Author: jfortenberry@fortenberrylaw.com

The Associated Press reports via Newsday.com: “House Bill Changes Church Pension Laws.” The legislation (H.R. 1533) passed the House by a 397-0 vote and would amend current securities laws so that church pension plans would be able to participate in “collective trusts” for investment purposes. Normally, secular pension plans diversify their holdings by investing a portion of their portfolios in rental real estate and other private investment offerings. Frequently, pension plans make these investments by joining other pension plans in a collective trust fund that is created and managed by a financial institution solely as an investment vehicle for pension programs. Current securities laws have prohibited church plans from participating in these arrangements.

You can read more about the bill here. If anyone has any insight into why these rules have been different for church plans, I would be interested in knowing the history.

The Associated Press reports via Newsday.com: “House Bill Changes Church Pension Laws.” The legislation (H.R. 1533) passed the House by a 397-0 vote and would amend current securities laws so that church pension plans would be able to participate in “collective trusts” for investment purposes. Normally, secular pension plans diversify their holdings by investing a portion of their portfolios in rental real estate and other private investment offerings. Frequently, pension plans make these investments by joining other pension plans in a collective trust fund that is created and managed by a financial institution solely as an investment vehicle for pension programs. Current securities laws have prohibited church plans from participating in these arrangements.

You can read more about the bill here. If anyone has any insight into why these rules have been different for church plans, I would be interested in knowing the history.

Stephen Schurr writes an interesting article for The Street.com: “The Seven Deadly Sins of 401(k) Plans.” I concur with Mr. Schurr’s comments regarding the lack of clear guidance for plan fiduciaries of 401(k) plans. The article quotes Don Trone, president and founder of the Foundation for Fiduciary Studies, a nonprofit group that offers training for retirement plan sponsors and providers, as stating:

“If the chairman of a company’s 401(k) committee called the Department of Labor and asks, ‘What should I do to make sure I fulfill all my responsibilities?’ There would be no answer, other than act prudently,” Trone said. If the same chairman then hired an investment adviser to handle the 401(k) plan and “the adviser calls the Securities and Exchange Commission and asks the same question, there would be no real answer,” Trone said. “The industry has never defined the details of a prudent investment process of fiduciaries.”

Comment: It is important to note that the courts have provided some guidance in this whole area, by emphasizing that ERISA fiduciaries must engage in prudent process and procedures in order to fulfill their fiduciary obligations under ERISA. The In re Unisys Savings Plan Litigation case (173 F3d 145 (3rd Cir.), cert. denied, 120 S. Ct. 372 (1999), is a good example. In that case, the plan fiduciaries had invested in Executive Life GICs as an investment for one of its funds, but were held not to have violated their fiduciary duties when the GICs became worthless because the court found that they had engaged in prudent conduct in selecting the investments. (An example of some of the prudent processes mentioned by the court in Unisys: the fiduciaries had hired an experienced investment consultant, and, in evaluating potential insurance companies from which to purchase GICs, had obtained information and ratings from Standard and Poor’s and A.M. Best ratings services that evaluated the stability and potential profitability of the various types of companies. There was also testimony that the fiduciaries had kept abreast of developments in the GIC industry by reading trade publications and journals and that they had available to them SEC forms 10K and 10Q to review prior to making their selection.)

Despite the lack of clear guidance, it is important for ERISA plan fiduciaries to become educated as much as possible and engage in prudent process and procedures in fulfilling their duties and responsibilities under ERISA.

I highly recommend reading How Appealing‘s 20 Questions for Circuit Judge William Curtis Bryson of the U.S. Court of Appeals for the Federal Circuit posted yesterday. Circuit Judge Bryson reports how suprising it is that so many lawyers are unprepapred for oral argument:

The thing that most surprises me the most about oral arguments is how unprepared lawyers are. By and large, the judges on our court prepare pretty thoroughly for oral argument (my experience is that the same is true of other federal appellate courts as well). As a result, a lawyer’s lack of preparation sometimes has the awkward consequence that the lawyer knows less about the case than the judges do.

He also states that if he were arguing before the court, his opening line in every case would start: “The central issue in this case is . . . .”

Finally, I greatly enjoyed Judge Brysons’s comments about his love of astronomy:

There is something magical to me about looking through the telescope at a galaxy cluster hundreds of millions of light years away containing trillions of stars in a single eyepiece field. When you are taking in photons that have been traveling for half a billion years on their way to your retina, it puts into some perspective questions such as whether particular regulatory action was consistent with the agency’s authorizing statute and whether the statute of limitations was equitably tolled.

The New York Times ran this interesting article yesterday: “In These 401(k)’s, Workers Do Less to Save More.” The article discusses how employees are not saving enough, despite their desire to do so:

New research from the field of behavioral finance, which draws on psychology and economics, provides data on the disconnect between the desire to prepare for retirement and the failure to do so. Researchers have found that for many investors, the task of sifting through pamphlets about their company’s 401(k) plans ranges from unpleasant to horrible. Some people end up doing nothing when confronted with the need to pick savings goals, select appropriate asset allocations, screen investment choices and rebalance their portfolios regularly.

The article reports that when employees must open their own 401(k) plans, “the participation rate for workers with less than 12 months of tenure is 50 percent, compared with 90 percent when employees are enrolled automatically but may opt out.” According to the article, one solution might be to “protect people from themselves” by providing for automatic enrollment percentages which increase slightly each year.

A slightly different picture is presented in this article from the Des Moines Register–“Events puts icing on 401(k) Day“–in which a study by the Principal Financial Group Inc. showed that “of the 2 million people enrolled in Principal 401(k) plans, participation increased 2 percent from 2001 to 2002″ with participants also increasing their contributions from 6.3 percent to 6.5 percent of pay.” However, the study also found that “42 percent of eligible employees under age 35 do not participate in 401(k) plans.”

David R. Francis for the Christian Science Monitor writes: “Pension funds pinched, stirring calls for reform.” The article reports: “Of the companies in the Standard & Poor’s 500 index, 353 offer traditional pension plans, as opposed to voluntary savings plans for employees such as 401(k)s. Of those firms, at least 322 pension plans were underfunded as of mid-June.”