Category: Erisa

The U.S. Supreme Court is in session today and has issued its order list which apparently includes review of the following ERISA case which was consolidated: Aetna Health Inc. v. Davila and Cigna Healthcare of Texas Inc. v. Calad.

“Supreme Court to Rule on Patients’ Rights“: Anne Gearan for the Associated Press reports via Yahoo! News. David Savage for the LATimes also has this: “U.S. Courts Rule Patients Have Right to Sue HMOs: Two appeals verdicts go against interpretation of a 1973 law that has shielded health-care groups from damages.“

As you may recall, this post discussed Third Circuit Court Judge Edward Becker’s plea in a concurring opinion in the case of DiFelice v. Aetna for Congress and the Supreme Court to “revisit what is an unjust and increasingly tangled ERISA regime.” Judge Becker states that “[e]ven if Congress refuses to act, however, the Supreme Court, in its interpretive capacity, is capable of effecting salutary change in many ways. The Court has no crystal ball, and twenty years ago it could not have foreseen the radical changes that have overtaken the health care system, and the difficulties that its preemption decisions would create. The time might be right to reconsider . . .”

One of the reoccurring themes here at ERISAblog is the need for ERISA fiduciaries to become educated and trained about their fiduciary duties and responsibilities under ERISA. A 2002 case from the Central District of California district court, Springate v. Weighmasters Murphy, Inc. Money Purchse Pension Plan, 217 F. Supp. 2d 1007, illustrates how some ERISA fiduciaries are “in a fog” about their status and duties. In fact, at a conference I attended, one litigator commented that some individuals do not even realize that they are ERISA fiduciaries until they are having their deposition taken. A similar situation occurred in this case as the opinion states: “Until the time of his deposition, [Defendant 3] did not understand that one of his obligations was to tell the trustee “how to invest Plan assets.&#8221”

The case involved a money purchase pension plan which had lost significant value in a short period of time. A plan administrative committee comprised of family members who also ran the business served as the “named fiduciaries” of the plan.

The court’s discussion of how the three individuals serving on the plan administration committee failed to fulfill their fiduciary duties under ERISA is a lesson in itself:

4. What the fiduciaries did not know about their duties and obligations as fiduciaries
[Defendant 1] does not know the meaning of the word “fiduciary.” [Defendant 1] did not understand the Plan when he read it. [Defendant 1] never read the entire Plan document. [Defendant 1] does not know the meaning of the word “trustee” and never made any inquiries as to what his role as a trustee was. [Defendant 1] does not know the meaning of the words “plan participant.” [Defendant 1] does not know the meaning of the words “plan beneficiary.” [Defendant 1] does not know the meaning of the expression “party in interest.” [Defendant 1] does not know the meaning of the expression “exclusive benefit rule.” [Defendant 1] does not know the meaning of the expression “plan year.” [Defendant 1] does not know the meaning of the expression “plan asset.” [Defendant 1] does not know the meaning of the expression “a prudent man.” [Defendant 1] does not know the meaning of the expression “a prudent fiduciary.” [Defendant 1] does not know the meaning of the expression “diversification of assets.” [Defendant 1] does not know the meaning of the acronym “ERISA.”

By the way, the portion of the opinion which I have quoted here is taken from the District Court case. The case was affirmed on appeal on August 22 of this year by the 9th Circuit. (No link available.)

Continue reading for more excerpts from the case . . .

[Defendant 2] does not know the meaning of the word “fiduciary.” [Defendant 2] does not know the meaning of the word “trustee.” [Defendant 2] does not know the meaning of the words “plan participant.” [Defendant 2] does not know the meaning of the words “plan beneficiary.” [Defendant 2] does not know the meaning of the expression “party in interest.” [Defendant 2] does not know the meaning of the expression “prohibited transaction.” [Defendant 2] does[*pg. 1018] not know the meaning of the expression “exclusive benefit rule.” [Defendant 2] does not know the meaning of the expression “plan year.” [Defendant 2] does not know the meaning of the expression “plan asset.” [Defendant 2] does not know the meaning of the expression “a prudent man” as applied to the obligations of a trustee. [Defendant 2] does not know the meaning of the expression “a prudent fiduciary” as applied to a trust of any type. [Defendant 2] does not know the meaning of the expression “diversification of assets.” [Defendant 2] is not familiar with the expression “ERISA.” [Defendant 2] has not taken any steps to educate himself as to the role of a fiduciary. [Defendant 2] does not know if he read the Plan. [Defendant 2] does not know the meaning of the expression “plan sponsor.” [Defendant 2] is the Secretary Treasurer of Weighmasters Murphy, Inc. [Defendant 2] does not know the source of funding for the Plan.

[Defendant 3] defines “trustee” as “somebody who is responsible.” [Defendant 3] states that within the context of a pension plan, the “trustee” is only responsible for choosing someone to handle the responsibility and money. [Defendant 3] has been a “trustee” only once. [Defendant 3] was a “trustee” for his brother’s estate. [Defendant 3] defines “fiduciary” within the context of a pension plan as meaning that “you will be faithful in seeing that the assets are in good hands and administered well ….” [Defendant 3] cannot properly define the expression “plan participant.” [Defendant 3] has not read the Plan document. [Defendant 3] is not familiar with the expression “party in interest.” [Defendant 3] defines the expression “prohibited transaction” as “not filing the papers correctly.” [Defendant 3] is not familiar with the expression “exclusive benefit rule.” The named fiduciaries did not consult with a financial advisor concerning any aspect of the Plan assets. [Defendant 3] has taken no steps to ensure that he had a proper level of knowledge when attempting to act as a Named Fiduciary. [Defendant 3] does not have any understanding of the expression “prudent man” within the context of a pension plan. [Defendant 3] contends that as a Named Fiduciary he does not have any responsibility for the monitoring whomever he hired to insure they were diversifying the Plan’s assets. [Defendant 3] contends that as a Named Fiduciary he had no obligation to do anything with regard to the assets of the Plan. [Defendant 3] does not have an understanding of the expression “independent trustee.” [Defendant 3] is not familiar with the expression “named beneficiary.” [Defendant 3] is not familiar with, and has no understanding of, the expression “named fiduciary.” Until the time of his deposition, [Defendant 3] did not understand that one of his obligations was to tell the trustee “how to invest Plan assets.”

5. What the Defendant fiduciaries did not know concerning the composition and value of the Plan’s assets
[Defendant 1] was never aware that the Plan owned stock in UNUM Corporation. [Defendant 1] never knew UNUM’s stock price. The value of the Plan assets declined after Decedent’s death. [Defendant 1] took no steps to interrupt the decline in value of the Plan’s assets. [Defendant 1] did nothing to determine the value of [Decedent]’s interest in the Plan at the time of [Decedent]’s death. [Decedent]’s interest in the Plan dropped 40% in the 14 months after her death. [Defendant 1] does not know if any participant, other than [Decedent], sustained a 40% decline in the same period of time. [Defendant 1] does not know why [Decedent]’s interest in the Plan dropped from over $1.5 million to $915,000.00 in the 14 months following her death. [Defendant 1] never found out why [Decedent]’s interest in the Plan dropped from over $1.5 million to $915,000.00 in the 14 months following her death. [Defendant 1] does not know the value of the Plan’s assets for any year in which he was a Named Fiduciary. [Defendant 1] does not know the composition of the assets of the Plan for any year in which he was a named Fiduciary. Despite the fact that he had no experience in investing in the stock market, [Defendant 1] never consulted with a financial advisor to determine if any asset owned by the Plan was an appropriate asset to be owned by a pension plan. [Defendant 1] never consulted with a financial advisor about the Plan’s assets at all. [Defendant 1] did not know what assets the Plan held as of May 31, 1999, the end of the Plan year in which Decedent died. [Defendant 1] did not know the value of any individual asset held by the Plan on May 31, 1999, the end of the Plan year in which Decedent died. [Defendant 1] never took any steps to inform himself as to what assets the Plan held as of May 31, 1999. [Defendant 1] never took any steps to inform himself as to what assets the Plan held at any time. . . . [Defendant 1] was never aware that the Plan owned 22,852 shares of UNUM stock. [Defendant 1] does not know what UNUM does. [Defendant 1] did not know that UNUM’s stock price had dropped from $55.5625 per share on May 31, 1998, to $13.375 per share on February 29, 2000. [Defendant 1] did not know that UNUM’s stock price had been reduced by 80% between May 31, 19998 and February 29, 2000. [Defendant 1] does not know what an “asset” is.

[Defendant 2] does not know the composition of the Plan’s assets. [Defendant 2] does not know what types of assets a Plan may hold under ERISA. [Defendant 2] does not know what types of assets a Plan may not hold under ERISA. [Defendant 2] never took any steps to determine what the Plan’s money was invested in, whether it was stocks, bonds, cash or anything else. [Defendant 2] never consulted with a financial advisor concerning what types of assets and investments were appropriate for a plan to hold. Since becoming a Named Fiduciary in May 1999, [Defendant 2] has done nothing to fulfill his obligations he may have had except attend one or two meetings of the Committee. [Defendant 2] has never known what the assets of the Plan consisted of. [Defendant 2] does not know if the Plan ever owned UNUM stock. [Defendant 2] never reviewed the performance of UNUM stock to determine if it was an appropriate investment for the Plan. [Defendant 2] never knew the Plan owned 22,852 shares of UNUM stock. [Defendant 2] does not know what “MFB NORTHRN INSTL FDS Diversified Growth Portfolio” is.

[Defendant 3] is not aware of any Named Fiduciary consulting with a financial advisor. [Defendant 3] has taken no steps to ensure that he fulfills his fiduciary duties. [Defendant 3] never understood until his deposition that it was his obligation to tell the trustee how to invest Plan assets. [Defendant 3] does not know who was responsible for choosing the Plan’s assets since May of 1999. [Defendant 3] never chose any asset to be owned by the Plan. [Defendant 3] does not know the value of the assets held by the Plan at the end of the 1999 Plan year. [Defendant 3] does not know the value of the assets held by the Plan at the end of the 2000 Plan year. [Defendant 3] does not know the composition of the Plan assets at the 1999 Plan year end. [Defendant 3] does not the composition of the Plan’s assets in the 2000 Plan year end. [Defendant 3] does not know if the assets owned by the Plan were appropriate investments. [Defendant 3] never investigated UNUM stock at all. [Defendant 3] never concerned himself with what assets were in the Plan. As a Named Fiduciary, [Defendant 3] did nothing to minimize the losses suffered by the Plan and its Participants. [Defendant 3] had previously retired from Weighmasters Murphy, Inc. and received his interest in the Plan in a lump sum distribution. [Defendant 3] never reviewed the investments made by the Plan. [Defendant 3] never reviewed the investment returns or losses made by the Plan’s assets. [Defendant 3] admits he is not competent to choose stocks for the Plan. [Defendant 3] never consulted with anyone concerning how to properly run or administer the Plan. [Defendant 3] never paid attention to whether the Plan’s investments were going up or down in value. [Defendant 3] did nothing to determine if UNUM stock was an appropriate investment of Plan assets. The Plan’s investment in UNUM stock constituted of two thirds of the Plan’s assets. [Defendant 3] did nothing to determine if it was appropriate to keep two thirds of the Plan’s assets in UNUM stock. [Defendant 3] does not know what MFB NORTHRN INSTL Diversified Growth Portfolio is. [Defendant 3] did not know the Plan owned over 30,000 shares of MFB NORTHRN INSTL Diversified Growth Portfolio. [Defendant 3] took no steps as a Named Fiduciary to determine if the Diversified Growth Portfolio was a wise investment of Plan Assets. [Defendant 3] never looked at the Plan’s assets in 1999 or 2000 to determine why their value was dropping. [Defendant 3] was not aware that UNUM stock dropped from $55.00 per share to $13.00 per share between May 31, 1999 and February 29, 2000. [Defendant 3] concedes that it was not prudent to “ride it [the UNUM stock] down” 75%. [Defendant 3] never thought that in order to protect the Plan participants and beneficiaries, the Named Fiduciaries should sell the UNUM stock and invest in something else.

Yesterday’s Wall Street Journal contained an article discussing “the widening inquiry into mutual-fund firms” which has “prompted some employers to put new restrictions on the trading activity workers can conduct in their 401(k) retirement plans.” The article–“Fund Probe Prompts 401(k) Trading Curbs“–notes that AT&T Corp. and DuPont Co. have recently adopted measures aimed at keeping employees from too rapidly trading in or out of certain funds offered in their 401(k) plans. According to the article, AT&T has levied new fees for making certain trades in some international funds, and DuPont has imposed a 15-day window for trades in two of its funds. The article also states that “[p]ension experts and the Labor Department are urging retirement plans to keep a sharp eye on how funds the plans offer may be affected by the investigations.”

Previous posts on the mutual fund scrutiny and the ERISA fiduciary issues connected with it are here and here.

USA Today also reports: “Heavy trading in 401(k)s watched.”

Yesterday, I noted that the Senate had voted to block the Treasury Department from issuing regulations governing cash balance plans. The amendment–referred to as the “Harkin’s amendment” since it was introduced by Senator Tom Harkin (D-IA)–is Amendment No. 1905 to H.R. 2989, the Transportation, Treasury, and Independent Agencies Appropriations Act of 2004. The Amendment reads as follows:

(Purpose: To prohibit the Internal Revenue Service from using funds to go forward with its proposed cash balance regulation) SEC. . None of the funds made available in this Act may be used by the Secretary of the Treasury or his delegate to issue any rule or regulation which implements the proposed amendments to Internal Revenue Service regulations set forth in REG-209500-86 and REG-164464-02, filed December 10, 2002, or any amendments reaching results similar to such proposed amendments.

You can find out more about the bill at this link.

As most will recall, a decision was issued this summer–Cooper et al. v. the IBM Personal Pension Plan and IBM Corporation–holding that the IBM cash balance plan violated certain provisions of ERISA.

To learn more about what was said on the Senate floor Thursday before passage of the Amendment, continue reading . . .

Mr. HARKIN. Mr. President, I send an amendment to the desk and ask for its immediate consideration.

The PRESIDING OFFICER. The clerk will report.

The assistant legislative clerk read as follows:

The Senator from Iowa [Mr. Harkin], for himself, Mr. Feingold, Mr. Kennedy, and Mr. Durbin, proposes an amendment numbered 1905.

Mr. HARKIN. Mr. President, I ask unanimous consent that reading of the amendment be dispensed with.

The PRESIDING OFFICER. Without objection, it is so ordered.

The amendment is as follows:

(Purpose: To prohibit the Internal Revenue Service from using funds to go forward with its proposed cash balance regulation)
At the appropriate place, insert the following:

SEC. . None of the funds made available in this Act may be used by the Secretary of the Treasury or his delegate to issue any rule or regulation which implements the proposed amendments to Internal Revenue Service regulations set forth in REG-209500-86 and REG-164464-02, filed December 10, 2002, or any amendments reaching results similar to such proposed amendments.

Mr. HARKIN. Mr. President, this amendment has some history in the Senate and the House. I will try to enlighten Senators as to the background and what it is about. Hopefully, we can have support for the amendment and adopt it.

Basically, it stops the Treasury Department from moving forward with a regulation that would allow companies to convert from a traditional defined benefit pension plan to a cash balance plan in a way that would hurt older workers. We are not saying they can’t promulgate a rule that wouldn’t allow a company to go from a defined benefit plan to a cash balance plan. We are just saying, they should not do it in a way that hurts older workers. Let me talk about that a little bit and what is behind it.

I am not totally opposed to cash balance plans. Some designs can be very good. Some can be a great deal better for younger workers, for example, than an uninsured defined contribution plan. Some are not. I am not saying we should prohibit any cash balance plans from existing. However, we need to make sure employers put in place a fair and equitable manner for treating these.

I have been following this issue closely for several years. In the mid-1990s, a groundswell of companies started converting from traditional defined benefit plans to hybrid plans, including cash balance plans. A couple of years later, some older workers who were nearing retirement started looking at the effect of this conversion on their account. They were shocked to find they hadn’t been accruing any benefits for years. In other words, workers who were, say, in their forties or early fifties when the company converted from a defined benefit plan to a cash balance plan, didn’t really know how the conversion would affect them. Then after several years, these older workers looked and found out they had been working for several years and their pension had not increased one penny, even though they had been working. Yet younger workers, age 20, 25, saw their pension plans increase.

A lot of workers nearing retirement, thinking they were going to get what they had assumed was going to be their retirement and their pension, all of a sudden found out their pension had been worn away over several years. It turned out that employers were freezing the accounts in the old plan, then they established a lower opening account balance in the new plan which meant, simply, that the longer you were in the plan, the longer you were working without earning any new benefits. That became a term called “wearaway.” In other words, your pension benefits wore away.

Many people said: This is nothing less than age discrimination. In other words, I am working for the company. I have been there for 20 years. They switch their pension program. A younger person gets more in their pension program than I get in mine.

A new 25-year-old employee would be getting more money contributed to their pension account, while a 45-year-old who had been loyal to the company for 20 years would not get anything. I was shocked and appalled to learn about this practice, and so were thousands of loyal, hard-working Americans.

In 1999, I introduced a bill to make it illegal for corporations to wear away the benefits of older workers during these conversions. We raised the profile of this issue. We raised it with Treasury. In September of 1999, the Treasury Department issued a moratorium on conversions from defined benefit plans to cash balance plans. The momentum against these unfair conversions was building as more and more companies changed, as more and more workers found their pensions were worn away.

In April of 2000, we in the Senate passed a sense-of-the-Senate resolution without objection, stating that the wearing away of current benefits during cash balance conversions is unfair and wrong–a unanimous sense-of-the-Senate resolution in April of 2000.

Well, now we go to 2001 and 2002, and not much is happening. That moratorium stayed on, by the way, through 2000, 2001, and 2002. However, last December, Treasury issued a regulation that would turn the clock back, undo the moratorium, allow more businesses to go forward with conversions in this wrong manner–the manner that would wear away the pensions of older workers.

Very soon after that, 191 members of the House of Representatives, and 26 Senators signed a bipartisan letter to President Bush asking that we do not reopen the floodgates, that we withdraw this rule and promulgate a rule that is fair and equitable. Well, now, as you might imagine, during this period of time some of these workers who found that their pensions had been worn away went to court. In August, a district judge in East St. Louis, in the case of Cooper v. IBM–IBM was one of the larger, well-known companies that engaged in this practice–ruled in favor of the plaintiff on her age discrimination claim.

Now, on September 9–I am talking about last month, and this case was decided in August–the House of Representatives voted 258 to 160–again bipartisan, with 65 Republicans voting for the amendment–saying that the IRS should not issue a regulation that would overturn this ruling by the district judge in East St. Louis.

So now we are into October. I might just say that all of these have been positive steps. We had a sense-of-the-Senate resolution in 2000. We had the moratorium. Last December, the Treasury Department–I might add, if I am not mistaken, I don’t think there was a Secretary of the Treasury at that time in place–issued this rule to turn the clock back, and 196 members of the House and 26 Senators signed a letter to President Bush saying withdraw this rule and have one that is fair and equitable.

In August, there was the district court ruling. On September 9, last month, the House voted 250 to 196 that the IRS should not issue a regulation that would overturn this ruling. There have been a lot of positive steps, but this regulation is still hanging out there.

One other thing happened. Last January, Senator Durbin and I indicated that we might place a hold on the nomination of Mr. John Snow to be Secretary of the Treasury. Well, Mr. Snow was a very popular person and we didn’t have anything personally against him; I want to make that clear. But we wanted to raise this issue. So Mr. Snow, a fine gentleman and outstanding business executive, someone who has gotten high accolades for his tenure in business as a business executive, met with Senator Durbin and me in my office. He said on this critical issue he would let fairness guide the regulatory process.

Mr. Snow had talked about what they had done at CSX, the company he had been CEO of, and how they had, I believe, instituted a cash balance plan, and a choice between the old plan and the new plan, which sounded fair and reasonable to me–let the worker decide what they want, which means many younger workers would probably pick the cash balance plan, and older workers might stay with a defined benefit plan. Mr. Snow said he would let fairness guide this regulatory process. That is the way we ought to go.

The fairness ought to be in working with Congress to develop this new regulation. So I think the best way to ensure that we do this is to ensure, No. 1, that Congress speaks on this issue; that Congress is involved in working with Treasury to make sure we come up with a fair and equitable rule dealing with pensions.

Secondly, I think the best way to make sure this happens, and to make sure that Congress is able to work and have a seat at the table is to adopt this amendment.

This regulation must be withdrawn. We need to work together to find a reasonable, bipartisan legislative solution to this complex problem. This is an incredibly important issue to American workers. It is very important for them to know that we stand united behind them in this struggle for fairness.

Mr. President, I spoke about this many times on the Senate floor. In terms of what distinguishes the American workplace in so many ways from others around the world, we have always valued loyalty and productivity in the American workplace–loyalty and productivity. If you are hard working and you are productive and you are loyal, U.S. companies have always valued that–at least they used to. That is one of the reasons companies have offered defined benefit pension plans. The longer you work and the more loyal you are to the company, you get a bigger pension. It makes sense.

So the longer you work someplace, the better you do your job, the more you learn about it, the more productive you are, that is what we value. We value that productivity and loyalty.

Now if companies are able to just break these promises at random, what kind of a signal does that send to U.S. workers? It tells workers they are foolish to be loyal because their employer could just change the rules of the game at any time and leave them out in the cold. It destroys the kind of work ethic that we have come to value and that I believe built this country, which distinguishes us from other countries around the world. We value fairness when it comes to workers. A deal is a deal.

I offer this analogy. Let’s say I am offered a job. The employer says to me: OK, Senator Harkin, we are going to hire you and we are going to have a 5-year job here for you to do. If you stay with us for 5 years and you work for 5 years, we will give you a $50,000 bonus. I think that is a pretty good deal, so we shake hands, and I agree on that. So I worked at the company for 3 years, then my boss comes to me and says: Harkin, you know that deal we made where we said if you would work here 5 years, you would get a $50,000 bonus? Well, you have been here for 3 years and, guess what, the deal is off. Just like that, the deal is off. But I went to work for that company depending upon that.

That is what happens to a lot of people. They depend upon the kind of pension program the company has. That is one of the things, when companies recruit workers out of college or vocational schools, people look at what kind of pension program they have. Well, if after a certain amount of time they say, sorry, it is off, you don’t get any of this, what does that say about loyalty and productivity?

I don’t think that is the way we want to treat workers in this country where the employer holds all the cards and can change the deal anytime they want.

Again, I didn’t have any stake–but, Harkin, you didn’t contribute anything to that bonus. We said if you worked here 5 years, we would give you a $50,000 bonus, but we paid you the salary we agreed upon, did we not?

Yes.

You didn’t put anything into that $50,000 bonus; that is something we were going to give you. Now we reneged on it. You don’t have anything to gripe about.

Wait a minute. I have given 3 years to this company. I worked hard. I was productive because I wanted to get that bonus for 5 years, so it is not true to say I didn’t put anything into the bonus.

This is like saying you didn’t put anything into the pension plan. This is something the company offered you. Oh, yes, you did. You may have put in 20 or 25 years of loyal, hard work and diligence. If you had known 20 years ago they were going to pull the rug out from underneath you, would you have stayed with that company or would you maybe have gone someplace else?

Again, I hope people disabuse themselves of the idea that somehow a pension is just what the company offers you and you don’t have any stake in it. You have a big stake in it. It is what they promised you when you went to work there, and you went to work there relying upon that promise. I am not saying they can’t change their pension programs. Times change, conditions change, the workforce changes. I understand all that. New kinds of pension programs come on the market dealing with existing circumstances or what the future might be. That is fine, just as long as, No. 1, they treat workers fairly, and No. 2, that a deal is a deal. It seems to me if you work for a company for 20 years and they want to switch their pension plan, but you made a deal on one and you want to stick with that one, they ought to at least let you continue to work and retire under that plan. If you want to switch, it ought to be up to the worker.

That is what this amendment is all about. It is simply about saying to the Treasury Department they can’t issue this proposed rule they have come up with which, as I said, last month the House voted 258 to 160 to say no to and which earlier this year 191 Members of the House and 26 Senators signed a letter to President Bush saying withdraw the rule.

That is what this amendment does. It simply says: Withdraw this rule; work with Congress. Let’s have something that is fair and equitable for our workers.

Again, I urge my colleagues to join in support of this amendment in fairness to American workers.

Mr. President, I ask unanimous consent that a letter from the AARP dated October 23, 2003, be printed in the RECORD.

There being no objection, the material was ordered to be printed in the Record, as follows:

AMERICAN ASSOCIATION

OF RETIRED PERSONS,

Washington, DC, October 23, 2003.
Senator TOM HARKIN,
Hart Senate Office Building,
Washington, DC.

DEAR SENATOR HARKIN: AARP supports your amendment to the Transportation, Treasury and Independent Agencies Appropriations Act for Fiscal Year 2004 that would prohibit the IRS from using funds to go forward with its proposed cash balance regulations. The House passed a similar amendment on September 9, 2003 by a strong bipartisan vote of 258-160.

This amendment would not change existing law. It is in keeping with the court decision in Kathi Cooper, et al. v. IBM Personal Pension Plan, et al. The court concluded that cash balance pension plans discriminate against older workers, cut older workers’ benefits, and serve to lower the costs and contribute to the profits of companies sponsoring cash balance plans.

In September 1999, the IRS imposed a moratorium on corporate plans that convert traditional defined benefit plans to a cash balance formula in order to allow Congress and others to review cash balance plans to make sure that the conversions comply with current pension and age discrimination laws. The moratorium suspended consideration of approximately 300 pending applications submitted by corporations to convert an existing plan to a cash balance formula. The Treasury proposed regulations in December 2002 that would lift the moratorium and allow corporations to establish plans that the federal courts have ruled discriminate against older workers.

AARP believes that Treasury should not act on regulations that would encourage companies to change their pension plans in a manner that is contrary to age discrimination laws and the federal court ruling. Rather, Congress should review the ruling and enact the pension reform measures necessary to protect older workers.

AARP urges you to vote for this timely and important amendment. AARP hopes that this amendment will send a strong message that we value older workers and that we reaffirm those older workers should not be subject to age discrimination in their pension plans and their pension benefits should be calculated fairly as directed by Congress and the Federal courts.

Please let me know, or have your staff call Frank Toohey (202-434-3760) of our Federal Affairs office if we can be of further assistance.

Sincerely,

Michael W. Naylor,
Director of Advocacy.

Mr. KENNEDY. Mr. President, it is a privilege to join Senator Harkin on this amendment to protect workers’ retirement.

We know that for millions of American workers, their pension benefits are in danger. The continuing weak economy and rising health costs are pressuring thousands of employers to reduce or terminate their traditional defined benefit pension plans.

One way that companies are slashing costs is by converting traditional pension plans to cash balance plans. Older employees are the hardest hit by these conversions. According to the General Accounting Office, annual pension benefits of older employees can drop as much as 50 percent after a company converts to a cash balance plan.

Companies are doing it to save hundreds of millions of dollars in pension costs. But those savings are being taken out of the retirement security of American workers.

These proposed Treasury regulations would give companies legal protection against claims of age discrimination by older employees. Thousands of companies would have a strong incentive to convert to cash balance plans. Millions of workers could lose huge chunks of the pensions they have been promised.

Cash balance pension plans do have some advantages for some workers. Increased portability of pensions is important. So is providing pension benefits for parents, particularly women, who move in and out of the workforce. We support greater benefits for younger workers, who are more likely than ever to have several employers throughout their careers. But Treasury can and must do more to protect the workers who are hurt by these conversions.

The Harkin amendment would halt Treasury’s proposed regulations. Workers should have choice about benefits under their pension plans, and they deserve protections when their company converts to a cash balance plan. It is wrong to let companies freeze the benefits for older workers, or reduce future benefits, when these workers have already contributed so many years of service to their companies.

I urge my colleagues to support this amendment, and do the right thing to protect the retirement of our Nation’s workers.

The PRESIDING OFFICER. The Senator from Alabama.

Mr. SHELBY. Mr. President, the managers have no objection to the amendment offered by the Senator from Iowa. I urge the amendment be adopted.

Mr. President, we need to check something. I suggest the absence of a quorum.

The PRESIDING OFFICER. The clerk will call the roll.

The legislative clerk proceeded to call the roll.

Mr. SHELBY. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

The PRESIDING OFFICER. Without objection, it is so ordered.

Mr. SHELBY. Mr. President, I want to say again the managers have no objection to this amendment, and I urge the amendment be adopted.

The PRESIDING OFFICER. Is there further debate? If there is no further debate, without objection, the amendment is agreed to.

The amendment (No. 1905) was agreed to.

The PRESIDING OFFICER. The Senator from Iowa.

Mr. HARKIN. Mr. President, I thank the managers of the bill for accepting this amendment. Again, this amendment is going to send a strong signal that both bodies want to work with the Treasury Department to establish a fair and equitable rule on pensions. I thank the managers.

Mr. SHELBY. I move to reconsider the vote.

Mrs. MURRAY. I move to lay that motion on the table.

The motion to lay on the table was agreed to.

Mrs. MURRAY. I suggest the absence of a quorum.

The PRESIDING OFFICER. The clerk will call the roll.

The legislative clerk proceeded to call the roll.
Ms. MIKULSKI. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

The PRESIDING OFFICER. Without objection, it is so ordered.

Reuters is reporting via Forbes.com: “U.S. Senate moves to stop Treasury pension rules.” The article reports that the U.S. Senate on Thursday voted to block the Treasury Department from issuing certain regulations governing cash balance pension plans. The House of Representatives approved a similar measure last month called the “Sanders Amendment.” You can read about the House measure here and here.

The Wall Street Journal also reports: “US Senate Votes To Block Cash-Balance Pension Regs.”

“Hiring a Pro to Pick Your Funds: Professional Management Is Latest Option In Some 401(k) Plans, but Fees Can Be Steep“: the Wall Street Journal reports. The article notes how a “growing number of employers are giving workers the option of having a professional mutual-fund picker manage their retirement accounts.” The services offer to tailor a plan for each employee, monitor it and make changes based on market conditions, an employee’s age, risk tolerance and financial goals. The article provides a table comparing the fee structures of the following companies who offer a 401(k) managed account option: Fidelity, Ibbotson, Morningstar, Financial Engines, and ProManage.

Quote of Note: “Federal regulators have also helped clear the way for companies to pick investments for employees. Regulators had long worried about potential conflicts-of-interest. Why wouldn’t Fidelity, say, favor its own offerings? But in a 2001 U.S. Labor Department ruling, the government cleared the way [under ERISA] for an investment firm to give individual advice through an independent, third-party expert.” You can access the DOL Advisory Opinion referred to here.

The Mercury News also reports on the subject: “Firms offer 401(k) hand-holding: Reluctant Investors Get Advice.” The article quotes David Wray, president of the Profit Sharing/401(k) Council of America, as indicating “that 50 percent to 70 percent of newly hired employees are signing up for managed accounts where it’s offered.” Mr. Wray notes that the numbers are “huge” and “very significant.”

Today’s Wall Street Journal reports: “IBM Workers Seek Payments In Cash-Balance Pension Suit.” According to the article, the employees are asking that the company recalculate participants’ benefits and make additional payments for accrued benefit increases going back to 1995. Back in July, Judge Murphy ruled in favor of employees in this case, Cooper et al. v. IBM et al., holding that the IBM cash balance plan violated ERISA, but “left unresolved the question of what the workers should receive in damages, and directed parties in the case to propose what relief the court should order to address the violations.” The article notes that if “the court approves the payment request, retired workers would get remedial payments if earlier benefits amounted to less than they would have been under the new formula, and some current employees would see benefits bumped up, according to Doug Sprong, a benefits lawyer at Korein Tillery in Belleville, Ill., who represented the plaintiffs.” IBM has yet to file its response to the proposed damages.

Thanks to Dave Baker at Benefitslink.com for a link to this post and for sending a horde of readers to Benefitsblog last Friday to find the answer to this question: “What is a Serbonian bog?” (A kind reader left some enlightening comments on the subject if you have not yet found them.)

ERIC has published this very meaningful chart prepared by Covington Burling, outlining the significant issues in the case of Tittle v. Enron, discussed in many previous posts which you can access here. (An earlier post referred to a chart outlining the Enron case which was prepared by the Groom Law Group.)

CBS MarketWatch reports: “Guidance system: Congress hammering out 401(k) advice law.” The article discusses the need for a bill introduced by Mike Enzi, R-Wyo., last week, entitled “the Retirement Security Advice Act of 2003” (S. 1698)–that would provide workers with access to professional investment advice to help them make more informed decisions about their investment options. The bill has been referred to the Senate Health, Education, Labor and Pensions Committee. You can access information about the bill here.

The Heritage Foundation supports the bill as indicated in this Executive Memorandum: “Congress Should Improve Workers’ Access to Better Advice for Retirement Investing.” The Memorandum describes the bill as follows:

H.R. 1000 and S. 1698 amend ERISA to allow a “fiduciary advisor” to offer prudent and objective investment advice that is solely in the interest of retirement plan participants. Plan managers would be required to select the best advisors available and monitor their activities. The advisors would have to disclose in writing their relationship to any company that offers products through the retirement plan as well as any fees or other compensation that they would receive. These disclosures would have to be made when the relationship is established and annually thereafter. Workers would have the ability to accept or reject any investment advice they receive.