Month: September 2008

From the TaxGuru here.

The Ninth Circuit, in the case of Burke v. Pitney Bowes Inc. Long-Term Disability Plan, weighed in on the interpretation of MetLife v. Glenn in another disability case, appearing to disagree (but not citing) one of the holdings in the recent Eleventh Circuit opinion of Frankie White v. Coca-Cola Co. discussed here. (Rather, the court stated it disagreed with the pre-MetLife decision of Gilley v. Monsanto Co., Inc., 490 F.3d 848, 856 (11th Cir. 2007) relied upon by the Eleventh Circuit in the White case.) These are important cases because there has been much uncertainty regarding how the recent U.S. Supreme Court MetLife decision will impact the Firestone discretionary authority given to plan fiduciaries in administering benefit plans. These Circuit Court opinions provide some important guidance regarding how the MetLife decision will be interpreted and applied.

In the Burke decision, an employee was seeking benefits under the employer’s disability plan which was administrated by a benefits committee. Benefits paid out by the Plan came from the Plan’s Trust, which was funded in part by the employer and in part by employee contributions. The trust was a VEBA and the committee had the authority to determine the amounts of employer and employee contributions to be made to the trust each year. (The court mentioned that it was unclear from the record what portion of the Trust was funded by employees and what part was funded by the employer. )

The court held that, even though there was a trust so that there was no “direct financial impact on [the employer] resulting from the distribution of benefits”, that a structural conflict of interest existed “that must be considered as a factor in determining whether there was an abuse of discretion” in line with the MetLife decision:

We reach this conclusion because, even though benefits are not paid directly by [the employer], [the employer] obviously still has a financial incentive to keep claims’ experience under the Plan as low as possible — the less the Trust pays out as benefits, the less [the employer] will ultimately need to contribute to the Trust to maintain its solvency. Thus, although the impact may be less direct, there is nonetheless a close relationship between benefits paid by the Trust and the money [the employer] must provide from its general assets to fund the Trust.

The court went on to state that the fact that employees made some contribution to the Trust tended “to lessen the structural conflict of interest”, but because the Plan was administered by the employer, rather than an insurer, this aspect of the Plan tended “to increase the Plan’s structural conflict of interest in comparison to the plan at issue in MetLife.” The court then vacated the district court’s ruling and remanded the case for further proceedings.

As in many cases, the footnotes contain some interesting tidbits. Footnote 1 mentions that the record does not disclose the Committee’s makeup, but that the parties argued the case on the assumption that it was a “management” committee controlled by the employer. The court then states in footnote 12:

We must obviously leave for another day the effect of a plan that is jointly-administered by the employer and employee representatives.

In other words, the court is leaving open the answer to this question: Would a committee comprised of management employees as well as non-management employees avoid a conflict of interest holding?

UPDATE: Outline of Key Elements in MetLife, White, and Burke cases:

See this previous post on the MetLife decision here.

There is a free podcast taken from the recent ALI-ABA conference on Retirement, Deferred Compensation, and Welfare Plans of Tax-Exempt and Governmental Employers which you can access here. (Button is on the upper right-hand column in the side-bar.) The podcast discusses the legislative outlook in the benefits arena.

(It is unclear how long the podcast will be offered free so you might want to listen in fairly quickly. Even though the conference was September 4-6, the dynamics of the recent market turmoil would likely impact some of the areas discussed.)

You can access the transcript here and the video here.

Excerpt from the speech (mentions retirement plans):

The actions I just outlined reflect the considered judgment of Secretary Paulson, Chairman Bernanke, and Chairman Cox. We believe that this decisive government action is needed to preserve America’s financial system and sustain America’s overall economy. These measures will require us to put a significant amount of taxpayer dollars on the line. This action does entail risk. But we expect that this money will eventually be paid back. The vast majority of assets the government is planning to purchase have good value over time, because the vast majority of homeowners continue to pay their mortgages. And the risk of not acting would be far higher. Further stress on our financial markets would cause massive job losses, devastate retirement accounts, and further erode housing values, as well as dry up loans for new homes and cars and college tuitions. These are risks that America cannot afford to take.

(A humorous note here.)

The IRS has posted on its website: Retirement Plan FAQs regarding Governmental Plan Determination Letters. The FAQs are an attempt by the Service to answer some of the ongoing concerns practitioners have had in the governmental plans determination letter process. One of these areas of concerns has to do with plan documentation which is discussed by the Service in this paragraph:

The Service recognizes that governmental plans may have no single cohesive plan document available. The Service is willing to work with a plan sponsor whose plan document consists of documents from various sources and who is unable to submit a restated plan, provided that the sponsor can submit selected material in an organized manner so that Service reviewers can readily determine the applicable plan language.

See also Q & A 3:

What if the plan has not been timely amended and has never received a determination letter or received one a long time ago in the 1970’s?

Answer: If a plan has been timely amended, it can submit a request for a determination letter without proof of all amendments since its inception, see Q & A 2. above. However, if a plan has not made amendments timely, it should be submitted under the VCP program. . .

See also this previous post here regarding governmental plans.

The SEC has issued this Statement Regarding Recent Market Events and Lehman Brothers (Updated). Excerpt:

. . . [T]he SEC is focused on ensuring that customers of the U.S. broker-dealer, which is not part of the bankruptcy filing, remain protected through, among other means, enforcing continued compliance with the SEC net capital and customer asset protection rules, and with SEC requirements that the U.S. broker-dealer conduct its affairs so as to minimize the effect of the holding company’s bankruptcy on customers, and that it ensure access to customer cash and securities.

From the Tax Policy Blog:

The accounting firm KPMG has released its annual survey of corporate and indirect tax rates for 2008 and what it says about America’s tax competitiveness is not good. The survey shows that the U.S. continues to have one of the highest overall corporate tax rates in the world. Of the 106 countries surveyed, only The United Arab Emirates (55 percent, Kuwait (55 percent), and Japan (40.69 percent) impose a higher corporate tax rate than the combined rate of 40 percent in the U.S.

According to the KPMG report:

…the most remarkable result of our 2008 survey is that we have found no country anywhere that has raised its rate since last year. The global average is, once again, down nearly a full point to 25.9 percent with the EU average down to 23.2 percent, the Latin American rate down half a point to 26.6 percent, and the Asia Pacific rate down 0.8 percent to 28.4 percent.

The survey indicates that 23 countries have lowered their corporate tax rates this year including Canada, China, Columbia, the Czech Republic, Denmark, Germany, Hong Kong, Israel, Italy, Malaysia, New Zealand, Singapore, South Africa, Spain, Switzerland, and the United Kingdom.

There is an interesting article in the Wall Street Journal entitled “How To Sell The Savings Habit To Americans.” The basic theme of the article is that “images of beautiful retirees sailing on expensive yachts in fancy destinations” does not inspire people to save. In other words, the article notes that “Americans are inclined to save more when shown negative images (impoverished families eating cat food in retirement, for example) than when shown positive and rational images (happy, beautiful people in retirement).”

Hidden in the article though is a brief remark about a new website called “StickK” which is a sort of “online commitment store” (still in beta form) designed to help people set goals and keep them.

Thanks to the Connecticut Employment Law Blog for providing this link here to the ABA’s 2nd Annual Labor and Employment Law Conference materials online which include some great employee benefits materials. My favorite is entitled “The Future of Retiree Health Benefits.”