Month: July 2003

EBIA Weekly reports on another divorce case–Keen v. Weaver, 2003 Tex. LEXIS 82 (June 19, 2003)–in which the participant designated the former spouse as the beneficiary prior to the divorce but then failed to change the designation afterwards. In this opinion, the Supreme Court of Texas affirmed the lower court’s decision to remove the former spouse as beneficiary, but it did so by applying “federal common law” and determining that the former spouse’s waiver of plan benefits under the divorce decree was enforceable under the federal common law of waiver. A dissent argued (in agreement with a DOL Amicus Brief filed in the case) that a federal common law of waiver should not be applied to the issue after the U.S. Supreme Court case of Egelhoff v. Egelhoff which held that ERISA preempts state statutes which operate to revoke a participant’s beneficiary designation in favor of a spouse.

Please see this previous post here discussing a case where QDRO procedures under the plan seemed to fix the problem. EBIA Weekly recommends to plan sponsors that they consider using the judicial procedure of interpleader when a participant fails to change the beneficiary designation card naming his or her spouse after a divorce and there is a conflicting claim. One might also consider including language in the plan and the QDRO procedures, such that, in the event 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, that the plan administrator 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.

The IRS has issued two revenue rulings as follows:

Revenue Ruling 2003-70 answers two questions in the COBRA arena:

1. If, as a result of a transfer of stock, two previously separate employers are treated as a single employer for purposes of COBRA, how is the number of employees who were employed by the combined entity during the preceding calendar year determined for purposes of applying to the combined entity the small employer plan exception under COBRA (fewer than 20 employees during the preceding calendar year)? Answer: The group health plan maintained by the combined entity ceases to be excepted from COBRA as a small-employer plan as of the date of the stock transfer.

2. If one employer acquires substantial assets (such as a plant or division or substantially all the assets of a trade or business) of another employer, when are the employees associated with the acquired assets taken into account for purposes of applying the small employer plan exception to the acquiring employer? Answer: The group health plan maintained by the acquiring company continues to be excepted from COBRA as a small-employer plan for at least the remainder of the year of the asset acquisition.

Revenue Ruling 2003-85 answers the following question:

If a defined benefit plan is terminated, and an amount in excess of 25 percent of the maximum amount otherwise available for reversion is transferred from the terminating defined benefit plan to a defined contribution plan, what is the tax treatment of the amount transferred to the defined contribution plan and of any reversion to the employer from the terminating defined benefit plan? Answer: The direct transfer from Plan A to Plan B of $20X, an amount that is at least 25 percent of the maximum amount which the employer could receive as an employer reversion, is treated as follows: the amount transferred is not includible in the gross income of the employer, no deduction is allowable with respect to the amount transferred, and the amount transferred is not treated as an employer reversion for purposes of § 4980. The $40X that the employer receives is subject to the 20 percent excise tax under § 4980(a) and is includible in income under § 61.

The front page of today’s edition of the Wall Street Journal has this article by Ellen Schultz and Theo Francis: “Most Workers Are in Dark on Health of Their Pensions: US Airways Killed a Plan That Pilots Had No Inkling Was in Financial Danger.” The article reports that “[o]ne source of pension information, company filings to the Securities and Exchange Commission, is of little use to employees” because most big companies have multiple pension plans which are lumped together in their filings. The article reports that without adequate information, employees and retirees face a risk that the employer “can mask the deteriorating health” of the plan and “take steps to cut benefits or kill the plan” or on the other hand, exaggerate the ill health of the plan “to justify reductions in retirement benefits.” The article discusses in detail how the latter is what happened in the US Airways case.

“Qwest workers’ retirement plummets”: Rocky Mountain News.com reports that an annual regulatory filing by Qwest reveals that both the Department of Labor and the Internal Revenue Service are examining Qwest’s 401(k) retirement savings plan. The plan is also the subject of employee lawsuits.

“Former Kmart execs want suit to be dismissed”: Gary Haber for the Detroit Free Press reports on the Motion to Dismiss heard yesterday by U.S. District Judge Avern Cohn in Detroit in the 401(k) class action lawsuit brought by Kmart employees.

Today’s Federal Register contains amendments to regulations relating to the requirement under section 274 of the Internal Revenue Code to substantiate business expenses for traveling while away from home and final regulations relating to controlled foreign partnerships.

The New York Times has this article by Mary Williams Walsh: “G.M. Profit Gets Lift From Pension Deal.”

On the SEC’s Announcement Yesterday:

Bloomberg News for the New York Times reports: “S.E.C. Passes Rule Changes for Options.”

Reuters provides this report: “Shareholders Must Vote on Stock-Based Pay.” The article discusses how “inducement awards” — or signing bonuses — for new executive hires, as well as some stock-based pay plans related to mergers and acquisitions and some pension plans, are exempted from the rules.

“Executive stock options limited”: the Sacramento Bee reports on how some are applauding the SEC’s action yesterday requiring shareholder approval for stock option plans, some are calling for more action, and some are saying the SEC’s action will hurt start-ups.

Amy Strahan Butler for Bloomberg News via the Seattle Times also reports: “Investors gain stock-option clout.” Under the NYSE’s new listing standards, brokers who hold securities on behalf of customers wouldn’t be allowed to vote on equity-compensation plans without instructions from the owners of those shares. The article reports that “[s]ome companies fought that provision, saying it would make it hard for them to get a quorum of shareholder voters since brokers have custody of most customer shares.” The article quotes Ann Yerger, deputy director of the Council of Institutional Investors, which represents funds managing a total of more than $2 trillion, as applauding the new rule for brokers since brokers “always vote for management” and this constitutes, she says, “stuffing the ballot box.”