Category: Benefits

Here are links and excerpts from articles discussing the legislation now approved by the Senate Finance Committee (previous post here):

From the WSJ–” Senate Panel Approves Pension-Funding Bill.” Excerpt:

The Senate Finance Committee, acting to head off a savings-and-loan-style bailout of the federal pension insurer, overwhelmingly approved legislation requiring employers to fully fund their defined-benefit pension plans.

But the panel also amended the measure to give the struggling airline industry more leeway than others in funding its pension obligations. . .

The bill, approved by voice vote with no debate, is a closer parallel to the Bush administration’s pension-system overhaul proposals than a more business-friendly bill approved last month by a House committee.

From the Washington Post–“Senate Panel Advances Pension Overhaul.” Excerpt:

Labor Secretary Elaine Chao praised the committee for advancing the bill but said the Bush administration would like to see some stronger rules imposed on businesses to make sure they fund their pensions adequately.

From SHRM–“Pension bill advances in the Senate.” Excerpt:

The version of NESTEG passed by the Senate was a revamping of the bill, S. 219, which was introduced in January by Sen. Charles Grassley, R-Iowa, chair of the finance committee, and Sen. Max Baucus, D-Mont., the committee’s ranking minority member. Grassley and Baucus unveiled the new version of NESTEG on July 22 and included several new reform proposals specifically designed to avoid catastrophic pension failures after the United Airlines $9 billion pension default was announced in May. . .

The new Senate measure includes a number of provisions designed to meet goals set by Labor Secretary Elaine Chao earlier this year. One element of the new Senate bill would stop the practice of “smoothing” pension liability, something many employers now do to avoid drastic fluctuations in contributions they make to their pension plans. Critics of smoothing say it can hide insolvencies and allow pension sponsors to reduce contributions when plans actually may need more funding.

The Senate bill also includes a proposal suggested by Chao to require a new accounting standard for pension funds when the credit rating of a plan sponsor is reduced to junk-bond status. The new “at risk” standard would place tougher requirements on plan sponsors to ensure that they make the contributions needed to keep their pension plans solvent. While employer groups have expressed support for both the Senate and House versions of the pension reform proposals, the endorsements have been lukewarm at best. . .

NESTEG will now move on to the Senate Health Education Labor and Pension Committee for consideration. No further action on the measure is expected until after Labor Day, when Congress returns from its August recess.

Pre-markup industry comments regarding the legislation:

• ERIC
• American Benefits Council

See also, the Senate Finance Committee’s description of changes made to the original legislation proposed earlier this week in “Modifications to the Senate Finance Committee Chairman’s Mark of the “National Employee Savings and Trust Equity Guarantee Act of 2005.”

By the way, regarding the House version of pension legislation, see this Tax Analyst report–“Retirement Bill Coming Second Week of September, Thomas Says.“

Professor Maule has recommended a “very interesting and useful tax resource on the web that should be of interest to practitioners, tax law professors, and law students.” The site is Andrew Mitchel LLC’s International Tax Services Web Site.

Plan Sponsor.com has a good article summarizing pension legislation unveiled last Friday by Senators Charles Grassley (R-Iowa) and Max Baucus (D-Montana): “Senate Bill Takes On Private Pension Pickle.” Also, from Mary Williams Walsh of the New York Times: “2 Senators Present a Plan for Strengthening Pensions.” In connection with the scheduled markup tomorrow by the Senate Committee on Finance, the Joint Committee On Taxation has issued a Description Of The Chairman’s Mark Of The “National Employee Savings And Trust Equity Guarantee Act of 2005.”

The employment law blogosphere was all a flurry last week over this recent 4th Circuit case–Taylor v. Progress Energy, Inc., No. 04-1525 (4th Cir. July 20, 2005). The West Virginia Legal Weblog has a good summary of the case:

Yesterday in Taylor v. Progress Energy, Inc. , No. 04-1525 (4th Cir. July 20, 2005) (PDF), the Fourth Circuit held that “without prior DOL or court approval, 29 C.F.R. § 825.220(d) bars the prospective and retrospective waiver or release of the FMLA’s substantive and proscriptive rights.” This ruling places FMLA claims in the same boat as FLSA claims. While claims under Title VII and the ADEA may be waived by private agreements (including employee severance agreements) out of court, FLSA and FMLA claims cannot.

Michael Fox has these comments:

The Court applied § 825.220(d) of the FMLA regulations as written — an employee cannot waive rights under the FMLA. Call this one the revenge of Robert Reich, President Clinton’s Secretary of Labor, and a good reminder of the importance of having control of the executive branch of government when it comes to writing and amending regulations.

According to the 4th Circuit the trial court was led astray by the 5th Circuit’s opinion in Faris v. Williams WPCI, Inc., 332 F.3d 316 (5th Cir. 2003) which had taken a restrictive view of the regulation, holding it applied only to prospective waivers. A position with which it flatly disagreed.

The fact pattern in Taylor is exactly the kind that one would expect — a severance package with a release that the employer no doubt thought included FMLA claims. Given the long statute of limitations and lack of administrative prerequisites for FMLA claims, if Taylor is accepted by other courts, it could cause a lot of headaches for employers who thought that they were in the clear.

The release in question read as follows:

GENERAL RELEASE OF CLAIMS. IN CONSIDERATION OF SEVERANCE PAYMENTS MADE BY THE COMPANY, EMPLOYEE HEREBY RELEASES CP&L [AND] ITS PARENT . . . FROM ALL CLAIMS AND WAIVES ALL RIGHTS EMPLOYEE MAY HAVE OR CLAIM TO HAVE RELATING TO EMPLOYEE’S EMPLOYMENT WITH CP&L . . . OR EMPLOYEE’S SEPARATION THEREFROM, arising from events which have occurred up to the date Employee executes this General Release, including but not limited to, claims . . . for relief, including but not limited to, front pay, back pay, compensatory damages, punitive damages, injunctive relief, attorneys’ fees and costs or any other remedy, arising under: (i) the Age Discrimination In Employment Act of 1967, as amended, (“ADEA”); (ii) the Employee Retirement Income Security Act of 1974, as amended, (“ERISA”); (iii) Title VII of the Civil Rights Act of 1964, as amended; (iv) the Energy Reorganization Act and Atomic Energy Act, both as amended; (v) the Americans With Disabilities Act (“ADA”); (vi) any wrongful termination claim under any state or federal law; (vii) claims for benefits under any employee benefit plan maintained by CP&L related to service credits or other issues; (viii) claims under the Older Workers Benefit Protection Act of 1990 (“OWBPA”); and (ix) any other federal, state or local law.

While the release contained no specific reference to the FMLA, apparently that did not matter because, according to Taylor, even a specific release of FMLA rights would not have been effective under DOL regulations which prohibited such release as follows:

29 C.F.R. § 825.220(d): Employees cannot waive, nor may employers induce employees to waive, their rights under FMLA. For example, employees (or their collective bargaining representatives) cannot “trade off” the right to take FMLA leave against some other benefit offered by the employer. This does not prevent an employee’s voluntary and uncoerced acceptance (not as a condition of employment) of a “light duty” assignment while recovering from a serious health condition (see Sec. 825.702(d)). In such a circumstance the employee’s right to restoration to the same or an equivalent position is available until 12 weeks have passed within the 12-month period, including all FMLA leave taken and the period of “light duty.”

Broc Romanek has some interesting posts regarding excessive SERPs and disclosure issues which were in the news today.

From the Wall Street Journal via the Pittsburgh Post-Gazette.com: “Retiree runaround: Challenging a benefits decision.”

I have added numerous links to Tax blogs and HR-related blogs (including some newly created ones) over in the right-hand column.

The Arkansas Insurance Department has issued a directive in connection with an Eigth Circuit ERISA preemption case discussed in a previous post here. Read about it in this article from the Insurance Journal: “Arkansas Clarifies Changes to Any Willing Provider Law.”

Pennsylvania legislators have effectively overturned the controversial Commonwealth Court decision in Ignatz v. Commonwealth of Pennsylvania, 2004 WL 1057453 (Pa. Commw. May 12, 2004) through enactment of House Bill No. 176. (You can read the text of the bill here.) The bill was approved by Governor Rendell on July 7, 2005. Buchanon Ingersoll has a great summary of the development here.

Also, legislation was passed in Pennsylvania removing a state law mandate which was a barrier to insurers offering high deductible health plans in connection with health savings accounts. The legislation, House Bill 107, was approved by the Governor on July 14, 2005. (Access the text of the legislation here.) The bill also provides that the following shall be exempt from taxation in Pennsylvania:

(1) any income of a health savings account;
(2) any amount paid or distributed out of a health savings account that is used exclusively to pay the qualified medical expenses of the account beneficiary; and
(3) any amount paid or distributed out of a health savings account that is used exclusively to reimburse an account beneficiary for qualified medical expenses.

Please note that individual or employer contributions to health savings accounts unfortunately do not appear to be exempt from state income tax in Pennsylvania. This article here reports that “[u]nder the original legislation, contributions to HSAs by employers and employees would not have been taxable for state income tax purposes.” The article goes on to explain that “under pressure and threat of veto from the Rendell administration, the tax exclusion language for contributions was stripped from the bill immediately prior to its passage.”

Read more about the impact of state law mandates on health savings accounts in this previous post here.

The District Court for the Eastern District of Texas recently rejected a settlement submitted to the Court for approval in the case of In Re Electronic Data Systems Corp. ERISA Litigation. You can access the Memorandum Opinion and Order of the Court rejecting the settlement here [pdf]. The plaintiff-participants had sued EDS and its officers and directors for various fiduciary breaches and alleged, in general, violations of ERISA pursuant to a “stock-drop” scenario.

You can read about the important procedural issues which have developed in this case in a previous post here. The Fifth Circuit had granted the defendants’ petition for interlocutory appeal under Rule 23(f) of the Federal Rules of Civil Procedure. However, after presenting oral arguments to the Fifth Circuit in April of 2005, the parties apparently engaged in a “day-long mediation session” that resulted in a proposed settlement. However, the Court rejected the settlement, stating as follows:

The Court concludes that this settlement is not in the best interests of the proposed class members. Under the proposed settlement the class members would only receive two or three cents on the dollar of their losses. For example, a plan participant who had a $10,000 loss under the settlement proposal would receive only $200 to $300, a mere pittance of his or her actual loss. The Court is of the opinion that such a plaintiff would consider the risk of an adverse ruling by the Fifth Circuit to be a risk worth taking in comparison with the small benefit to be received from the settlement. This is particularly true in the present case, given that a class member would not be much worse off losing the appeal and receiving nothing than he would be receiving the de minimis recovery that each Plan participant would receive under the proposed settlement. This may be a good settlement for Plaintiffs’ counsel in that they would recoup 100% of their $5.0 million in attorneys’ fees and expenses, and it may be a good settlement for EDS in that for a relatively nominal sum it would remove whatever risk it has, but it is not a fair settlement for the Plaintiff class who would only be receiving a few pennies on the dollar. Given the Court’s skepticism that class members would ultimately find the proposed settlement to be fair to them, the Court believes issuing a notice and holding a final fairness hearing would be an expensive and unjustifiable effort.

Although not a factor in determining whether the proposed settlement is fair, reasonable, and adequate, the Court is also of the opinion that broader interests of justice would be served by denying preliminary approval. There is a vacuum of precedent on 502(a)(2) issues in the Fifth Circuit, as well as other circuits. The Fifth Circuit recognized this in Milofsky and, implicitly, in taking the unusual step of granting an interlocutory appeal under Rule 23(f). See Milofsky v. Am. Airlines, Inc., 404 F.3d 338, 345 (5th Cir. 2005) (refusing to “speculate on every possible situation” yet to be answered). In light of the de minimis settlement before the Court, it is therefore in the interests of justice to push forward in this dispute, so issues can be resolved by the Fifth Circuit and procedural clarity can be brought to ERISA litigation surrounding defined contribution plans.

Furthermore, approving this settlement could send the wrong message to the United States Department of Labor, the administrative agency charged with overseeing and enforcing pension plans. The United States Department of Labor is presently investigating this Plan and has clearly stated its position in its amicus curiae brief at the Fifth Circuit. The Court believes that investigation should run its due course and not be prematurely influenced by the Court approving what it has found to be an unfair de minimis settlement to the class members.

You can access the following amicus briefs filed in the appeal:

• DOL Amicus Brief
• Brief of ERIC, the American Benefits Council, and the ESOP Association as Amici Curiae

For Your Benefit has comments on the case here.

UPDATE: See also this recent article from the Washington Legal Foundation entitled “ERISA-Related Securities Litigation Imposes Undue Burden on Pension Plans and Participants.”