August 2003 – Page 2 – Benefits Counsel

Ethicalesq: Fee-duce-ary Advice and Pension Funds

Thanks to David Giacalone of ethicalEsq. for this great post: "Fee-duce-ary Advice and Pension Funds" which discusses this article by Benchmark Alert captioned "Invasion of the Class Action Securities Lawyers." (The article was the subject of a previous post here…

Thanks to David Giacalone of ethicalEsq. for this great post: “Fee-duce-ary Advice and Pension Funds” which discusses this article by Benchmark Alert captioned “Invasion of the Class Action Securities Lawyers.” (The article was the subject of a previous post here and discusses fee arrangements where securities class action firms pay pension lawyers heft referral fees for recommending lead counsel status.) Quote of Note: “I agree with the Benchmark article: pension fund attorneys need to abide by the “highest ethical standards,” and should therefore stop taking such referral fees. Pension funds owe it to their own beneficiaries to insist upon it, perhaps requiring a signed statement from their lawyers confirming that no referral fees will be taken. That’s the only way to avoid the appearance of giving or receiving “fee-duce-ary” [fee-induced] advice.”

(By the way, Mr. Giacalone has a very humorous post here today about how he has become a Blawgoholic and is taking a very much-needed break.)

WSJ Op-ed on Cash Balance Plan Litigation

Today's edition of the Wall Street Journal contains this op-ed: "Not Your Father's Pension." The article discusses the recent cash balance plan decisions and expresses the concern that has been stated by so many that, with all of the litigation…

Today’s edition of the Wall Street Journal contains this op-ed: “Not Your Father’s Pension.” The article discusses the recent cash balance plan decisions and expresses the concern that has been stated by so many that, with all of the litigation over cash balance plans, employers may decide to terminate these plans for less costly plans which will be a loss to those who want them.

WSJ Op-ed on Cash Balance Plan Litigation

More on the IBM Cash Balance Plan Decision

The ERISA Industry Committee announced that it has issued a brief that criticizes the IBM cash balance plan decision, Cooper et al. v. IBM Personal Pension and IBM Corporation. By the way, today I added links over on the right to the IBM and Xerox cash balance plan decisions recently handed down, as well as some great links relevant to the cases.

IRS Rethinking 1099 Requirement for Debit/Credit Card Plans

Revenue Ruling 2003-43 (via Benefitslink.com) issued earlier this year sanctions the use of debit/credit cards in connection with flexible spending accounts and health reimbursement arrangements. However, the Ruling provides that “payments made to medical service providers through the use of debit, credit, and stored-value cards are reportable by the employer on Form 1099-MISC under section 6041.” (Section 6041 provides for information reporting by persons engaged in a trade or business who make payments of fixed or determinable income to another person in the course of such trade or business of $600 or more in a taxable year.)

Many who have been excited about these types of debit/credit card plans have been concerned with the 1099 requirement, as discussed here in this article. In fact, back in May, I heard Harry Beker, Esq., of the Office of Chief Counsel, Internal Revenue Service, speak on the subject, and say that the IRS was aware of the concerns, but felt that the 1099 requirement should apply. See From My Notes: Harry Beker and Kevin Knopf Speak on FSAs and HRAs at the Mid-Atlantic Area Employee Benefits Conference.

According to this article by Plan Sponsor–“IRS to Rethink Debit Card 1099 Rule“–Mr. Beker, speaking at a recent conference of the Employers Council on Flexible Compensation (ECFC), announced that officials are now looking into a possible waiver of the requirement:

What we’re going to look at is whether it is appropriate to delay enforcement of the 1099 requirement or whether it’s appropriate to waive the 1099 requirement with respect to FSA’s and HRA’s entirely.

More on Stock Option Expensing: no warmed-over homilies here

Bill Mann for the Motley Fool has a great op-ed on the whole stock option expensing debate: "Begging the Options Question." The article makes the point that the argument that stock options are needed for employee retention purposes makes no…

Bill Mann for the Motley Fool has a great op-ed on the whole stock option expensing debate: “Begging the Options Question.” The article makes the point that the argument that stock options are needed for employee retention purposes makes no sense in industries where lay-offs are common and where jobs are being shipped overseas. Mr. Mann mentions this article at MSNBC detailing the move by some U.S. investment banks “to hire Indian stock analysts in order to reduce research costs.” The article states that, by doing so, “J.P. Morgan Chase and Goldman Sachs and others can pay the going Indian rate for analysts, around $25,000 a year, instead of the six-figure salaries commanded by employees performing the same function in New York.”

Quote of Note from the MSNBC article–“Banks move analyst jobs to India: Wall Street seeks to save costs on number-crunching tasks“: “Alan Johnson, a New York-based compensation consultant said a US employee with an MBA going for an analyst position could make between $100,000 and $145,000 and a college graduate could receive about $65,000. In Mumbai, an MBA can expect about $25,000 and other employees might make half that. Real estate and employee benefit costs are also much cheaper in India.”

Alternative Investments for Pension Funds

Randy Myers for CFO.com has a very good article on alternative investments for pension funds: "Casting for Returns: To juice up their sagging portfolios, pension fund managers are seeking alternative investments." The article suggests that ERISA plan fiduciaries have a…

Randy Myers for CFO.com has a very good article on alternative investments for pension funds: “Casting for Returns: To juice up their sagging portfolios, pension fund managers are seeking alternative investments.” The article suggests that ERISA plan fiduciaries have a duty at least to consider alternative investments and how they might fit into the overall portfolio. The article points out the illiquidity of such investments as well as the high expense ratios associated with them, but offers these precautions for their use:

[T]ake a long-term approach to these investments; avoid funding them with assets that may be needed short-term to meet pension liabilities; avoid making large bets on any one deal or manager; and, to mitigate transparency risk, spend a lot of time with your managers to understand their investment philosophy and process (and be sure they stick with them).

Alternative Investments for Pension Funds

[T]ake a long-term approach to these investments; avoid funding them with assets that may be needed short-term to meet pension liabilities; avoid making large bets on any one deal or manager; and, to mitigate transparency risk, spend a lot of time with your managers to understand their investment philosophy and process (and be sure they stick with them).

An Invasion Being Reported

An interesting article by Ted Siedle for the Benchmark Companies-"Invasion of the Class Action Securities Lawyers"-states that lawyers who represent large pension plans are being paid hefty referral fees by securities class action law firms which in some cases are…

An interesting article by Ted Siedle for the Benchmark Companies–“Invasion of the Class Action Securities Lawyers“–states that lawyers who represent large pension plans are being paid hefty referral fees by securities class action law firms which in some cases are not being disclosed to the client. The securities firms, according to the article, are seeking to secure lucrative lead counsel status in cases the firms seek to bring. The article reports that “[w]hile ten years ago you’d hardly find a lawyer in the crowd at a pension conference, today pension conferees are subject to an “invasion of the securities class action lawyers” because that is where securities lawyers build the relationships to attain lead counsel status in some of these cases. The article goes on to make the point that when lawyers are advising pension boards about whether to participate in a securities class action lawsuit and when those lawyers advising the board then receive referral fees from the securities lawyers, this is not impartial advice and the financial interest should be disclosed to the client. The article warns that those making decisions for pensions plans “should take the time to become knowledgeable about the hidden financial incentives that may motivate their advisers so they can make informed decisions.”

This is the first that I have heard of such arrangements. However, a speaker I heard at an ERISA fiduciary conference stated that when securities firms do not attain lead counsel status in a securities class action law suit, some are then filing ERISA lawsuits instead on behalf of plan participants.

David Giacalone at EthicalEsq. this summer had a great discussion of fee arrangements in the ERISA lawsuits being filed on behalf of participants in 401(k) plans who have lost money from investments and discussed ethical considerations in connection with those fee arrangements. It would be great to hear what he has to say about the fee arrangements discussed here today.