insurance – preparing our people for the challenges of life in a free society. By making every citizen an agent of his or her own destiny, we will give our fellow Americans greater freedom from want and fear, and make our society more prosperous and just and equal.

Nevin Adams, Executive Editor for Plan Sponsor.com and Plan Sponsor magazine, has a “2005 To-Do List” for the industry here. Dittos for this item on the list:

Rethink/rebuild the three-legged stool. Once upon a time, this nation had a philosophy for helping ensure retirement security predicated on the notion of government programs (like Social Security) working in tandem with private savings and employer-sponsored programs as a three-legged stool of support. We?re at least talking about Social Security these days (well, some are), but accounting/financing rules and burdensome regulations continue to whittle away at the promise of defined benefit plans. Meanwhile, what used to be additional support?the defined contribution plan?is increasingly the only employer-sponsored option. Worse, in many cases, it appears to have supplanted the personal savings leg of the stool. Maybe we don?t need three legs on that stool; maybe we need four, but it is time we quit carving the legs individually and realized we actually will have to sit on this stool one day soon.

Rick Meigs, founder of the 401khelpcenter.com, has written a commentary discussing trends that he sees coming in the 401(k) arena for 2005. Two of the trends he notes are a continued focus by regulatory agencies (i.e. SEC and DOL) “on revenue sharing and the issue of fees being ‘hidden’ from the plan sponsor” as well as the “rise of the independent fee-only pension consultant.”

Michael Fox has a good post on the recent EEOC charges filed against a major law firm for age discrimination. He has links to the EEOC’s press release here as well as a link to a prior case decided in 2002–EEOC v. Sidley Austin Brown & Wood, 315 F.3d 696 (7th Cir. 2002). He writes:

The basic legal question is simple — when does a partner (and probably equity shareholder, in firms that are professional corporations) have so little say in the running of the firm, that they are for purposes of the discrimination laws just another employee.

In an earlier decision, partially enforcing an EEOC subpoena which preceded the filing of last week’s complaint, Judge Posner lays out the arguments and issues in EEOC v. Sidley Austin Brown & Wood, 315 F.3d 696 (7th Cir. 2002). Although clearly only deciding a preliminary issue, it is hard to read the opinion without coming to the conclusion that Sidley Austin may have an uphill battle on the initial legal question. Of course overcoming the hurdle of the partnership is only the first step. . .

Regarding this issue of whether “partners” are “employees” for ADEA purposes, the EEOC press release has this to say:

EEOC’s Regional Attorney in Chicago, John C. Hendrickson, said that in resisting the EEOC investigation and in forcing the EEOC to obtain judicial enforcement of its subpoena, “Sidley’s unwavering position has been that the matters involving how the law firm dealt with those it referred to as ‘partners’ and whether it engaged in discrimination were simply way beyond the reach of the ADEA and EEOC.” However, according to Hendrickson, the EEOC administrative investigation revealed that, “except for a very few controlling partners at the very top, Sidley’s lawyers appeared to be ordinary employees not unlike their colleagues at parallel levels in the business community and, therefore, covered by the ADEA.”

Hendrickson said, “Whatever titles Sidley had decided to give these lawyers–partner, counsel, or otherwise–our investigation indicated that they had no voice or control in governance of the firm and that they could be and were fired just like any other employees without notice and without the vote or consent of their fellow attorneys. A small self-perpetuating group of managers at the top ran everything, and that was it–end of story.”

Interestingly enough, the opinion written by Judge Posner for the case decided in 2002, relies on an ERISA case in reaching the conclusion that the “partners” in question could possibly indeed be “employees” for purposes of the ADEA. He states:

The problem of line drawing presented by this case is not unique to employment. It arises whenever legal consequences turn on classification as partner versus employee, whether in tax and tort cases or in discrimination cases. . .

The same problem of the tyranny of labels arose when the Supreme Court had to draw the line in ERISA between an “employee,” defined unhelpfully as in the ADEA as “any individual employed by an employer,” 29 U.S.C. § 1002(6), and an independent contractor. The Court could have said that an employee is anyone who is called an employee. Instead it said:

In determining whether a hired party is an employee under the general common law of agency, we consider the hiring party’s right to control the manner and means by which the project is accomplished. Among the other factors relevant to this inquiry are the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party’s discretion over when and how long to work; the method of payment; the hired party’s role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party. Since the commonlaw test contains no shorthand formula or magic phrase that can be applied to find the answer, . . . all of the incidents of the relationship must be assessed and weighed with no one factor being decisive.

Nationwide Mutual Ins. Co. v. Darden, 503 U.S. 318, 323-25 (1992) (citations and internal quotation marks omitted). In a subsequent case, we said the most important factor in deciding whether a worker was an employee or an independent contractor was the employer’s right to control the worker’s work.

The EEOC case could have a great impact on law firms and the legal profession, in general, as the demographics of firms change with more and more of the baby boom generation of lawyers coming of age.

The Wall Street Journal is reporting here that the Defense of Marriage Act (“DOMA”) has been upheld by a federal district court in Florida. U.S. District Judge James S. Moody today upheld the federal law, dismissing a lawsuit by two women seeking to have their Massachusetts marriage recognized in Florida. An Associated Press article (via the New York Times) is here.

Read more about DOMA, how it interacts with ERISA, and how it impacts the benefits arena in previous posts which you can access here.

Also, an article here by USAToday.com reports that the Louisiana Supreme Court unanimously reinstated a marriage amendment to the state constitution that was overwhelmingly approved by voters in September. At issue was a provision of the amendment that stated: “A legal status identical or substantially similar to that of marriage for unmarried individuals shall not be recognized.” Eleven other states adopted similar amendments in the fall elections. The Louisiana Supreme Court reversed a state district judge’s ruling in October which had struck down the amendment on the grounds that it violated a provision of the state constitution requiring that an amendment cover only one subject. You can access the opinion here.

Update: Thanks to a reader who emailed me a bankruptcy case, In re Kandu, decided in August of 2004 in which the court also upheld DOMA. No link to the actual case, but you can read about it here.

Further Update: Thanks to a reader for sending me a link to the Kandu case here. Links to other documents in the case are here.