Month: March 2004

The Miami Herald.com: “Retirement pension system is full of pitfalls“:

Retirement pensions used to be simple. You knew if you stuck with your employer that, upon retiring, you would have a monthly payment you could count on for the rest of your life. The amount of the payment was based on your salary and years of service. Not much else to worry about. . . Time to start worrying. It’s not your father’s pension any more. “Just as the certainty of your job is more in question than it was 10 or 20 years ago, the certainty of your retirement (pension) is less clear than 10 or 20 years ago. . . ”

PR Newswire: “Standard Insurance Company Launches 401(k) on the Brain(SM) Financial Education Program“:

401(k) on the Brain was developed by The Standard to provide in-depth retirement planning education for participants. It uses everyday language and a humorous, interactive approach to address a wide range of retirement, investing and financial planning topics. “Our goal was to develop high-quality educational material that is entertaining and fun to work with,” said Chris Dugan, director of marketing for The Standard’s Retirement Plans Division. “Participants want information that they can relate to, and 401(k) on the Brain gives them that.” (Comment: 401(k)’s made fun? Please! I would love to see this!)

CFO.com: “Less Ado about Options: A new valuation model could dampen the controversy over expensing employee stock options“:

The continuing brouhaha over a new accounting rule that would require expensing of employee stock options could amount to a tempest in a teacup, if a new valuation model is embraced by regulators and proves to be as accurate as advertised. . . FASB has yet to issue its rule, but its exposure draft (anticipated in a matter of days) is expected to embrace the new “binomial” valuation method, to one degree or another.

The Wall Street Journal via SFGate.com: “Mutual-fund study reveals undisclosed charges“:

Just how much are investors unwittingly paying? Fund tracker Lipper Inc. studied 2,000 funds for The Wall Street Journal and found that brokerage commissions can more than double the cost of owning fund shares. . . These fees are controversial because they’re tough to ferret out. A fund’s expense ratios — which include management fees and overhead — are clearly spelled out in its annual reports, while information on brokerage commissions is buried.

The International Foundation of Employee Benefit Plans has published an article entitled “Changes in Legal Landscape Turn Fiduciary Response Upside Down in 2004.” The article notes some interesting statistics:

A recent survey conducted by the investment advice firm, Financial Engines, found that 73% of plan sponsors believe their fiduciary responsibilities or liabilities have increased over the past 12 to 24 months. . . . At the same time, according to the survey, which was conducted at the beginning of February, only 48% of sponsors agree that their role as a fiduciary is clear. . .

The article makes a good point about the need for those advising retirement committees (attorneys, consultants, etc.) to educate and train the retirement committees about their fiduciary duties under ERISA. Dittos on this quote from Michael E. Falcone, a vice president with Aon Consulting’s Employee Benefits Group:

“I think one of the things they [attorneys, consultants, etc.] can do is do some fiduciary training for the committees, to make the committees aware of what their responsibilities are,” he explains. “But they also can talk about how they’re going to help the committees [fulfill]. . . their fiduciary duties. Make sure the fiduciaries have all the information they need to do their right job-disclosure on fees, fund reviews.”

Regarding ERISA fiduciary duty pertaining to company stock, the article makes the statement that “[a]mong the outstanding issues regarding company stock is whether sponsors have to disclose nonpublic data to participants” and that “[c]ourts have yet to rule on that question.” Please note that there have been some recent decisions holding that those individuals who serve on retirement committees and who are also corporate insiders with “inside information,” may under some circumstances have an obligation to disclose such information to other plan fiduciaries and participants. See Opinion and Order entered in the In Re WorldCom, Inc. ERISA Litigation and this post at Benefitsblog–“From My Notes: Review of the In re: WorldCom, Inc. ERISA Litigation Opinion“–as well as the Memorandum and Order entered in the In Re Enron ERISA Litigation which states:

The duty to disclose the relevant information to the plan participants and beneficiaries, which the Plaintiffs assert these Defendants owed as ERISA fiduciaries, is entirely consistent with the premise of the insider trading rules: that corporate insiders owe a fiduciary duty to disclose material nonpublic information to the shareholders and trading public.

Also, regarding fiduciary duties pertaining to recent mutual fund developments, the following articles discuss the DOL’s recent guidance issued addressing “Duties of Fiduciaries In Light of Recent Mutual Fund Investigations”:

• Paul, Hastings, Janofsky & Walker LLP: “Department of Labor Indicates That Companies Should Review 401(k) Plan Investment Options in Light of Mutual Fund Investigations”
• BNA Tax Management: “DOL Provides Fiduciary Guidance for Dealing with Mutual Fund Abuses”
• Kirkpatrick & Lockhart LLP: “DOL Provides Fiduciary Guidance for Dealing with Mutual Fund Scandal”
• Kilpatrick Stockton LLP: “EBSA Assistant Secretary States Views on Market Timing and Late Trading“

You can read previous posts here at Benefitsblog about ERISA fiduciary compliance at this link.

There has been a great deal of discussion in recent months about utilizing blogs for advertising. Today’s Wall Street Journal contains a very interesting article on the growth and popularity of blog ads: “Blogs Grow Up: Ads on the Sites are Taking Off.” (Subscription required.) The article notes how one political blog has started taking ads and brings in more than $5,000 a month, enough for the head blogger to be able to hire a part-time assistant to help him do research. The article also cites some interesting statistics:

As with many things about the Internet, precise details about the “blogosphere,” as some bloggers call their world, are hard to come by. There are many thousands of blogs, though most of them are read by only a few people. A popular blog, though, can attract more than a million readers a month. One study said that roughly 4% of the 126 million American adults with Internet access report going to blogs for information.

Another article on blogs from Tech Central Station–“Is The Blogosphere Half-Empty, or Half-Full?“–provides some hard-to-believe statistics:

The Pew Internet and American Life Project, in a study released Sunday, found that somewhere between two percent and seven percent of adult Internet users in the United States actually keep their own blogs. . . According to one study, there are 146 million adult Internet users in the US alone. The article claims that between two and seven percent of those Internet users keep blogs. If we round that number to five percent, it means that there are 7,300,000 Weblogs in the US alone. And that’s a lot of Weblogs!

The article goes on to say that this means there are more bloggers writing than there are “people reading USA Today (whose circulation is 2.6 million), The New York Times (1.6 million) or The New York Daily News (805,000).”

The Philadelphia Inquirer: “The Economy | Jobless recovery reflects uncertainty, reluctance“:

A lot of smart people say they can’t understand why the job market is so lousy. . . Here’s a news flash: Employers don’t really want to pay for your kid’s orthodontia. They don’t like the hassle of setting up and funding your retirement plan, and they’d just as soon not live with the worry that you’ll leave crumbs in the computer, spill company secrets to a competitor, or sue over some infraction of the labor laws.

Brandenton Herald: “Solo 401(k) allows small-business owners to save“:

Just because you are a self-employed individual with no employees doesn’t mean you have to work without a retirement plan. Did you know that U.S. Census Bureau estimates that nearly 75 percent of U.S. businesses have no employees? . . .

The New York Times: “Corporate America Sending More Legal Work to Bombay“:

While computer programmers, radiologists and tax preparers have watched some of their business move off shore, lawyers, bound by intricate ethical rules and licensed by states, have been largely protected from foreign competition. But as companies from BorgWarner to General Electric start to experiment with using foreign lawyers for discrete legal projects, that is starting to change. . . The reason for the shift echoes the reason companies are sending other work abroad: they save substantial amounts of money. Some companies say they can reduce certain legal costs by as much as 50 percent, and receive work that rivals what they can obtain in the United States.

Fox News: “A Follow-Up on Health Savings Accounts“:

Now here’s where some folks get pretty jazzed about an HSA: If you don’t spend all of the money you’ve set aside in your account, it remains there, growing on a tax-sheltered basis. In other words, . . . these accounts can be a substitute retirement savings vehicle, similar to a nondeductible IRA.

Martha Priddy-Patterson, a director with Deloitte & Touche, says you’re “absolutely right” to consider not dipping into your HSA to cover medical bills if you don’t have to. “You’re under no obligation to pay your medical bill out if the HSA account. If you can afford not to, it’s smart.”

Roth CPA.com: “IRS AGENTS GONE WILD!”:

Yessir, this party had it all: a roast, souvenirs, code sections countered by code subsections – and, as the court put it, …a grossly negligent violation of ? 6103(a)(1). Section 6301 is the law requiring the IRS to keep taxpayer information confidential.

Reuters via Forbes: “US pension relief waits while proposals clarified:”

Relief for U.S. companies struggling to fund traditional pensions was put on a slower track on Thursday as congressional negotiators met and asked staff to clarify the background of rival proposals over the next 10 days . . .Rep. John Boehner, who chairs the negotiating committee of House and Senate lawmakers, said staffers had been asked to outline by March 22 the reasons for various provisions, particularly those allowing multi-employer plans to stretch out contributions to their plans.

The Miami Herald: “Airline pension plans undergo panel scrutiny:”

The sticking point remains whether companies with dramatically underfunded plans, such as bankrupt United Airlines Inc., will get a break on large “catch-up” payments required under current law. The Senate version of the pension bill would give airlines and steel companies billions of dollars in short-term relief.

The Associated Press via the Mercury News: “Companies File Reports on Pension Plans:”

A new rule that kicked in this month requires any company with a traditional retirement plan to file reports on its pension investment strategy. . . The new data offer an intriguing peek under the hood for investors, economists, analysts, lenders and others who track companies and markets. “Pension assets represent an enormous amount of money, and these new disclosures are giving the public a better handle on how companies are managing them,” said Howard Silverblatt, an equities analyst and ratings agency Standard and Poor’s. S&P is tracking the new disclosures and plans to publish a report on them soon.

The Seattle Times: “Mutual funds flash big numbers, but they’re not telling whole story:”

[G]ive fund companies one good year and the marketing guys will go into overdrive. . . Any fund that is willing to show off its most recent year of performance should also have to graphically show its worst 12-month run ever.

The Mercury News: “SEC proposes new regulations related to mutual fund disclosures:”

Members of the Securities and Exchange Commission voted 5-0 at a public meeting to propose new requirements for fund companies to disclose the identities of members of portfolio management teams as well as their compensation and whether they own shares in the funds they manage.

The SEC commissioners also adopted new requirements for the special reports that companies must file with the agency to disclose significant developments. The changes shorten the time period in which the reports must be submitted and add new developments that will trigger a report, including a restatement of earnings and the sort of off-the-books transactions that figured in collapsed Enron’s accounting scandal. The new requirements take effect in August.

This article–“Sales & Use Tax: Lifting Compliance Burdens“–contains a list of curious sales tax laws. The one that caught my eye was this:

In Pennsylvania, state and U.S. flags are not subject to tax, but if either is sold with a pole, the entire purchase becomes taxable.

At the conference I attended this week, the cost of health care was one of the prevailing issues being discussed among HR professionals. In fact, at a seminar discussing health care and consumer-directed health plans, statistics were provided showing that by 2007, large employers (500+ employees) would be paying 2 times their 1999 health care premium rates for employees, while small employers (less than 500 employees) would be paying 3 to 3 1/2 times their 1999 rates. It is not surprising then that the Wall Street Journal today carried this article: “Health-Care Costs Blamed for Hiring Gap.” The article states:

The search is on for an answer to the most pressing question in the U.S. economy today: Why are businesses so reluctant to hire new workers? The popular answer is that business is hiring in India and China instead of the U.S. But there isn’t enough offshore outsourcing going on to explain the mystery. . .

The article makes a case that health care costs may be some of the answer:

The logic goes like this: For an employer, adding a worker makes sense when demand seems strong enough for the company to turn a profit from a worker’s labor. But adding a new worker means more than paying. There are also payroll taxes. And there are the costs of health care and pensions. With health-care costs surging, employers prefer to squeeze more work from workers on their payrolls — or rely more on temporary workers, who are much less likely to get health or pension benefits — than hire new workers. That gives rewards of extra labor without the cost of extra benefits.

Also, on the health care front, the Wall Street Journal is reporting: “GM’s Liabilities For Retiree Health Are Over $60 Billion.” (Subscription required.) The article states that “GM, the nation’s largest purchaser of health care, will soon report that its future health-care liabilities for retirees have surpassed $60 billion — even after recent Medicare legislation that has reduced retiree health-care obligations for many companies.”

And regarding California’s recently passed health care bill, SB 2, the California Health Care Foundation has posted some great information on the ERISA implications of SB 2 which you can access here as well as some excellent resources regarding the bill here.