Month: June 2004

GO READ Roth CPA.com’s update here on comments made last week regarding the IRS’s enforcement challenges pertaining to Health Savings Accounts. The topic was discussed in this previous post–“IRS Is Eyeing a Loophole in Health Savings Account Rules.”

This previous post discussed how trying to cut benefits costs can sometimes get you into trouble. Catbert has a possible solution to the problem here. (From the HR eSources Blog.)

Also, retirement can be an “adventure” as depicted in this cartoon from the Tax Guru.

Speaking at the 49th CEO Summit of the Chief Executive Leadership Institute at the Yale School of Management, U.S. Secretary of Labor Elaine L. Chao had some strong words for CEOs regarding the topic of pension plan governance:

1. “With trillions of dollars in assets, our nation’s retirement plans are major players in the economy. Pension plans are significant institutional investors in the Fortune 500. Out of the $15.5 trillion in corporate stock currently outstanding, ERISA regulated pension plans hold $1.9 trillion or about 12 percent. State and local pension plans hold another $1.3 trillion. This means about 20 percent of all corporate stock is held by pension plans. The health of our nation’s pension assets and our nation’s private economy, therefore, is deeply intertwined.”

2. “In the course of recovering workers’ pension assets, we have seen a clear lack of understanding or appreciation of the fiduciary’s responsibilities under ERISA. Today, a CEO is much more than the manager of an organization. He or she is a steward of the vitality of our economy and the public trust. Executive decisions need to be made not only in the short-term interest of the organization, but with an eye to the long-term interest of the economy and the preserving the benefits of the free enterprise system. That’s why I am here today to discuss the need for corporate and organizational CEOs to be more aware and vigilant about the responsibilities of being pension fiduciaries and to review the steps that should be taken to ensure that retirement promises made to workers are kept.”

3. “To begin with, it is important for CEOs to be aware of who are the fiduciaries of their employees’ pension plans. Under ERISA, each plan must have a named fiduciary, designated in the plan documents. In many cases, the named fiduciary is the CEO or the Board of Directors. But it is permissible, in fact common, for the CEO or Board to designate someone else. Often, an administrative committee serves as the fiduciary and manages the operation of the plan. It is important to note, however, that designating another person or entity to manage a plan does not relieve the CEO—or other named fiduciary—of responsibility or liability. The CEO or designating official has a responsibility to monitor the performance of the fiduciary of the plan. That means reading their reports, holding regular meetings regarding the performance of the plan, and providing the designated plan managers with necessary information. It also means updating plan documents and taking action if the designated fiduciary makes imprudent decisions.”

4. “Updating plan documents may sound pretty obvious. But you would be surprised how many times the Department has audited plans and found inconsistent provisions or the failure to make amendments that reflect corporate changes. This is not just a clerical problem. Under the law, the plan must be administered in accordance with its terms. If its terms are inconsistent or unclear, a whole host of legal problems can occur.”

5. “. . . [I]t is more important than ever for CEOs to be aware of and pay attention to pension plan governance. The time has come to move the focus of pension plan governance out of the human resources department and beyond compliance with tax laws. The executive level suite needs to focus on pension plan governance itself, especially the responsibility and liability of pension plan fiduciaries.“

How about this? The Big GoGriller, a grill that attaches to your car. (From the Trademark Blog.)

I was surprised not to find anything in the news about this appellate decision–Millsap et al. v. McDonnell Douglas Corporation (issued May 21, 2004) after there was so much publicity around the lower court decision last year. (Previous post here.) The case is notable due to the fact that it represents one of the few ERISA section 510 plant closing cases where employees have prevailed. The 510 claims were brought by former employees in a class action suit against their employer, alleging that the employer closed one of its plants for purposes of preventing employees from attaining eligibility for benefits under their pension and health care plans.

ERISA Section 510. For those not familiar with ERISA section 510, it provides as follows:

It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan. . . or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan. . .

District Court Decision. After a ten day bench trial, the lower court (no link available) had ruled in favor of the former employees, holding that the employer had indeed violated ERISA section 510 in closing the plant. Some of the most damaging evidence used to prove the ERISA 510 claims were memos from the actuaries analyzing the reduction in benefits which would occur if the plant were closed. One such memo prepared by the actuaries considered “various ‘what if’ scenarios, analyzing the effect on costs and savings if the company decided to reduce heads.” The kinds of costs analyzed included “pension cost, savings cost, savings plan cost, health care cost, and just direct overhead cost.” (This previous post discusses the attorney-client privilege aspect of the decision.)

The lower court held that plaintiffs could recover backpay because the award constituted “equitable relief” under ERISA section 502(a)(3).

The Settlement. The parties subsequently entered into a “Stipulation of Settlement” compensating plaintiffs in the amount of $36 million for their lost pension and health care benefits. (The court awarded attorneys’ fees in the total amount of $8.75 million and costs in the amount of $1 million to class counsel.) However, the settlement stipulation required judicial resolution of the availability of backpay under ERISA section 502(a)(3). The district court approved the settlement and certified the controlling question of law for appeal.

On Appeal. The question before the court, as stipulated by the parties, was this:

[W]hether, in this ERISA section 510 case and as a result of Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), backpay (and, as a result, any other damages based upon backpay) are available as “appropriate equitable relief” to the class members pursuant to ERISA section 502(a)(3).

The controversy stemmed from the remedies provided under ERISA section 502(a)(3):

A civil action may be brought . . . by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of [Title I of ERISA] or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of [Title I of ERISA] or the terms of the plan[.]

On appeal, the Tenth Circuit reversed the district court and ruled that the award of backpay was not recoverable under the statute because it did not constitute “equitable relief.” In reversing the lower court, the Tenth Circuit emphasized that under ERISA section 502(a)(3), unlike Title VII section 706(g) and NLRA section 10(c), Congress did not specifically make backpay part of an equitable remedy. The court also noted that the remedial purpose of section 502(a) was not to make the aggrieved employee whole, as plaintiffs had argued.

Circuit Judge Lucero dissenting. The dissent states as follows:

Under the majority’s result, the class plaintiffs are entitled to neither reinstatement nor back pay. Not only does the majority’s holding fail to deter ERISA violations, it also encourages employers who violate ERISA to delay proceedings as long as possible, “lead[ing] to the strange result that . . . . the most egregious offenders could be subject to the least sanctions.” Pollard v. E.I. du Pont de Nemours & Co., 532 U.S. 843, 853 (2001). Because I disagree that Congress intended this result or that precedent demands it, I respectfully dissent. . .

The majority’s result is similarly disconcerting. Here, reinstatement would have been an appropriate equitable remedy had [the defendants] not so delayed proceedings as to make reinstatement impossible. Thus, through no fault of their own, the class plaintiffs find themselves devoid of the undeniably appropriate equitable remedy of reinstatement. Back pay, which was integral to the relief sought by the plaintiffs at the onset of this litigation, provides an appropriate equitable alternative.

Both the Department of Labor (here) and the AARP (here) filed Amicus Briefs in the case, arguing that backpay should be awarded. The United States Chamber of Commerce filed an Amicus Brief (here [pdf]), arguing that the lower court decision should be overturned and that backpay should not be awarded under ERISA section 510.

Some Memorial Day reminders:

• The President’s Memorial Day Proclamation
• From the Evangelical Outpost, “The Red Poppy.”
• From Winds of Change, an exhaustive list on “How to Support the Troops.”

One reason boomers aren’t saving is made clear in this article from the Houston Chronicle.com, “Credit card habit eating away at retirement“:

The number of consumers who pay off their credit card balances in full each month has dropped for three consecutive years — from 44.4 percent in 2000 to 38.3 percent in 2003, according to newly released data from cardweb.com. Experts attribute the trend in general to the country’s credit culture, and in particular to the baby boomers, the huge generation of Americans who set the pace on nearly every cultural phenomenon.

An intriguing article on how blogs are taking hold in Japan from the Associated Press via the Seattle Times.com–“Japan’s rising Internet star preaches gospel of blogging“:

After developing some of the country’s hottest Net ventures, the 37-year-old entrepreneur [Joichi Ito] has a new mission: Making the journals known as Web logs, or blogs, not just a thriving business but also a key element of everyday life here. . . Ito believes blogging will one day prove as influential as the printing press. “Blogging will fundamentally change the (way) people interact with media and politics . . . ”