Author: jfortenberry@fortenberrylaw.com

Newsday.com is reporting: “Avaya switching salaried employees from pension to 401(k) plan.” The article states that Avaya Inc. is ending its defined pension plan for U.S. salaried employees and instead beefing up its 401(k) plan, affecting approximately 8,300 salaried employees in the United States. According to the article, Avaya’s pension plan had assets of $1.94 billion and was underfunded by $798 million as of Sept. 30, 2002.

The Philadelphia Inquirer today reports: “United struggling with pension options.” The article states that “United Airlines, seeking ways to ease a huge pension burden before emerging from bankruptcy, faces several unpleasant options, including, as a last resort, terminating the plans, according to industry analysts.” The article also reports that “United is pushing Congress for changes to pension-funding laws, particularly regarding the deficit-reduction contributions, which have the effect of front-loading the financial burden.” Another article on the subject at RockyMountainNews.com: “Retired pilots defend pensions: Ex-United workers seek help to ensure benefits aren’t cut.”

On Wednesday, FASB pushed back the target date for issuing new rules to force companies to expense options as they began discussions on the controversial topic of stock option valuation. Reuters reports: “US accounting board tackles option valuation.” According to the article, FASB said it expected to issue a proposed rule in the first quarter next year and a final rule by the third quarter after that. It also debated the merits of various models to value stock options, “stating a preference for a model other than the widely used but often-criticized Black-Scholes method.” The San Mercury News reports on the action taken as well: “FASB delays stock-option proposal.”

EBIA Weekly in their newsletter is reporting that the Treasury Department has released two letters, Treasury Tax Correspondence, 2003 TNT 172-44 and 2003 TNT 172-45, indicating that it is reconsidering the issue of whether reporting on Form 1099 is required for payments to health care providers with debit/credit cards under health FSAs and HRAs. The letters state that Treasury is reviewing “whether the reporting requirement is appropriate under existing law [and] the appropriateness of applying any reporting requirements on a prospective basis.” As discussed here in a previous post, Harry Beker, Esq., of the Office of Chief Counsel with the IRS, speaking at a conference of the Employers Council on Flexible Compensation (ECFC), announced that officials were looking into a possible waiver of the 1099 requirement.

Mike O’Sullivan at Corp Law Blog tells you why you need a copy of the ABA Model Stock Purchase Agreement With Commentary in a post today. Thanks, Mike, for pointing out a good resource.

Yesterday, the IRS issued a press release announcing the issuance of final regulations governing the taxation of split-dollar life insurance arrangements and the issuance of Revenue Ruling 2003-105 declaring that “certain prior administrative guidance on split-dollar life insurance arrangements is now obsolete.” The press release gives a summary of the new rules:

The final regulations provide that the tax treatment of split-dollar life insurance arrangements will be determined under one of two sets of rules, depending on who owns the policy. If the executive owns the policy, the employer’s premium payments are treated as loans to the executive. Consequently, unless the executive is required to pay the employer market-rate interest on the loan, the executive will be taxed on the difference between market-rate interest and the actual interest. If the employer is the owner, the employer’s premium payments are treated as providing taxable economic benefits to the executive. The economic benefits include the executive’s interest in the policy cash value and current life insurance protection.

More on this later . . .

In a previous post here this week, I discussed the Sanders amendment which was passed by the House on Tuesday and added to the Fiscal 2004 Transportation-Treasury Appropriations Bill. The Amendment would prohibit any funds in the bill from being used to assist in overturning the IBM cash balance plan decision handed down by the federal district court of Southern Illinois last summer. One comment made on the House floor in support of the amendment: ” . . we should not mess with this. . . I do not think the Congress should be messing with this. I do not think the administration should be messing with this. I think this should be left to the courts.” (The House member quoted also called the cash balance plan controversy an “explosive political issue.”)

Ironically, in a CNBC interview with Seventh Circuit Judge Richard Posner entitled “Richard Posner discusses his position on law, pragmatism and democracy” on Monday, July 28th (prior to the issuance of the opinion in the Xerox case, Berger et al. v. Xerox, which was written by Judge Posner) Mario Bartiromo for CNBC asked Judge Posner about his views regarding employees suing pension funds over reduced payments. His response was that with all of the litigation and all of the “detailed regulations of pension funds,” Congress might have to “step in at some point and change the rules.” Interestingly enough, as mentioned here before, Judge Posner may end up being one of the judges who will decide the appeal in Cooper et al. v. IBM Personal Pension Plan et al. since the case will go to the Seventh Circuit on appeal.

Well, it seems that Congress would like the courts to unravel the mess, and perhaps the feeling of some judges is that Congress should unravel the mess . . .

Towers Perrin has called on Congress to unravel it in this press release: “Towers Perrin Calls for Legislative Clarity for Cash Balance Plans.” Quote of Note:”It is in everyone’s interest for there to be clarity with respect to the rules governing cash balance plans. For years, the private pension system in the U.S. has been a key pillar of retirement security for millions of Americans. Confusion around the appropriate guidelines for the design of cash balance plans can only undermine private pensions and threaten this security . . .We believe that Congress should act immediately to clarify the past and future status of these plans.”

Links to the daily Federal Register are over on the right. (Thanks to a reader for the suggestion!) HTML version or PDF version is your choice. If the Federal Register contains items related to benefits, I will most likely comment on them here.

The Wall Street Journal is reporting today in this article–“California Considers Health-Care Bill“–that “California is close to making businesses pay for a new step toward universal health insurance, by requiring any companies with 50 or more employees to either provide them insurance or pay into a state pool to purchase the coverage.” Another article from the Kaisernetwork.org–“California Legislature Close To Passing Employer-Sponsored Health Insurance Bill“–reports:

The measure would require employers with 200 or more employees to provide health coverage to workers and their dependents by 2006 to avoid paying into the fund. Businesses that employ 50 to 199 workers would have to offer health insurance to employees only by 2007. Employers with 20 to 49 workers would be exempt from the law unless the state provides tax credits to offset the cost of health benefits, and those with 20 or fewer employees would be exempt from the law. The bill would cap employee contributions to premiums at 20%.

The Wall Street Journal article says that passage of the bill would be a “wake-up call” for one of the most important social issues facing the country today.

A previous post has discussed how the proposed legislation might be subject to challenges under ERISA.

In this <a href="http://online.wsj.com/article/0,,SB106314879871384800-search,00.html?collection=wsjie/30day&vql_string=pension(article-body)”>article from the Wall Street Journal yesterday, it was reported that on Monday, an IBM lobbyist sent a document called the “Treasury’s statement of opposition” to various lawmakers’ staffs. The document, allegedly “on official Treasury letterhead,” noted “Treasury Strongly Opposes the Sanders Amendment” and advised lawmakers to oppose the amendment, which it said “will weaken the defined benefit system.” The Treasury department has denied that they issued the document. Today the Wall Street Journal is reporting: “Inspector General To Look at Reports On IBM Lobbyist.” The article states that the “Treasury Department asked its Office of Inspector General to look into reports that an International Business Machines Corp. lobbyist distributed a document that may have been doctored to show Treasury opposed controversial pension regulations.” More reports:

• Washington Post: “Treasury Disavows Pension ‘Talking Points’”
• Reuters: “Treasury watchdog to probe pension document issue.”
• Times Argus Online: “U.S. Treasury secretary will look into IBM pension lobbying.” Minneapolis Star Tribune: “Gutknecht criticizes IBM over document.”

An IBM spokesperson is saying, “we believed that we were redistributing a public document that we had understood was widely distributed by Treasury.”

You can read more about the Sanders amendment, approved by the House on Tuesday, which would bar the Treasury department from writing regulations that are contrary to the finding of a federal judge that cash-balance plans violate age-discrimination laws in this previous post.