Benefits Counsel

Last week SEC Chairman Christopher Cox, in a speech before the Council of Institutional Investors, commented on the new executive pay disclosure requirements issued by the SEC at the end of January. (See previous post here.) Here is an excerpt from his speech pertaining to the proposed disclosure rules for perks and retirement benefits:

We want investors to have better information, including one number — a single bottom line figure — for total annual compensation.

That single figure will include a more accurate representation of perquisites. Currently, companies are required to report a lump sum if an executive’s perks are more than $50,000, or 10 % of his or her salary and bonus.
And under current rules, an individual perk has to be reported only if it represents more than 25% of all the perks that an executive receives.

That sets the bar too high. $50,000 is what many of a company’s shareholders make all year, and it’s far above the median household income of $44,400. So under our proposal, perquisites must be itemized if they total $10,000 or more.

The proposed new rules would also improve the disclosure of retirement benefits. New tables would outline the defined-benefit and defined-contribution retirement plans of top officers. There would also be detailed descriptions of payments that could be made if an executive is terminated. Those disclosures aren’t required under our current rules.

This should ensure that retirement benefits, which under the current disclosure regime can be nearly impossible to understand, will finally become intelligible. We don’t want any more “Aha! moments” when shareholders learn the details of a “Golden Goodbye” only when an executive leaves the company — and it’s too late.

An important part of our job at the SEC is to ensure that investors have available to them all of the compensation information they need, presented in a clear and understandable form that they can use.

(Hat tip: CorporateCounsel.net Blog)

This article here serves as a good reminder for plan sponsors to review their service provider agreements and make sure they include provisions that insure providers are doing everything they can to protect the personal data of participants.

(Hat Tip: TheCorporateCounsel.net Blog)

Kenni Merritt has written an article for the Oklahoma Bar Journal which is a primer on ERISA Section 510 claims: “Interference with ERISA-Protected Rights: Making a Federal Case Out of a Wrongful Discharge Action.” Excerpt:

ERISA does not provide a statute of limitations for suits under Section 510. Therefore, courts select the most analogous state law limitations period. The courts that have considered ERISA Section 510 claims have almost unanimously concluded that the most analogous state law cause of action under Section 510 is wrongful termination or retaliatory discharge, state law causes of action encompassing an employee’s claim that he was discharged in violation of public policy. . . To reduce exposure to liability, some plan sponsors include a limitations period in their benefit plan documents and summary plan descriptions. A number of courts have recognized such plan-imposed limitation periods as being valid and enforceable under ERISA.

The whole March 11th issue of the Oklahoma Bar Journal is devoted to employment discrimination.

Kenni Merritt has written an article for the Oklahoma Bar Journal which is a primer on ERISA Section 510 claims: “Interference with ERISA-Protected Rights: Making a Federal Case Out of a Wrongful Discharge Action.” Excerpt:

ERISA does not provide a statute of limitations for suits under Section 510. Therefore, courts select the most analogous state law limitations period. The courts that have considered ERISA Section 510 claims have almost unanimously concluded that the most analogous state law cause of action under Section 510 is wrongful termination or retaliatory discharge, state law causes of action encompassing an employee’s claim that he was discharged in violation of public policy. . . To reduce exposure to liability, some plan sponsors include a limitations period in their benefit plan documents and summary plan descriptions. A number of courts have recognized such plan-imposed limitation periods as being valid and enforceable under ERISA.

The whole March 11th issue of the Oklahoma Bar Journal is devoted to employment discrimination.

I have added a link in the 409A section on the right to a transcript of a 90-minute webcast posted by Kilpatrick Stockton and sponsored last year by the Corporate and Securities Law Committee Of the Association of Corporate Counsel. While the webcast was presented prior to the issuance of the proposed regulations, it still contains some good information and features Dan Hogans, Attorney Advisor in the Office of Tax Policy, Department of the Treasury.

DOL has announced:

• A new mailing address for the DFVC Program. Read the News Release here. The new address takes effect April 11, 2006.
• A technical amendment extending the interim final rules under the Mental Health Parity Act (“MHPA”) to December 31, 2006. Late last year, the Employee Retirement Preservation Act (P.L. 109-151) extended MHPA’s sunset date under ERISA, the Code, and the Public Health Service Act to December 31, 2006. This interim amendment conforms the regulatory sunset date to the new statutory sunset date. Read the News Release here.

(The MHPA requires that annual or lifetime dollar limits for mental heath benefits be no lower than the dollar limits for medical/surgical benefits offered by a group health plan. The act applies to group health plans or health insurance coverage offered by issuers in connection with a group health plan that offers both mental health and medical/surgical benefits. However, it does not require plans to offer mental health benefits.The MHPA provisions in ERISA generally apply to all group health plans other than governmental plans, church plans, and certain other plans.)

The Ninth Circuit Court of Appeals has issued an opinion overturning a lower court decision and siding with the U.S. attorney in a case involving a writ of garnishment issued against a pension plan. The case is U.S. v. Novak and specifically holds that the Mandatory Victims Restitution Act of 1996 (“MVRA”), 18 U.S.C. § 3663A, in conjunction with 18 U.S.C. § 3613, constitutes a statutory exception to ERISA’s anti-alienation provision. The participant in the case had pleaded guilty to certain conspiracy charges and was ordered to pay restitution in the amount of $3,360,051.67. Of course, focus turned to a pension plan where the participant had accrued a sizable pension which was, however, a drop in the bucket compared to the total restitution ordered. At the government’s request, the Clerk of the district court issued a post-judgment writ of garnishment to the plan sponsor of the plan for amounts owed to the participant under the pension plan. The writ was issued pursuant to the garnishment provisions of the Federal Debt Collection Procedures Act (“FDCPA”), 28 U.S.C. § 3205. On March 5, 2004, the district court had issued an order quashing the writ of garnishment, which order was overturned by the Ninth Circuit. Excerpt from the opinion:

We determine that with the passage of the MVRA, Congress did what the Supreme Court in Guidry indicated it could do: enact a statutory exception to ERISA’s anti-alienation provision. We find that Congress enacted a statutory exception because (a) the MVRA is a specific collection statute designed to provide victims with restitution, and (b) Congress provided for restitution orders to be enforced like tax liens, which are enforceable against ERISA pension benefits.

Circuit Judge Fletcher issued a dissent in the case, arguing that, for there to be a statutory exception to ERISA’s anti-alienation provisions, Congress must “issue a clear statement of its intent to abrogate ERISA.” Fletcher noted that neither the MVRA nor 18 U.S.C. § 3613 contain such a directive:

This statutory scheme does not evidence a clear statement to abrogate ERISA’s anti-alienation provision. Although the statutory text does mandate restitution, it lacks any express statement (as it does for Social Security, see 18 U.S.C. § 3613(a)) that restitution owed to victims can be collected from ERISA pensions. And, as noted previously, there is nothing within ERISA calling for an exception for orders of restitution. Without an express directive in the restitution statute to seize ERISA pensions or a specific carve-out within ERISA’s anti-alienation provision, we should not create one through judicial fiat.

The majority’s decision is consistent with IRS’s view of the subject which you can read about in two previous posts: U.S. Attorneys Seeking To Levy Against Qualified Plan Assets Under the FDCPA and When the U.S. Attorney Comes Knocking . . . The majority also cites district court cases in Oklahoma, Virginia, Michigan, Louisiana, and North Carolina which are in accord with its decision. The U.S. Attorney, as well as plan sponsors, plan administrators and fiduciaries who would like to comply with such directives, but were concerned about the ERISA anti-alienation provisions, are now armed with this Ninth Circuit opinion as well.

(Query: Can payment be compelled prior to a participant’s right to receive payment under the Plan? The IRS had said in a PLR (as discussed in a previous post) that the U.S. Government cannot garnishee or otherwise collect against a plan participant’s or beneficiary’s benefit until the participant or beneficiary has a right to a distribution under the terms of the plan. The Ninth Circuit doesn’t appear to address the issue in the Novak case.)