Month: June 2003

There was a very interesting article today on the front page of the Wall Street Journal which CorpLawBlog reports on here: “As Some Decry Lavish CEO Pay, Joe Bachelder Makes It Happen.“

McDermott, Will & Emery provides this analysis: “IRS Expands and Updates Employee Plans Compliance Resolution System.”

This Western District of North Carolina case provides a lesson in how mistakes can often lead to big problems in the plan administration arena. Thankfully, the court allowed the mistake to be rectified, but not without a great deal of legal cost. This article at EBIA Weekly comments on the case.

The case involves the following unfortunate facts:

Mr. Neal was an employee of General Motors and a participant in the GM Plan, for which he designated his wife as the sole beneficiary. They were later divorced. Pursuant to the terms of their divorce, Mr. Neal and his former spouse signed a Qualified Domestic Relations Order (QDRO), which provided that the former spouse (as “Alternate Payee”),would receive 50% of Mr. Neal’s total vested account balance in the GM Plan.

The opinion states that, upon Fidelity’s receipt of the QDRO, “Fidelity failed to remove” the former spouse’s name as sole beneficiary under the GM Plan, which left intact the existing 1992 Beneficiary Form in Fidelity’s database. Accordingly, upon Mr. Neal’s death, Fidelity declared the former spouse to be the sole beneficiary and established a beneficiary account in her name and transferred all of the remaining GM Plan assets into that account. Subsequently, the former spouse requested and received a complete liquidation and withdrawal of the entire balance from that account. Fidelity later, after determining that the former spouse was not the correct beneficiary for a portion of the account, contacted her and later her estate, requesting that the incorrectly disbursed assets be returned.

In holding for GM and Fidelity, allowing recovery of the payment made in error to the former spouse, the court stated:

“Having determined that a federal common law claim of unjust enrichment is appropriate under ERISA when the facts at issue accord with the archetypal unjust enrichment scenario, and its application would further the plan contract while continuing to advance ERISA policy objectives, and found all of these elements to be present in the instant case, the court holds that it is appropriate to fill in the interstitial gaps of ERISA by allowing a federal common law remedy of unjust enrichment to lie.”

Comment: It is interesting to note that there is no mention of whether or not Mr. Neal failed to file a new beneficiary designation form with the Plan as was discussed in a case reported on by EBIA Weekly here which produced a different result. The North Carolina district court seems to focus on a failure by Fidelity to remove the former spouse as sole beneficiary under the Plan and emphasized this language which was contained in the QDRO Approval Guidelines (i.e. QDRO procedures):

“In the event that the [QDRO] contains language divesting the Alternate Payee of all right and interest in the Participant’s account under the Plan or waiving such right and interest (with the exception of the amount awarded under the Order), Fidelity will interpret this language as voiding any beneficiary designation completed by the Participant prior to the issuance of the Order to the extent that the Alternate Payee is named as beneficiary.”

Today’s edition of the Wall Street Journal contains these three articles on pension funding and accounting:

• “FedEx’s Accounting for Pensions Puts Spotlight on Opaque Rules“, an article by Tiffany Kary which highlights how pension accounting is causing concerns among Wall Street analysts.

• “A Pension ‘Guaranty,'” an op-ed on how the PBGC’s deficit could become a crisis if Congress does not act.

• And this very useful article by Jonathan Clements for those investing their 401(k) assets: “The Copycat School of Investing: Running Your Retirement Plan Like a Pro.“

McDermott, Will & Emery has published this article: “Ninth Circuit Case Creates Deduction Opportunity for Companies with ESOPs.” The article discusses this case: Boise Cascade Corp. v. U.S., No. 01-36086 (9th Cir. 5/20/2003), in which the Ninth Circuit held that payments made by a corporation to redeem shares of its stock held in an Employee Stock Ownership Plan (“ESOP”) and distributed by the ESOP to participants were deductible under section 404(k) of the Internal Revenue Code (the “Code”). The holding was directly contrary to an IRS holding in Rev. Rul. 2001-6 that, under Code section 162(k), a corporation could not deduct amounts paid or incurred in connection with the redemption of its stock.

McGuire Woods LLP also has this report on the case and makes the point “that dividends that are deductible under Code section 404(k) cannot be rolled over to IRAs by participants.”

Today’s Federal Register is here.

This article at Bloomberg.com: “Bush’s Budget Nominee Says No New Tax Cuts Planned.” Regarding the economy, the article reports:

“The economy is projected to grow at a 3.5 percent annual rate in the third quarter and improve to a 3.7 percent pace in the last three months of the year, according to the consensus estimate of 53 economists surveyed this month by Blue Chip Economic Indicators. That would follow an expected 2 percent growth rate this quarter.”

Bill Mann for the Motley Fool has this very interesting article: “GM’s Pension Peril.” The article discusses GM’s $13 billion debt offering to fund its pension liabilities which was discussed in a previous post here. Mr. Mann writes:

“GM is sort of the worst case scenario of pensions, but its funding problems and its solutions are instructive to investors in any company with a pension fund. It ought to also serve as a warning. The company you hold, or the one you are analyzing, may have an enormous pension liability that you cannot see on the balance sheet or income statement, but is instead buried in the footnotes.”

On the same subject, Reuters has this article by Dena Aubin: “Pension gap unlikely to spur US debt issuance wave.“

Very interesting post by Steve Covell suggests some blawgers may be “frustrated novelists.”

CorpLawBlog here and today’s posting at TheCorporateCounsel.net Blog discuss how companies are for now providing the 906 certification with their SEC Form 11-K filings, as evidenced by the filings that are coming in. The subject has been discussed in previous posts which you can access here.

Seyfarth, Shaw posts this article: “Statutory Option Regulations Give Welcome Clarification.”