Author: jfortenberry@fortenberrylaw.com

I was in meetings all day yesterday and unable to post here, but will try to catch up today.

On Monday, in a hearing entitled “Safeguarding America’s Retirement Security: An Examination of Defined Benefit Pension Plans and the Pension Benefits Guaranty Corporation,” the Senate Subcommittee on Financial Management, the Budget, and International Security and the Committee on Governmental Affairs received testimony from various groups on the pension funding crisis:

• The Honorable Peter R. Fisher, Under Secretary for Domestic Finance, Department of Treasury
• Testimony of John P. Parks, Vice President of Pension Practice Council, American Academy of Actuaries
• Testimony of Kathy Anne Cissna, Director of Retirement Plans for R.J. Reynolds, for the American Benefits Council
• Statement of Steven A. Kandarian, Executive Director of the PBGC Testimony of Christopher W. O’Flinn, Chairman of ERISA Industry Committee
• Testimony of Norman Stein, a professor at the University of Alabama School of Law, on behalf of the Pension Rights Center
• Testimony of J. Mark Iwry, a lawyer and a Nonresident Senior Fellow at the Brookings Institute

You can view the hearing at this link.

Also on Monday, the Seventh Circuit Court of Appeals declined to reconsider this earlier decision holding that Xerox Corp. had paid out too-small lump sums to participants in its cash-balance plan. A Wall Street Journal article reports: “Treasury to Issue Guides On Cash-Balance Payouts.” The article reports a Xerox spokeswoman as saying that the company is “disappointed” by Monday’s appeals court’s decision and is considering a further appeal.

Yesterday’s Wall Street Journal carried these articles on pensions:

• “Push for Broad Pension Change Is Losing Steam in Congress: Employers Won’t See Any Major Relief o Help Ease Burden of Nest-Egg Funds.” The article reported: “Concern has been growing among lawmakers about pensions and retirement security in recent months, as corporate scandals and a slow economy have exposed weaknesses in the current system. But with time running out to clear legislation this year, lobbyists and some Capitol Hill aides predict lawmakers won’t have time to pass more than a few provisions. Those measures likely would focus on giving businesses relief, possibly on a temporary basis.”
• “Some Pension Plans Shed Conservative Mien.” The article reports that some pension plans are achieving better returns by “timing the market.” According to the article:
  

  During the nine months ended June 30, Siemens’ pension plans earned an annualized 6.9% on its German plan and 14% for its main foreign plans, and its pension deficit shrunk. The Dow Jones Stoxx 600 index rose an annualized 5.6% and Merrill Lynch global broad bond-market index fell an annualized 5.8% during the same period. . . To achieve those results, simians’ pension plan changed the weighting of stocks in its portfolio from 21% at the end of last year, to 8% at the end of March, and back to 23% at the end of June. Those moves followed a cut to 33% as of Sept. 30, 2002, from a weighting of 61% Sept. 30, 2001.

Today’s Wall Street Journal reports: “Streamlined Pension Legislation Is to Be Introduced in the House.” The article discusses two bills in Congress which are the most likely candidates for addressing the pension crisis. The New York Times also reports: “Senate Panel Expected to Vote on Bill to Aid Pension Plans.”

In preparation for the Senate Finance Committee’s mark-up today of Chairman Charles Grassley’s (R.) latest revision of the National Employee Savings and Trust Equity Guarantee Act, the American Benefits Council released the following statement concerning the legislation’s use of the Bush Administration’s yield curve proposal to replace the current 30-year Treasury rate for making calculations for funding defined benefit pension plans: “Senate yield curve proposal could drive more companies from the pension system.“

Revenue Ruling 2003-102 (an IRS ruling providing guidance regarding the reimbursement of over-the-counter drugs under FSAs and HRAs) has been added to the “Recent Hot Topics” list over on the right along with these links:

• The Groom Law Group: IRS Revenue Ruling Allowing Health Plans to Reimburse Nonprescription Medicine and Drugs
• Kilpatrick Stockton LLP: Over-the-Counter Medicines – Now Reimbursable
  
• Seyfarth Shaw LLP: IRS Expands Allowable Reimbursements under FSAs
  
• Faegre and Benson LLP: Over-The-Counter Drugs Can Be Reimbursed Pre-Tax by Health Care Flexible Spending Accounts
• Deloitte & Touche: Health FSAs Can Reimburse Participants? Nonprescription Drug Costs, IRS Rules

Posts at Benefitsblog on Revenue Ruling 2003-102:

• IRS Makes Over-the-Counter Drugs Easier to Swallow
• More on OTC Drug Reimbursements

The DOL issued a very helpful opinion last week, DOL Advisory Opinion 2003-11A, which answers this question: whether a plan’s delivery of a mutual fund Profile to participants and beneficiaries immediately before or immediately after their investment in a mutual fund would satisfy regulations issued by the DOL pursuant to section 404(c) of ERISA. Generally, in the case of an investment alternative subject to the registration requirements of the Securities Act of 1933 such as a mutual fund, the 404(c) regulations provide that a participant or beneficiary shall be provided a copy of the “most recent prospectus” that was provided to the plan. DOL Advisory Opinion 2003-11A basically provides that the “prospectus” requirement can be met with a “profile”:

The Department has not defined the term “prospectus” in the 404(c) regulations, or elsewhere. In the preamble to the 404(c) regulations, the Department states that the prospectus delivery requirement is intended to ensure that, immediately before or immediately after a participant’s or beneficiary’s initial investment in an investment alternative, such as a mutual fund, that is required to deliver a prospectus to investors under the federal securities laws, participants and beneficiaries must be afforded the opportunity to review the prospectus in connection with an initial investment in such investment alternative. . . it is the view of the Department that, under the 404(c) regulations, the term “prospectus” includes a Profile. The Department believes that the delivery of a Profile by an identified plan fiduciary or designee to plan participants or beneficiaries satisfies the requirements of the 404(c) regulations because it provides a clear summary of key information about a mutual fund that is useful to such participants and/or beneficiaries.

The opinion goes on to say:

Where the most recent prospectus in the plan’s possession is a Profile, then delivering the Profile to plan participants and beneficiaries, immediately before or immediately after such individuals’ initial investment in a mutual fund, would satisfy a participant-directed individual account plan’s prospectus delivery obligation under 29 CFR section 2550.404c-1(b)(2)(i)(B)(1)(viii). Where the most recent prospectus is a 10(a) prospectus, 29 CFR section 2550.404c-1(b)(2)(i)(B)(1)(viii) would require the delivery of a 10(a) prospectus.

Please note, however, that if a participant or beneficiary specifically requests “a 10(a) prospectus” then “the most recent 10(a) prospectus must be provided.”

You can access the DOL’s News Release about the advisory opinion here.

(Any comments on this from my securities law brethren-blawgers?)

A FASB News Release announces:

The Financial Accounting Standards Board (FASB) has issued an Exposure Draft, Employers’ Disclosures about Pensions and Other Postretirement Benefits, that would improve financial statement disclosures for defined benefit plans. The project was initiated by the FASB earlier this year in response to concerns raised by investors and other users of financial statements about the need for greater transparency of pension information. The proposed change would replace existing FASB accounting guidance.

You can download the Exposure Draft called the Employers’ Disclosures about Pensions and Other Postretirement Benefits—an amendment of FASB Statements No. 87, 88, and 106 and a replacement of FASB Statement No. 132–by clicking here. Also, PlanSponsor.com appears to be the first to report on this development: “FASB Throws Down Pension Reporting Gauntlet.” The article reports:

The nation’s accounting rules-making body has outlined new rules for pension plan reporting – and they’ve set a target date of December 15, 2003, to adopt the new rules as policy. And while they are more complicated and arduous than current requirements, the Financial Accounting Standards Board (FASB) has eased off some of the more speculative projections they had contemplated requiring.

The Exposure Draft provides that “[r]esponses from interested parties wishing to comment on the Exposure Draft must be received in writing by October 27, 2003.” You may make those comments by clicking here.

The Wall Street Journal today tells you how to start a blog.

Also this article from Sunspot.net: “Weblogs finding a home in nation’s workplace.” The article notes the legal concerns of workplace blogs:

Christopher Wolf, a partner at the Washington law firm, Proskauer Rose, thinks the potential perils of workplace blogging are so great that he advises clients not to start them. “People are just more casual in the stuff they put on the Internet,” Wolf said. “Recording one’s thoughts can lead to problems for both the employer and the employee because it becomes readily available for all to see.”

My thoughts: workplace blogs are probably here to stay due to the many benefits they offer and legal experts should come up with good guidelines and helpful procedures for handling this very important tool.

The Washington Post today: “Bill Would Modify Pension Plan Rules.” The article by Albert Crenshaw reports that “Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) plans to sponsor legislation that would require operators of pension plans to take into account the age of their workforce when computing pension liabilities.” The article also reports that Grassley has said through an aide “that his proposal has ‘a solid core of bipartisan support’ in the committee and is important because ‘workers need reliable funding of their pensions and employers need a reliable basis on which to calculate pension payments.'”

“United pension fuels anxiety: Funding gap stirs retirement fears,”: The Denver Post is reporting. Also this from the Honolulu Star-Bulletin regarding the Hawaiian Airlines pension crises: “Pilots’ pension ruling delayed.”

Here’s a great article from the Detroit Free Press on a growing benefits trend–paid-time off plans: “Flexible Absence: Employers take the sick out of sick leave: More companies pool sick, vacation and leave time.” The article notes how the plans have reduced sick leave for employees. (Question: But are more employees coming to work sick under these paid-time off plans?)

Regarding the California Health Insurance Act of 2003 (SB 2) passed late last week, the Mercury News has this: “What health insurance bill means: Q & A: Sizing Up Plan Passed by Legislature.”

The Philadelphia Inquirer today reports that Mayor Street wants to end the City’s DROP plan: “Street risks votes with retirement-plan stance.” According to the article, Street wants to end the Deferred Retirement Option Plan which is an experimental program allowing workers to receive lump-sum payments in exchange for delaying retirement for up to four years because it is reportedly “draining money from the city.”

Another article from Albert Crenshaw for the Washington Post yesterday: “Feeding the 401(k), Even in Bad Times.” The article reports on this study by the Investment Company Institute. PlanSponsor.com reports on the study–“EBRI: Bears Merely Scratched 401(k) Balances“–and the 401khelpcenter.com has this press release–“Asset Allocation and Continued Contributions Muted Effects of Bear Market on 401k Balances.”

“Legislature passes bill requiring many companies to provide insurance“: SFGate.com is reporting that California will become the fourth state in the country to require employers to offer their workers health insurance if a bill which passed the Senate on Friday, 25-14, and the Assembly early Saturday, 46-31, is signed by Governor Gray Davis. According to the article, California will then join Hawaii, Washington and Oregon, as states with similar employee-mandated health insurance systems. The Mercury News has this report about the bill: “Health insurance legislation at-a-glance.”

You can obtain information about the bill at this link.

Other reports:

The East Bay Business Times: “Health care bill’s cost to fall on state’s employers.“
The Sacramento Bee: “Major health change is OK’d: Legislation would assure care for 1 million uninsured workers.”

An article from the The Galen Institute–“Tired Ideas and Innovative Solutions“–has this to say regarding the possible future challenges under ERISA:

My colleague Greg Scandlen predicts that the legislation, if signed by an apparently willing Gov. Gray Davis, will face years of court tests. The Employee Retirement Income Security Act (ERISA) makes it clear that the federal government, not states, have authority over employee health plans. (Hawaii’s employer mandate was grandfathered in the 1970s.) But Burton has written his bill to make it a test case that supporters believe can crack ERISA.