Category: Benefits

The New York Lawyer has a very interesting article on contract attorneys and the issue of overtime pay: “BigLaw Contract Attorneys Struggle With Their Identity as ‘Lawyers.'” The article notes that a law firm recently settled for $700,000 a class action suit seeking overtime pay and paid rest breaks for contract lawyers handling document review. Walter Olson at Point of Law has a comment here regarding the development.

Don’t miss this interesting article by PlanSponsor.com called “Lawyering Up” discussing how ERISA lawsuits are at an “all-time high.” ERISA experts make the following comments about the up-tick in lawsuits as follows:

“. . . more 401(k) litigation now than ever”

“[T]the trend has snowballed. . . ”

“[T]he current spate of salacious scandals at major corporations has fanned the flames . . . ”

“The law is in a state of flux” and “evolving.”

What should plan fiduciaries be doing in light of the trend? Hiring a qualified ERISA attorney to advise the plan sponsor and fiduciaries about best practices and “prudent process and procedures” is really the best first step that a plan sponsor can take in protecting the company and fiduciaries from liability due to unexpected ERISA lawsuits. Burying one’s head in the sand is not an option, as the fiduciaries mentioned in this previous post here found out the hard way.

In addition, it is always amazing to me how little attention is given to plan documents and communication materials that are really the source for determining the fiduciary structure of an ERISA plan. If you have read and kept up with this “evolving” ERISA law, you will note that plaintiffs’ attorneys do a good job of exploiting and uncovering all of the weaknesses of a plan document in making their case for a fiduciary breach. (For instance, the plan document will be the starting point for determining whether or not a board of directors will be considered to be fiduciaries under ERISA.) In fact, many documents are never reviewed by an attorney experienced in ERISA, and many employers are not even aware of the weaknesses in their documentation and materials until they are uncovered in a lawsuit.

The New York State Society of CPAs has published a good article on pension accounting: “Pension Accounting: The Continuing Evolution.” This exhibit to the article here [pdf] provides a summary of the new disclosure requirements, and this exhibit here [pdf] provides a summary of the disclosure requirements retained from the “old” SFAS 132R.

Recent news of Spitzer shaking up the insurance industry has filled the news over the past week. However, yesterday’s article in the Wall Street Journal (subscription required) entitled “Class-Action Threat Added to Challenges Facing the Insurers” discusses the impact of the probe on the employee benefits arena. (See also today’s New York Times article entitled “States Increase Their Scrutiny of Insurance Brokers” mentioned by Benefitslink.com.) The WSJ article states that “the insurance probe started by New York Attorney General Eliot Spitzer into kickbacks and other improper incentives in the insurance industry is widening into other states and moving toward the employee-benefits arena.” Excerpt:

In California, insurance regulators are hiring San Diego class-action law firm Lerach Coughlin Stoia Geller Rudman & Robbins LLP, home of high-profile trial lawyer William Lerach. The firm is expected to lead a legal fight against insurance brokers and insurers who the firm may accuse of cheating workers and other consumers by placing insurance and other benefits packages in the hands of insurers paying the biggest commissions, not providing the best prices and terms, a person close to the matter said.

The potential alleged victims include individual employees, who typically pay some or all of the cost of benefits sponsored by their employers. That would contrast with the picture so far painted by Mr. Spitzer, of insurance brokers cheating corporations as they bought sophisticated liability-insurance packages. Mr. Spitzer, too, has indicated that the employee-benefits sector is a coming front.

The New York Times article states that “[i]n Connecticut, Richard Blumenthal, the attorney general, stepped up his investigation into health insurance companies and those that sell employee benefits like group life and disability coverage” and that yesterday “regulators from 46 of the states huddled in a closed telephone conference and said in a cautious statement afterward that they were ‘assessing the adequacy of current laws or regulations.”’

Whether or not ERISA will be involved in the lawsuits spawned by the probe will depend upon whether or not the plans offering these types of benefits to employees are ERISA plans. (Read a previous post here on the subject of when a plan for voluntary benefits becomes an ERISA plan.) For those plans that are ERISA plans, I would think that fiduciaries for such plans should be taking a hard look at the insurance carriers and brokers through which the insurance has been offered and purchased, and have in place “prudent processes” for dealing with the recent investigations and lawsuits (similar to the types of processes utilized by 401(k) plan fiduciaries in the recent mutual fund scandals.) For starters, one could read again this guidance here issued by the DOL pertaining to the mutual fund investigations, and tailor it to the ERISA plan in question. For instance, fiduciaries will want to assess the impact of the investigations on their plans, conduct a review, and engage in a “deliberative process.” In cases where specific insurance carriers are implicated, fiduciaries will want to take an “appropriate course of action which will depend on the particular facts and circumstances” relating to the plan. Fiduciaries will also want to contact specific insurance carriers directly if information is needed and document their actions accordingly. Above all, fiduciaries will need to “act reasonably, prudently and solely in the interests of participants and beneficiaries.”

Unfortunately, many employers are already not up-to-speed in this area of compliance with ERISA when it comes to benefits such as life, health, and disability policies. Many do not even know that they have an ERISA plan, let alone think that there might be any fiduciary liability involved in the offering of such plans. (Post here contains information on this widespread lack of compliance, and the post here discusses a case where the employer didn’t know it had an ERISA plan, and an executive was held personally liable as a fiduciary.)

In this other WSJ op-ed entitled “Spitzer Investigation May Be Just the Start For Insurance Industry“, the author predicts that “the carnage has just begun” and that by the time “Mr. Spitzer is finished with the insurance industry, the mutual-fund scandal will look like child’s play.”

Michael Fox has two interesting items that I can’t resist noting here:

(1) The Mind Map of Employer/Employee Rights and Responsibilities–European Version. (Biz/ed is a “provider of Internet-based learning materials for the economics and business education community.”)

(2) From the WSJ via SFGate.com, “Bleeding indicators, other indexes gauge workplace health.” I especially liked the “Perk Deficit”:

Measures the drastic reduction in available workplace assets, ranging from free food and paper products to office supplies. . . “We went from a big hotel with a night of endless shrimp,” says marketing consultant Susan Johnson, “to an in-house pot luck with a colleague singing on the guitar.”

I was wondering who would be the first to come up with a chart on the topic of the new nonqualified deferred compensation plan rules recently promulgated by Congress. Miller Chevalier has produced a good one here. (Thanks to Benefitslink.com for the pointer.)

Law.com is reporting: “SmithKline to Pay $5.2 Million to Settle ERISA Suit.” According to the article, the employer has agreed “to pay $5.2 million to settle an ERISA class action suit brought by workers who said they were improperly labeled ‘temporary’ and therefore denied pension benefits despite working full time for months or even years.” The lawsuit highlights the problematic issues that can arise with respect to benefits programs when a portion of the workforce is comprised of “temporary” or “leased employees.” (Previous posts on benefits issues pertaining to outsourcing and temporary employees are here, here and here.)

As reported, the class action was initiated by 1,290 workers who began their jobs as temporary workers provided by agencies such as Kelly Services or Olsten Temporary Services, but who were later hired on as regular employees. The employees brought claims for benefits under the employer’s retirement plans and claims for breach of fiduciary duty. The plaintiffs in the suit claimed breaches of fiduciary duty for (1) failure to calculate and award them vesting and eligibility credits under the employer’s retirement plans; (2) failure to keep track of their vesting and eligibility credits; (3) imposing a “burden shifting scheme” on the plaintiffs, requiring them to provide the information supporting their entitlement to vesting and eligibility credits; and (4) failure to notify the plaintiffs of their right to appeal SmithKline’s benefits decisions. (You can access the Memorandum and Order, granting in part and denying in part, Motions for Summary Judgment in the case; and the Memorandum and Order granting the plaintiffs’ motion for class certification.)

The obligation to credit a leased employee’s prior service with the employer once the employee is hired by the employer as a regular employee poses significant problems for employers. Many times employers don’t even know that they are required to credit such service. If they do know it, they may not have the records, nor can they get the records, to substantiate the service. Reish Luftman Reicher & Cohen has published a good article on the subject: “What Difference Does It Make If I Hire a Former “Leased” Employee?” The author states that he believes the case is important “because it highlights an issue often overlooked by plan sponsors, but which is clearly on the radar screen of the IRS.” As indicated above, the issue is on the radar screen of plaintiffs’ attorneys as well.

You can access a list of CEO Blogs here. (via The New PR/Wiki)

Thanks to CorpLawBlog for the link to this article from the Washington Post which discusses an interview with SEC Chairman William Donaldson who discusses the topic of excessive executive pay and retirement perks–“Donaldson Expects Rule Changes on Executive Pay.” According to the article, Donaldson criticized “both the level of executive pay in the United States and the clarity with which businesses disclose compensation to shareholders, especially the lavish retirement packages that often hide in the small print of SEC filings, if they are disclosed at all.” The article notes that the SEC is considering new disclosure requirements that would require companies to disclose the “true costs of retirement packages and other forms of executive compensation.” Excerpt from the article:

Perhaps foremost among the possible changes would be to require more precise and easier-to-understand disclosure of executive pensions and supplemental executive retirement plans, or SERPs. Experts say companies can hide large SERP payments, in part because they are not required to disclose the yearly increase in value of such plans in compensation tables.

In addition, firms generally calculate pension plan payments based on an executive’s years of service. But in many cases, executives are given credit for many more years than they actually were on the job, something it can be hard for shareholders to figure out without wading through fine print or reading executive biographies to determine how long an individual actually has worked at a company.

The article goes on to say that Donaldson also “complained that big retirement payouts generally are unrelated to performance measures, meaning retired executives usually are entitled to every penny even if their companies performed poorly or collapsed after they left due to decisions they made on the job.”

SEC spokesman Matthew Well is quoted as saying that it is too soon to speculate about what the new disclosure rules might entail and that the new rules probably wont’ be in place until sometime next year at the earliest.

CorpLawBlog has some additional links here on the topic of corporate governance.

How about Stretch Pets? They were offering a cow with spots, but the Trademark Blog is reporting that they were sued over it by Gateway for “trade dress infringement.” (Don’t miss Chris-Screen-gle and Humphry Frogart.)