Month: August 2003

Proskauer Rose has published this article in a Client Alert: “IRS Issues Final Regulations on Catch-Up Contributions and Proposed Regulations on Optional Forms of Distribution in Defined Contribution Plans.”

The Philadelphia Inquirer today reports: “For a major union, a new label: Index-fund investor.” The article states that “[e]ffective June 30, Local 56 fired private money-management firms in Boston, Chicago, Milwaukee, Philadelphia and other cities, and replaced them with low-cost index funds from Malvern-based Vanguard Group.” The labor union is reportedly making the move because they “figure they can save $1.6 million a year through lower management and trading fees – plus many millions more from what they expect will be higher investment returns in the future, since indexes tend to outperform private money managers.” The article states that Anthony R. Cinaglia, president of the labor union, “is crusading to persuade other U.S. unions, which together control an estimated $300 billion in joint worker and employer pension plans, to do the same.” Cited in the article as influencing the decision is Ten Broeck’s post-master’s thesis at Philadelphia University in which he makes a strong case that index funds offer superior returns at lower cost.

More on the IBM Cash Balance Plan Case:

Ellen E. Schultz and William M. Bulkeley for the Wall Street Journal report: “IBM Pension-Plan Changes Are Ruled Discriminatory: Finding Is Viewed as Boon To Older Workers in U.S.” (Subscription required.)

Reuters has this: “IBM ruling turns promising pension move into headache.”

The Times Argus Online also has an article entitled: “IBM workers in Vermont welcome ruling on pension plan.”

“IBM pension move penalizes older workers, U.S. court says“: Mary Williams March for the New York Times reports (via the International Herald Tribune.)

Friday brought more cash balance plan news, with a federal appeals court ordering Xerox Corp. to pay $300 million to former employees who the court determined were shortchanged when Xerox calculated lump-sum pension benefits due them when they left the company. You can access the opinion by Circuit Judge Richard A. Posner of the U.S. Court of Appeals for the Seventh Circuit at this link. The following news sources are reporting:

Albert B. Crenshaw for the Washington Post reports: “Court Backs Workers In Xerox Pension Fight.”

Bloomberg.com has an article entitled: “Xerox Must Pay $300 Mln Judgment Over Pension Dispute.”

“Xerox to Pay $300 Million In Suit Over Pension Plan“: the Wall Street Journal reports. (Subscription required.)

Seyfarth, Shaw has posted this article on the proposed 401(k) and 401(m) regulations: “401(k) Rules Restated With Some New Twists.”

PR Newswire has this regarding the case: “Cash Balance Court Ruling Could Harm U.S. Pension System, According to Watson Wyattt.” From the news release:

“This ruling has the potential to cause great harm to the U.S. private pension system,” said Eric Lofgren, Global Director of the Benefit Consulting Group of Watson Wyatt Worldwide. “Moreover, two other district courts and the U.S. Treasury Department have previously reached the opposite conclusion concerning the validity of cash balance plans.”

SmartMoney.com reports in an article by Arden Dale for the Dow Jones Newswires: “IBM Pension Ruling Stirs Debate.” The article quotes J. Mark Iwry, a senior fellow at the Brookings Institution and the former benefits tax counsel at the Treasury Department as saying that it “is likely that the issue will ultimately be resolved neither by the appellate courts nor by the executive branch but by the Congress.” The article also quotes William Sweetnam, benefits tax counsel at Treasury as saying that Judge Murphy’s decision does not refer to the Treasury initiative. Mr. Sweetnam also commented that the agency would continue to go “forward with our reg writing process.”

UPDATE: Another good article, this one by the Journal News.com: “Ruling on IBM pension plans causes stir“

Today’s Federal Register.

More on the IBM Cash Balance Plan decision handed down yesterday and reported on here yesterday:

Albert B. Crenshaw for the WashingtonPost.com reports: “Judge Finds Age Bias in IBM Pensions: Experts Say Ruling Could End Other Employers’ ‘Cash Balance’ Plans.“

The American Benefits Council has issued a statement on the case. James Klein, ABC’s President, states:

“Conversions to cash balance plans are currently the one good thing going on in the defined benefit pension plan system because they demonstrate a commitment by employers to remain within the defined benefit world. Other companies are exiting the system altogether. A decision like this sends one more negative signal to employers that ‘no good deed goes unpunished’ since it penalizes employers trying to provide their workers with a pension that is funded by the employer and guaranteed by the government, as opposed to requiring workers to rely solely on employee-funded retirement alternatives.”

You can also access a copy of the case on their website as well.

PlanSponsor.com reports: “Murphy’s Law: IBM Loses Cash Balance Ruling.” (One time registration required.)

The Associated Press in this article–“IBM loses lawsuit over pensions: Federal judge rules firm discriminated against older workers at MSNBC.com quotes Mr. Klein as saying that “cash balance plans are ‘currently the one good thing going’ in an environment where many companies are dropping pension plans altogether and requiring employees to save for retirement on their own.”

On other matters:

“FASB vetoes more disclosure on some pension changes.”: Reuters reports. The article states that “FASB has agreed that companies do not need to disclose the impact of changes in assumptions used to calculate pension income or costs on earnings, arguing that existing and other proposed disclosure requirements are enough.” You can also read about the decision at PlanSponsor.com in this article: “FASB Passes on Pension Assumption Change Reporting.”

CFO.com has published this article: “Who Rules Accounting? Congress muscles in on FASB — again.” If you like charts, at the very end of the article is a chart showing the history of the debate over stock option accounting which you can access here.

Benefitslink.com has posted final Internal Revenue Code section 280G regulations (golden parachute). Benefitslink.com also reports the IRS has issued Revenue Procedure 2003-68 which provides guidance on the valuation of stock options solely for purposes of Internal Revenue Code sections 280G and 4999.