Month: January 2009

From the Wall Street Journal today: Big Slide in 401(k)s Spurs Calls for Change. Excerpt:

Many 401(k) providers have long argued that participants just need more education to make appropriate investment decisions. Some in the industry are giving up on that notion. “Let’s face it, participant education has been an abject failure,” says Mr. Bramlett of 401(k) record-keeping firm BenefitStreet. . .

Even if workers follow the golden rules of 401(k) investing — saving early and diligently, holding a broadly diversified investment mix, never tapping their savings until retirement — their success can still depend largely on the luck of the stock-market draw.

Boston College’s retirement-research center recently ran scenarios that assumed workers had contributed 6% of pay to a plan for 40 years, had invested in a target-date fund, had never touched their savings until retiring and had annuitized the assets at retirement. The chunk of preretirement income these savers could replace in retirement varied dramatically depending on when they retired. Those retiring in 1948 could replace just 19%; those retiring in 1999, 51%; and 2008 retirees, 28%.

From Mercer:

Pension plan deficit hits record $409 billion for S&P 1500 companies; pension expense may rise to $70 billion in 2009, a significant drain on corporate earnings:

2008 year-end funded status for S&P 1500 drops to 75 percent compared to 104 percent at the end of 2007

Pension expense likely to increase from $10 billion in 2008 to $70 billion in 2009, Mercer says

Weakened corporate balance sheets could reduce capital spending, affect loan covenants and credit ratings

From Boston.com:

During 2008, the Massachusetts Department of Revenue (DOR) issued a directive which disallows partners and other self employed individuals a deduction for contributions made to their 401(k) plans. This directive is a clarification of an existing Massachusetts law that had not been enforced by the DOR for years. This directive does not apply to the employees of said businesses, just the owners. This will effectively increase the taxes of an individual contributing $15,500 to their 401(k) plan by $820.

View Directive 08-3 here (which indicates matching contributions are also taxed?). Excerpt:

For taxable years beginning on or after January 1, 2008, this Directive clarifies and prescribes the Massachusetts personal income tax treatment of contributions made on behalf of partners and other self-employed individuals under a so-called 401(k) plan. As explained in this Directive, under G.L. c. 62, § 2(d)(1)(D), partners and other self-employed individuals are denied any deduction for contributions to their 401(k) plans, irrespective of whether the contributions are elective contributions or matching contributions made on their behalf. This Directive supersedes or modifies all other DOR public written statements to the extent that they may appear to be inconsistent with it.

You can access testimony in the Financial Servicess Committee Hearing on the Madoff Scheme on the Committee’s webpage for the Hearing here: Assessing the Madoff Ponzi Scheme and the Need for Regulatory Reform. You can also access a link to a video of the Hearing on the webpage for the Hearing. (The video contains a discussion over whether the Hearing is really an “official” Hearing due to the fact that the 110th Congress had official concluded and the new Congress had not been sworn in yet.)

Read the testimony of one IRA investor’s nightmare here.

Also, don’t miss Leon M. Metzger’s testimony here. In his testimony, Mr. Metzger, an adjunct faculty member at Columbia University, Cornell University, New York University, and Yale University, provides a list of items he “might study” to understand better a proposed investment’s “operational controls.” (pg. 5) Mr. Metzger who teaches “hedge-fund management courses” notes the following in his testimony:

On Opening Day of the semester, I ask the students, “Imagine that the only information you have about a fund I am offering to you is its 20-year track record and that the investment has been audited by a Big Four accounting firm since its inception. How many of you would invest in it if, over the last twenty years, its annualized return, net of fees, is 40 percent? With this example, [my] aim is to illustrate that investment risk is commensurate with reward–investment fraud is not even a consideration. Typically, almost everyone in the class raises his or her hand. My objective as a teacher is to chip away at that outcome so that when I repeat that question at the last class, there is no hand in the air.

Along with Benefits Twitter, you can now access the Daily Dilbert in the sidebar!

A very interesting paper–“Legal and Economic Issues in Litigation Arising from the 2007-2008 Credit Crisis“–notes how “ERISA litigation represents an important component of the subprime litigation” due to the fact that ERISA provides “legal advantages” to plaintiffs over the securities laws:

First, plaintiffs do not need to establish scienter, as is the case under Rule 10b-5. Rather, liability is based on a defendant breaching its fiduciary duty. Second, the damages resulting from a breach of a fiduciary duty under ERISA have tended to be quite generous, at least as reflected by the terms on which ERISA lawsuits were settled pre-Dura Pharmaceuticals.

Harvard Law Professor Allen Ferrell, a co-author of the paper, discusses the paper at the Harvard Law School Corporate Governance Blog.

The Pension Protection Act of 2006 established new disclosure provisions relating to funding-based limits on benefit accruals and certain forms of benefit distributions, plan actuarial and financial reports, withdrawal liability of contributing employers, and participants’ rights and obligations under automatic contribution arrangements. The PPA gave the DOL authority to assess civil monetary penalties of up to $1,000 per day per violation against plan administrators for violations of the new disclosure requirements. The DOL has now issued final regulation setting forth the administrative procedures for assessing and contesting such penalties, but the new regulations do not address the substantive provisions of the new disclosure requirements.

Links:

Final regulations
News release

I have decided to take a stab at Twitter and have provided a link in the sidebar entitled “Benefits Twitter.” I hope to use it to provide brief statements and comments on what is going on in the benefits world.

View a list of lawyers participating in the Twitter venture here at JDScoop. See also the following links to learn more about the interaction between Twitter and the legal field:

Sixteen Reasons to Tweet on Twitter
Twitter for Lawyers 101
Legal Documents on Twitter
Lawyer News Feeds on Twitter
Steve Matthews on Twitter

You can become a “follower” of Benefits Twitter here.

See also this interesting use of Twitter: Man Tweets From Plane Crash.