Month: April 2003

A report by the S&P 500 indicates 2002 pension figures show that continuing bear markets have resulted in pension shortfalls for 308 companies. Only 35 reported surpluses, among which are AT&T Corp., General Mills, Prudential Financial, and Verizon Communications. The 2002 S&P’s Core Earnings bore the impact of the bear market with pension adjustments taking $8/share of earnings.

In connection with a hearing scheduled by the House Committee on Ways and Means for April 30, the Joint Committee on Taxation has issued a report entitled Present Law and Background Relating to the Funding Rules for Employer-Sponsored Defined Benefits Plans and the Financial Position of the Pension Benefit Guaranty Corporation (“PBGC”). The Committee will be addressing the underfunding issues related to defined benefit plans which is currently causing such great concern for so many companies.

Providian Financial announced that it has settled a class action lawsuit which contends that the Plan should not have purchased or held company stock during 2001 and challenges the accuracy and completeness of information provided to Plan participants about company stock. Providian has consistently denied the allegations as factually untrue and legally without merit. The settlement, which is subject to court approval, provides for a payment of $8.6 million, including attorney fees and will be funded by Providian’s insurance carrier. Lynn Sarko of Keller Rohrback and Jane Stranch of Branstetter, Kilgore, Stranch & Jennings represented the plaintiffs.

An article by Plan Sponsor.com highlights how litigation in the pension plan arena will continue to be on the rise. A Dow Jones Report indicates the Center for Economic and Policy Research did a study, commissioned by the United Steelworkers of America, which criticizes pension fund managers for continuing to invest in equities during the late 1990’s. The study analyzes Federal Reserve Board data and estimates that public and private pension lost more than $1 trillion since 1997. The study accuses pension fund managers of failing to monitor investments closely enough.

The Ways & Means Committee of the House of Representative will be meeting today to address the pension funding issues which many companies are facing.

The Wall Street Journal reports in an article that, even though many qualified pension trusts are underfunded due to the weak stock market and low interest rates, a number of companies are funding their nonqualified pension trusts for executives.

The Financial Accounting Standards Board voted April 22, 2003 to require companies to treat their employee stock options as “expenses” on their income statements. Apparently, this move by FASB is only an initial decision that will be followed by a more formal proposal later this year. Under curent rules, companies can either choose to disclose the theoretical value in footnotes or treat the value of options as a compensation expense in their income statements. After Enron, many companies have already voluntarily agreed to expense options on their income statements. The problem seems to be how to value the options and critics of this decision by the Board say that this change in accounting treatment will make financial statements less reliable because of the difficulty in coming up with an identifiable value for the options.

Check out the following DOL Field Assistance Bulletin which allows plan fiduciaries of public companies to deny participant loans to officers and directors without violating certain requirements of ERISA: Field Assistance Bulletin 2003-1

Section 402 of the Sarbanes-Oxley Act of 2002 added a new subsection (k) to Section 13 of the Securities Exchange Act of 1934 which makes it unlawful for any issuer to to make loans to directors or executive officers. Many have been concerned that this provision might be interpreted to prohibit loans to be made to directors or executive officers under qualified employee benefit plans. With no guidance from the SEC on the subject, practitioners have been promoting the view that qualified plan loans should not violate the Act. However, with the push from certain Senators and the SEC for a broad interpretation of the Act, some have felt that a more cautious approach should be taken–that of prohibiting new qualified plan loans to executive officers. Before this guidance issued by the DOL, many thought that if you took such a cautious approach you might violate a provision of ERISA which requires that all loans be made available to participants and benefiticiares on a reasonably equivalent basis. However, the DOL makes it clear that such action to disallow a participant loan based on a reasonable question concerning the legality of the loan would not be a failure to provide loans to all participants on a reasonably equivalent basis. The question now becomes whether or not this DOL guidance will open the door for the SEC to take an overly broad interpretation of the Act, i.e. that of prohibiting loans to executive officers under qualified plans. . .

Welcome to Benefitsblog, a tax, benefits and ERISA law commentary and news filter, written and maintained by B. Janell Grenier, Esq., of the Grenier Law Office, a Philadelphia-area law firm. Ms. Grenier has over 20 years of experience counseling clients in all aspects of employee benefits law, including the design, drafting, implementation and administration of qualified and nonqualified retirement plans, flexible compensation programs, welfare benefits plans, and fiduciary law aspects of ERISA. Her clients have included small private start-up companies, family-owned businesses, Fortune 100 companies, as well as tax-exempt and governmental entities. Ms. Grenier is admitted to practice law in the following states: Pennsylvania, Missouri, Oklahoma and Utah.

Ms. Grenier’s practice has involved her in extensive plan compliance work on behalf of clients, including plan compliance audits, submitting plans for correction under the IRS’ Employee Plan Compliance Resolution Program, obtaining prohibited transaction exemptions and advisory opinions from the Department of Labor and private letter rulings from the Internal Revenue Service. Her experience also includes representing Plan fiduciaries in governmental and adversarial proceedings and protection of Plan fiduciaries through ERISA fiduciary compliance programs.

Previous experience includes the following: Special Counsel, Morgan Lewis & Bockius LLP (Philadelphia, Pennsylvania), Of Counsel, Ray, Quinney & Nebeker (Salt Lake City, Utah), Associate, Stinson, Morrison & Hecker LLP (Kansas City, Missouri), and Partner, Hartzog, Conger Cason & Neville (Oklahoma City, Oklahoma).

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