Category: Benefits

Interesting article from the Wall Street Journal last week on how pension plans for the self-employed (the more well-to-do self-employed) are increasing in popularity: “Self-Employed Embrace Pensions.” Excerpt:

Generous pension plans may be going the way of the buggy whip at big businesses, but they’re gaining in popularity among the smallest of companies: sole proprietorships. . .

Defined-benefit plans for individuals are beginning to enter the mainstream, with a handful of financial firms now offering the service. Traci Siegel, vice president of retirement services and products at Charles Schwab Corp. in San Francisco, says the number of accounts in Schwab’s Personal Defined Benefit Plan jumped 30% this year from 2004, with the average plan participant making annual contributions of $113,000. Most clients earn $225,000 or more a year, she says.

See also this article (which contains one of those handy tables that I love) describing the various plans available for the self-employed: “IRAs and 401(k)s: How to Pick the Best Plan.”

Just watching Katrina and hurting and praying for the folks in New Orleans and surrounding areas . . .

I received a copy of the Order (access it here [pdf]) denying the defendants’ motion to dismiss in the cash balance plan litigation involving the Gannett Retirement Plan. The Order is too sparse in its analysis to provide any meaningful discussion here other than to say that the opinion seems to disagree with Eaton v. Onan Corp., 117 F. Supp. 2d 812, 817 (S.D. Ind. 2000) and Tootle v. ARINC, Inc., et al. (discussed here) on whether 29 U.S.C. section 1054(b)(1)(H) applies to employees who have not yet reached normal retirement age. That provision prohibits the reduction of the rate of a participant’s benefit accrual because of age and reads as follows:

. . .[A] defined benefit plan shall be treated as not satisfying the requirements of this paragraph if, under the plan, an employee’s benefit accrual is ceased, or the rate of an employee’s benefit accrual is reduced, because of the attainment of any age.

Read more about cash balance plan litigation and legislative developments at this link here.

In 2004, a district court in New Jersey held that certain plaintiffs could not recover damages for defendants’ alleged breaches of fiduciary duty because such recovery was really for individual participants rather than the plan. In re Schering-Plough Corp. ERISA Litig., 2004 WL 1774760 at 6 (D.N.J. June 28, 2004). The Third Circuit has now reversed and remanded the case in a landmark decision which you can access here. The opinion written by Third Circuit Judge Alarcon states the issue and holding as follows:

We must decide in this matter whether, under the Employee Retirement Income Security Act of 1974 (“ERISA”), the District Court erred in ruling that former employees, who were participants in a defined contribution plan, may not prosecute a derivative action on behalf of an employees’ savings plan to recover losses sustained by the savings plan because of alleged breaches of fiduciary duty. We conclude that the Plaintiffs may seek money damages on behalf of the fund, notwithstanding the fact the alleged fiduciary violations affected only a subset of the saving plan’s participants.

The defendants in the case had sought to rely on the Milofsky case, but the court distinguished Milofsky from the case at hand:

In a letter to this Court filed pursuant to Rule 28(j) of the Federal Rules of Appellate Procedure, the Defendants cited a recent decision of the Fifth Circuit, Milofsky v. American Airlines, Inc., 404 F.3d 338 (5th Cir. 2005) reh’g en banc granted, No. 03-11087, 2005 U.S. App. LEXIS 15122, (5th Cir. July 19, 2005) in support of their argument that a participant lacks standing to bring an action on behalf of an individual account pension plan if he or she does not seek plan-wide relief. . . The facts in Milofsky are clearly distinguishable from those in the matter sub judice. In Milofsky, the plaintiffs alleged that the value of their investments in the BEX plan decreased because of the failure of the defendants to transfer the funds to the American Eagle 401(k) plan. Id. at 351. Thus, this alleged loss occurred prior to the transfer of the BEX plan participants’ investments to the American Eagle 401(k) plan. In Milofsky, the plaintiffs sought damages on behalf of the BEX plan members, and did not seek to restore assets of the American Eagle 401(k) fund. Here, the Plaintiffs seek damages from the fiduciaries for their violation of their duty to a subclass which had transferred its funds to the trustee of the Savings Fund.

The DOL had filed an amicus brief in the case which you can access here. DOL had argued in the case that a breach of fiduciary duty did not need to harm the entire plan to give rise to liability under § 1109 and that holding so would have the effect of insulating fiduciaries who breach their duty so long as the breach did not harm all of a plan’s participants. The DOL went on to note that “[s]uch a result clearly would contravene ERISA’s imposition of a fiduciary duty that has been characterized as ‘the highest known to law.'”

Update: More on the case from Law.com here.

The Tax Guru has posted the Tax Man Song in this post. (Words are here.)

I really enjoyed the tons of emails containing benefits acronyms. There were so many that I decided to compile them in a Benefits Acronym Lexicon. (Permanent link is in the right-hand column.) I hope to add more acronyms and helpful links as they come to mind or are suggested. Here are some of the acronyms sent to me (in no particular order):

RSOL (Regional Solicitor’s Office)
PBSD (Plan Benefits Security Division)
ECP (Employer Contribution Project)
REACT (Rapid ERISA Action Team)
OE (Office of Enforcement)
TPA (third party administrator)
own-occ (own-occupation disability insurance)
any-occ (any-occupation disability insurance)
RBD (required beginning date)
ADA (Americans with Disabilities Act)
COLA (cost of living adjustment)
GI (guaranteed insurability)
LTC (long-term care)
EAP (employee assistance program)
EOB (explanation of benefits)
EOI (evidence of insurability)
ESRD (end stage renal disease)
MSA (medical savings account)
MSP (Medicare Secondary Payer)
PCP (primary care physician)
PHO (Physician Hospital Organization)
POS (point of service)
PPA (Preferred Provider Arrangement)
PPO (Preferred Provider Organization)
QMB (qualified Medicare beneficiary)
SSDI (Social Security disability insurance)
WHCRA (Women’s Health and Cancer Rights Act)
YTD (year-to-date)
AD & D (accidental death and dismemberment)
ADB (accidental death benefit)
ADR (alternative dispute resolution)
TSA (tax-sheltered annuity)
QMCSO (Qualified Medical Child Support Order)
STD (short-term disability)
LTD (long-term disability)
COCC or COC (Certificate of Creditable Coverage)
PTO (paid-time off)
WC (Workers’ Compensation)
SSA (Social Security Administration)
TAMRA (Technical and Miscellaneous Revenue Act of 1988)
FIT (Federal Income Tax)
FUTA (Federal Unemployment Tax)
SUTA (State Unemployment Tax)
FUI (Federal Unemployment Insurance)
SUI (State Unemployment Insurance)
RASD (retroactive annuity starting date)
DVP (deferred vested pension)
ASD (annuity starting date)
QJSA (Qualified Joint and Survivor Annuity)
QPSA (Qualified Pre-retirement Survivor Annuity)
QSUPP (Qualified Social Security Supplement)
CDHP (consumer driven health plan)
AJCA (American Jobs Creation Act)
EE (employee)
EB (employee benefits)
ER (employer)
BOLI (bank-owned life insurance)
NUA (net unrealized appreciation)
RMD (required minimum distribution) or MRD (minimum required distribution) for some
TAM (Technical Advice Memorandum)
PLR (Private Letter Ruling)
VCO (Voluntary Correction of Operational Defects)
VCT (Voluntary Correction of Tax-sheltered Annuity Failures)
A-org or FSO (first service organization under section 414(m) of the Internal Revenue Code)
B-org (technical term under section 414(m) of the Internal Revenue Code
ASG (Affiliated service group)
M & P (master & prototype)
QMAC (Qualified Matching Contributions)
PTCE (prohibited transaction class exemption)
FAB (Field Assistance Bulletin)
CEBS (Certified Employee Benefit Specialist)
AARP (Association of American Retired Persons)
ASPPA (American Society of Pension Professionals and Actuaries)
ABC (American Benefits Council)
ERIC (ERISA Industry Committee)
PSCA (Profit Sharing/401k Council of America)
NCEO (National Center for Employee Ownership)
SLOB (separate line of business)
QSLOB (qualified separate lines of business)
QSERP (qualified supplemental executive retirement plan)

UPDATE: Joe Kristan suggests that we might be “speaking in tongues” or that the “men in white coats” might soon be arriving. If the truth were to be told though, the accountants and tax folks could probably come up with a pretty good list themselves containing all of all of the mysterious lingo that they use in their practice. How about AGI, MAGI, and MACRS for starters?

Thanks to readers, the benefits acronyms are rolling in. I will try to “aggregate” them and publish a new list over the weekend. Many thanks!

CMS has estimated that the average monthly benefit premium for the new Medicare prescription drug benefit will be about $32.20 per month when the benefit takes effect in 2006. Read about it here from KaiserNetwork.com: “Medicare Drug Benefit Monthly Premiums To Average $32, Down from Earlier Estimates, Officials Announce.”

I was thinking today about all of the acronyms that benefits professionals utilize when they “talk shop.” I was reminded of the very first benefits conference I ever attended, just out of law school (many years ago), which, upon hearing all of the vernacular, caused me to wonder if benefits folks were really from another planet. However, after practicing for awhile in the area, one does come to accept and use the most common acronyms that prevail in the industry, to the point that we sometimes forget what the acronym actually stands for. Anyway, here is a list and I am sure there are more, so email me ones that come to mind, and I will add them:

ERISA, IRC, DB, DC, CODA, IRAs, SEPs, SIMPLEs, SERPs, NQDC, ADEA, NESTEG, ERTA, TEFRA/DEFRA/REA, GUST, USERRA, SBJPA, TRA, RRA, CRA, UCA, OBRA, GATT, EGTRRA, JGGTRA, WFTRA, SOX, HSAs, HRAs, FSAs, HIPAA, COBRA, HMOs, DOL, EBSA, IRS, PBGC, HHS, CMS, EEOC, GAO, FASB, EPTA, TE/GE, ISOs, AMT, COLIs, DROPs, FLSA, FMLA, FICA, VEBAs, ESOPs, TRASOPs, PAYSOPs, KSOPs, SRI, ETI, LRMs, EPCRS, SCP, VCP, CAP, PT, UBTI, SPD, SMM, MEWA, QDRO, ACP/ADP, HCEs, non-HCEs or NHCEs, QNECs, J & S, . . .

(Not to mention all of the benefit plans known by Code section number (such as 401(k)’s, 457’s, 403(b)’s, etc., or short phrases such as “rollover”, “cash-out”, “orphan plan”, etc. which have their own peculiar meanings.)

From the Wall Street Journal–“Judge Rules in Disney’s Favor In Long-Running Ovitz Case.” The article reports that a “Delaware judge ruled that directors of Walt Disney Co. didn’t breach their fiduciary responsibility in the hiring or termination of Michael Ovitz, dealing a defeat to shareholder activists seeking greater accountability for corporate boards.” Excerpt:

The suit has been considered groundbreaking in the corporate-governance world in part because it proceeded as far as it did. Chancellor Chandler ruled in May 2003 that Disney shareholders could go ahead with the suit, concluding that the litigation raised legitimate questions as to whether Disney directors should be held personally liable for breaching their duty to consider Mr. Ovitz’s employment carefully. It was the first time the Delaware Chancery Court has threatened directors with personal liability for decisions involving ordinary business matters.

Broc Romanek has commments here.