Category: Benefits

Today’s Federal Register.

Cigna is selling its $2 billion pension business as reported by Bloomberg.com: “Cigna Hires Goldman to Sell Pension Unit, People Say.”

Norman Cohen for FT.com reports: “Arcane actuarial science widens political divide over pensions.” The article quotes Steven Kandarian, the chief executive of the PBGC, who in a speech last week, outlined four choices for policymakers considering the future of the PBGC:

The first option, he says, is to do nothing. The second and third options, increasing substantially the premiums paid by healthy employers or significantly increasing company contributions, are likely to be aggressively opposed by employers. The fourth, diplomatically described as “general revenue transfer” – a bailout by the taxpayer – is unlikely to win the support of the Bush administration.

Fox News is carrying this article regarding William Donaldson’s interview with the Associated Press yesterday: “SEC Chief: Crackdown Calming Investors.” Regarding the pension funding issue, the article quotes Donaldson, chairman of the SEC, as saying in the interview that “[s]ome corporations have made overly optimistic projections of their future earnings, allowing them to boost short-term profits with money that otherwise should have gone to shore up pension funds.” With respect to stock options, the article quotes Donaldson as saying that “some companies still ‘haven’t gotten the message’ when it comes to lavishing pay packages and stock options on executives.”

In the meantime, Sun Microsystems Inc. is granting stock options to a number of senior executives as reported by Reuters: “Sun grants stock options to CEO, other executives.” The article reports that the news came even after “shares of Sun fell 19 percent after it reported quarterly earnings below Wall Street expectations and analysts wondered when it might recover from the technology spending downturn.”

On the other hand, today’s edition of the Wall Street Journal is reporting: “Companies Get Stingy With Stock Options: Many Employees Will Find Their Awards Sharply Reduced; When to Cash In Old Ones.” (Subscription required.)

David Giacalone at Ethical Esq. provides us with a lively discussion of the famous tax quote by Justice Holmes (discussed previously in a post here) and its implication for “tax whiners.”

Did you know that Expedition 7 NASA ISS Science Officer Ed Lu is writing (blogging?) about his experiences while living aboard the International Space Station? You can read Ed’s Musings from Space and view some awesome pictures as well.

RIA has published this article discussing Robinson v. U.S., a decision from the United States Court of Appeals for the Federal Circuit which ruled on certain aspects of Internal Revenue Code section 83. The decision was discussed in great detail in a separate post here and also by Stuart Levine in his Tax and Business Law Commentary here. The RIA article states that the IRS has recently mounted a multi-pronged attack against employees who attempt to defer income recognition by transferring nonstatutory compensatory stock options to related parties for long-term notes. The article goes on to say that for “companies with employees who used this type of scheme, the Federal Circuit’s decision may make it possible for the companies to gain deductions before the final tax treatment to the employees is ultimately resolved by a court or by agreement with IRS.”

Gabriel, Roder, Smith & Company has a very good article on the issues facing phased retirement and DROP arrangements for private sector employers: “Phased Retirement Arrangements and Deferred Retirement Option Plans.” You can also access the American Academy of Actuaries December 30, 2002 letter to the IRS encouraging the IRS to adopt rules facilitating phased retirement.

More on DROP Plans:

From Carol V. Calhoun: “Deferred Retirement Option Plans (“DROP Plans”)

From the Society of Actuaries: “Design and Actuarial Aspects of Deferred Retirement Option Programs” (article continued here)

The Government Accounting Office has issued this 72-page report: “Private Pensions: Participants Need Information on Risks They Face in Managing Pension Assets at and during Retirement.” The report makes this statement:

GAO is not recommending executive action. However, to improve public awareness and understanding of important considerations related to managing pension and retirement assets in retirement, the Congress may wish to consider amending the Employee Retirement Income Security Act to require plan sponsors to provide participants with a notice on risks that individuals face in managing their income and expenditures at and during retirement. The Congress could consider stipulating that this notice must be provided at certain key milestones.

A focus of the article seems to be the concern that retirees could outlive their assets when they choose a lump sum, due to the fact that people are living longer. The article states that “retirees need to be aware of the risk of outliving one’s assets in retirement and the financial risks individuals face in retirement.” The panel noted that providing information on such risks is very or extremely effective in helping retiring participants make decisions about managing their pension assets.

(The report reminds us that the number of defined benefit plans maintained by employers has decreased from 139,000 in 1979 to 56,000 in 1998. I would love to know what those figures are for 2003.)

McDermott, Will & Emery has posted this article on the final catch-up regulations: “IRS Issues Final Regulations for Catch-Up Contributions.“

Today’s Federal Register.

Rachel Emma Silverman for the Wall Street Journal has this article: “Retirement Plans Reduce Choices: After Years of Expanding Investment Options, Companies Decide Fewer Funds May Be Better.” (Subscription required.) The article reports how “there is an emerging sense that employees may actually be more inclined to put money in their retirement plans if they have fewer choices.” (See previous post on this subject here.)

The New Jersey Star Ledger has this article: “The lump-sum pension vs. a check-a-week for life.” The article discusses how the lump sum payment option for participants right now is more attractive due to the low interest rates which can produce higher lump sum amounts, but that if Congress enacts proposed pension legislation, lump sum amounts would be reduced making this option less attractive for retirees.

Regarding the status of the proposed pension legislation which was approved by the House Ways and Means Committee week before last, this U.S. Newswire reports that “to the dismay of Democrats and at least one prominent Republican, the House Ways and Means Committee has not indicated that it will schedule another markup” of the bill even though it “served as the backdrop of one of the most bitter, partisan congressional debates in recent history.”

For a look at how participants of U.S. Airways are coping with the fact that their pensions have been downsized under terms of the distress termination by the PBGC, read this article by Jerome R. Stockfisch in the Tampa Tribune: “Broken Promises.”

Jill Ellswick for BenefitNews.com reports: “Scandals spur fiduciary liability premiums.” According to the article which reports on the results of a survey of the Risk and Insurance Management Society (RIMS), premiums for ERISA fiduciary liability insurance spiraled by 43% from 2001 to 2002 and rose 22% during the first quarter of this year. The article quotes John Coonan, vice president and fiduciary liability insurance product manager for Chubb Specialty Insurance, as saying that fiduciary lawsuits under ERISA are on the rise. The article also comments on how the parallel lawsuits under ERISA and the securities laws (discussed previously here) are “worrisome to underwriters” since liability exposure is basically doubled for what amounts to the same set of facts. The article comments on the exclusions which are becoming more common to mitigate risk, one of which is an exclusion for “fiduciary violations voluntarily disclosed to the Internal Revenue Service.” (Does the article mean “fiduciary violations voluntarily disclosed to the DOL” since fiduciary violations are generally disclosed to the DOL under the Voluntary Fiduciary Correction Program, and not the IRS? Or does it mean plan compliance violations disclosed to the IRS under EPCRS–which may or may not involve fiduciary violations?)

Today’s Federal Register.

“New Rules Urged to Avert Looming Pension Crisis“: Mary Williams Walsh for the New York Times reports. The article discusses the differences in the proposals of the House Ways and Means Committee and Treasury in solving the pension funding crisis, and also states that “pension managers are turning to hedge funds, real estate investment trusts, emerging markets and other riskier investments, in an effort to recoup the stock losses of the past three years.” The article also discusses a pension investment strategy of duration-matched bonds which is being recommended by some financial analysts as a cure for the problem.

“Pension Benefits: Next Sector to Implode?“: AccountingWeb reports.

In the UK, pension underfunding is also at the forefront of the news, having recently been called a “black hole” by the CBI which is going to hurt economic recovery. “Pensions black hole ‘is threat to profits‘” reports FT.com.

Arden Dale for the Dow Jones Newswire via the Wall Street Journal reported last Friday: “Pension Plans Facing Toughest Environment In A Decade.” The article quotes Steven A. Kandarian, PBGC’s executive director, as stating that “[d]efined-benefit plans are under more pressure [right now] than at any time in a decade” and that “[e]very aspect of the defined-benefit system is under scrutiny – the funding rules, the accounting rules, the proper way to discount liabilities, and financial health of the PGBC, the list goes on.” The article also quotes Howard Silverblatt, an equities analyst at the ratings agency Standard & Poor’s, as saying that the big difference between the savings and loan crisis and the pension funding crisis (an analogy put forth by Treasury Secretary Snow earlier this month) is that companies really have the money to make the contributions.

“Pigging Out? Special retirement plans for top executives are becoming a target for other stakeholders“: Ronald Fink for CFO.com reports. The article discusses in detail the legislative recommendations for nonqualified plans made by the Joint Committee on Taxation during hearings in April.

“Making bottom line, stock options add up: Move toward expensing perk divides companies“: Aldo Svaldi for the Denver Post reports. The Denver Post apparently surveyed the state’s 50 largest companies on the topic of stock option expensing and found that of the only 12 companies that responded, none expensed their options, and only one, eCollege, reported plans to do so in the future.