Author: jfortenberry@fortenberrylaw.com

This post by Larry Bodine from the LawMarketing Blog provides some great information for lawyers on managing client relationships.

Chief United States District Judge G. Patrick Murphy for the Southern District of Illinois rendered an opinion in the IBM cash balance plan case, Cooper et al. vs. the IBM Personal Pension Plan and IBM Corporation. The following news sources are reporting on the case:

• USA Today: “IBM loses closely watched pension lawsuit“
• Reuters: “IBM loses pension plan lawsuit, will appeal“
• The Wall Street Journal: “IBM Pension-Plan Changes Are Ruled Discriminatory: Finding Is Viewed as Boon To Older Workers in U.S.” (Subscription required.)
• The Associated Press via Yahoo! News.com: “IBM Loses Closely Watched Pension Lawsuit.”
• Dow Jones Business News via Yahoo! News.com: “Attorney: Judge Rules Against IBM in Pension Case.”
• San Jose Mercury News: “IBM Loses Closely Watched Pension Lawsuit.”

More to come on this . . . In the meantime, you can read previous posts about the case here.

This article by Reish, Luftman, McDaniel & Reicher highlights one of the problem areas for plan administration: “What Difference Does It Make If I Hire a Former “Leased” Employee?” Hiring “leased” employees can lead to plan compliance violations since employers are required by IRS rules to credit service for purposes of eligibility and vesting back to the date the “leased” employee began work for the employer as a “leased” employee, i.e. you cannot begin crediting service as of the date of hire as a “regular employee.” One of the problems with this requirement is the record-keeping involved. Many employers simply do not keep records of service for their “leased” employees, rather the vendors have these records, which are often difficult to obtain. If an employer is audited by the IRS where this problem is discovered, the employer would likely be required to give the affected employees the benefits (adjusted for earnings) and vesting credit they would have received if they had been correctly credited with their service as “leased” employees. The employer would have to reconstruct records as far as possible and provide the service crediting that is required under the rules.

In the case highlighted in the article, the employer, with the help of legal counsel, most likely utilized the IRS’s Employee Plans Compliance Resolution System (under which an employer can voluntarily submit a plan to the IRS which has compliance violations, correct those violations, pay a minimum sanction, and obtain approval for the correction from the IRS) and was able to come up with what could be termed an “educated guesstimate” which satisfied the IRS, even though the employer did not have records for the service.

Today’s Federal Register.

The IRS issued Revenue Ruling 2003-98 which provides guidance concerning the application of section 83 of the Internal Revenue Code where stock options are granted and the company granting the options is later acquired.

The University of Pennsylvania’s Wharton School Newsletter has published this article of interest: “Underfunded Pensions: Causes, Cures and Questions.”

“Our pension mess could be worse.”: the article by Janet McFarland for Globe and Mail talks about how the Canadian “pension plan mess” is better off than the U.S. “pension plan mess.” The article highlights how Canadian companies seem to be using more realistic assumptions for future investment returns than U.S. companies.

USA Today reports: “Stock options showdown will affect future of U.S. economy.” The article talks about research by economist Stephen Bryant and his colleagues, published in The Journal of Business in October 2000, which found that, unlike options, “restricted stock, due to its linear payoffs, is relatively inefficient in inducing risk-averse CEOs to accept risky, value-increasing investment projects.”

PlanSponsor.com reports: “Companies Asking Financial Professionals to ‘Subcertify’ Financial Data.” The article refers to a survey by the Association for Financial Professionals which reports that “approximately a third of corporate financial professionals are now being asked to “subcertify” data used in Securities and Exchange Commission (SEC) reports, as senior financial executives look for added Sarbanes-Oxley reporting assurances.” You can access the actual AFP survey here: “Sarbanes-Oxley One Year Later: Sign-Offs on Financials “Trickle Down” to Other Finance Staff: AFP survey reveals widespread practice of ‘subcertification.‘” The survey found the following areas were the most common areas where financial professionals were being asked to subcertify:

• specific disclosures in Management’s Discussion and Analysis or footnotes
• specific account balances
• compliance with company policies and procedures
• adequacy of internal controls in their department/area
• compliance with company code of conduct

(If you recall, there has been a great deal of discussion here over the certification requirements in relation to the Form 11-K filings for employee benefits plans. You can access the previous postings on that subject here.)

UPDATE: Mike O’Sulllivan for CorpLawBlog also reports on the survey here.

Also, regarding another article in the Wall Street Journal reported on here–“Most Workers Are in Dark on Health of Their Pensions: US Airways Killed a Plan That Pilots Had No Inkling Was in Financial Danger” (a change in the title has occurred since the article was published–the article is now entitled “Firms Had a Hand in Pension Plight”), today’s Wall Street Journal carries a response from David N. Siegel, President and CEO of US Airways: “The Pension Fund War at US Airways.” (Subscription required.) The hard copy edition of today’s Wall Street Journal also carries an additional comment from a retired US Airways pilot.

Today’s Federal Register.

Cigna is selling its $2 billion pension business as reported by Bloomberg.com: “Cigna Hires Goldman to Sell Pension Unit, People Say.”

Norman Cohen for FT.com reports: “Arcane actuarial science widens political divide over pensions.” The article quotes Steven Kandarian, the chief executive of the PBGC, who in a speech last week, outlined four choices for policymakers considering the future of the PBGC:

The first option, he says, is to do nothing. The second and third options, increasing substantially the premiums paid by healthy employers or significantly increasing company contributions, are likely to be aggressively opposed by employers. The fourth, diplomatically described as “general revenue transfer” – a bailout by the taxpayer – is unlikely to win the support of the Bush administration.

Fox News is carrying this article regarding William Donaldson’s interview with the Associated Press yesterday: “SEC Chief: Crackdown Calming Investors.” Regarding the pension funding issue, the article quotes Donaldson, chairman of the SEC, as saying in the interview that “[s]ome corporations have made overly optimistic projections of their future earnings, allowing them to boost short-term profits with money that otherwise should have gone to shore up pension funds.” With respect to stock options, the article quotes Donaldson as saying that “some companies still ‘haven’t gotten the message’ when it comes to lavishing pay packages and stock options on executives.”

In the meantime, Sun Microsystems Inc. is granting stock options to a number of senior executives as reported by Reuters: “Sun grants stock options to CEO, other executives.” The article reports that the news came even after “shares of Sun fell 19 percent after it reported quarterly earnings below Wall Street expectations and analysts wondered when it might recover from the technology spending downturn.”

On the other hand, today’s edition of the Wall Street Journal is reporting: “Companies Get Stingy With Stock Options: Many Employees Will Find Their Awards Sharply Reduced; When to Cash In Old Ones.” (Subscription required.)