Author: jfortenberry@fortenberrylaw.com

Today’s Federal Register contains a Department of Labor (“DOL”) Notice of Proposed Amendment to Prohibited Transaction Exemption (PTE) 84-14 for Plan Asset Transactions Determined by Independent Qualified Professional Asset Managers. The original PTE 84-14 provides an exemption from the prohibited transaction rules under ERISA for various parties that are related to employee benefit plans who engage in transactions involving plan assets if, among other conditions, the assets are managed by “qualified professional asset managers” (QPAMs), which are independent of the parties in interest and which meet specified financial standards. The Notice issued today proposes certain amendments be made to PTE 84-14.

The reason behind the proposals, according to the Notice, is that a number of interested persons had expressed concerns over difficulties encountered in complying with several conditions contained in PTE 84-14. According to the Notice, the difficulties have to do with consolidation in the financial services industry and the large size of the resulting institutions, so that many financial institutions have found it more difficult to ensure that section I(a) (power of appointment) and section I(d) parties “related” to the QPAM) of PTE 84-14 are satisfied. Therefore, with respect to section I(a) (power of appointment), the proposed amendment would delete the “one year look-back rule” under which the exemption would be unavailable to a party in interest if it had exercised the power of appointment within the one-year period preceding the transaction. Second, the proposed amendment would clarify that section I(a)’s power of appointment refers only to the power to appoint the QPAM as manager of the assets involved in the transaction, as opposed to any of the plan’s assets.

Interested parties are invited to make comments to EBSA regarding the proposed amendment on or before October 20, 2003. (PTE 84-14 is apparently not available online at the DOL website.)

UPDATE: The Wall Street Journal has this article about the DOL’s proposed amendment: “Labor Department to Propose More Leeway for Pension Funds.”

The Church Pensions Fairness Act, sponsored by Rep. Judy Biggert, R-Ill., would amend the Investment Company Act of 1940, the Securities Act of 1933 and the Securities Exchange Act of 1934 to permit church pension plans to invest in collective trusts. The bill is scheduled for a vote on Wednesday. You can read about the bill in this article at Focus on the Family: “House to Vote on Church Pensions Bill.“

“Delay on options expense could cost companies dearly“: Craig Gunsauley for BenefitsNews.com reports. According to a study by Buck Consultants, a client’s best strategy may be to voluntarily account for the cost of options this year before FASB releases its standards since, after Dec. 31st, FASB will likely require companies to retroactively account for past stock option awards and restate previous years’ financial statements.

Note: A previous post (which you can access here) commented on an article at CFO.com which also discussed the same Buck Consultants study.

The Street.com has a very informative article discussing problem areas in the 401(k) industry: “The Seven Deadly Sins of 401(k) Plans.”

Today’s Wall Street Journal has a very good article on a growing trend of companies offering debit/credit cards for their flexible spending account and health reimbursement arrangements: “Employers Offer New Pretax Perk: Debit Cards Allow Instant Access to Accounts for Medical Fees and Commuting Expenses.” (Subscription required.) The article reports that “[c]urrently, less than 400,000 people have flexible spending accounts with debit cards” but that the “Consumer Driven Market Report, a newsletter covering health-care financing, predicts that number will jump to 1.5 million by next April.” As you may recall, the IRS issued Revenue Ruling 2003-43 back in May sanctioning these types of arrangements.

Quote of Note: “But employers have a good reason to encourage workers to set up flexible spending accounts. The accounts reduce the taxable income of employees, which reduces the amount of money employers have to lay out in payroll taxes to fund Social Security and Medicare. Evolution Benefits Inc., Avon, Conn., which markets a debit card called the “Benny” card, reports that one of its customers generated more than $225,000 in additional tax savings during its first year of offering employees the debit card.”

Read more about these types of plans in previous posts at Benefitsblog which you can access here and in this post–“From My Notes: Harry Beker and Kevin Knopf Speak on FSAs and HRAs at the Mid-Atlantic Area Employee Benefits Conference.”

You can read Trucker Huss’s analysis of the IBM and Xerox cash balance plan decisions handed down this summer in this article: “Recent Court Cases on Cash Balance Plans.” The cases have been discussed in previous posts at Benefitsblog which you can access here and here.

Today is the official 401(k) Day.

Albert B. Crenshaw for today’s Washington Post writes: “Business Pushing Pension Change: Firms Seek to Avoid Making Large Payments to Funds.” The article reports that as Congress returns to work from its August recess, lobbyists will be pressing for a quick overhaul of the pension funding system. According to the article, Rep. John A. Boehner (R-Ohio), chairman of the House Committee on Education and the Workforce, has scheduled a hearing on this and other pension issues for Thursday.

Also regarding pensions, the Philadelphia Inquirer has this article: “Pension plans see modest increases: Managers of public-worker investments try to find the right mix of index funds and active money advisers.” The article reports that, under the direction of Alan Van Noord, chief investment officer for the Pennsylvania Public School Employees’ Retirement System, the “$42 billion-asset fund has moved $1 billion away from private money managers into low-cost accounts tied to Standard & Poor’s stock indexes since last summer.”

“Construction unions fund new development with pension money“: the St. Louis-Post Dispatch reports. The article states that, over the past decade, “organized laborers have directed hundreds of millions of dollars in pension funds to new construction and renovation in the St. Louis region.”

The Washington Times ran this op-ed by James Klein on Labor Day: “Uniting to repair pensions.” The article urges Congress to act immediately “to fix the interest rate dilemma by passing the bipartisan Pension Preservation and Savings Expansion Act introduced by Reps. Rob Portman, Ohio Republican, and Ben Cardin, Maryland Democrat” and urges the U.S. Treasury Department to “finalize rules establishing the legitimacy of cash balance and other hybrid plans.”

Finally, Robert Kuttner for Business Week has this op-ed: “The Great American Pension-Fund Robbery.” Mr. Kuttner accuses companies of employing “favorite gimmicks for creative theft of pension assets.”