Category: Benefits

You can access the healthcare tax relief bill (S. 978) introduced by Senators Rick Santorum (R-PA) and Jim DeMint (R-SC) at this link here. Previous post here discusses the legislation.

The Joint Committee on Employee Benefits (“JCEB”) has posted its 2004 Question and Answer session with the SEC. The questions were submitted by ABA members and the responses were given at a meeting of JCEB and government representatives.

You can access other Q & As with the DOL, EEOC, HHS and IRS here.

The SEC today announced the release of the “Staff Report Concerning Examinations of Select Pension Consultants.” The Report comes on the heels of an examination by the SEC of 24 pension consultants who are registered with the SEC as investment advisers. The examinations focused on (i) the products and services provided by the pension consultants; (ii) the method of payment for such services; and (iii) the disclosure provided to their clients. The examinations were initiated “as part of the SEC´s program to identify and investigate risks in the securities industry.”

The SEC states that the Report is intended to provide “recommendations to enhance pension consultants’ compliance programs” to help ensure that advisers are fulfilling their fiduciary obligations to their clients. However, the SEC also states that the Report raises “important issues for plan fiduciaries who often rely on the advice and recommendations of pension consultants in operating their plans.” Accordingly, the SEC has promised to work with the Department of Labor to educate pension fund trustees and other plan fiduciaries about the issues raised by the findings in the Report, and has stated that it “will continue to work closely with the Department of Labor on issues of mutual interest.”

The SEC concluded in the Report that pension consultants that are registered investment advisers (1,742 registered investment advisers list that they provide pension consulting services, according to the SEC) should be:

(1) Formalizing “policies and procedures” to address their fiduciary and regulatory obligations under the Advisers Act.

(2) Identifying conflicts of interest and other compliance factors creating risk exposure for the firm and its clients in light of the firm’s particular operations, and then designing policies and procedures that address those risks.

The SEC noted that such policies and procedures should ensure that the firm’s advisory activities are insulated from its other business activities, to eliminate or mitigate conflicts of interest in its advisory activities, and that all disclosures required to fulfill fiduciary obligations are provided to prospective and existing clients, particularly regarding “material” conflicts of interest. The SEC also noted that policies and procedures should be designed to ensure adequate disclosure concerning the consultant’s compensation, including when the pension consultant receives compensation from brokerage transactions from advisory clients or money managers.

After the Report was issued, the DOL commended the SEC here for the Report stating:

While the SEC is responsible for regulating the conduct of investment advisers, including advisers that provide pension consulting services to employee benefit plans, the Labor Department is responsible for the conduct of the plan fiduciaries. This includes, among other things, selecting the providers of pension consulting and other services for plans. The Employee Retirement Income Security Act (ERISA) requires that plan fiduciaries must act prudently in selecting and monitoring service providers. Disclosure of a service provider’s potential conflicts of interests would be an important part of the selection and monitoring process.

The SEC warns in its announcement of the Report that “[a]lthough investment advisers owe their clients a fiduciary obligation — including to adequately disclose all material conflicts of interest — some pension consultants appear to have erroneously concluded that they are not fiduciaries to their clients.”

In light of all of this, plan fiduciaries should make sure that their pension consultants have the policies and procedures in place that the SEC has recommended, as the Report provides a sort of “roadmap” for plan fiduciaries in examining their relationships with pension consultants to make sure that such relationships continue to meet the statutory standards under ERISA.

This quote from Lori Richards, Director of the SEC’s Office of Compliance Inspections and Exminations, in an article from CNN here:

[Pension consultants] sell themselves as being objective or unbiased and independent. Those are important words and they have meaning, and they have meaning to the clients who are deciding to hire the pension consultant, so if a pension consultant says that it is any one of those things: independent, objective, unbiased, it must make sure that it is so.

Article by Mary Williams Walsh for the New York Times: “SEC Investigating Pension Consultants? Disclosure.”

Also, from the Wall Street Journal: “SEC Finds Retirement-Fund Issues.”

From the ABA TechShow 2005: “60 Sites in 60 Minutes.” Congrats to the LawProf Blogs Network (started by Professor Paul L. Caron who writes the TaxProf Blog) for making the list.

This is a great article authored by Beckett G. Cantley, Assistant Professor of Law at St. Thomas University School of Law, discussing the birth and then demise of the SESOP: “Congress Giveth and Congress Taketh Away: The slow death of the SESOP.”

(Source: TaxProf Blog)

A federal district judge in Nebraska yesterday struck down an amendment to Nebraska’s State Constitution which provides that “[o]nly marriage between a man and a woman shall be valid or recognized in Nebraska.” The law was passed overwhelmingly by the voters in November of 2000. This New York Times article here states that the “Nebraska ruling is the first in which a federal court has struck down a state ban on same-[gender] marriage” and noted that congressional leaders are pointing to the decision “as evidence of the need for a federal constitutional amendment banning same-[gender] marriage.”

You can access the opinion written by Judge Joseph F. Bataillon here. Apparently, one of the key factors in the decision was the overly broad manner in which the amendment was written. The amendment stated that “[t]he uniting of two persons of the same gender in a civil union, domestic partnership, or other similar same-[gender] relationship shall not be valid or recognized in Nebraska.” Judge Bataillon inferred that such language would in effect “void numerous existing contracts, labor agreements and corporate policies that extend to same-[gender] partners any benefits once offered only to spouses.” While he emphasized the legitimate goals of promoting stable family relationships and protecting children” he noted that the amendment was a “blanket prospective prohibition on any type of legal recognition of a same-[gender]relationship” and that the provision could be interpreted to prohibit companies and governments from providing benefits to domestic partners under various benefit plans.

Please note foonote 21 of the opinion which gives a brief history of benefits being offered to same-gender couples.

Another article from CitizenLink: “Judge Strikes Down Nebraska DOMA.”

Read more about the impact of marriage laws on benefits here.

Senators Rick Santorum (R-PA) and Jim DeMint (R-SC) have introduced legislation “to enhance and encourage affordable healthcare coverage for uninsured and low-income individuals, as well as small business employers and their employees.” The legislation would create “a tax credit for small businesses who contribute money to an employee’s HSA, and an above the line deduction for high-deductible health plans.” Read about it in this press release.

In this article here discussing the legislation, Vicki Agler of the National Federation of Independent Business predicts that health savings accounts are “virtually going to be the wave of the future for small businesses.”

Interesting article from the Associated Press via BusinessWeek Online: “Airlines Face Pressure Over Pension Relief.” Excerpt:

William J. Rochelle, a bankruptcy lawyer with Fulbright and Jaworski in New York, said Congress needs to devise some way for airlines and other businesses, such as automakers and truckers, to lighten their pension burden outside of bankruptcy court, where workers’ retirement benefits are quite likely to be gutted at the hands of banks and other creditors.

The current system isn’t fair to retirees, Rochelle said, in that they lose their pensions and any money they had invested in the company’s stock, which typically becomes worthless during the bankruptcy reorganization. Investors, on the other hand, are able to snap up debt at pennies on the dolllar and then can profit if the company recovers and their debt is converted into equity in the new company.

“Right now our system is creating a transfer of wealth from retirees to junk bond investors,” he said.

Alan Lebowitz, Deputy Assistant Secretary for Program Operations, EBSA, has written a letter (which you can access here) to the AFL-CIO setting forth the DOL’s views regarding the ERISA violations that could occur if plan fiduciaries are involved in expending “plan assets to inform participants about the current public debate on Social Security” as well as the “hiring and firing of [plan] service providers based upon their opinions on Social Security reform.”

Regarding the issue of using plan assets to express views or provide information on Social Security policy, the DOL stated that “such expenditures are neither for the payment of benefits nor for plan administration, and accordingly fall outside the limited scope of expenditures permitted by ERISA.” The DOL rejected the assertion that such expenditures were permissible since “current Social Security proposals could have a significant impact on the national economy, financial markets, and plan investments.” The DOL stated, however, that in some very narrow circumstances, such as where a legislative proposal is near enactment and closely tied to plan issues, a “fiduciary could decide to spend plan assets to educate participants about the need to take the legislation into account in making particular decisions about their options under the plan.”

Regarding the issue of considering a service providers’ views on Social Security as a factor in selection and retention decisions, the DOL reiterated ERISA standards imposed on plan fiduciaries of acting with an “eye single to the interests of the participants and beneficiaries” and stated that “it would be unlawful for a plan fiduciary to review the plan’s service providers based, not upon the quality and expense of their services, but rather upon their views on Social Security or any other broad area of public policy.” The DOL went on to state:

Although your counsel’s opinion points out that a fiduciary may consider such collateral factors only when choosing a service provider that is better than or equal to alternative providers . . the Department is concerned that fiduciaries may nevertheless view the AFL-CIO’s recent attention to the question as an invitation to judge service providers first for their positions on Social Security and only second for their ability to meet plans’ particular needs.

DOL’s bottom line: “A fiduciary may never increase a plan’s expenses, sacrifice the security of promised benefits, or reduce the return on plan assets, in order to promote its views on Social Security or any other broad policy issue.”

The Wall Street Journal has an article commenting on the letter entitled “Pension Fund Politics.”

Also, you can access a New York Times article here.

Fiduciary Counselors, Inc, has posted on their website a number of very useful articles written or co-authored by Nell Hennessy and others. Here are a couple of the articles listed:

• Understanding DOL’s New Class Exemption for the Release of Claims and Extensions of Credit in Connection With Litigation[pdf]
• Defined Benefit Plans in Corporate Transactions[pdf]