Category: Benefits

Shearman & Sterling has posted this very good article on the ramifications of the May 28th decision of In Re The Walt Disney Company Derivative Litigation issued by the Delaware Court of Chancery. The article suggests that independent directors–“most typically those comprising a designated compensation committee”– be involved in the negotiation and review of the terms of executive officers’ employment and severance packages and such negotiations be conducted in an “arms’ length manner.” The article provides a number of steps directors should take in approving such packages.

Lou Dobbs has this article for USNews.com: “Retirement realities.” The article warns that there is a “retirement crisis” in America and urges “individuals, policymakers, and corporate decision makers alike to work toward a solution.”

That’s the advice in this article–“401(k) trustees feel heat”–by Harriet Johnson Brackey for the Miami Herald. Derek Loeser, a partner in the Seattle law firm Keller Rohrback, in discussing ERISA plan fiduciaries states: “[t]heir duty as fiduciaries is the highest known to law. This should remind them they can’t operate on autopilot.” Thomas Noonan, president of Union Financial, a registered investment advisor in Fort Lauderdale, warns that “especially at smaller companies, the 401(k) plan trustees often rely blindly on an investment advisor.” A good time for ERISA fiduciaries to consider this . . .

LeBoeuf, Lamb, Green & McRae, LLP has posted this article: “Applicability of Section 906 Certification to Form 11-K Filings.” Debevoise and Plimpton has published this article by Lawrence K Cagney and Elizabeth Pagel Serebranskys as well: “Sarbanes-Oxley Certification of Form 11-K Filings Required.” The article at Debevoise and Plimpton has a detailed discussion of who should sign the certification and the criminal liability involved.

See previous posts on the subject here.

Liz Pulliam Weston for MSN reports on how the Jobs and Growth Tax Relief and Reconciliation Act (“JAGTRRA”) makes 401(k)’s and 403(b)’s “lose a little of their sparkle . . . because the break you receive for contributing to them shrinks along with your tax bracket.”

The New York Times calls pension accounting a “dismal science” in this article by Mary Williams Walsh: “Pension Reserve: What’s Enough?” The article discusses the lobbying efforts going on in Washington for relief for certain industries from the pension funding rules. The article states that “[a}lways on the minds of pension policy makers is General Motors, whose $25 billion worldwide pension deficit is larger than its market capitalization of $21.8 billion.” The Business Roundtable in this letter warns Congress that the whole economic recovery may be at stake if Congress does not provide relief. The letter states: “Companies cannot commit to building new plants, launching new research projects, or hiring new employees if that cash is needed to fund pensions.”

That’s what this article at AccountingWeb.com reports: “Corporate Failures Lead to ‘Feeding Frenzy’ For Professionals.”

As stated previously, you can access the Opinion and Order entered in the In Re WorldCom, Inc. ERISA Litigation case (Southern District of New York) here. (via WorldComErisaLawsuit.com) You can also access the pleadings in the case at WorldComErisaLawsuit.com as well. The action is being brought by participants in the WorldCom 401(k) Salary Savings Plan (the “Plan”).

The facts as alleged: The Plan provided a number of different funds, among which was a fund invested in WorldCom stock. WorldCom was the sponsor of the Plan, the named fiduciary of the Plan, the Plan Administrator, as well as the Investment Fiduciary. The Plan authorized WorldCom to appoint others to act as Administrator or Investment Fiduciary for the Plan, but WorldCom did not do so. A very key provision of the Plan was Section 14.02 which provided that “any WorldCom officer had authority to perform WorldCom’s functions as Plan Administrator and Investment Fiduciary.” However, if WorldCom did not appoint individuals to carry out the duties, then “any officer” of WorldCom had “the authority to carry out” on behalf of WorldCom, the “duties of the Administrator and the Investment Fiduciary.”

Here is a rundown of the complaints which did or did not survive the Motions to Dismiss:

• ERISA complaints against Officers: Motions to Dismiss were granted for two corporate officers and WorldCom’s Senior Vice President of Human Resources, but were denied for CEO, Bernard Ebbers, and CFO, Scott Sullivan.

• ERISA complaints against WorldCom Employees: Motions to Dismiss were granted for WorldCom’s Employee Benefits Manager, Director of Taxation and Cash Management, and Manager of Taxation and Cash Management. However, the complaint against WorldCom’s Employee Benefits Director, Donna Miller, was held to survive.

• ERISA complaints against WorldCom Directors were dismissed.

• An ERISA complaint against Merrill Lynch, the directed Trustee for the Plan, was held to survive the motion to dismiss.

• Complaints against auditor ArthurAndersen were dismissed.

Key Points of the Case:

1) The court held that plaintiffs stated a claim for breach of ERISA fiduciary duty “by alleging that Ebbers, Miller and Merrill Lynch were obligated to but failed to act with prudence regarding the Plan’s continued offer of WorldCom stock as a Plan investment.” The court went on to say: “WorldCom stock could have been removed as one of the investments offered under the Plan without amending the Plan and plaintiffs have adequately alleged that these fiduciaries should have, but failed, to consider or recommend doing so.”

2) The court also held a claim was sufficient that alleged Ebbers failed to disclose “material facts he knew or should have known about the financial condition of WorldCom.” Ebbers had argued that the duty to disclose arose under the federal securities laws and not under ERISA. The court stated that “Ebbers’s potential liability to employees who invested in WorldCom stock through the Plan for violations of the federal securities laws cannot shield him from suit over his alleged failure to perform his quite separate and independent ERISA obligations.” The court also stated: “When a corporate insider puts on his ERISA hat, he is not assumed to have forgotten adverse information he may have acquired while acting in his corporate capacity.”

3) Plaintiffs’ third claim alleged that Ebbers and Miller (Employee Benefits Director) breached their fiduciary duties by making material misrepresentations about the soundness of WorldCom stock and the prudence of an investment in WorldCom stock, and by transmitting materials containing the misrepresentations to Plan participants. The misrepresentations were alleged to have been contained in WorldCom’s SEC filings.

Ebbers and Miller argued that this claim imposed “a continuous duty of disclosure on ERISA fiduciaries that overwhelms the federal securities law disclosure requirements and compels fiduciaries to violate the prohibitions against insider trading.” The court noted that the defendants were trying to describe a “tension between the federal securities laws and ERISA that would require the dismissal” of the claim, but ruled against the defendants, stating that “[t]hose who are ERISA fiduciaries . . cannot in violation of their fiduciary obligations desseminate false information to plan participants, including false information contained in SEC filings.” The court acknowledged the “difficulties that exist in the analysis of this claim” due to the fact that Ebbers was both a corporate insider and an ERISA fiduciary, but stated:

“While there may be some case in which there will be a conflict between the two statutory schemes, it is not so evident that a conflict exists here. The Complaint alleges that WorldCom’s SEC filings contained material misrepresentations regarding WorldCom’s financial condition. Having spoken in its periodic SEC filings about the company’s financial condition, WorldCom had a duty under the federal securities laws to correct any prior material misrepresentation when it became aware of the falsity.”

This article at PlanSponsor.com reports that defined contribution health plans are becoming more popular since they “engage the consumer in the cost of care, thereby making them more cognizant of what medical care really costs.” The article discusses a report from Atlantic Information Services, Inc. (AIS), a publishing and information company in the health care industry. The article also reports on an earlier study by Deloitte & Touche which finds that “[m]ore than half (52%) of the companies surveyed agreed that CDHPs will result in immediate employer-cost savings, while slightly more than one third (36%) believe these new plans will reduce the long-term health care cost trend.”

Marguerite Higgins for the Washington Times reports: “House advances small-business health care.” The article reports that “The Small Business Health Fairness Act” passed the House 262-162 with the support of 36 Democrats. The bill allows small businesses to band together to purchase health insurance through a national association at group rates.

UPDATE: PlanSponsor.com also reports on “The Small Business Health Fairness Act (HR 660)” here.

This article–“Corporate Choice”–by Ashlea Ebeling for Forbes.com (via Yahoo! News) discusses how the Jobs and Growth Tax Relief Reconciliation Act can affect the type of entity that is best for a new business.