Month: July 2003

McDermott, Will & Emery has posted this article on the final catch-up regulations: “IRS Issues Final Regulations for Catch-Up Contributions.“

Today’s Federal Register.

Rachel Emma Silverman for the Wall Street Journal has this article: “Retirement Plans Reduce Choices: After Years of Expanding Investment Options, Companies Decide Fewer Funds May Be Better.” (Subscription required.) The article reports how “there is an emerging sense that employees may actually be more inclined to put money in their retirement plans if they have fewer choices.” (See previous post on this subject here.)

The New Jersey Star Ledger has this article: “The lump-sum pension vs. a check-a-week for life.” The article discusses how the lump sum payment option for participants right now is more attractive due to the low interest rates which can produce higher lump sum amounts, but that if Congress enacts proposed pension legislation, lump sum amounts would be reduced making this option less attractive for retirees.

Regarding the status of the proposed pension legislation which was approved by the House Ways and Means Committee week before last, this U.S. Newswire reports that “to the dismay of Democrats and at least one prominent Republican, the House Ways and Means Committee has not indicated that it will schedule another markup” of the bill even though it “served as the backdrop of one of the most bitter, partisan congressional debates in recent history.”

For a look at how participants of U.S. Airways are coping with the fact that their pensions have been downsized under terms of the distress termination by the PBGC, read this article by Jerome R. Stockfisch in the Tampa Tribune: “Broken Promises.”

Jill Ellswick for BenefitNews.com reports: “Scandals spur fiduciary liability premiums.” According to the article which reports on the results of a survey of the Risk and Insurance Management Society (RIMS), premiums for ERISA fiduciary liability insurance spiraled by 43% from 2001 to 2002 and rose 22% during the first quarter of this year. The article quotes John Coonan, vice president and fiduciary liability insurance product manager for Chubb Specialty Insurance, as saying that fiduciary lawsuits under ERISA are on the rise. The article also comments on how the parallel lawsuits under ERISA and the securities laws (discussed previously here) are “worrisome to underwriters” since liability exposure is basically doubled for what amounts to the same set of facts. The article comments on the exclusions which are becoming more common to mitigate risk, one of which is an exclusion for “fiduciary violations voluntarily disclosed to the Internal Revenue Service.” (Does the article mean “fiduciary violations voluntarily disclosed to the DOL” since fiduciary violations are generally disclosed to the DOL under the Voluntary Fiduciary Correction Program, and not the IRS? Or does it mean plan compliance violations disclosed to the IRS under EPCRS–which may or may not involve fiduciary violations?)

Today’s Federal Register.

“New Rules Urged to Avert Looming Pension Crisis“: Mary Williams Walsh for the New York Times reports. The article discusses the differences in the proposals of the House Ways and Means Committee and Treasury in solving the pension funding crisis, and also states that “pension managers are turning to hedge funds, real estate investment trusts, emerging markets and other riskier investments, in an effort to recoup the stock losses of the past three years.” The article also discusses a pension investment strategy of duration-matched bonds which is being recommended by some financial analysts as a cure for the problem.

“Pension Benefits: Next Sector to Implode?“: AccountingWeb reports.

In the UK, pension underfunding is also at the forefront of the news, having recently been called a “black hole” by the CBI which is going to hurt economic recovery. “Pensions black hole ‘is threat to profits‘” reports FT.com.

Arden Dale for the Dow Jones Newswire via the Wall Street Journal reported last Friday: “Pension Plans Facing Toughest Environment In A Decade.” The article quotes Steven A. Kandarian, PBGC’s executive director, as stating that “[d]efined-benefit plans are under more pressure [right now] than at any time in a decade” and that “[e]very aspect of the defined-benefit system is under scrutiny – the funding rules, the accounting rules, the proper way to discount liabilities, and financial health of the PGBC, the list goes on.” The article also quotes Howard Silverblatt, an equities analyst at the ratings agency Standard & Poor’s, as saying that the big difference between the savings and loan crisis and the pension funding crisis (an analogy put forth by Treasury Secretary Snow earlier this month) is that companies really have the money to make the contributions.

“Pigging Out? Special retirement plans for top executives are becoming a target for other stakeholders“: Ronald Fink for CFO.com reports. The article discusses in detail the legislative recommendations for nonqualified plans made by the Joint Committee on Taxation during hearings in April.

“Making bottom line, stock options add up: Move toward expensing perk divides companies“: Aldo Svaldi for the Denver Post reports. The Denver Post apparently surveyed the state’s 50 largest companies on the topic of stock option expensing and found that of the only 12 companies that responded, none expensed their options, and only one, eCollege, reported plans to do so in the future.

This article–Report: State Budget Cuts Hurting Disabled— referred to by Jeanne Pi in The Texas Elder Law Blog states that the U.S. Supreme Court last year issued four decisions against the disabled. The article goes on to say that one of the rulings against the disabled was that “disabled people cannot demand jobs that would threaten their lives or health.” I was struck with incredulity over the statement. This is bad? Then I ventured over to How Appealing to read this post which just happened to mention the case as well.

Today, the federal government will mail the first of more than 25 million checks for tax savings brought about by the Jobs and Growth Tax Relief Reconciliation Act of 2003. According to the Internal Revenue Service, the checks represent an advance of this year’s child tax credit increase and will go to most parents who claimed the credit on their 2002 returns. You can access the IRS’s mailing schedule and other information here. Also, the IRS has a nifty feature to let taxpayers know the amount and mailing date of their advance payment checks. Click on “Where’s My Advance Child Tax Credit?” and enter the information requested to check on the status of a payment. The status check will also tell if a payment may be reduced because of taxes owed or an outstanding non-tax federal debt, or why a taxpayer with a child does not qualify for an advance payment. This Web feature should have information for a taxpayer about 11 days before the check mailing date. Currently, the information covers taxpayers whose checks will be mailed this week and next, as well as taxpayers who have children but are not eligible for an advance payment. By July 28, it should have information for all taxpayers included in the initial mailings. The system will be updated weekly with data from returns as they are processed.

France voted to overhaul its pension sytem as reported here by the Boston Globe: “France overhauls pension law.” This came despite weeks of protests by French workers in May and June as previously reported on here.

United Airlines is pushing aggressively for legislation that would allow the company to defer payments to its massively under-funded pension plans, the company’s chief executive said Thursday, as reported by Anne C. Mulkern for the Denver Post in this article: “United pushes for pension-plan help: Airline wants to defer payments to ailing fund.”

You can also read this interesting story about pension rights for elephants in India as reported by the BBC: “Pension rights for Indian elephants: Elephants employed by the state of Kerala in southern India are to be granted full retirement benefits at the age of 65.” (I even heard Paul Harvey refer to this story yesterday as we were listening to him on our way back from Chincoteague Island.)

The Wall Street Journal carried an op-ed on Tuesday by Peter R. Fisher, undersecretary of the Treasury: “Redefined Benefits.” (Subscription required.) The article stated that “[d]iscounting pension liabilities over the long term using a single, one-size-fits-all corporate bond rate would lead to systematic underfunding of pension plans with predominantly older workers.” Another op-ed in the Journal on the same day–“Pension Reform For Fruitcakes“–states that “the House Ways and Means Committee ducked wider reform by voting a quick fix: Pension plans would get the fat carrot of replacing the 30-year Treasury rate with a corporate bond rate.”

After a wonderful three days at Chincoteague Island in Virginia with the family, it is great to be back! While we did not get to see the annual Pony Penning which apparently takes place next week, we were able to see the famous herds of ponies which make their home on Assateague Island and enjoy many of the other island attractions as well.

Here is today’s Federal Register. Since I have been unable to post here from July 22-24th, previous Federal Registers for July 22-24th can be accessed here.

The U.S. General Accounting Office has concluded that the single-employer pension insurance program of the Pension Benefit Guaranty Corporation (“PBGC”) is at “high risk” and has added it to the list of major federal programs that need “congressional and agency action.” You can access the report here. The report provides that the single employer insurance program has moved from a $9.7 billion accumulated surplus in 2000 to a $3.6 billion accumulated deficit in fiscal year 2002 and that, as of April 2003, the program’s unaudited deficit was an estimated $5.4 billion, the largest in PBGC history. The report cites terminations of large underfunded pension plans of bankrupt firms in troubled industries like the steel and airline industries, declines in the stock market, declines in interest rates, and certain weaknesses in the current funding rules, as contributing to the program’s weakened condition. Also, the report provides that these “factors mask broader trends that pose serious program risks”:

For example, the program’s insured participant base continues to shift away from active workers, falling from 78 percent of all participants in 1980 to 53 percent in 2000. In addition, the program’s risk pool has become concentrated in industries affected by global competition and the movement from an industrial to a knowledge based economy.

The Wall Street Journal carried this article by Ellen Schultz on the GAO report: “GAO Sees ‘High Risk’ At U.S. Pension Insurer.” (Subscription required.) The article quotes David Walker, the comptroller general of the GAO as saying that the office favors tougher rules requiring employers to increase minimum funding of their pension plans, and also favors increases in the premiums that employers pay to the PBGC, moves that are supported by the Treasury and the insurer. The article also reports that the House Committee on Education and the Workforce announced its intention to hold a hearing on the financial health of the PBGC during the first week of September.

Forbes also reports: “Agency backing U.S. pensions put on risk list.”

I am taking a little R & R for the next few days. As posts will probably be slim to none here until Friday, please feel free to check out the many links over on the right for some good reading.

Also, one of the world’s shortest jokes from Eugene Volokh:

Pretentious? Moi?

And some fun for those who have not yet experienced the joys of this silly little helicopter (sent to me from a number of sources, the latest being from Tom Mighell via his Internet Legal Research Weekly).