Benefits Counsel

Picture of the signing of TIPRA (H.R. 4297, Tax Increase Prevention and Reconciliation Act of 2005) last week here. (The pink suit just really makes the picture, doesn’t it? A lot of progress since this drab picture here.) Read more about the signing here.

More links:

The House Committee on Ways and Means online resource kit for TIPRA
Summary of TIPRA from the TaxBook
TaxProf Blog’s Links

Previous posts on TIPRA here.

Read Colleen Medill’s analysis of the recent U.S. Supreme Court opinion in Mid-Atlantic Medical Services v. Sereboff at the Workforce Prof Blog: “Sereboff and the Future of ERISA Remedies.” Colleen is a Professor at the University of Nebraska College of Law.

The Sereboff case was mentioned previously at Benefitsblog here.

From Law.com: “Clean Up Deferred Compensation Arrangements With IRS ‘Formula’ 409A: What in-house counsel should do now to ensure compensation agreements don’t run afoul of Section 409A.”

Comments by Mark J. Warshawsky, Assistant Secretary for Economic Policy, Department of Treasury, at the European Institute’s Sovereign Funds Roundtable: “Reforms to U.S. Pension Funding and Accounting Rules: Their Potential Effect on Equity Values and Interest Rates.”

An article on the topic from Robert Powell via MarketWatch.com:”Extended engagement: New tax law alters retirement-planning scenarios.”

Read about TIPRA here.

Very interesting article from USAToday.com: “Huge bill for public retirees hits soon.” Excerpt:

Retiree medical costs are the biggest long-term challenge that state and local governments face. By comparison, state and local pensions have an unfunded liability of about $500 billion.

State and local governments have set aside $2.5 trillion to help pay pension benefits for 19 million civil servants and 7 million retirees. But they have set aside almost nothing to pay for retiree medical benefits. . .

New accounting rules require that governments, starting next year, put a price tag on the value of medical benefits promised to civil servants when they retire. New York City’s liability, for example, approaches $50 billion. The city’s total budget last year was $53 billion.

“It’s no exaggeration to say that elected officials are shocked, absolutely shocked, by the size of these liabilities,” says Donald Rueckert Jr., senior vice president and actuary at Aon Consulting, an insurance broker.

Chart Showing Submission Dates for Individually Designed Plans

From a recent study by Hewitt, described in this press release here:

Employer efforts to automate, simplify and better communicate the 401(k) plan are making positive differences in improving certain employee investment behaviors and raising participation rates among hard-to-reach demographics,” said Lori Lucas, director of retirement research at Hewitt Associates. . .

Not surprisingly, Hewitt’s study found that companies that automatically enrolled employees saw higher participation rates for younger, lower-tenured and lower-salaried workers than those that didn’t. Participation rates among employees with less than one year tenure were 30 percentage points higher than those across the entire Hewitt Universe, 21 percentage points higher for employees making under $20,000 in salary, and 22 percentage points higher for employees age 20-29.

And regarding participants’ tendency to over-invest in company stock:

While the use of lifestyle and lifecycle funds increased, Hewitt’s study showed employees have decreased their investments in company stock. Although it continued to remain the single largest holding for employees in 401(k) plans that offer it, the average investment in company stock decreased from 26.5 percent in 2004 to 21.9 percent in 2005. In addition, the number of employees holding half or more of their 401(k) balances in company stock decreased from 27 percent in 2004 to 20 percent.

To a large extent, this reflects the fact that employers are proactively reducing the role of company stock in the 401(k) plan,” added Lucas. “For example, very few employers now restrict diversification out of company stock. This, coupled with the growing availability of third-party investment advice and guidance, and diversification tools such as lifestyle and lifecycle funds, is helping employees make better investment choices in their 401(k) plans.”

The annual study examined the saving and investing habits of more than 2.6 million employees eligible for 401(k) plans.

The U.S. Supreme Court unanimously affirmed the Fourth Circuit in Sereboff v. Mid-Atlantic Medical, allowing the administrator for a health plan to obtain reimbursement under a subrogation clause from a participant who had recovered from a third party in a tort action. The opinion, written by Chief Justice Roberts, resolves a split in the Courts of Appeal. Excerpt from the opinion distinguishing the result reached in this case from the result reached in the Great-West case:

[The] impediment to characterizing the relief in Knudson as equitable is not present here. As the Fourth Circuit explained below, in this case Mid-Atlantic sought “specifically identifiable” funds that were “within the possession and control of the Sereboffs”—that portion of the tort settlement due Mid-Atlantic under the terms of the ERISA plan, set aside and “preserved [in the Sereboffs’] investment accounts.” 407 F. 3d, at 218. Unlike Great-West, Mid-Atlantic did not simply seek “to impose personal liability . . . for a contractual obligation to pay money.” Knudson, 534 U. S., at 210. It alleged breach of contract and sought money, to be sure, but it sought its recovery through a constructive trust or equitable lien on a specifically identified fund, not from the Sereboffs’ assets generally, as would be the case with a contract action at law. ERISA provides for equitable remedies to enforce plan terms, so the fact that the action involves a breach of contract can hardly be enough to prove relief is not equitable; that would make §502(a)(3)(B)(ii) an empty promise. This Court in Knudson did not reject Great-West’s suit out of hand because it alleged a breach of contract and sought money, but because Great-West did not seek to recover a particular fund from the defendant. Mid-Atlantic does.

See a previous post on the Sereboff case here.