Author: jfortenberry@fortenberrylaw.com

Today’s Federal Register contains the final regulations relating to golden parachute payments under section 280G of the Internal Revenue Code. The regulations which were mentioned here last Friday incorporate changes and clarifications to reflect comments received concerning the proposed regulations, primarily in these areas: the small corporation exemption, repayment of the excise tax, and the definition of change in ownership or control.

News regarding the IBM and Xerox cash balance plan decisions:

“Pension Rulings Roil Hundreds of Businesses: Companies Seek U.S. Role In Cash-Balance Plans.”: Ellen E. Schultz for the Wall Street Journal reports today. The article discusses both the IBM and Xerox cash balance plan decisions handed down late last week. (You can access previous discussions on the IBM case here and previous discussions on the Xerox case here). With respect to IBM’s plans to appeal, the article makes the point that employers will have reason to worry since the IBM appeal “will be heard in the Seventh Circuit, where it may be decided by one or more of the judges who just ruled against Xerox on appeal. These include Judge Posner, a highly regarded judge whose opinions have been cited by the Supreme Court, and a prolific writer of Erisa decisions that have had substantial impact.”

Deepa Babington for Reuters has this: “IBM ruling turns promising pension move into headache.”

Milliman USA has issued this Client Action Bulletin: “Emerging Developments for Cash Balance Plans.”

Stephen Taub for CFO.com also reports: “Court Decision Big Blow to Cash-Balance Plans.”

News regarding pension funding and accounting:

David Reilly discusses pension accounting and pension deficits in the U.K. in today’s Wall Street Journal: “‘How Much?’ Is Just First Issue On Companies’ Pension Deficits.”

Dennis Cauchon reports for USA Today in an article entitled: “Pension peril hits W.Va. hardest.” The article states that “the West Virginia teachers retirement system is the worst-funded public pension fund in the nation” and that it “has only 19% of the assets needed to pay current and future benefits.” Another article for USA Today reports: “State pensions face loss of billions.”

Lawrence B. Lindsey and Marc Sumerlin for the Washington Post make some very interesting comments regarding the pension funding crisis in this op-ed: “Herbert Hoover Pension Rules.” The article makes the point that “[j]ust as the government works to discourage contributions during good times, it also forces companies to make excessive payments during bad times.” Regarding fixes to the problem, the article states: “The best way to get out of any hole is to stop digging. Proposals in this area must specifically preempt collective bargaining contracts that allow pension benefits to rise automatically, even though the plan is underfunded and the company is in trouble.”

“The Next Scrambled Nest Egg? Companies are struggling to meet their pension-plan obligations, and Washington is starting to worry. How your retirement plan could be at risk“: Jyoti Thottam for Time Online reports.

News regarding health care:

Finally, “Mandated employer health insurance gains support” in California, reports Kathy Robertson for the Sacramento Business Journal via MSNBC.com. Richard Costigan, a lobbyist for the California Chamber of Commerce, states that if the legislation is passed it will create a Pandora’s box on many levels, one of which is ERISA which makes self-insured plans exempt from state insurance laws.

You can now access the IBM cash balance plan decision, Cooper et al. v. the IBM Personal Pension Plan and IBM Corporation online here at the website for the United States District Court for the Southern District of Illinois.

In May of this year, U.S. District Judge Sven Erik Holmes of the Northern District of Oklahoma entered an order in the case of Millsap v. McDonnell Douglas Corporation, No. 94-CV-633-H, which was reported on previously here. The outcome in the case represented only the third time that employees have prevailed on a claim that a company violated Section 510 of ERISA by closing a plant with the intent to shed employees whose benefit costs were high or who were on the verge of vesting in pensions. The court approved a $36 million settlement that would require McDonnell Douglas to compensate former employees for the pension and benefits they lost when the company shut down its Tulsa, Oklahoma plant. However, the settlement was conditioned upon the Tenth Circuit Court accepting the Court’s certification of its September 25, 2002 order denying McDonnell’s motion for summary judgment on the issue of back pay. If for some reason the Tenth Circuit had not accepted the Court’s certification, then the settlement would be void according to the May 28th Order entered by Judge Holmes.

Reliable sources have reported to me that the Tenth Circuit has indeed accepted the Court’s certification of its September 25th order. Therefore, according to the settlement entered into by the plaintiffs and defendants in the case, plaintiffs are guaranteed to receive a minimum of at least $36 million recovery in the case, even if the court’s decision is overturned on appeal.

Now the issue is whether or not the 10th Circuit will rule that an award of backpay if permissible under ERISA.

“Benefits squeeze eats away at paychecks: This is not ‘just a benefits issue, it’s a business issue‘”: Mark Schwanhausser reports for the Mercury News. The article reports companies are attempting to pare down benefits costs–by reducing company matches in their 401(k) plans and by forcing workers to pay more of a share of their health care costs. The article discusses how health care costs can be “the difference between reporting a profit or loss.” Edward Lehman, a senior benefits consultant with Watson Wyatt, is quoted as saying that “[u]ntil 2003, it didn’t really hit the CFO’s or CEO’s radar screen” and how now “[i]nstead of being just a benefits issue, it’s a business issue.” The article predicts more paring back as companies asses the impact of the costs of their underfunded defined benefit pension plans.

“Lower Taxes Change Thinking on Options“: J. Alex Tarquinio reports for the New York Times on why you should consider exercising your stock options “sooner rather than later” due to tax considerations brought about by JAGTRRA (the “Jobs and Growth Tax Relief and Reconciliation Act of 2003”).

(You can read more about JAGTRRA here.)

That’s what this article is reporting at FT.com: “US pension rules make investors nervous.” The article reports that U.S. pension accounting is badly broken” and that balance sheets are “misleading.” The article states: “Of the 500 S&P constituent companies in 2002, 63 reported net pension income when their pensions were in deficit.” The article also reports that “FASB is likely to face pressure if IASB, the international accounting body, follows the path of the UK by adopting a rule that has forced British companies to disclose pension liabilities with brutal clarity.”

Proskauer Rose has published this article in a Client Alert: “IRS Issues Final Regulations on Catch-Up Contributions and Proposed Regulations on Optional Forms of Distribution in Defined Contribution Plans.”