Author: jfortenberry@fortenberrylaw.com

From Mark Levin here. (Another great interview that exposes the truth about the universal pension proposal under serious consideration by House Democrats. See previous posts here and earlier interview here by Kirby Wilbur.)

Fightin’ Phils are World Series Champions

More here.

This article from McDermott Will & Emery–“For Massachusetts Employers: Distinguishing Between Independent Contractors and Employees“–discusses an Advisory issued by the Attorney General’s Fair Labor Division last May in connection with Massachusetts’ Independent Contractor Law. While the whole article is worth reading, here is an important excerpt:

The penalties for misclassifying an employee as an independent contractor can be very steep, and can include both civil and criminal penalties. For example, a willful misclassification is punishable under the law by a fine of up to $25,000 or up to one year in jail. Even a mistaken misclassification can result in a penalty of up to $10,000 or six months in jail for the first offense. Moreover, when an employer misclassifies an employee as an independent contractor, it also violates other Massachusetts and federal statutes, such as those that govern minimum wage and overtime, employer recordkeeping requirements, income tax withholding and workers’ compensation insurance. . .

Misclassifying employees as independent contractors under Massachusetts law could have federal law consequences as well. The attorney general’s office has indicated that, because employers do not pay taxes for independent contractors as they do for employees, it communicates the findings from its independent contractor investigations to the Internal Revenue Service (IRS). While the test for independent contractors in Massachusetts is not the same as the 20 Factor Test used by the IRS, information that an employer is misclassifying employees under the Massachusetts statute could prompt an independent investigation by the IRS that could have devastating financial consequences. For example, the IRS recently fined a large U.S. courier and freight company $319 million dollars for misclassifying employees as independent contractors.

As the article aptly points out, employers sometimes consider reclassifying employees when thinking about ways to cut costs in economic downturns. To read about the perils of such actions (other than the ones discussed above in Massachusetts), you can access previous posts here.

Well, I guess if the 401(k) retirement system is eliminated, one can always raise a herd of alpacas.

You can access a radio interview here conducted by Kirby Wilbur with Professor Teresa Ghilarducci in which she states that the goal behind her plan to “restructure” the 401(k) is “spreading the wealth.” Professor Ghilarducci has authored the plan which is currently under serious consideration by House Democrats. Excerpt from the interview:

GHILARDUCCI: Whatever you have in your 401(k) now will keep its tax break. So everybody who has their 401(k) plan will be grandfathered in. But what I proposed, instead of getting a tax deduction — like a decrease in your taxes by whatever your tax rate is, so if you’re at the very high income, your tax rate is 39%, and if you’re at the very low, you’re at 15%, and 40 million people make so little they don’t pay any taxes at all. Instead of the deduction coming from your tax rate, so whatever you put in your 401(k), like a dollar, let’s say, or a hundred dollars, you get back 39 cents, or $39, if you’re the high rate; 15 dollars, or 15 cents if you’re at the low rate, or nothing if you’re at the low rate. I proposed that we just transfer the deduction to a credit so that everybody gets $600. So I’m not taking away the tax break. I’m actually, um, giving everybody a flat amount so that it’s more equal.

WILBUR: Okay, 3%, okay, plus inflation.

GHILARDUCCI: Yes.

WILBUR: So the bonds would be adjusted. As I understand the $600 would be adjusted as well, right?

GHILARDUCCI: It would. It would.

WILBUR: Okay.

GHILARDUCCI: And what’s amazing about this is that it’s actually, um, doesn’t cost the government anything. I’m just rearranging the tax breaks that are available now for 401(k)s and spreading — spreading the wealth.

(Don’t miss Mr. Wilbur’s comments about the interview after it is over.)

Read more about the universal pension movement in previous posts here.

See also Nevin Adam’s eloquent thoughts on the whole movement in this opinion piece: “IMHO: The Pit and the Pendulum.” Excerpt:

It doesn’t take much imagination to see where this kind of approach would take us. IMHO, it’s, at best, just a sneaky way to raise the Social Security tax from 12.7% of wages to 17.7% (and that’s not even counting the cost of the $600/worker the federal government would toss in). And that for an account that you couldn’t tap in a financial emergency, or leave to a spouse or children—because, despite the nomenclature, it wouldn’t be an “account” at all. On the other hand, you’d no longer have to worry about that saving for retirement plan—you’d just have to worry what new plans politicians might develop for your retirement “savings” (in her book, Gilharducci says that the financial risks are “borne by the government, not by the worker”—as though the government has a funding system independent of those workers).

Now, as I said before, these are difficult, extraordinary, even unprecedented times—and we find ourselves dealing with them smack dab in the middle of an election year. It is a time that cries out for bold action—and yet it is a time when even those with the best of intentions can do great harm.

The pendulum does, after all, swing back and forth. But if, god forbid, those pendulum swings wipe out the 401(k)—well, IMHO, that would really be the pits.

There are some really great lessons for all from the District Court and the Circuit Court opinions in the Orth v. Wisconsin State Employees Union Council 24, et al. case discussed in this previous post here (in case you missed it):

(1) Statements in collective bargaining agreements can give rise to unintended ERISA plans. The district court opinion includes a discussion of this issue:

An ERISA “plan” is not an entity or a piece of paper, but a more inchoate group of rights, benefits and procedures (literally, a “plan”) set up by an employer to create pension or welfare benefits. See Pegram v. Herdrich, 530 U.S. 211, 223, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000) (noting that a plan is merely a “scheme decided upon in advance” for the provision of benefits). The plan may be evidenced by a summary plan description (SPD) and any other documents, such as a CBA, that describe the rights of beneficiaries or such things as how the plan is administered, how premiums are collected, etc. In other words, the fact that the plaintiff’s dispute may arise solely from a clause in a collective bargaining agreement does not mean that the dispute does not also implicate the terms of an ERISA plan. In fact, hybrid ERISA/LMRA claims are commonly asserted, even when the dispute is resolved by reference to a CBA rather than merely a plan–specific document.

(Read about another interesting case here which held that a merger agreement acted as a plan amendment to an ERISA retiree medical plan.)

(2) The clause that states “[p]ayment of premiums will be on the same basis as the benefit is currently paid for employees” or similar language occurs often in retiree medical plan language and should be promptly reviewed and revised, if necessary. Many times this language occurs in benefits booklets or SPDs prepared by insurance providers. Normally, such language is meant to portray exactly what the defendant’s lawyers tried to argue in the case:

The defendant also suggests patent ambiguity because the clause refers to both benefits and premiums: “Payment of premiums will be on the same basis as the benefit is currently paid for employees.” In the defendant’s reading, this means only that retirees will receive the same level of benefits as active employees–not that they will have their premiums paid at the same level.

However, with judges reading such language to mean that the employer, by making that statement, is committing to the same level of premiums for retirees as it has for active employees, employers should make sure that they review such language and clarify it to say exactly what they mean. Such language can be revised to make it more clear, but if the language is in a benefits booklet or SPD prepared by an insurance company, you may have more of a challenge getting it revised.

(3) These types of programs should be clearly communicated to active employees and retirees. When changes are made, those changes should also be communicated. One of the things that was sadly absent from the facts of the case, from an employer’s standpoint as well as the employee’s standpoint, was the communication aspect. Excerpt from the district court opinion:

WSEU is a small organization with little experience providing retirement benefits, and thus the issue only emerged from under the radar after Orth, who had no doubt thought he was set for life, found himself with no benefits. Rather than establishing some sort of clear understanding between the employees’ union and the WSEU, the evidence only shows that the parties were not fully cognizant of what the CBA actually provided.

(Judge Posner authored the Orth opinion. You can access a number of links here at Benefitsblog which reference Judge Posner’s court opinions impacting the benefits world.)

From the Pennsylvania Labor and Employment Blog: “Prohibition of Excessive Overtime in Health Care Act will Exacerbate Nursing Shortage.” Excerpt:

A health care facility cannot compel a protected employee to work more than an agreed to, predetermined and regular daily shift exclusive of “on call” time, unless one of the following exceptions applies:

(1) the employee voluntarily agrees;

(2) there is an unforeseen emergent circumstance but as a “last resort”, after exhausting other staffing options and giving the employee one hour arrange for family care alternatives;

(3) the extended work is required to complete a patient care procedure already in progress, but only if the employee’s departure would have an adverse effect on the patient.

From the Tax Prof Blog: “ATR Releases 2008 Election 401(k) Tax Calculator.” Link to the calculator is here (see left-hand column). Press release is here.

The calculator asks a voter to input the curent value of his or her 401(k) account. Then, it recalculates what their 401(k) will be worth under four different tax scenarios:

The Obama plan to raise the capital gains and dividends rate to 20%

The McCain plan to cut the corporate income tax rate from 35% to 25% and allow for immediate expensing instead of long depreciation

The Hill Democrat/Obama-in-the-Primaries plan to raise the capital gains tax to 28% and the dividends tax to 39.6%

The ATR plan to cut the capital gains and dividends rate to 0%, cut the corporate rate to 25%, and allow for immediate expensing.

Dr. John Rutledge (http://www.rutledgecapital.com) discusses the calculator here in a video.

Professor Secunda over at the Workforce Prof Blog reports that Mr. LaRue has given up his claim in the LaRue v. DeWolff, Boberg & Associates case which made its way all the way up to the Supreme Court. View the Consent Order of Dismissal here. The reason for the change of heart apparently has to do with the statute of limitations.

From a new blog entitled Lawdable:

Given the state of the economy, it has been no surprise to find a host of recent articles concerning cost-cutting among corporate legal departments. Everything is on the table, including reductions in fees charged by outside counsel.

An Oct. 22 article (subscription) in Atlanta’s Fulton County Daily Report captured the ongoing discussion through quotes from several prominent GCs and legal department heads regarding various ways they are reducing costs. Almost every one of them mentioned “in-sourcing.” Robin H. Sangston, vice president and associate GC of Cox Communications Inc., offered a comment that many of the GCs echoed:

We have used a variety of approaches to controlling legal fees, including: bidding out ‘commodity-type’ work, moving work from higher-priced large firms to lower-priced smaller or boutique firms with lower overhead, using contract lawyers, implementing e-billing with our billing guidelines … Given the state of the economy and the impact on almost all businesses, I would also expect that many companies will not entertain rate increases for next year.